The Hidden Costs of Tool Ownership

Having the right tools for a project is a game-changer for electrical and systems contractors, but it can seem like a necessary evil if you have to invest in tools you might only need occasionally. If you don’t have what you need to get the job done correctly, your project schedule could be at risk. But is investing in new tools for the crew the optimal solution? It’s an age old question, rent vs. buy, and the answer is in the numbers.

Evaluating the total cost of ownership is a useful gut-check at almost every stage of the project – from bidding to close. Although tools tend to be smaller line items on the overall budget, it’s easy to lose sight of their cost and end up over-spending.

Let’s say at a project front-end, estimating bid the project at $2.00 per craft hour. That doesn’t necessarily account for the typical budget speedbumps like lost or broken tools or purchasing new tools which ends up creating redundancies. Before you know it, the cost per craft hour creeps up – and affects the bottom line. Something to consider – what is your cost per craft hour from bid to project closeout?

Most companies purchase tools so they have the inventory for the peak project period. Since downtime can often be attributed to not having access to the right tool, that makes sense. However, that also means that those tools sit under-utilized during the off-peak times or any time the project is delayed. Those unused assets equate to real dollars and time lost, and especially now, companies may not have much flexibility for either one.

Typically, contractors identify the gaps in estimates versus actual cost at the project closeout. If the cost per craft hour increased because of duplication, under-utilization, etc., the actual cost of tool ownership ended up diluting the project profitability. Those dollars could have potentially been put to use elsewhere.

There are so many variables that go into a contractor’s decision to buy or rent, but there is an increase in teams turning to tool rental solutions to get the right tools in the right hands within the right timeframe – and reducing large capital expenditures while they do it.

Before a project begins, assess the tool requirements. Here are some key considerations to get started:

Maintenance

Even the most basic hand tools need a regular rag cleaning, and the more advanced tools require some additional maintenance to keep them in good and safe working condition. Ignoring the essential maintenance can not only shorten the tool lifespan, but it leads to additional, and costly, replacements overall.

Repair and replacement

There’s no real test to know how long a tool will last, but quality can be an indicator of a longer shelf life. Read the warranty carefully – understand what it does and does not cover, and for how long. If a tool breaks and the warranty doesn’t cover the damage, the cost of repair or replacement is on you and would contribute to the overall price tag. While a repair can keep a project moving, it doesn’t change the age or fundamental condition of the tool, which could need additional repairs more frequently moving forward. Also consider when you have to send a tool out for repair or warranty, how do you fill its void? The typical response is to purchase another in the meantime, leading to cost creep immediately.

Tracking

With any size fleet, tracking owned tools can turn into a full-time job. Tools in repair, in good condition, or in use – tracking takes time and ultimately adds to the project budget. Fleet-tracking technology is often built into tool rental, which is an added advantage to the crew, the timeline and the budget. Looking ahead, we could see solutions emerge that provide a standardized tracking platform which can be accessed by smart devices. The platform will aim to track across multiple OEM tool providers, expanding contractor visibility into tool inventory to reduce loss and underutilization.

Storage

Storing tools requires space, which again costs money. The more tools a company owns, the more storage space they’ll need.

Insurance

Contractors who invest in high-tech tools – for instance, a new $1,500 laser level – may also invest in a tool insurance policy that covers loss or damage to protect their investment. For projects that require expensive and/or specialized tools, policy floaters can be an added expense to consider.

Theft

The National Equipment Register found that jobsite theft costs business as much as $1 billion each year. Tool loss is greatest on jobsites that don’t have tracking, tracing or some sort of accountability for tool use. The frustrating buy-lose-buy cycle can send a tool budget skyrocketing and erode profitability.

Capital Preservation

Buying tools, especially expensive ones, also creates an opportunity cost. Because you put the money into those tools, you’ve lost the opportunity to use the capital in other ways. You can no longer decide that some of your project dollars would be better spent on another, more profitable investment, especially when the tool might only be utilized for a fraction of the project.

Now, more than ever, teams are doing more with less. Renting what you need, when you need it helps reduce and preserve that capital spend.

If you look at tool purchase price, insurance and replacement cost, management, maintenance, repair, and warehousing, the costs associated with owning tools can be 30-50 percent higher than the original purchase price. It’s generally more cost-effective to rent tools rather than own them, with the exception of the basic tools you might use every day.

The Right Tools at the Right Time

The benefit of tool rental is the opportunity to create your own solution or packages. Single tools, tool packages, custom-stocked tool boxes for teams and project specifications – there are so many options. Plus, some jobs require a specific set of tools to adhere to standards and requirements. Renting tools can help ensure teams and projects are compliant.

Tool and equipment rental providers should have specially-trained experts available to help determine the right tools and supplies for the job – scaled and configured to the project scope. These experts can also help bridge any gaps between estimating and project management teams, budgeting for tool costs in the planning process. The tool rental experts are a resource and can deliver a lot of value when it comes to planning and tracking inventory, conducting inspections, and providing maintenance to keep crews productive, and ultimately minimize downtime.

For example, at United Rentals, we partner with electrical and systems contractors to establish Tooling Policies and Procedures (TPPs). The TPPs aim to improve jobsite productivity by helping contractors to be positioned to get their electricians the tools they need when they need them. They also enable companies to preserve capital and minimize loss and overconsumption. Having a TPP in place can lead to a reduction in cost per craft hour for tooling, delivering more profit to a contractor.

Renting tools can also help level out inefficiencies during a project’s lifecycle. Typically, different stages of a project require different sets of tools, but by working closely with on-site teams, a rental provider can supply the right tooling based on the craft curve of the project. Tools solutions from rental providers can also help eliminate the need to carry capital expenditure should a project get delayed and no work takes place.

A large tool fleet is a lot to manage, so your rental provider should provide a tool management system that keeps up-to-date electronic histories for tools and materials on site. Long gone are the days of missing tools that “walked away.” By tracking tools throughout the project cycle, you gain visibility into potential issues and can act on opportunities for more productivity and cost-savings.

Having the right tool at the right time is the name of the game when it comes to productivity. Contractors that rent top-quality, well maintained tools find they boost productivity and streamline operations through onsite availability, decreased downtime due to tool failure, and lower rates of loss. Renting also gives companies the flexibility to free up capital and invest in other areas of the business. It’s a viable strategy that reduces your overall tool cost and lets you add dollars to the bottom line.

Adrian Gram is director of sales and marketing at United Rentals®. United Rentals provides customized tool solutions, from a single tool rental to managed mobile tool rooms for projects of any size, complexity, and duration.

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