presentation harrisburg
TRANSCRIPT
LIFE CYCLE LIFE CYCLE COSTINGCOSTING
Harrisburg10/1/08
AgendaAgenda Welcome / Introductions Tom
Kirchhoff Cleveland Brothers Jack Pajan What is Life Cycle Costing? Jack Pajan Custom Support Agreements Daren
Ashurst LCC Example Bill Hitchcock LCC Calculator Bill Hitchcock Lunch
Landscape Contracting Company Founded in 1937 by Bob and Roy Cleveland
Established Caterpillar Dealership in Central Pennsylvania in 1948
Acquired HO Penn in 1965 Companies split in 1968,
Roy’s family became sole owners of Cleveland Brothers
1980 – Jay Cleveland Sr. and Bill Kirchhoff assume control
2001 – Jay Jr. and Tom Kirchhoff assume control
Acquired Beckwith Machinery and One Call Rentals in 2005
Company HistoryCompany History
Cleveland Brothers operates its business through four primary divisions:
Construction Equipment – large construction, general construction, mining, industrial equipment, and product support
One Call Rentals – compact construction and other smaller equipment
Power Systems – truck engines, generator sets, chillers and other power systems equipment and industrial engines
CB Con Agg – crushing and screening products for the aggregate and construction industries
OperationsOperations
Branch Locations/TerritoryBranch Locations/Territory
Total CapabilitiesTotal CapabilitiesCleveland BrothersCleveland Brothers
Total Employees ………1292Total Employees ………1292 14401440 Servicemen …………… 586Servicemen …………… 586 707 707
Service Trucks ………… 184Service Trucks ………… 184 242 242 Total Number of Facilities Total Number of Facilities 27 27
Since October 7, 2005Since October 7, 2005 August 2008August 2008
LIFE CYCLE LIFE CYCLE COSTINGCOSTING
Harrisburg10/01/08
What Is COSTARS?What Is COSTARS? COSTARS is a new approach to the
State Cooperative Purchasing Program COSTARS encourages a partnership
between Local Public Procurement Units and The Commonwealth
DGS/COSTARSDGS/COSTARS DGS requires Local Public Procurement
Units to register as COSTAR members. The CONTRACTOR agrees to sell items
under this contract to DGS-registered COSTAR members.
The CONTRACTOR is not permitted to use the contract to sell to non-COSTAR members.
Cleveland Brothers Equipment Company is Proud to be a COSTARS Supplier
STATE/PIGGYBACK CONTRACTSSTATE/PIGGYBACK CONTRACTS 2420-02 DGS All CAT equipment 2540-04 PennDot Graders/Wheel
Loaders and BHL 2540-06 PennDot Asphalt Rollers_____________________________________
NATIONAL NJPA National Joint Purchasing
Alliance
Government Buying Government Buying Challenges:Challenges:
Meet Community/State/Federal needs and Government rules
Make the best use of taxpayer dollars
Maximize Value to your Community
Governmental Acquisition Governmental Acquisition MethodsMethods State Contract / Piggybacking RFP/RFQ Criteria Based Bid Leasing Rental / Purchase Low Bid Meeting Specification
Low Bid ShortcomingsLow Bid Shortcomings Promotes creative SPEC writing Decision based on only 20% of Total
Cost Award based on text, not iron Taxpayer’s $$ invested in low VALUE Unfair to both Taxpayer & Suppliers
Consumable Goods v. Consumable Goods v. Capital GoodsCapital Goods Consumable: Something used up in
the production process Capital: Not used up (durable); used
to make other things that are of value
Here’s the Point:Here’s the Point:
You CANNOT determine the VALUEVALUE of Capital Goods by using the PRICEPRICE!
The The VALUEVALUE of Capital of Capital GoodsGoodsTotal Cost Over the Productive Life
(Life Cycle Cost)
There’s a better way to get the There’s a better way to get the most reliable equipment at the most reliable equipment at the lowest total cost!lowest total cost!
LIFE CYCLE COSTING
Life Cycle Costing is not NewLife Cycle Costing is not New Endorsed by several governmental
associations:– NIGP – National Institute of Governmental
Purchasing.– NASPO – National Association of State
Procurement Officials.– NAFA – National Association of Fleet
Administrators.– ABA – American Bar Association (Model
Procurement Code).
“Life Cycle Costing is a form of Value Analysis that establishes the best value
over the life cycle”.NIGP Specification Writing, 2nd Ed
What is Life Cycle Costing?
“Life Cycle Costing is a type of price/performance evaluation. It involves a broad-based evaluation of operating, maintenance, financing, other ownership and usage costs, and resale or residual value in addition to acquisition price in making a contract award”. NASPO, State & Local Gov’t Purchasing Principles & Practices, 2001
““Life Cycle Costing is a Life Cycle Costing is a mathematical model to assist mathematical model to assist fleet managers in making fleet managers in making financial decisions by financial decisions by considering considering ALLALL vehicle or vehicle or activity costs over the course activity costs over the course of its life.”of its life.”
Christopher D. Amos, CAFMCommissioner of Equipment, City of St. LouisNAFA Senior Vice President
Life Cycle CostLife Cycle CostSelling PriceSelling Price- Trade In Value- Trade In Value- Buyback - Buyback
+ Extended Warranty+ Extended Warranty+ Fuel+ Fuel+ Sched. + Sched.
MaintenanceMaintenance+ Repairs+ Repairs= Life Cycle Cost= Life Cycle Cost
+Total +Total Maintenance & Maintenance & Repairs (TM&R)Repairs (TM&R)
NINE MAJOR BENEFITSNINE MAJOR BENEFITS1. Measuring machine quality2. More accurate budgeting3. Insurance policy4. Protects against rapid depreciation or low
resale value5. Guarantees the cost of routine maintenance6. Assures dealer commitment to availability
of parts and service7. Helps agencies buy best machine for the job8. Protects taxpayer dollars by ensuring true
lowest cost
Who uses it?Who uses it? 44 of 50 (88%) US states specifically
allow awards based on Life Cycle Costing
Other 6 don’t specify but some known to practice it: Alabama, Michigan. Missouri, South Dakota, West Virginia, Wyoming
AdvantagesAdvantages Eliminates most risks of machine ownership Eliminates the hassle of unexpected repairs
or unforseen downtime. Easier to Budget Protection against a dealer who doesn’t
stand behind what they sell Gets the most value for the money for your
taxpayers
AdvantagesAdvantages Better purchases, better equipment,
more productivity Peace of mind knowing that you’ve
utilized your budget wisely and have made the best equipment choice at the lowest total cost
You control the Process:You control the Process: You establish the performance
requirements You finalize machine/attachment
needs You determine your maintenance role You control options/specs
Life Cycle Costing clarifies the Life Cycle Costing clarifies the process:process:
Designed to attract qualified suppliers Gives all suppliers and equal opportunity May eliminate those lacking confidence Enables you to accomplish more with less
Potential Bonus!Potential Bonus! You know the minimum repurchase
value You have a floor with a guaranteed
buyback price You can sell at a higher price Your budget benefits from any higher
differential
Questions?Questions?
Customer Support Customer Support AgreementsAgreements
What are CSAs?What are CSAs?
Customer Support Agreements: A CSA is any agreement between a Dealer & Customer, for the Dealer to meet some or all of the Customer’s Equipment Management needs.
Agreements
Powertrain
TM&R, Total Maintenance & Repair covers the majority of the machine for contract service.
PCRP, Powertrain Component Repair Program covers the major PT components “only” for “out of chassis, major failures”.
PCLP, Powertrain Component Life Program provides for replacement PT components at a prorated price based on an established life cycle.
IOP, Inspection Only Program provides comprehensive machine condition monitoring / reporting on a scheduled basis.
PM (TLC or Monitor Service), Preventative Maintenance provides scheduled machine fluid & filter replacements at CAT recommended intervals.
All CSA program terms and conditions are flexible to meet any customer’s needs. Billing arrangements are generally “cost per hour” based on individual machine operation.
TM&R – Breakdown of ExpenseTM&R – Breakdown of Expense
What does a Total Maintenance & Repair (TMR) contract provide for:
All in-chassis or out of chassis repairs to the machine (i.e.; turbo charger, final drive, water pump, transmission, drive shaft, hydraulic cylinder, etc.)
All associated travel time & mileage charges (to and from your site) All contract hauling charges (if an engine needs repaired in our facility) All inspection & adjustments to the powertrain to stay in compliance with
Caterpillar Warranty Requirements, (i.e.; engine valve lash or unit injector adjustments)
All S.O.S. (Scheduled Oil Sample) analysis and follow up (24/7) All report writing, record keeping and distribution to your contacts
CSA CSA CoordinatorCoordinator
Assigned to your specific machineAssigned to your specific machine
Machine Machine Condition Condition
ReportReport
Field ServiceField ServiceTechnicianTechnician
Dispatched for CSA machine service & repairsDispatched for CSA machine service & repairs
Diagnostic Diagnostic Inspection Inspection
ReportReportPage OnePage One
Field ServiceField ServiceTechnicianTechnician
Dispatched for CSA machine service & repairsDispatched for CSA machine service & repairs
Diagnostic Diagnostic Inspection Inspection
ReportReportPage TwoPage Two
PM (TLC)PM (TLC)TechnicianTechnician
Expert in your machine’s PM needsExpert in your machine’s PM needs
Preventative Preventative MaintenanceMaintenance
ReportReport
CSAs In Other IndustriesCSAs In Other Industries Xerox
CSAs In Other IndustriesCSAs In Other Industries IBM
CSAs In Other IndustriesCSAs In Other Industries Airbus
CSAs – Value Added Service CSAs – Value Added Service SolutionsSolutions Caterpillar
CSAs – Measured growth in CSAs – Measured growth in contracts in past 18 to 24 contracts in past 18 to 24 months:months:
Number of CSA contracts in 2006 equaled 718 Number of CSA contracts through 2008 equals 814
Our industry, and current customers are affirming that CSAs and “fixing costs” make good business sense!
13% Growth!
Using Life Cycle Using Life Cycle CostingCostingBill Hitchcock
2.5
1.7
1.5
1.5
0.8
0.7
0.5
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5
Productivity
Availability
Operating Costs
Utilization
Resale Value
Interest Rate
Selling Price
Percent Change
The Seven Factors AffectingThe Seven Factors Affecting Bottom LineBottom Line
2.5
1.7
1.5
1.5
0.8
0.7
0.5
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5
Productivity
Availability
Operating Costs
Utilization
Resale Value
Interest Rate
Selling Price
Percent Change
The Seven Factors AffectingThe Seven Factors Affecting Bottom Line Cost/HrBottom Line Cost/Hr
2.5
1.7
1.5
1.5
0.8
0.7
0.5
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5
Productivity
Availability
Operating Costs
Utilization
Resale Value
Interest Rate
Selling Price
Percent Change
The Seven Factors AffectingThe Seven Factors Affecting Bottom Line ROIBottom Line ROI
2.5
1.7
1.5
1.5
0.8
0.7
0.5
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5
Productivity
Availability
Operating Costs
Utilization
Resale Value
Interest Rate
Selling Price
Percent Change
The Seven Factors AffectingThe Seven Factors Affecting Bottom Line CostBottom Line Cost
Life Cycle Costing Life Cycle Costing ExampleExample
Life Cycle CostLife Cycle CostSelling PriceSelling Price- Trade In Value- Trade In Value- Buyback- Buyback- Extended Warranty- Extended Warranty+ Fuel+ Fuel+ Sched. + Sched.
MaintenanceMaintenance+ Repairs+ Repairs= Life Cycle Cost= Life Cycle Cost
+Total +Total Maintenance & Maintenance & Repairs (TM&R)Repairs (TM&R)
Caterpillar Caterpillar 120M AWD120M AWDMotor Motor GraderGrader
LCC AssumptionsLCC Assumptions 5 Years 500 hrs per year utilization 5 Year Warranty Trade Buyback Diesel Fuel @ $5.00 per gallon
Purchase Purchase PricePrice
Trade In Trade In AllowanceAllowance
Cleveland Brothers Equipment Co., Inc.
1979 Caterpillar 120G Equipped: Cab ; heat; 12' blade; front balderson coupler; hydraulics to front; front scarifier; 2
front & 1 rear light; Beacon; turn signals; Suspension seat; front & rear wipers; 6 forward adn 6 reverse speeds; All 2-piece rims; Left side outside mirror; float on blade
Selling Price: $32,000 Hours: 3,500 Serial Number 087V04846 Bill Hitchcock Phone: (570) 822-8141 Mobile: (570) 407-9594 Email: [email protected]
When you buy from Cleveland Brothers, you buy more than just iron.
Cleveland Brothers Equipment Co., Inc. 5300 Paxton Street, Harrisburg, PA 17111
(717) 635-7409 (866) 532-9023 Fax (717) 564-3964 www.clevelandbrothers.com
BuybackBuyback
Extended Extended Warranty Warranty CoverageCoverage
Fuel Fuel ConsumptioConsumptionn
Scheduled Scheduled MaintenanMaintenance & ce & Repair Repair ExpenseExpense(TM&R)(TM&R)
Life Cycle CostLife Cycle CostSelling PriceSelling Price- Trade In Value- Trade In Value- Buyback- Buyback+Extended +Extended
WarrantyWarranty+ Fuel+ FuelSched. MaintenanceSched. Maintenance+ Repairs (TM&R)+ Repairs (TM&R)= Life Cycle CostLife Cycle Cost
$215,900$215,900(32,000)(32,000)
(107,500)(107,500)7,1507,15041,25041,250
21,08021,080$145,880$145,880
Example:Example: PricingPricing
Initial Initial Purchase Purchase PricePrice
BuybackBuybackNet PriceNet Price
$170,000
(105,000)
$65,000
Dealer Dealer AA
Dealer Dealer BB
Dealer Dealer CC
$125,000
(70,000)$55,000
$130,000
(80,000)$50,000
High Buyback values are a result of Superior Resale value in the market & is a direct return on investment to your agency
Example:Example: Add Fuel CostAdd Fuel Cost
Net PriceNet PriceFuel CostFuel CostTotalTotal
$65,00023,150$88,150
Dealer Dealer AA
Dealer Dealer BB
Dealer Dealer CC
$55,00039,400$94,400
$50,00036,250$86,250
Superior Fuel Economy offsets Superior Fuel Economy offsets substantial price differentialssubstantial price differentials
Example:Example: Add MaintenanceAdd Maintenance
Net PriceNet PriceMaintenanceMaintenanceTotalTotal
$88,15020,250$108,40
0
Dealer Dealer AA
Dealer Dealer BB
Dealer Dealer CC
$94,40024,300$118,70
0
$86,25023,000$109,25
0
Example:Example: Add RepairsAdd Repairs
Net PriceNet PriceRepairsRepairsLife Cycle Life Cycle
CostCost
$108,400
7,400$115,80
0
Dealer Dealer AA
Dealer Dealer BB
Dealer Dealer CC
$118,700
10,200$128,90
0
$109,250
8,500$117,75
0
Factors contributing to lower Factors contributing to lower Maintenance Costs:Maintenance Costs: Superior Designs Technological Advancements Longer Service Intervals
– Lowering cost of fluid, filters & associated labor
State of the art manufacturing & best practices built into every machine – Increase durability– Improve reliability
Factors contributing to lower Factors contributing to lower Repair CostsRepair Costs Premium Products backed by Superior
Service– Requires fewer repairs over the life of the
machine– Superior Service Locations & Capabilities– Superior Parts Availability
Location LOCATION Location LOCATION LOCATIONLOCATION
External Clients Utilizing CAT LogisticsExternal Clients Utilizing CAT Logistics®®
IndustrialAerospace &
Defense Technology
Automotive
Consumer Retail
LCC Calculator from Cleveland Brothers
Where can I get more Where can I get more information?information?
SummarySummary Adds a new dimension to purchase evaluation Strengthens competitive low cost philosophy Removes Guesswork from Budgeting Establishes all major costs in advance Creates standards for quality evaluation Saves worry about downtime costs and lack of
availability Ensures that suppliers stand behind products SAVES TAX DOLLARS!SAVES TAX DOLLARS!
QUESTIONS?QUESTIONS?
THANK THANK YOU!YOU!