Professors, books, and yellow iron

Today, I'll be talking to Mike Vorster, founder of the CEMP way of equipment management and author of Construction Equipment Economics about equipment management, the first chapter of the upcoming sequel to Construction Equipment Economics and entrance into construction and equipment. 

Chapters

• 3:00 Mike's Intro to Equipment
• 18:00 In Search of the Gold Standard to Management
• 28:00 KPIs and Equipment
• 34:00 Cost as a Lagging Indicator of Management Success
• 50:00 Pick the right tool for the job - equipment and personel
• 1:09:00 Managing a Central vs Regional Fleets
• 1:14:00 Capitol Leasing Companies

Transcript

Michael Kelley: 0:05

Welcome to yellow iron and black smoke, you podcast for construction heav equipment economics, an management. Michael Kelley, you host. In this episode, we talke to Mike Vorster, about his ne book, why he wrote the original and about chapter one. It's good one. Mike vorster is her with me today. This is Michae Kelly from silver Trek, w wanted to talk a little bi about the management, and som of the some of the things tha Mike has learned over the years I had an opportunity to go dow to his place a while ago. Than you for coming today. An welcome to the first podcast

Mike Vorster: 0:47

Michael, a great pleasure. And it's wonderful to be working with you and to be sharing some of the some of the exciting things that that you're doing and sharing some of the exciting things that that I'm doing. And hopefully, it's a good conversation, looking forward to great conversation.

Unknown: 1:03

So I can see, I can see you're in you're in Florida, at your home, and I'm up here in the Pacific Northwest. And things are a little bit crazy in 2020. Yep, sure, a lot of the folks with whom I'm working are learning all sorts of new things. And you know, there's teleconferencing and the cutting down on travel. that's those are amongst the sort of most obvious things that people are learning. But I'm also very, very definitely learning the fact that people are learning the importance of communication. It, it seems as though we had a put a stress in our day to day communication system in order to learn about the how important it was to maintain communication so completely, just like the and what I've found is that the people who have a really huge leg up are those who know how to write concisely. Yes, yes. And those who write concisely, and those who write honestly, and from the heart. Yes. Speak, as it's your writing concisely and from the heart. That is really replacing a lot of the face to face stuff. Yeah. Yeah, absolutely. It is. But it's kind of nice to be able to call and have video conferences, and you know, if Coronavirus had happened 30 years ago, it would have been an interesting situation. Absolutely. Absolutely. The video calling businesses has really bridged a huge, huge, huge gap. And I think we've reached a level of comfort with a video call recording and video conferencing world which, as you say, we would never reached before. And I think that level of comfort, confidence is going to serve us well into the future. Yeah, I remember reading a book when I was a kid, Tom Swift. They were written in the 1920s. And they were sci fi, like young adult sci fi novels, but written in the 20s. And they had video video calls. They didn't even have telephones yet, right? So they had ways of doing this video call. It's like 100 years later, and we're finally there. Like we I mean, we've been there for a long time, technically, but to actually have it reach out and have it so that you know, my wife is using video calls in the home, right? Like Tom swift wrote about 100 years ago, that are in the bookstore in Swift. You know, it's kind of interesting to finally kind of have this has forced it to really get integrated everywhere. Yeah, and of course, the, the old landlines, I work with a bunch of folk in, in Germany and in South Africa, and the old landline system has long since gone. Alright. And somebody must be saying, well, the economy is grinding to a halt because people aren't using telephones. a completely different paradigm in in communication, and we should we should have been with us long ago. Yeah. Well, well, so. You know, you mentioned you mentioned South Africa, that's kind of where that's kind of where everything got started with your whole equipment. Your The first time you really got interested in equipment, wasn't it? Yeah. It's a It's a long story. And sometimes when I count the years, the number is is quite staggering. Alright. But I grew up in the construction industry. My father sold a family farm when I was about five years old and, and said he'd much rather go down building and he bought himself to the fours and and as they say, the rest was history for about 20 or 30 years and I think my father was more a, an applied equipment guy than a contractor. What do you mean? Yeah, and and as I Grew up. And as I completed my college work, and so on and so forth and went to work for him, I always thought that the equipment was the personal private property of the proprietor. And this is kind of where the family stored its wealth. Right? Okay. If the market value was greater than the book value, it was cool, because when we sold it, we could go on holiday, right? Those sorts of things. And so I grew up, my early years in construction was bought the equipment being the personal private property of the proprietor. And then my dad got very ill, and we very advantageously sold the business. And I went to work for the largest heavy and highway contractor in South Africa. I've never run an equipment fleet. I've been a project engineer, project manager. You know, bookwork has been my career. And as I went to work for Marian Roberts, my then boss, who I loved dearly, and who influenced my life greatly said to me one day said, Mike, you know, you really shouldn't fuss about this equipment stuff too much, because equipment is just as self destructive means to an end. And so I said, wait a bit. There's something funny here, because here are two very successful organizations, my father's business that I've just left Marian Roberts that I've just started with, yeah, that's what attitude which says the equipment is the personal private property of the proprietor, and the storehouse of family. Well, he has another very successful business that says the equipment is a means to an end. Now, what is it in this construction industry of ours? And so that's kind of where the fascinated start fascination started. I wanted to see if I could get to the bottom of this thing as to what was equipment in a construction company? Well, that's interesting distinction, because, you know, you can kind of I can kind of see in my own little personal life, right? I mean, we don't have, we don't have a equipment fleet running around in our backyard, although I did just buy a dump trailer. So you know, we're starting. But the but the, but there is there is a difference, you know, the way that the way that we take care of Rebecca's minivan, right, which is now not even big enough for us, is very different than we then how we view the vehicle that I use to commute to and from work. Because the one we can meet I mean, even from work. I mean, that's just a runaround car, I bought it. I went to the used car dealer here in battleground, and I bought it the same day. I mean, I test drove it just because that's what you do. But it was like I trusted the guy. And I just, you know, I didn't even really care about it. I have a six mile commute, right? It's nothing, there's nothing special. But then the minivan, it's like, we actually take care of that thing. We make sure the tires are good, we make sure you know that we have we have it serviced regularly, it's kept clean on the inside, you know that it's a it's a very different paradigm. When we look at those two and one is just a tool. One is just a tool. The other is an asset. Yeah, the one is the way to get to and from work. The other one is a family position. All right, yeah. Same with equipment, and, you know, small, closely held companies. And many of them of course, I don't want that smallest, probably the wrong word because many of them have been hugely successful and grown substantially. But they're closely held still under the close stewardship of the founding father, who was probably good to start with right this personal private property of the proprietor attitude towards equipment and then once you've got past the founding father and your perhaps into the sort of corporate survivor and Corporation mode, the equipment becomes a means to an end it becomes about building work. All right. Yeah. And I that that is that was the start of my fascination and, and it remains a fascination because as you say, it's an it's completely unanswered question. And it's an answer answerable question, but it does set the tone for the whole operation. Is it so that's interesting, because the you mentioned you know, if you're the corporation mindset of the of the, you know, that has taken over from the founding fathers. There's so many businesses that I work with so many construction businesses that are right at that transition. Maybe it's been taken over by the by the family of the founding father, maybe we're on to the third generation, but it started to become more about a corporate board and about return on investment and you There's in the, it's less now about, you know, going out and providing for one single family and for the the descendants of that one single family and it's more about the the owners and getting an owner's return, you know, the stakeholders as a whole, I guess you can say, yeah, and of course, you've heard the adage that says it's relatively easy to transfer from generation one to generation two. But it's very, very difficult to transfer from the Trump truck to, you know, for the company to pass from generation to generation three here. And a lot of good construction companies, a lot of the kinds of companies we're talking about now, was started in the mid to late 40s, when the GIS came back from World War Two, right. And operated machines on the islands in the Pacific's. And that's, you know, that was what they brought home. And that's, that's how they started. And those companies are now in the second third generation transition. And that's a very, very difficult thing. And amongst the things that are difficult is, what's your attitude to your equipment? Exactly, exactly. Yeah. And you know, and it's a funny mix, do you get in some companies where I've seen that the the equipment, the person who's tasked by the owner, or owners, with with running the equipment fleet may have the more corporate mentality, destructive means to an end. And then, like, I had one guy told me, he says, but then every now and then the owner goes to an auction and we get new yellow iron that shows up in the lot that I knew nothing about. Yep, because the owner is a get hit in the head. Right? And is in the business because he might structures. Okay. Yeah. That's that's how I grew up. We were in the construction. My family was in the construction business, because we like tractors. We didn't. My father had a, an aversion to concrete. Concrete was just a mysterious thing. All right. But But yellow iron was good. You know, iron was good. Sure. So so I'm sitting here and I have a stack of books. In that, are these the orange book that's a construction equipment economics. So you wrote this book? And what when? What was the actual published data? This Mike, was it? 2009? Yeah, the original was the original publication. So so this this book, clearly when I first read it, which I think was in 2011, when I first read this book, so a couple years after you published it, it was obvious to me that this wasn't a book that you sat down and wrote in one year. Yeah, well, it's, it's a book that I didn't write in one year. It's a book that you shouldn't read in one year. Yes, well run about I started writing articles for construction equipment magazine for rod Sutton news, the editor, construction equipment magazine, I started writing articles for about six years before that about 2000 to 2003, I started this business of writing a monthly article for construction equipment. And so by 2008, when I started putting that thing together, I had about 70 articles that I'd written for construction equipment, and I wanted to see whether I could in fact, stitch them together into a book, right? And so that that book is a bringing together a stitching together about the first 70 articles, I wanted to bring the articles together, put them in a sequence of in themes, and kind of give them a home. Alright. Some of the folks who had been reading construction equipment magazine, actually had a three ring binder, where they had cut the articles out and paste them and put them in a three ring binders. I said, Well, why can't I figuratively or using the word processor, punch the articles and put them in a three ring binder. Right. So that's, that's how the first edition of the book came to pass. I see. So. So at this point in 2009, when this was published, were you still at Virginia Tech? Yeah, yeah, I was at Virginia Tech. I think I did the whole thing. I took a year sabbatical or something like that and did the whole thing I say, right. Because every diagram every picture, every keystroke comes courtesy of my two finger typing ability. The book actually exists as a one big PDF app at the at the physical printed I call them and I say print another 250 copies and they send 250 copies down to my, to my garage, and I mail them out of the folk buy them on the website now. And I take them to the post office and mail them. So it's a very one man operation. Sure, I've just avoided but you know, it's fascinating because the construction equipment economics, that's about as dry people, you know, if I was to go down to the coffee shop here in battleground and say, hey, I want to talk to you about that new fascinating book construction equipment, economics. I mean, they their eyes are probably glaze over fairly quickly. But but that's not that's not what you saw. And that's not what I've seen, actually, in talking to people either. I mean, this has been an extremely popular book, hasn't it? Yes. buddy of mine, when I spoke to him about it, I said, How many copies Do you think I'll sell them is 350 if you're lucky. And I think I've had 12 of 14 printings of 250 throws, so it's sold remarkably remarkably well. The other part about that is when I got it done, I, you know, went to the classic and typical publishers of books, you know, the McGraw Hill is in the Prentice halls and those guys, and I said, Well, what do you, you know, what do you think about this? And they had their ideas, and I spoke to another friend, and he said, Why do you want to do that with them? He said, All it'll happen is construction equipment. Economics will be another title. In a long list of books that a salesman sells. Yeah, nobody, by construction equipment, economics from a Prentice Hall salesman. They're bought from you. Because they know you because they know the committee. And he said, Why don't you therefore publish it yourself? Yeah. Because nobody will look after your book. The same way as you will look after yourself. And you know, the committee, you know, the people, right. And Jean, was that a great piece of advice? Because yes, if I'd given it to Prentice Hall to sell it, the coffee shops, I think, I don't think it would have sold at all right? Exactly. But it sells because I'm out there doing my consulting and my teaching and all those sorts of things. And people plug into it and buy it and so on. What it did for me in 2011 was it allowed me to stop trying to invent everything related to equipment, because at that point, I was working with medium size, construction company, heavy equipment company here in the northwest, and I was working in their estimating department. This is this is for silver track systems. But I was a one man band at that time. And they were they had hired me to, to implement hcss heavy bid. And of course, in order to do that, well, I had to learn their business well, and in order to learn their business, I realized this is a massive issue. The equipment is a massive issue. In fact, that was the time, you know, that I first met you up at Ruth's Chris up in, in Seattle. And that was my also my first introduction to Ruth's Chris, which, you know, the fancy steak houses fancy steak houses aren't normally in, in my repertoire as a you know, for some reason, for some reason, feeding all the kids fancy steak isn't something that we do, but but it was we're good friends, we were with good friends, we were with good friends and I thoroughly enjoyed the evening and it allowed me to stop trying to say okay, what how do we have to start and I had this big disorganized mess and say, you know, in which in the end, I had to help this companies estimators say, how much are we going to charge for a job right, and it allowed me to start thinking about it in a disciplined way. And and that was actually one of the things that you you say in the introduction to this book, and I have it here something along the lines of ISO 55,000 set some standards for use, but these are hardly relevant to the construction industry and help very little and then you talk about in that same same introduction, how in accounting, we have generally accepted accounting principles, right, but there is nothing that is widespread and accepted for the for the economic for construction assets. So did you did you imagine at the time that this was going to become that standard, I imagined at the time, and particularly now that that it will lead folk towards some kind of standard, because truly, one of the issues we've got with consumers equipment and equipment management is that there is no right way. There is no wrong way. There is no standard way of doing these things and, and everybody is sort of cobbled together or put together all grown up with their own approach to the things to the management of fleets. And you know, there are no standard ways of measuring availability or reliability or utilization or any of the other metrics we use today. There's no standard format for an equipment account cost report is a standard format or a well accepted format for a job Cost Report. Right? And certainly for a company cost report, it's called the p&l right? Yeah, but quipment, we would benefit greatly if we were to develop some sort of generally accepted practices for managing a fleet. And But Michael, you bring up a really interesting subject. And, you know, this, we need to explore some more at some other point in time, and that is that the relationship between equipment and equipment costing and estimating, because we do a lot of work, a lot of work. And remember, I never ran an equipment fleet, I was an estimator project manager, right? Sure. I'm looking at the world through the eyes of an estimator, project manager, you know, field work field construction, when we do an estimate, thing, which is critically important to us is, what are the resources we're going to use cost? And then of course, the second thing is, how productive are those resources? Here? When we look at the resources we're going to use in an estimate? Let's take concrete, we go to a lot of trouble to find out what a cubic yard of concrete is going to cost us. But do we know with the same degree of confidence and accuracy, what it costs us to owner and operator, a whole truck because a whole truck was a resource in estimating program. And so our estimated rate for that whole truck is in fact, an estimate within the estimate. Yep. And one of my early sort of itches in this equipment thing is, we used to do estimates in the good old days with pencil and paper, and there'd be a two page estimate for what it costs you to do the masonry in a manner. Because this is what the bricks cost. This is what the mortar costs. This was what a a mason cost. This is the productivity of a Mason and you built this masonry in a man Hall estimate up from first principles based on the cost of the resources and the productivity of the resources to the earthworks. And you said, well, they're gonna be you looked at the productivity carefully. And you said, All right, they're going to be 3822, motor scraper hours needed to move this, and what does a motor scraper cost us? And you turn around to a buddy and says, Well, you know what a motor scraper is going to cost us less. Yeah, we've got it written down somewhere. And you multiply those 2800 odd hours by some estimate of something else. And so the rate for the motor scraper was an estimate within the estimate. And the relationship between equipment costing slash equipment economics, estimating is, I think, grossly misunderstood. I think that if folk understood that equipment, economics, equipment costing was an essential part of the estimating process, I think folk will give this whole business of equipment cost analytics, the attention it deserves. Sure, right. And I try to make that case with as many people as I possibly can. Well, and I, I completely agree. It's the it's such a huge component of so many construction companies. I mean, all construction companies have some sort of equipment, but no, but the heavy civil, you know, you're the bridge builders, you have these this section of construction companies where it's such an enormous component of their overall cost. And, and to watch them bid an inner city job with the same rates as their bidding. A, an irrigation canal in the middle of a field is, you know, you're looking at it, you're going there's something wrong here, but you don't know what when you first you first encounter it, right? No, it's not the productivity because like you said, they know their productivity. They know their man hours, they know how long it's gonna take to do these things. Now it's 2020. So it's been 11 years since this first published and, and you're starting on a second edition. Yeah. Tell me a little bit about the second edition. What what's what's the what do you what are you hoping to get out of it? Why now what's the what's the thought behind, sitting down and rewriting this particular edition with four fingers now? Maybe if it is done? Well, in the years that have passed, the number of articles has grown from 70 to 170. So I've got a lot more resources that I can use. I've also a lot of tough lessons through the consulting and teaching practice through my consulting and teaching practice. And so hopefully, I've been rolled around a whole lot more, I really enjoy the opportunities that I have to learn because of my the opportunities, I have to help other folks. Right. And so a lot of the stuff which was in the first edition will sort of mature and survive into the second edition. But the second edition is very, very different because of the maturing and surviving that I've been doing. through what 1011 more years of rolling around in the industry and, and learning from some really, really smart folk who practice this is odd on a day to day basis. So more knowledge, more experience, more, more hard won lessons that I'm hoping to incorporate into the second edition. Sure. So with these experiences, you know, you you what you talk about, there's not a gap, there's no generally accepted accounting principles. So you know, and we have this ISO standard, which does not fit in, you know, in you, you talk a lot about, I mean, when I've heard you, when I've heard you addressing a class over the years, or, you know, individual consulting, when I've been part of that, you talk about having a framework. And so, what is this framework and why, and why do you find it to be important? I mean, even even here in this in the in the orange book that I have you talk about a framework, you know, so in the 2009 edition, and what is that framework? How is that mature? What is that? What does that framework look like? Well, two stories, two stories will tell us something about the framework. I was sitting down with a consulting client one day, and we were sort of at the start of our relationship. And he looked at me, and he said, Mike, okay, so we're going to work together on this. But what do we need to do to be world class? What What do I need to do in my business to be world class? And I kind of went, wait a bit, yes, a question I suppose I should be able to answer. So I said, Well, we eat up, I think we're in a construction business. And as we've spoken a little while back, we're in the sort of estimating business. And so I think job number one is you've got to know your costs. job number two is this fleet of yours represents a third of the right hand side of your balance sheet. So it's a big investment, and a big fixed cost. So you've got to utilize it. And so you've got to be really, really good at utilization. So number three, this fleet of yours is the mechanism by which you build your work. And you're not going to build your work on time and on budget, and safely to the required standards, if your equipment keeps breaking down. So the third thing that you've got to be really good at is to stop your machines from breaking. And I said, the first thing you've got to be really, really good at is manage the age of your fleet, because it gets used up to the end of today, your fleet is going to be older than it was at the beginning of today. Sure, and it gets you but you've got to replace it. And so sort of contemporaneously in that conversation, I came up with what I've called the four key performance areas. Now your costs, maximize utilization, stop it from breaking manage age. Those four key performance areas are the framework of the second edition. Okay. Because I also noticed that every time I had a consulting assignment, the consulting assignment did one way or the other address all for those areas. Sure. So I was one on one advising my clients to become world class or helping them to become world class in knowing their costs, maximizing utilization struggled from breaking and managing age. And so those four things have become this framework. Sure. But generally, generally accepted practice is have a generally accepted practice that focuses on those four things. Sure, but it seems but it seems like There's some there's some overlap too. And those four things, right? I mean, because the four, four, take your age. I mean, if you have a very, very, very old fleet, it's gonna break down all the time. And if it's broken down all the time, then your utilization is gonna stink. And then, you know, your cost, like you said, the first one, I think was know your cost, that your costs are going to go up like crazy. So there's clearly some, they relate to each other. So how, how do you look at these four things? How do you look the interrelatedness of this? When you say you're out there consulting gig or, you know, you're talking, you're writing this in this new in the new edition? How do you present that? How do you read? How do you how do you talk about the interrelatedness? Yeah, well, nothing lives in a silo? Right? And yes, they is. And thankfully, there is interrelatedness. If your utilization is not good, then you're not going to get the hours worked. And you're going to run into terrible trouble with regards to recovering the fixed cost of ownership. There's the relationship between utilization and the fixed cost of ownership and the fixed cost of ownership has a relationship back to the owning and operating cost. Yeah, okay. And in many ways, we can then say utilization is a lead indicator of owning cost, which is a portion of total cost. What you're saying is that saying that the lead indicator is that you can predict cost. If you know today's utilization, you can predict cost in the future. Over time, you can predicted if today's utilization is bad, you're heading for a problem with regards to owning cost. Now let's look at reliability. Because every reliability the frequency of data gets, every event is also a cost event. There's a true truism. Yeah, if we get a lot of down events, rest assured we're going to get a lot of cost events. And a lot of cost events, rest assured we're going to get high operating costs. And if we get a high operating costs, we're going to get high owning and operating costs about fleet. And so reliability is a leading indicator of operating cost overruns, okay. And then let's look at age. If the stuff wears out, you're going to be in terrible trouble. Because as you've said, if the stuff wears up, breaks down a lot, you're not going to you're going to expose yourself to a lot of operating costs, breaks down a lot, you're not going to get your utilization. And so although most of your owning costs may have been amortized by then, sure, you're not going to get your work booked. Okay. And so owning costs. So age sort of brings those two together. So yes, the four key performance areas are interrelated, and six and well, and I like to think of the age utilization and reliability as lead indicators of cost. So so it feels like it that these four have really become the foundation the cornerstone of your work in a way that maybe wasn't it wasn't there to maybe it wasn't crystallized as much in the 2009 edition. Is that Is that a fair statement? That's that's a very fair statement. These three areas being lead indicators of cost, this is kind of an aha moment, on a long flight between two very distant cities at some at one at some stage. I don't know exactly when. But when it has these aha moments on sitting on airplanes, yes, it was kind of a realization that, you know, I've grown up where I grew up, or my boss tried to grow me up on the basis that you've got to analyze your costs, and they will tell you where the problems are. And are many of us grow up on the basis of sort of reactive cost management here, we have we use cost as a as a siren for a problem. Sure. Okay. Whereas, in fact, cost is the result of a problem somewhere else. Yeah. And I think we, I have recently moved to the mindset which says that cost is defined by performance, or we can manage performance by managing a relatively small number of lead indicators. So the cost of our fleet is, is defined by the performance of our fleet. Can we manage the performance of our fleet by managing utilization, reliability and age? Yeah, so that's kind of the philosophy or the approach that like has came to me an aha moment on the long flight or maybe at three o'clock one morning when I was rolling things around. Alright. Sure. But that is a significant difference in my thinking between 2009. And now. Right. And that idea isn't much more than a year or two old anywhere. Sure. Well, it what it feels like to me is that because you, you talked about this, in this book, you've talked about this. I mean, even even that, that first day at Ruth's Chris, when I met you, that, that you were talking about these things, but they were it felt it feels like now that there has been a bit more of a realization that it's been swapped, just like you said that your boss said that cost is the siren to show you where your problems are. But now it's almost like I'm hearing more and more that these three things, the the reliability, the utilization and the age, they're going to predict the cost, not the cost showing you where the problem is, or, or that it's not just only one way it's two way. Is that fair? Yeah. And bear in mind that you can no longer control of costs that you've spent. And I think if we, if we imagine cost as a siren, those dollars are out the door already. Yeah, yeah. And we can, we can beat our gums about it, we can worry about it, we can, we can report them, we can measure them, but the dollars are out the door. I think if we put a laser focus on reliability, utilization and age, we stand a very good chance of stopping some costs of minimizing some costs of reducing some costs. And so once constantly on the hunt for lead indicators of cost, and that's what I'm hoping that this realization has taken us slightly closer to, I'm sure in 30 years time, somebody will say, Gee whiz, that was that was rough and ready for something, which is a lead indicator of cost. And it might be a whole series of fault codes coming out of some sensors on the machine somewhere as a lead indicator of cost. Sure. Right. But this, I think, is kind of where the state of the art is the moment. Yeah, well, and I hope so. And if in 30 years, we're still using the same framework as we are today. It means that there has been either that it's perfect now, which, which would be it would be would be great. But it seems like the probability is fairly low. And but or that more likely, the problem would be that there has been nobody thinking about it for the last 30 years. And if if people there's there's a lot of incredible I mean, you you've met many more of them than I have, but there's tons of incredibly sophisticated minds that are taking care of equipment fleets. And yes, and if they're those people are going to find ways to manage their equipment fleets that we can't currently imagine. I mean, it's just like we started this conversation of, you know, if we had to if we had to do this whole Coronavirus, video conferencing things 30 years ago, we would be faxing each other about this conversation, you know, and we don't know what it's gonna look like, but but I certainly hope that it will have that will, it will have been built, that this will be something that has been built upon. And there are incredible minds managing the fleets. And there are also incredible minds developing the technologies needed to improve that management, those management processes, and, you know, the telematics technologies, the sensor technologies, the data processing technologies, the artificial intelligence technologies, and all those things, okay. And, you know, when I sort of started this sort of this, this Quest For Knowing about the management of fleets, we didn't have the technologies we have today. And I know that the folk in 30 years time will have way better technologies. I mean, you will folk like yourself or be in your prime and you will have made your head your impact on the business. And it's got to be better than it is today. Yeah, yeah, absolutely. I have here a draft of your first couple of chapters in this book. And I wanted to switch a little bit here to talk about chapter one. Like you, you'd mentioned right before this call that that it kind of has two, two components really. There's there's a talk about the the functions of equipment management, and then there's the talk about the organization that needs to be built. In order to make these functions happen, maybe maybe we can look through those, we have six of them. Here's what you what you list out acquisition and disposal, compliance and risk management, production interface and logistics, field maintenance and operations shop and yard operations and fleet and asset management. How did this come about? What what why, why these six? How do they? This is, you know, the first section of chapter one, you know, it seems like a fairly important deal. Yeah. Well, as we've spoken about the sort of key performance areas and the management technologies in those four areas, one of the things that doesn't change is the sort of what you've got to do and how you organize yourself, okay, or business. And so yes, Chapter One is sort of the, shall I say that evergreen truths of getting stuff done, right, you've got to know what it is that you've got to be good at. And then you have to have an organization that enables you to be good at those sorts of things. So while we've spoken a lot about the technologies and the things that are going to change, you know, competent organization, I don't think is going to change. The the six equipment management functions that are listed in that excellent gain is a story got trapped by a thunderstorm at the Detroit airport, gate 32. c. Flight flood Toronto, spent the night there and spent the night thinking about what it is that I would expect an equipment management team to be good at. The first thing I said is that I think an equipment management team needs to be really good at buying and selling this stuff. Right. Yeah, because I think the acquisition decision is very underplayed in its importance. Because get the right machine into your fleet, get that machine financed correctly, and you run with a chance. Yeah, right. Handle the disposal of your old stuff? Well, it certainly helps a lot. Right. acquisition and disposal was one of the things that I think the equipment management team needs to be good at. One. And it seems like that the key phrase of what you just said is that if you can purchase it, I don't know, if he said well, then then you have a chance. If you if you really overpay for something and compared to your competitors, then you're kind of hosed. You're it's very difficult. You don't have a chance to go out there and compete. That commitments made. If it's a finance commitment, and there's nothing you can do about it. You can't go to the bank and said, Oh, gee, the interest rate on this loan, please. Yeah. You can't get a lease house and change that commitment. And if you've bought cash paid cash for it, the money's out the door. A lot is fixed. At the time, you're in the deal. Yeah. And so you've got to be really careful about the deal that you Inc. Okay, so that's that part about it. The other thing is that, if you actually buy a machine that's not doesn't have exactly the right specification for the job that you want done. You can't go and replace a track type tractor with a wheeled tractor. Alright, you can't go and you can, but it's going to cost you a lecture replaces smaller machine with a bigger machine, you should have bought her the specification of the machine, the brand make and model if you choose a tempting offer, but that machine that's part of that tempting offer isn't well supported in your particular area where you're working through its dealership network and those sorts of things, then you made a lot of decisions that have created the world in which you're going to live for the next 3456 years. Okay, yeah. Acquisition decision is incredibly important. Had the last equipment supposing there's a lot of talk about the gray market the the off brand equipment that you can often get for extremely good prices. And then you had to pray after that, because that was your only chance of maintenance. And, and then you had a lot of talk about the liquidity of the equipment market in these all of these different issue areas. You know, you have some places where, where you can go and replace, you know something very quickly. It's like, Okay, this isn't working very well with a scraper. So we're going to change to a to a haul truck and excavator and you can actually Do that, even though it's painful, it's possible. And then you have some places, you know, particularly in in lower populated areas, where that involves putting it putting on a lowboy and hauling it to, you know, the Twin Cities or hauling it to St. Louis in order to actually get that done. And, and it's and it's very difficult. Let me just back back to this, you know, off brand kind of idea. And that is that premium brands aren't always the right answer. You know, buy a machine that's, that's fit for the purpose intended. In many cases, that is a premium brand. In some cases, that is something a brand that we wouldn't today call a premium brand. I've been very successful, knowing exactly what the job is knowing exactly the duration of the job and the demands of the job. and selecting what people at the time thought was crazy, making a crazy selection. But it was eminently suited to the job at hand here. And it worked very, very well, indeed. And so I'd like to sort of no want to say caution against but put in a bit of a shout out for the fact that, you know, premium brands aren't always the only solution here. And that, you know, these the spectrum of brands exists, because there's a spectrum of needs in the industry. Yeah. Well, so. So the acquisition disposal, it feels like I really liked the way that you said that, there's a that you have to be you have to be good at that in order to have a chance at the rest. And and then you need to be able to get rid of the machines when you're done in order to not have them clogging up your yard if nothing else. And like you said, on the jobs that you you were actually in charge of once the job was done, you might not even have a need for that particular piece of equipment anymore. And so you know, disposal is the best option. So but then the second thing is compliance and risk management. So, talk a little bit about that. What why was that number two? Well, it's not, it's not there in the sequencing, run the hexagon with number one and number two, is not a priority sequence. It's just the next triangle. Okay, that's good. If I bought it now, I must make sure that it's compliance and risk management as well. Anybody who thinks that compliance and risk management isn't a growing industry still believes in Cinderella and the tooth fairy and Father Christmas, all right, because we are progressively seeing need for, you know, increasing emissions, compliance, increasing safety, compliance, increasing safety, and increasing safety inspections, and all those sorts of things, licensing, ensuring insurance and, and so on, and so forth. And those kinds of those aspects of managing a fleet are non negotiable. It's not an optional extra to ensure that you've done the inspections, it's not an optional extra to do your daily inspections and, and be confident about them. It's not an optional extra to make sure that your fleet is as safe and as safe as it possibly can be. So, hey, compliance and risk management is is not an optional extra, you just have to be good at it. And otherwise, guess what happens? Right, exactly. And so and so. So that's why it comes it comes there because, you know, once you bought it and brought it into your fleet, the next thing that's really important to do is to make sure that it's that it's licensed, insured, inspected, and, and attended to. It's also next to acquisition and disposal, because acquisition and disposal are the principal components of the owning costs. And then compliance and risk management are the next components to the owning costs. I've heard people refer to this as the necessary evil, particularly my clients that are in California, the they talk, they talk about compliance load that the state has as being, you know, possibly, in their view, a little overbearing, but it does seem to me that they do just have to do it. And there they either do it late due to an audit and expensively or, and then usually after the first audit, then they work on getting the you know, the actual infrastructure in place to manage it proactively. And that's, that's It is a it is a big job. I mean, it's a it's a it's a large job. And it's primarily an administrative job, not somebody who necessarily understands the equipment ins and outs, but somebody who can quickly and effectively manage the the paperwork, realize, hiring, you know, do all of that kind of thing. And then, of course, there's the there's the physical aspect of it to inspecting the machine and all of that, but it's the administrative that makes that possible. It is now time to inspect the machine and document this, for example. Yes, yes. And you raise a hugely important issue. Remember, we said these six equipment management functions were what you want your equipment management team to be good at? Yeah. It's not negotiable, that they are not good at compliance and risk management, right. Okay. That is a completely different skill. It's not to do with oil and grease. It's not to do with nuts and bolts and filters and bearings and bushings. And that's one of the things that's a real fascination about equipment management is it requires a vast spectrum of skills. In the acquisition phase, when we talking about financing, you need a skill, which says and which lease agreement is most advantageous, which financing agreement is most advantageous, you need the skills of a CFO to do the acquisition, notice, I don't say buy because you do a lot more than buy when you acquire or Absolutely. And so we looking at two skills, they're in acquisition and disposal, and, and compliance and risk management that have very little, if anything to do with nuts and bolts, oil and grease bearings and bushings. Okay. And it's a really cool point that you make about the spectrum of skills and aptitudes and attitudes that you need to manage a fleet. It's not just a super mechanic. It's a lot more. Yeah. So So then the next triangle in the hexagon is production interface and logistics. So is that true again, here that we need another set of skills to be doing this? Yes. Well, I guess what is this, what is a huge part about a job and running a fleet is to make sure that you've got the right equipment in the right place at the right time. And you've only got to look at the number of lowboys that a lot of large, local and regional construction companies run. And one of the ways of really managing your fleets and managing the cost in your fleet and your utilization. And your of your fleet is to make sure that it's in the right place at the right time. And if somebody says, I need a machine next week, then you better get it there next week. If you want to find out what somebody what the jobs need, you're going to have to interface with the jobs and you've got to arrange the logistics of the whole thing. And so every equipment management team has got to have its logistics division, if you wish, were its logistics department or its dispatch department, what a lot of people call it right. And so you've got to have somewhere in this team, somebody that runs the lowboys that understands what the jobs need. But understand that if the job needs a 40 ton excavator, sending them to 2010 excavators won't work. And, you know, just interface with because the job sites are your clients, right? Yeah. And so your production at production interface and logistics, very nearly call that triangle, you know, interface with your client for know your client's needs. And your equipment management team needs to know their client's needs. And they also need to know whether you have an abusive client that's hoarding the equipment. Yeah. And then take it away. Yeah. But to get the right stuff to the right place at the right time. And that's what that triangle is all about. And I think your equipment management team has got to be good at that. So then, then that differs from the next one that says field maintenance operations, because that's not you're not talking about in this about actually using the equipment to actually perform the work. You're talking about the maintenance that happens in the field on that once it's deployed. Is that correct? That's correct. Yeah. So now we're talking about your PMS. Now we're talking about oil and grease, fluids, filters and adjustments and your preventive maintenance actions and your condition based maintenance actions. And all the work that your field mechanics do. So you said something interesting to me when I was down at your house? Well, it's almost been a year ago now that you talked about green events, orange events and red events. And so, so the green events or the PMS, the orange events are things that that are indicated that need to happen. And the red events are down events. work stoppage. Did I get that? Right? That's right. Yeah. Yeah. So red event is a is a is a reported emergency. Dan, it's a down event. It's a Breakdown, Breakdown. And and those are those are the those are the leading indicator on the reliability side. Yes, yes. And in this triangle in your field maintenance operations, I sort of rolos repair events in as well. This is this is running field mechanics, right? Yeah. Okay, capability in the field at the workplace, where the machines will be maintained, and where the machines will be repaired. If you're doing repairs at the workplace. If order to do the repairs, you bring them back to the shop, then we're talking about the next triangle, which is your shop and yard operation. Gotcha. And the shop and yard operations now are the physical shop, the the all of the equipment that you have there. And you still might be doing preventative maintenance there at times. But the but primarily, you're doing the things that require the physical presence of the shop. Is that correct? Yes, the machines need a home. And so the yard particularly is where they come between jobs, to have, you know, backlog, maintenance work done. If it's a major repair, they brought back to the shop for the major repairs, they get tied it up, they get fixed up, they get put on the ready line, and made ready for their next deployment. Gotcha. What do you separate them so cleanly between field and shop? What have you seen that Rick said, You didn't just say you have to be world class at repairing equipment, but you said you have to be world class first at field maintenance, and then shop and yard there. What's the distinction there. Your field maintenance operations done by your field mechanics out of your mechanics track in the field. And in many cases, the objective of field maintenance operations is to get the machine up and running and back to work as quickly as you can. pleated 500 hours service, get it going as quickly as you can replace the blown hose get it going as quickly as you can. And your field maintenance operations. The idea there is to get done at the workface get it back to back to operation as quickly as you can go shopping er, you probably got your another group of technicians who've got another group of skills, who working in a shop environment at a bench environment at a super clean environment, the object of the exercise if your wishes to restore the machine to its its full health, okay, and time is probably not as much of the essence, because it's come back here, jobs carrying on and doing their thing. Hurry Now get ready for its next deployment. The objectives have different skills, attitudes, and aptitudes are again different. Sure. So then, then that leads to the final slice here, fleet and asset management, because it does seem that the sharp and yard have more to do with the fleet and asset management than say field operations. But it is tied in on your hexagon right next to acquisition and disposal. So it does feel like that that is a it does kind of complete the circle complete the hexagon again, that the sequencing of the triangles are not is not by mistake. All right? Because again, you're in the same way as acquisition and disposal and compliance and risk makeup earning cost. Your field maintenance and your shopping yards make up operating costs. Yeah. And now you're sitting with fleet and asset management. There. My thoughts were more to talk about the analytics, but the data gathering about the finding out what's happening about the comparing way, you know, doing your costing, doing your reliability studies measuring, running the operation is more talking about the analytics associated with the management of the fleet as an asset here as opposed to the field maintenance or shopping yards where you're managing the fleet as repairing and replacing the machine as a piece of hardware right here. So this is really where your analytics in your costing. And this is where know your costs happens and this is where measure reliability happens. And this is where measure utilization and measure hmm Sure, sure, listen, the quantitative number aspects. And again, a different skill and aptitude because the person is going to be the True Grit administrator who made sure that licenses are renewed, is not going to have the aptitude to doing the sort of stealth investigation to find out what the trend is in reliability here, right. And so this is where you have your your pathologists that are, are investigating what's going on in the in the fleet. And this is where you have skills and aptitudes which are close to estimating because remember, you're estimating the cost of a resource, you're going to use that estimate in the estimate. Right. And so the folks who do your fleet and asset management, the folks who are in that triangle, are very much closer to estimators and costs analysts that are again to mechanics, or playing hardcore administrator. Sure. Sure. Okay. Well, so the second section of this draft, chapter one draft, really, it's actually second, third and fourth sections, if I if I understand it, right, they really now start switching over to how the organization gathers around these functions that we just talked about. And, and there's some, there's some central questions that have shown up and, and I can only imagine that the reason that it's organized this way is because people have asked you these questions. One of the things is, should I centralize my fleet? Should I have it be regionalised? should I have? Should I have that? How should I? Where, where in the organization chart? Should the equipment equipment? Be? Should they be on any device for an operation? Should they be equivalent section? And then you talk about having having even separate capital companies in this section, actual separate entity that would lease or rent this equipment to the main operating company? How did those questions come about, I can just imagine that there was people who sat across you. And there was tension in the room. And there was one guy who said that, you know, this guy over here, and this guy over here, and the CEO is trying to figure out the best way and you're trying to dance between the answer politically Yeah, very interesting issues, very interesting issues. Because, you know, we spoke about founding fathers and we spoke about returning GIS and first generation and second generation and third generations and and formalizing your policies and formalizing your procedures and, and things like that, which happens with growth and maturity, alright. organization and organization structure is amongst those things, which very frequently need organization, right, and structuring and formalizing, because in the beginning, when this guy had founding father and my dad was one of them, you know, he had a shop foreman and the shop foreman kind of did everything, right. And the shop foreman and my dad went fishing a lot, and spoke a lot. And he was kind of, you know, he was that full time dad, my dad was the guy who had to get out and, and build somewhere from time to time. And so you had very informal structures as to how the equipment was costed, how the equipment was maintained, who was responsible for the mechanics, and all those sorts of things. And then kind of as an organization grows, and you've got yourself a Vice President of Operations, does the Vice President of Operations, look after the equipment working in manage projects? Yes, but does the Vice President of Operations who's a construction contractor have the skills aptitudes and abilities to do that? Is he sufficient of a gearhead Alright, now let's imagine you get yourself two vice presidents of operations. They're looking after each of them looking after their fleets while you're going to get two very different sets of opinion because there are no generally accepted practices. Right. Right. And so what are you going to get now you're not going to get duplication and confusion and all sorts of things relating to the management of your fleet, and I've got my machines that work on my jobs. You've got your machines that work on your jobs. You like brand a, I like brand B. You think that these air cleaners are better than those air cleaners, you prefer to do that, you're going to get lots of confusion and duplication and that's not going to be the recipe for success. And so do you appoint yourself? equipment Primo? whatever job title Given. And so listen, go, all equipment decisions are yours. You are running what amounts to an in house rental house, and you are going to make equipment available to the jobs for an agreed rate, you're going to take the risk of that rate being high enough to cover the true cost. Because we're going to make that rate as low as we possibly can to get the jobs because that rate is an estimate within the estimate, right? And how much authority Are you going to give Joe? Are the mechanics going to work for Joe? Is Joe going to be responsible for fueling the machine? If Joe wants a machine for half a day for $1,000? service, you're going to give it to him because you want to get your production targets met, right? So if we create a centralized equipment group, tell me about the empathy and understanding between our equipment Primo and our construction Prema. Tell me about the empathy between our equipment Primo and our CEO, given the fact that the CEO is probably a construction Primo, who's been promoted, because he's damn good at building work. That's right, it hits production targets, and it's his job costs, not because he hit his equipment costs. Right? Right. And so you're going to get all sorts of organizational dynamics between a construction group, and what amounts to a service support group, being the guys that look after the equipment asset, the same way as you get dynamics between an IT group or an accounting group, or HR group to support the organization for the supply of human resources, accounting resources, and equipment resources. So how did these companies handled and once they grow, and naturally, as they grow, they become regionalized? You know, we have several clients right now who are just kind of in the early throes of this right there, they just purchased their second shop, they just purchased, you know, they just they got a big contract in the neighboring state, you know, those kind of things where, where they're, they're capitalizing on their good name, and they're, and they're expanding. And now you have now you have long distances, you know, you know, even you know, hundreds of miles, in some cases, between these two regions where this heavy equipment is needed, and heavy equipment is heavy, and it hard to move it between those two regions. How do you what have you seen there? Well, what's this something that's really made this regionalised fleet very much more possible than it was many years ago. And that is that from a costing and accounting point of view, it's very easy to regionalize your fleet to produce a bunch of subtotals there's a subtotal of all the performance metrics for the fleet working in, in Oregon. And here's a subtotal for all the all the performance metrics for the fleet working in Washington. Yep. And when the fleet is in Oregon, everything that happens when a machine is in Oregon, everything that happens to it in Oregon, is going to be subtotal under those subtotals. And when it's in Washington, everything's going to be subtitled under those subtotals. Maybe Oregon and Washington are bad examples, because they're next door neighbors. But what would happen if you had Oregon and Nebraska or sure you're very unlikely to move machines between Oregon and Nebraska? Sure, you can have regional fleets, but you can also have sort of business land fleets. So I've got a heavy grading operation. And I've got a bunch of guys who concentrate on heavy grading, I've got a commercial building or a civil engineering or project of mechanical electrical operation. And so I divide my fleet by functional lines, business lines, in a way that I can divide my fleet and regional business lines. divide my organization from a reporting an accountability point of view, in so far as construction is concerned, then I might as well divide my organization from my accountability and responsibility point of view in so far as my fleet is concerned. Because of course, remember, in our centralized fleet, your vice president of operation pays the internal transfer price. And your Vice President of Operations never experiences the true cost of your fleet. Yeah. If there's a Difference between your internal transfer price your rate and the to your fleet, that budget variances consolidated in the equipment account at a corporate level. And so you're going to get the fleet manager responsible for the budget variance between the rate and the true costs of the fleet. The operations guys is going to be responsible for the budget variance between the cost of construction and the true cost of labor materials and subcontractors for the internal transfer price for equipment. Yeah, okay. Now, if I can, subtitle and regionalised my fleet, any variance between the transfer price and the true cost can be consolidated in the financial performance matrix of the regional manager? Yes. So the regional manager now can't hide behind, if you wish, the skirts of the equipment manager? Yeah, yep. Okay. And that's a big reason to regionalize your fleet, because you're now making regional construction manager responsible for the true cost. Yeah. And what's so interesting, you mentioned earlier, too, it's, it's very possible to do this with modern accounting systems. With modern accounting systems. It's it, it's, it's made much easier than it was in the bad old days when I have to walk uphill both ways. So yeah, great lectures to fill out. Yeah. And so it's a modern accounting systems can can do this very, very much, very easily and straightforward. And if you move machines from one, operating districts from one business line responsibility center to another, you will need to acknowledge that movement one way or the other. Yeah, you do. Final question on this chapter that I had kind of reading through this was about the capital company in leasing companies. And I've seen this, I've seen this occasionally, it seems like that, that, you know, as companies grow, they, they kind of flirt with this a little bit. Oftentimes, for tax reasons. You know, there'll be there'll be some, it'll be advantageous to have a, have a company in one place rather than another. And they'll lease each other, you know, the equipment. There's, there's some tax reasons for that reading through there. It struck me, I said, Do you have a firm opinion, one way or another on capital companies? Have you seen this go badly? Have you seen this go? Well, what was you know, there's, there's, it seems like, if you have a capital company, there's clearly ways you can do it badly. But the very first question is, should I have a capital company to begin with? Well, three or four of my clients do it. There are quite definitely pros and cons. The most significant Pro is that in that capital company, and the company that acquires all the equipment, handles all the capitalization and the financing of that equipment, and then acts almost as an in house leasing house to the construction company. In that capital equipment capital company, you can bring a lot of really smart finance, and acquisition people to bear. And you really create expertise in a in a defined organization. These, these folks would probably not even know the difference between oil and grease. And nor would they care. No, they need to show what's the difference between an operating lease and a financial lease. Okay. And they should know the difference between cash flow before tax and cash flow after tax. And they sure know that one discounted cash flow is negative return. Right. And so you're bringing that expertise together. And that's one good reason that I've seen the other reason which a lot of folks cite as a good reason, but which truly isn't, is they feel they can create a corporate veil between the company that owns the assets and the company that runs the assets, okay, from a litigation point of view, okay. If the ownership of the two organizations is the same, then that veil is easily pierced. I think that brings us to Reason number three why some folks do it. And that is that the construction company and the capital equipment company might have a different set of owners. Let's imagine a situation where the company that owns the equipment, which is a very much more financial high tech But risk, lower risk business in the construction business. It certainly doesn't require engineers. All right, sure why that company might have a different group of shareholders could be more closely aligned with the family and its interests? Sure, I've seen family wealth. Yeah, I've seen I've seen the that used as a way of transferring ownership actually, where the operating business which is, which becomes an asset light is more easily purchased by the second generation who are just coming up and don't have the capital to purchase. And the first generation in their older age, retains these assets for a time, or if the family retains the assets, and then is very relaxed, with regards to transferring ownership of the operating company, to the operating managers here. Because if the operating managers then get the fruits of their operating decisions, as owners, and the capital intensive capital company gets the fruits of the way in which we're investing our wealth in the beyond. Alright, so there, so there are lots, there are folk, in my personal experience who do that very successfully. The downside, of course, is you've got to be pretty damn careful with regards to sales tax. Because you feel selling something from one entity to another entity, especially that entity has sufficiently different ownership levels, to have a fairly comprehensive litigation wall to stop you on claims against the operating company, then you that wall is probably sufficient to cause there to be sales tax to throws money over that wall. Sure. And so you might end up paying sales tax. Sure. coming and going. Yeah, there are a lot of smartphones who work on that. Yeah, yeah, that makes sense. So there are pluses and minuses under the right conditions. It's been very successfully done. Well, you know, all of this leads right into chapter two. But unfortunately, I don't think that we have time today to talk about chapter two, maybe we can get together later on and talk about it. But you know, it, it seems that so much of what you're talking about when we talk about what you've seen and your opinions on things and how you came up with this framework comes from your understanding of the people involved? And if I understand, right, that's chapter two in a nutshell, how do people work together to get these things done? Yes, because you know, success is a team sport. Yeah. And we're caught between two competing forces in the first case, we want to divide our organization into very clear responsibility centers. And we want to get right, smart, competitive, ambitious people running the responsibility centers. Well, let's let's get together then. And, and I because I have so many more questions on that side, because that's that is that is, it's just fascinating how people work together in order to get a common cause done. And even defining what is their common cause can be kind of a problem sometimes. So let's get together and talk about that when we talk about chapter two. And, and I think that I think that this is, this is fascinating, you know, this is, this is probably a good time to break here. But thank you very much for talking about this. That's it for today, folks. See you next time.