With today’s business environment being more dynamic and uncertain than ever, financial projections even in the short term are becoming harder. Hire and rental specialists, Dräger, believes that flexibility and agility is what it takes for companies to not only survive but also thrive.
Dynamic business environments have had a significant impact on the way businesses execute their operations. All businesses are experiencing these symptoms – lack of available capital, fear of commitment (due to uncertainty), seeking greater understanding of on-going costs, complex approval processes for capital expenditure, seeking extended payment terms or even delaying payments.
In an effort to excel through the challenging times, businesses are exploring other options to improve efficiencies and control costs – supplier consolidation, outsourcing work to contractors, preference to casual employment contracts vs full time contracts, collaboration with competitors and suppliers in similar industries, collaborative consumption and sharing resources etc. This brings into sharp focus the question, should I rent or buy equipment? Employ full time or employ casual professionals?
Understanding the Total Cost of Ownership (TCO)
At first glance, it may seem a foregone conclusion that companies should own all equipment and employ permanent staff to conduct business activities. The obvious benefits include immediate availability of tools or people, process and site familiarisation, standardisation of equipment and operational independence.
However, many organisations overlook the indirect costs (in time and dollars) that should be considered when calculating the TCO. These include:
- The cost of capital (money tied up, reduced financial flexibility)
- Maintenance planning and scheduling
- Training and development of personnel
- Equipment warehousing and office facilities (equipment – warehouse, personnel – office, vehicles, IT infrastructure)
- Complacency and outdated practise (personnel not keeping up with best practice)
- Managing compliance
- Depreciation costs
By calculating all the indirect factors into the TCO, it may not be as cost-effective as initially assumed. In some situations, there is another, potentially better way to reduce the TCO: renting or hiring.
Looking to other alternatives – equipment rental
There are a number of obvious benefits in renting. Through the rental of equipment, businesses can achieve more efficient and effective asset utilisation, while managing the costs. Renting allows companies to free up money for other productive purposes such as investment into growth projects or new markets.
The other benefits of renting, include the fact that important operational facets such as service calibration, and repair costs are often covered in the hire price for the duration of the rental period. In most cases, the rental company is obliged by law to maintain at optimal operating levels, at the same time, liability and risk firmly remain the responsibility of the rental company; not the renter.
One example can be seen from the mining sector in Australia. Over recent years, high commodity prices coupled with heavy CAPEX investment in the mining sector meant that extensive purchase of equipment was not a problem for some miners. Seemingly endless amounts of money were often thrown at any problems all at the expense of efficiency and productivity of the actual mining operation itself. According to the 2015 McKinsey MineLens Productivity Index (MPI), mining operations around the world are 28 per cent less efficient today than they were 10 years ago.
In the research, McKinsey noted the decline is not surprising considering that the industry has just come out of a demand super cycle which saw the production of certain commodities rise by 50 per cent over the past decade.
As the mining boom declines and costs come under greater scrutiny, mining companies (along with other sectors) are asking themselves: Is the initial investment in machinery worth it for the potential utilisation we will get out of the asset?
Companies that take advantage of renting equipment are better able to optimise their asset utilisation and costs, and thus be more focussed, agile, and competitive in achieving business goals.
Some of the benefits of renting equipment include:
Equipment is expensive to purchase and involves a huge number of extra costs, including registration fees, storage, maintenance and inevitable repairs. When a company hires equipment, it requires no large upfront outlay, which, in turn, frees up capital for where it is most needed.
Hiring is also cost effective because it is a fixed cost. Procurement managers and businesses can therefore better forecast their budgets. There is transparency in the cost – the real cost to do the job. Hiring can also be transacted as an operating expenses, meaning its tax deductible.
Ensuring that your equipment complies with industry regulations means regularly carrying out time-consuming services and maintenance procedures. Hire companies do this as part of the rental/hire contract.
Hiring is also time effective because it allows companies to increase compliance with occupational health and safety regulations. With equipment that is already safety ready, companies do not have to worry about liability in relation to any accidents, should they recur while using the equipment.
Figure 3 shows an example of a customer’s changing need for portable gas detection.
It shows that they are paying for the upkeep and storage of gas detectors that are only utilised for a small part of the year. In this instance, the rental of gas detectors for peak periods would make good business sense. Depending on the overall usage in off-peak times, it may even be financially viable and reduce risk to set up a rental solution for all portable gas detection requirements across the whole year.
Another way – hiring industry professionals
There are a number of benefits to hiring professional personnel rather than employing them as full-time staff. These benefits include:
- Hiring personnel can meet temporary changes in demand
Renting/hiring can meet temporary changes in demand. It makes far more economic sense to hire people rather than to pay a high initial outlay and then have to let go of people of there is not as much demand. Hiring is flexible to meet changing business needs, which means companies can avoid the high initial outlay.
Seasonal changes in the need for additional resources can easily by met through renting/hiring, as business trends demand and change.
- Risk management
Companies are better equipped to manage OH&S regulations when they engage industry professionals. Hired personnel are also available on-demand on the worksite to advise and implement best-practice safety solutions. These professionals can provide specialist advice and solutions on your applications.
Rental providers ensure all equipment is maintained as per the manufacturer’s recommendations and delivers compliant equipment, fit for purpose.
- Multi-disciplinary experts
With most industrial tasks, there’s a clear connection between each step of the task. Utilising multi-skilled individuals throughout, consolidates suppliers, creates consistency and improves information flow, achieving safer and effective execution. An example of this is a confined space entry coordinator. This individual can classify your confined spaces, prepare risk assessments and rescue plans, train entrants, supervise entrants and if required assist in a rescue operation.
When should you hire? When should you buy?
When determining whether to buy or rent, companies need to look at the activity in relation to two factors – risk and cost. In this case, risk also relates to the specialisation of the equipment / personnel required to do a task or activity.
The relationship between the risk level of the activity (or the specialisation of the equipment/personnel) and frequency of use is described in figure 1.
If the risk level or specialisation is high, rental or hire is recommended. Importantly here, high risk-high frequency work should always be done in consultation with specialists in order to minimise risks. For high frequency-low risk / specialisation work, keeping the work or skills in house is recommended. For anything in between, individual analysis of the particular application needs to be conducted.
A company can also assess whether to rent or buy by looking at the interrelationship between cost and frequency of use of the resource (Figure 2). If the cost is high and the frequency of use is low to medium, a company should use short-term rental or hire.
Creating an optimal Australian safety environment
Specialist hire and rental companies like Dräger Rental and Safety Service helps businesses meet their changing staffing and equipment needs. The company deploys highly trained staff in accordance with client needs; provide safety equipment that can satisfy any business need; and provide training for employees once the client has finished their asset hire which means less downtime, cost or loss of productivity.
Dräger’s safety services offer a holistic safety solution: Rescue Coordinators, Hygiene Technicians, Health Safety and Environmental (HSE) Coordinators and Confined Space Entry Safety Teams can manage your process from start to finish. The company’s multi-skilled safety professionals can offer any business flexibility and real efficiencies.
In addition, Dräger employees have extensive experience in the industry, they bring learnings and best practices from a wide range of industries to offer an organisation current and efficient safety compliance.