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Material Handling Equipment – bringing order out of chaos

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Case study

Material Handling Equipment – bringing order out of chaos

Over the past 4 years, we have come across a large number of clients facing the same challenges. They know they could organize their MHE category much better, but have no idea who is spending what, on what and with whom. The extent of what is unknown is often very impressive. From the number of machines in such and such country, to the type of repair and maintenance contract, or characteristics of the lease agreements.

The reason for this ignorance is easy enough to identify: simply make the parallel with the car industry. From a functionality point of view, a Ford Focus and a Peugeot 308 are the same thing. From an emotional point of view however, users see a huge difference. MHE manufacturers will use exactly the same mass customization approach to offer a global solution. While some of that customization will generate genuine productivity improvements or functionality changes, it is also a very effective strategy to muddy the waters and make any direct comparison of equipment very difficult. “We have spent a lot of time removing the emotions from our acquisition process for new machines, now we buy what we need focusing on functionality” CFO, global logistics company

That being said, while knowing what you don’t know is a good start, it isn’t much help unless you have a way of figuring out what you should be doing from there…One of our clients has more than 2700 machines in Europe. They could identify 230 different groupings of machines, based on specifications. Even within each group, where the specs were supposed to be similar, we found price variations from 1 to 3. In addition, non-specification related data, such as numbers of hours logged, number and duration of maintenance events, etc, were largely unknown, and little more information was available regarding the services included in the suppliers’ Full Service (FS) contracts.

We will not address the obvious here, and take as a given that an in-depth market consultation should be organised, with a clear strategy and mandate, and that any supplier relationship must be established for a multi-year period to be effective. But beyond this basic sourcing and category management exercise lie a few key points that must be considered in most situations.

1 ASSET MANAGEMENT

It seems pretty obvious but without some knowledge of where you are starting from, you will not go very far. Be aware that at this stage you must accept that you will not get it right – only a couple of years of asset tagging with strong telematics will allow you to get a fairly accurate asset list – but you must build an 80% accurate list, sufficient to make business decisions.

Data must comprise:

  • 1. Machine ID including serial number, age, type, location, etc.
  • 2. Contract specification: lease, owned from new or refurb, service contract, hours contracted, etc.
  • 3. Machine specification: payload, mast height, triplex, extras, etc.

There are many ways to collect the data, but the closer to the source the better. We usually cross sources, with requests for information from manufacturers or distributors, doubled with detailed site surveys.

2 LOGGING

Once you know what you have, one of the most important aspects is to understand what you are actually using. Check the usage logs: how many hours are the machines actually working, compared to what is the contracted usage. For our last 2 clients, this review alone delivered savings of €500K and €2.2M: respectively 7% and 5% of their overall MHE budget. For multi-site, multi-country clients with poor telematics and decentralized management, there is a high probability that too many machines are in place, even taking into account seasonality and daily peak activity.

But when you have identified these easy pickings, you are not done yet. Repair logs make fascinating reading, and within them both the information about damage and repairs, and that about maintenance visits. Manufacturers sell inflated contracts for both (which, by the way, they will resell to local distributors who will do the actual work). Typically manufacturers charge 30% of the lease for a full service on an electric reach truck doing 1500 hours per year. Checking what actually happens for these 2 or 3 thousand euros a year is an interesting experience. Let’s just say that an electric reach truck requires very little maintenance if used correctly.

3 CATALOGUING

The most difficult work to do, but also the most important, is to define the functionality of the machine you need to do what you want to do. Working with your operations team, you can certainly define 6 machines that will cover most of your needs. We routinely see 2.5T or 3T forklift trucks in warehouses where the pallets never weigh more than 500kg. Taking away the emotion and working from functionality, you will create your own set of specifications, not for all needs but most of them. From this catalogue, ask the suppliers to provide you with the best machine for this functionality and create a correspondence table between the suppliers. Once you feed your asset list into this standard table, you will get a true total cost of ownership which you can use to make future strategic decisions.

4 DON’T BE FOOLED

Every supplier will explain that although your approach makes sense “in general”, you are missing something in their specific case. They will argue that they have plenty of genuine innovations that will allow you to squeeze out the last drop of productivity improvement. However, in most cases, this is akin to trying to beat the marathon world record when you can hardly walk down to the shop to buy a pint of milk. The steps highlighted above will generate savings of up to 20% of your budget, standardization will facilitate asset allocation between sites to allow for peaks and dips in activity, as well as reducing lead time and improving machine availability.

5 IMPLEMENTATION

“We moved all our machines to preventive maintenance and dedicated a third of our maintenance budget to the extra repairs” FD – retail

This category is very often the final frontier, and even in logistics companies where it is part of critical business value, not enough commercial thought has been put into the acquisition process. Getting it right will deliver cost savings and improved operational efficiency.If you spend 1000 hours on defining your strategy, allow 3 times that for implementation. Suppliers will deploy teams on the ground, and will aim to go back to tailor-made solutions per site, far away from your developed and validated strategy. A good strategy and relationship will allow you to tap into the suppliers’ resources to ease implementation, but an “idiot’s guide” for the user, and a strong policy for off-catalogue item acquisition will go a long way to ensuring you keep control of the situation. The reward will be that strong telematics will allow you to be much more effective next time round and facilitate incremental improvements that will bring a measurable impact.