When it comes to acquiring a mobile shear for a specific application, one of the most common errors purchasers make is looking strictly at the invoice cost and not at the overall operational or ownership cost of a unit over time as it relates to their business or specific job. In today's tight economic times you are doing your company a disservice by not conserving money where it can be better spent, especially when it comes to capital investment. Being more thorough in your analysis can help you stay profitable and ahead of the competition.
Analyzing your business operation and understanding exactly what your costs are when it comes to profitability versus operational costs is the starting point for success. Most owners/purchasers of mobile equipment get stuck in the rut of "buy low, sell high," which is a good way to do business, but this philosophy needs to be grounded in facts, not feelings. Understanding your fixed cost, and most importantly your variable costs for processing material correctly, is where you can leave your competitors behind. Your fixed costs are the purchase price of your equipment, while the variable costs are the owning and operating costs of that equipment. Being more aware of this information and using it to your advantage will help you remain profitable.
A good formula to use is as follows:
FC (fixed cost) + VC (variable costs) = TOOEC (Total Ownership & Operating cost).
Application / Processing Needs
The application that the mobile shear will be used for should be considered first and foremost. The mobile hydraulic shear is designed for cutting and processing ferrous metals of all kinds (excluding cast iron). They can also process non-ferrous metals, but in most of these cases process ability will vary (check with your attachment supplier for details).
As far as operating a mobile shear, several questions should be asked: How often will the shear be used? What will its processing uptime be? What type of materials will it be processing? Why is the material is being processed? and what will be done with the material after processing? For example, mobile shears can be used for sizing of large material coming into the recycling yard or for the first stage in sizing, upstream, on a demolition project. Will the unit be the cornerstone of your processing requirements or will the unit have split time in your facility? Also will it work out of the yard, perhaps on a project site, or be rented when it is not being utilized? Once the processing requirements are defined and decided upon, you can now look at the size of the unit needed and the carrier it will be mounted on.
Mobile Shear Sizing
The size of the mobile shear is going to be based on the material type and size being processed, not the other way around. For any and all applications, you want to look at processing 80 to 90 percent of the material that has been targeted. The other 10 to 20 percent can be left to be processed by other more efficient means. Acquiring a mobile shear to process 100 percent of the material coming to it, unless it is controlled, is not practical or cost effective. By asking your attachment supplier to show you the processing and appetite capacity of the attachment, you can pick the optimal size to be used.
Carrier / Base Machine
Now that your mobile attachment size has been picked, you will need to look at the proper hydraulic excavator (or material handler) match up. This a very important step in putting together a successful and profitable processing package.
A mobile shear manufacturer representative can help analyze this for you and show you your options. If you already have a hydraulic excavator, make sure it matches the attachments hydraulic and weight balancing requirements in order to operate at maximum efficiency.
The specifications of the hydraulic excavator (or "base machine" or "carrier," as it is sometimes referred to) need to be studied as well. Items to be reviewed include carrier operating weight, hydraulic lift capacity, hydraulic pump flow capacity and operating pressure. Will the machine need to be on tracks or will it need to have wheels? Will the unit handle the attachment mounted on the boom of the carrier, or will it need to be mounted on the stick?
Properly matching all of these items up with the operating requirements of the attachment will allow you to perform at the top end of the performance-production curve.
Wear Part & maintenance costs
The wear part and maintenance costs need to be tracked over time in order to give an accurate ROI of your equipment. Many companies do not track this expense and thus cannot report an accurate rate of return on their projects - or in the case of scrap processors, what their actual net profit is on a ton of processed material. By acquiring your equipment manufacturer's efficiency ratings or tracing some basic consumption costs, you can come up with a very accurate way of discovering your actual TWPMC (total wear part and maintenance cost). The formulas below can be very helpful when trying to ascertain what your profit margins are, per ton of material processed. Only then can you begin to see the healthy ROI [Return on Investment] that is attainable.
Below are five formulas for calculating wear parts and maintenance costs:
- [Years x Parts] + [Labour Rate x Service Hours] = TWPMC
- Ownership Cost per Hour = Total Equipment Net investment / Total Operational Time
- Total Ownership & Operational Cost per Hour (O&OC) = Total Equipment Net Investment + Total Operational Costs of Equipment (TOCE)
- Operating Cost per Ton of Material Processed (OCPTP) = Tons of Material Processed / O&OC + TOCE
- Net Profit per Ton, in dollars = OCPTP + Material Purchase Cost - Material Sale Price per Ton
Total costs of the mobile shear
Below is a scenario based on an average shear operation.
- (Processed) Material Selling Price per Ton (MSPT) = $125.00
- Material Purchase Price per Ton (MPPT) = $ 48.00
- Operational Cost per Ton (OCT) of Mobile Shear = $21.70
[MSPT] - [OCT + MPPT] = Net $ Profit per Ton
[$125] - [$21.70 + $48.00] = $55.30 Net Profit per Ton
By taking the time to review the operational variable costs over time, a quick analysis will result in a much more accurate picture of the profitability of an operation or project. By having this information you can also be confident in winning new business and expanding your operation with healthy results.
[All formulas and accounting examples here are merely simplified samples. Your specific needs and outcomes may vary based on your input information. Check with your accountant and tax advisor before certifying the results. ]
This article was originally published in Recycling Product News, July/August 2017, Volume 25, Number 5.