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Rob Coakley is an equipment manager for Lithko Contracting, based in West Chester, Ohio. The opinions are the author’s own.
Should you rent or buy construction machinery? This question often sparks many conversations, and regardless of the decision, there is always a lingering feeling that a better deal could have been made.
But as construction executives, we might be asking the wrong question.
Rob Coakley
Permission granted by Lithko Contracting
A better approach might be to take a holistic perspective and ask yourself, “Do you know enough about your business, equipment needs, leases, and projects to come up with a cost-benefit analysis that you feel comfortable putting in front of anyone for the scrutiny?
If you know the answer to this question, you could be well on your way to making your equipment cost and management strategy a competitive advantage for your business.
Cracking the rental code
A good start is to recognize that equipment rental companies are no different than specialty subcontractors hired for electrical or mechanical aspects of a job. Rental companies have experience that allows them to know the most profitable purchase and rental formulas for each equipment in any condition. What if you had the same knowledge?
This has been our goal at Lithko, one of the nation’s largest concrete contractors. We asked ourselves, how can we crack the rent vs. buy code, and in doing so, reimagine our approach to renting equipment on every project and become a rent-first company? To do this, we have identified two main areas to address.
Burn paper, eliminate spreadsheets
One was to simply move away from paper-based processes, and even from spreadsheets. For Lithko, a $1.8 billion company on an aggressive growth path, paper is a rabbit hole and spreadsheets are limited because they’re not flexible or easy to stitch together to get a big picture of each project.
It’s no wonder that a recent productivity survey Quickbase found that 45% of construction professionals spend 11 hours or more per week on this type of task, also known as Gray Work.
To buy or rent?
The second area was looking at the mindset associated with owning versus renting. It’s easy to fool yourself into thinking that owning equipment isn’t as expensive as renting. One of the ways this happens is when times are tight, the cost of the equipment is not factored into the bid. It results in a lower bid that often wins, but at some point, the bill will come for maintenance, parts and storage.
But that’s not the only downside to being a landlord. For example, when equipment is rented, there tends to be a greater sense of urgency to maintain the task from a schedule perspective.
If you’re renting a piece of equipment for two weeks and a day, that’s a set of rate values instead of holding it for a month. The key is to understand when two weeks and a day can tip the rental company’s monthly rate. To maximize the rental, you need to align projects to get the most out of this equipment for the rest of the time.
Find the answer
This type of information is not easily obtained from a spreadsheet, so we brought together our various sources of information into a dynamic work management platform.
The terminology may seem complex at first, but it represents how many companies work today, juggling multiple projects, plans, timelines 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 from our ERP system with top-of-the-line applications like Word or email.
And anyone who has ever touched 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 technical skills to set up automatic notifications from the field to keep everyone, including outside contractors working on the project, updated on the status of a project, including the team.
Lithko was started 30 years ago and with every acquisition, we inevitably have conversations with new employees about renting versus buying. These companies have smaller operations, work locally, and for them, buying equipment makes sense.
However, if you are expanding your business and working on multiple projects in multiple locations, renting is often the best way to go. Having a capital constraint, along with a scalability issue in terms of buying all that equipment for each site, didn’t make sense when we looked at the numbers from a broader perspective. And we would not have known this if we had relied on spreadsheets.
For any contractor, the right buy or rent decision can only be made when you have all the right information and the ability to align each project to maximize each hire. This data won’t just come from spreadsheets; it requires greater insight from a dynamic work management platform.
