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Rob Coakley is equipment manager at Lithko Contracting based in West Chester, Ohio. Opinions expressed are those of the author.
Should you rent or buy construction equipment? This question often sparks many conversations, and no matter what the decision is, there is always that nagging feeling that a better deal could have been made.
But as construction managers, we may be asking the wrong question.
Robert Coakley
Approval granted by Lithko Contracting
A better approach might be to take a holistic perspective and ask, “Do you know enough about your business, equipment needs, leases and projects to create a cost-benefit analysis that you would feel comfortable presenting to anyone for review?”
If you know the answer to this question, you may already be well on your way to making your device management and cost strategy a competitive advantage for your company.
Cracking the rental code
A good place to start is to realize that equipment rental companies are not unlike specialized subcontractors hired for electrical or mechanical aspects of a job. Rental companies have expertise that allows them to know the most profitable purchase or rental formulas for each piece of equipment under any conditions. What if you had the same knowledge?
This was our focus at Lithko, one of the largest concrete construction companies in the country. We asked ourselves how we could crack the gap between renting and buying, thus reimagining our approach to renting equipment for each project and becoming a company that puts rent first. To do this, we identified two main areas we needed to address.
Burning paper, destroying spreadsheets
One way was to move away from paper-based processes and even spreadsheets. For Lithko, a $1.8 billion company on an aggressive growth trajectory, paper is a rabbit hole and spreadsheets are impractical because they aren’t flexible or easy to piece together to get a big picture view of each project.
No wonder, then, that a recent productivity survey by Quickbase found that 45% of construction professionals spend 11 or more hours per week on this type of task, also known as “grey work.”
Buy or rent?
The second area looked at the mindset associated with buying versus renting. It is easy to get misled into believing that owning equipment is not as expensive as renting. This can happen, for example, when times are tight and the cost of equipment is not factored into the bid. This results in a lower bid which often wins the contract, but eventually the bill for maintenance, spare parts and storage will come due.
But that’s not the only downside to owning something. When you rent equipment, for example, you tend to be more urgent about getting things done from a schedule perspective.
If you rent a piece of equipment for two weeks and one day, that’s a certain rate value compared to keeping it for a month. The key is to understand when two weeks and one day can affect the rental company’s monthly rate. To maximize the rental price, you need to plan projects to get the most out of the equipment for the rest of the time.
Find the answer
Insights like this aren’t easily gleaned from a spreadsheet, so we’ve consolidated our various sources of information into a dynamic work management platform.
The terminology may sound complicated at first, but it reflects the way many companies work today, juggling multiple projects, plans, deadlines, and other variables in a project portfolio. Examples of these platforms include Asana, Trello, and Jira. At Lithko, we use Quickbase.
Our dynamic work management platform now simplifies and centralizes all of our data, connecting information in our ERP system with frontline applications like Word or email.
And anyone who has ever used a computer or smartphone can figure out how to navigate the platform and add their own information. For example, we didn’t need any IT or other technical knowledge to set up automatic notifications from the field environment to keep everyone, including outside contractors working on the project, updated on the status of a project, including equipment.
Lithko was founded 30 years ago and every time we take over we inevitably talk to the new employees about renting or buying. These companies have smaller operations, work locally and for them buying equipment makes sense.
However, as you grow your business and work on multiple projects in different locations, renting is often the best solution. A capital constraint and a scalability issue with buying all the equipment for each location didn’t make sense when we looked at the numbers from a broader perspective. And we wouldn’t have known that if we had relied on spreadsheets.
For any contractor, the right decision between buying and renting can only be made if they have all the information they need and can plan each project to make the most of each rental. This data cannot be obtained from spreadsheets alone; it requires a holistic view from a dynamic work management platform.
