With the recession over, now may be the time to replace equipment
March 18, 2011
by Diane Blair
PURCHASINGB2B MAGAZINE, JANUARY/FEBRUARY 2011:
The “Great Recession” and the precipitous drop in consumer spending were game-changing for the material handling industry. Warehouse and distribution centre managers and purchasing officers were challenged by management to cut spending and operating costs. For many companies, this meant planned material handling equipment (MHE) upgrades were suddenly off the table.
While abandoning a commitment to lifecycle maintenance and upgrade programs offered short-term capital preservation, the unexpected severity and duration of the recession multiplied the impact of these decisions.
Now, DC decision-makers are presented with the choice of continuing to draw out the life of their MHE or investing in new or rebuilt equipment. Three key signs that indicate it is time to invest in your handling equipment include rising maintenance costs, excessive downtime and significant business plan changes.
Trigger 1: Maintenance costs exceed cost-per-units-shipped threshold
During the recession life-cycle maintenance budgets were hit hard, with staffing levels slashed, large capital equipment investments delayed, preventative maintenance contracts abandoned and spare parts inventory diminished. Skeleton maintenance crews were forced into a reactionary maintenance mode of emergency repairs (often cannibalizing spare parts from idle equipment), causing low levels of overall equipment readiness and increased vulnerability to failure.
One of the first signs investment in MHE is necessary is when maintenance costs have risen even though programs were cut. Without the parts on hand, rush delivery charges and replacement costs for non-repairable components increase. Overtime hours increase as staff struggle to maintain equipment that likely needed more than a tune-up to continue.
The key indicator for the tipping point that it is time to reassess maintenance scenarios is the cost of downtime versus costs of reinstating a solid maintenance plan.
Trigger 2: Downtime hurts productivity and customer satisfaction
Lost productivity, reduced customer satisfaction and labour considerations make downtime one of the most dangerous and costly indicators of MHE effectiveness. Downtime can happen for a number of reasons, including improper maintenance, different product mixes, product jams or lack of operator experience.
On the IT side, if a DC has been active for more than even a few years without regular upgrades to software, controls, servers, platforms and hardware, a system can quickly reach the point of obsolescence and failure.
A less obvious consequence to downtime is the cost of customer dissatisfaction and lost business due to late, incorrect and missing orders. Check with sales and MHE teams for an accurate assessment of impact.
Consider the amount of downtime the system is experiencing and find the source of the breakdown. Operational changes or adjustments to the equipment may be a valid solution. However, if a machine is worn and unable to stand up to the volumes required, it may be time to consider upgrades or new equipment.
Trigger 3: Changes force equipment obsolescence and system redundancy
The material handling industry is experiencing large-scale DC consolidations and makeovers. DC managers are faced with the challenge of making do with legacy MHE and systems designed for out-of-date distribution models. For example, even when systems are in relatively new condition, if equipment was designed to handle a retail pallet and case-picking operation, it is unlikely that it will be able to handle an e-commerce and piece-picking order fulfillment system when the two businesses are combined in one facility.
The solutions can range from an entire new system design to equipment upgrades such as new diverts and merge points, new gapping software or a change in operational protocols.
Retrofit or replacement?
Evaluate the condition and effectiveness of existing MHE. This can be accomplished with a MHE supplier who has the knowledge to walk through the decisions and options. Audits are invaluable tools to assist managers in getting the most accurate equipment lifecycle status, as well as an assessment of the systems-to-business goals. Operational studies can help optimize existing systems to improve throughput and reduce downtime.
When well-planned and with the right supplier, new equipment commissioning or retrofits and rebuilds can have minimal effect on the current operation with weekend and after-hours installation. Most importantly, single-source responsibility and a savvy partnership with a reputable systems integrator is key to risk mitigation and an on-time, on-budget repair, rebuild or installation.
Diane Blair is director of field operations at Intelligrated, Inc, a provider of automated material handling solutions with operations in the US, Canada and Mexico. For more information, please visit www.intelligrated.com.