Count on non-calculated assets

Would you buy a lift truck that costs a quarter of a million dollars? You probably already have. The price tag might have read $21,000, but many factors go into setting the real cost. If you attended the NA Material Handling and Logistics Show in Cleveland in April, you might have picked up on that price vs cost theme during some of your conversations with vendors and presenters. I sure did.

That observation about the quarter-million-dollar lift truck came from David Matthews, manager of fleet processes and customer care at Nacco Material Handling Group (NMHG) Fleet Management. He explained that an LP lift truck operating 1500 hours per year could easily cost that much when you factor in what you pay an operator, plus fuel, plus maintenance, plus depreciation.

“Many purchasing people fixate on that $21,000,” Matthews said. “You need to have a baseline showing how many available hours there are, what’s the utilization, and what’s the cost per hour. If a truck is four years old and you keep charging that battery three or four times a day, and you have a truck that is running 500 hours in a year, that truck will last longer than five years. It may be better to buy one truck and every three years buy a new battery. Understanding that drives the total cost.”

Alternative power sources were also displayed and discussed at the show, including fuel cells. Andy Marsh, president and CEO of Plug Power, shared his booth with some Raymond lift trucks that were equipped with his company’s fuel cell power units. His news was that his company could support three classes of lift trucks, including reach trucks. Apparently, reach was a reach, considering the need to deliver 50 kw of instant power for those applications presented packaging and design challenges. And going back to the price vs cost discussion, fuel cells require a good understanding of their value.

“Today we’re still three or four times the cost of a battery,” Marsh acknowledged. “The difference is you have more power and productivity. This product will last six or seven years vs a battery’s three, and that means two or three battery purchases, so the cost after a while from a capital investment point of view is really the same over time. And consider the battery room, where the wiring alone can cost a million and a half dollars.”

He mentioned clients that were building new distribution facilities, and by eliminating battery rooms, he said, they’re cutting construction costs. Some of those facilities will be LEED certified, demonstrating that with a clean source of hydrogen some companies will be reducing their carbon footprint by 90%. He also admitted that his value proposition works best in new construction and where electrical costs are highest.

That’s really expanding the envelope on a lift truck’s value proposition, so let’s bring it back to one of its simplest components: damage control. Dan Murphy, warehouse manager for Masters Gallery Foods Inc., appeared at a Raymond Corp. press conference to discuss the value proposition for lift trucks as information generators. Masters Gallery is a full-line supplier of cheese products based in Plymouth, Wis., and the company’s managers take advantage of what they can learn from Murphy’s lift truck fleet.

Before buying into Raymond’s iWarehouse information system, Murphy’s managers noticed that the company’s brand new racking was taking a beating from lift truck operators. With iWarehouse, both Murphy and management get reports when racks or the company’s products get damaged.

“With the iTrack part, they can see what it actually costs us to run this machine,” Murphy explains. “We’re not just managing products as they come off the lines, but it helps us manage our facility. It gives us a better view of everything and what I have to work with, including our operators. If this guy keeps hitting things it tells me we have more training to do. It also tells me if someone isn’t doing anything. One guy just drove around for two hours but this system told us he didn’t lift anything for two hours.”

Another take on lift trucks as information generators was offered by Toby Rush, president of Rush Tracking Systems. In fact, he describes a lift truck as “the hub for material movement—a command and control center.” His company offers three layers of lift truck automation via RFID technology: the first focuses on managing material accuracy. The second offers labor management systems enhancement. The third automates the lift truck itself. That said, he acknowledges you can’t always automate everything a lift truck does.

“The most complex moves will still require people,” he said, “but you can leverage that same piece of equipment so that you can use a small skeleton crew in replenishment. Then in the first shift you can have a big outbound push. You load the labor plan based on the complexity of the work.”

Just as the most complex moves require people, so do the measurement and management of those moves. John Hill, principal of TranSystems, led a discussion on the use of metrics in warehousing and distribution, and he reminded his audience that metrics can be used for building employee commitment and morale.

Cartoonist: Jerry King, http://www.jerryking.com

“If I’m running a warehouse I have to know the answers to important questions,” he said. “How much space is devoted to certain operations? How many things come in and how many go out? What kind of team do you have working for you? How long does it take a pallet to get where it’s supposed to be?  Those are key performance indicators.”

Once you’ve identified your KPIs, you can identify your problems. That’s where the warehouse workforce shows its value, according to Hill. Let them sit down with each other and talk about combinations of problems and alternative solutions. Let them get engaged.

A great example of client engagement with technology vendors was displayed at the Kiva Systems booth. Mitch Rosenberg, VP of Marketing for Kiva, told visitors how one client inspired the development of a Trash and Recycling System (TRS). The TRS uses the same robots as those in the company’s Mobile Fulfillment System, but adds dedicated trash bins, an automated dumper, and control software to detrash the company’s fulfillment operations.

“We didn’t consider this application three years ago,” Rosenberg said. “It’s what we learned from our customers. They need to detrash and get corrugated out of their warehouse. Why not use these robots to take away the trash? People want to re-use their fixed assets.”

NA2010 may have been billed as a technology showcase, but this year’s exhibits and conferences were balanced by a timely message: calculate the value of your human assets as well.

Tom Andel
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