Why Material Handling is a Missed Opportunity for Many Organizations
Many organizations face a familiar problem when it comes to forklift fleet management and enterprise material handling. While the upfront acquisition orders are placed at the corporate level, the individual facilities are charged with the ongoing maintenance and operational costs of the equipment. As a result, corporate may be aware of the initial equipment investment, but often have a limited view into the operational requirements of the equipment itself.
To better understand how this arrangement puts many manufacturers and distribution environments at a disadvantage, it is important to first look at the overall market trend in material handling. Then it becomes possible to consider strategic methods of improvement.
In 2018, the global material handling equipment market size was $140 billion and is expected to expand by 6.8% between 2020 and 2025. Rising demand for incorporation of automation and modernization in manufacturing processes, and demand for transparency in supply chain and flexibility in warehouse operations are the main factors driving growth.*
Because material handling ensures improved productivity by enhancing logistics at warehouses, products such as forklifts don’t just offer cost-effective, process efficient, and accurate methods for the swift transition of goods — they can also often help drive increased demand. The increasing importance of material handling means that health systems face an urgent opportunity to not only reduce inefficiencies in their current execution, but can also take the chance to position themselves as strategic leaders in the industry. Here are three ways to achieve optimal material handling at the enterprise level.
1. Create a Centralized Material Handling Program
The reality is that material handling will likely always impact both the capital budget at the corporate level and operational budget at the facility level. The key, then, is to ensure that a comprehensive picture of material handling exists as the basis behind all decision making across corporate and facility levels. With a full overview of the program, plant managers can see data into warehouse usage and are able to drive out wastefulness. In one case, we recently witnessed a provider implement a telematics program and save 25% in fuel costs in the first year alone.
By creating a comprehensive program, manufacturers and distribution environments can avoid the pitfalls of an unmanaged fleet across the company. Mixed brands, mixed models, and various degrees of maintenance programs result in significant missed opportunities for an organization to effectively leverage their collective spend.
2. Determine The True Costs of Ownership
In its most simple form, the total cost of ownership surrounding material handling equipment is equal to the acquisition cost of the equipment ($) plus the operational cost ($/hr). With a central view of material handling, plant managers can identify which vendors contribute to the total cost of ownership. The manufacturer of the equipment obviously controls the cost of the equipment when purchasing, but it is also important in understanding that financing companies control variables on leased equipment beyond the manufacturers’ control, namely in interest rates and residual value of the equipment. Dealers provide service and determine maintenance costs, so it is important to account for the full purchase price at an itemized level.
While the plant manager is entrusted with knowing what equipment is best for the facility and is relied upon for internal expertise on the equipment, the organization needs to be able to base decision making on who is contributing to the various cost components. This enables fleet managers to realize the benefits of consolidating brands, vendors and maintenance contracts wherever necessary.
3. Optimize Maintenance Plans
The above example illustrates the factors which determine the true costs of a forklift leased at 60 month for 2000 hour a year, and how to evaluate the right maintenance plans.
Each facility’s operational profile dictates which various components of a maintenance plan are warranted in minimizing the operational cost. The first two factors to consider are the annual hours of usage and the environment the equipment operates. As a planning factor, it is commonly understood that the useful life of equipment is about 20k hours in a normal distribution environment, and that the operating cost of the equipment will increase as the equipment ages. This makes 2000 hours of annual usage a useful benchmark. If under 2000 hours of annual usage, typically a simple preventative maintenance plan will suffice. If over 2000 hours of annual usage, then a full maintenance plan with other components such as telematics enters the discussion.
Telematics comes with a monthly cost per unit, but it is well documented that telematics drives out costs associated with operator damage, mismanagement, and wastefulness. Telematics does require someone within the organization to utilize the information in managing operations, otherwise it is a lost opportunity. Other factors to consider are the corrosiveness of the environment or the manufactured product that may shorten the useful life of the equipment and contribute to increased maintenance costs.
With a holistic and up-to-date view into the total cost of acquiring and operating a forklift fleet, it is easier to quantify the business value behind your decision making and identify opportunities to consolidate vendors, contracts and brands. And more importantly, the ability to continually monitor the overall health of your program in a single view can also help minimize operational costs for each piece of equipment, thus extending their productivity. Organizations with this approach are best suited to take advantage of the emerging trends in material handling in 2020 and beyond.