Reduce Diesel-Fuel Consumption First to Increase Profit Margin
Understanding the Peurifoy and Schexnayder Method (PSM) of Cost Estimating in Order to Understand Heavy-Equipment Cost Cutting
“Bottom-line” is the layman synecdoche in engineering, architecture, construction, development and the trades for profit, profit after costs. The total on a balance sheet — typically the last line of a costs-versus-profits calculation, — the bottom-line refers to net profit.
The meaning of the bottom line is generally understood by everyone in a company from top to bottom. Companies who can keep the bottom line in the black generally succeed. Those companies with a bottom line in the red are failing.
Increasing profit margin of a heavy-equipment company can be difficult. And, there is only one means of doing so immediately, cut costs. But, minimizing the sum spent from gross profit to achieve a net gain is a difficult proposition as well.
While cutting heavy-equipment costs is the quickest way to increase the bottom-line, it comes at a price: quality.
The Peurifoy and Schexnayder Method (PSM) can help a company determine where to cut costs without sacrificing quality.
R.L. Peurifoy: Father of the Construction & Development Bottom-Line
Before passing in 1995, Dr. R. L. Peurifoy was an engineering professor at Texas A&M for more than three decades. He is also the author of some of the most coveted construction economics books and essays ever written.
Dr. Peurifoy was the father of modern construction engineering. That, according to Douglas D. Gransberg, author of Construction Equipment for Engineers, Estimators, and Owners,
“His seminal work on the subject [set] the standard for using rigorous engineering principles to develop rational means for developing cost estimates based on equipment fleet production rates.”
R. L. Peurifoy’s engineering principals are the foundation of construction and development cost estimates. And, the Peurifoy and Schexnayder Method (PSM) is the formula for cutting heavy-equipment costs.
Heavy-Equipment Cost Estimating with the Peurifoy and Schexnayder Method
The Peurifoy and Schexnayder Method (PSM) is a cost-estimate formula for heavy-equipment ownership and operation. The PSM allows companies and owner/operators to calculate costs of heavy equipment over the course of a machine’s life.
The PSM method divides costs into two categories: ownership costs and operating costs.
Calculating Heavy-Equipment Ownership Costs
The first category of costs that affect a company’s or owner/operators bottom line is ownership costs. Ownership costs associated with heavy equipment are — if defined simply — those costs that do not directly contribute to production.
There is a direct correlation between heavy-equipment operational costs and heavy equipment production. Production is a corollary of diesel fuel, for example.
But, the value of ancillary ownership costs like licensing and emissions testing do not directly translate to daily production. Heavy-equipment ownership costs are typically those costs that will not affect daily operations even though they are required or necessary.
Heavy-equipment ownership costs include things like:
•Cost of the machine minus cost of tires.
“Ownership costs are determined by computing the equivalent uniform annual cost (EUAC) of the initial costs and the estimated salvage value,” explains Gransberg. In a report written for the Minnesota Department of Transportation titled, Major Equipment Life-Cycle Cost Analysis.
Calculating Heavy-Equipment Operational Costs
The second category of heavy equipment costs — according to the Peurifoy and Schexnayder Method (PSM) — are heavy-equipment operating costs. Most company administration and owner/operators have a perfunctory understanding of operating costs. PSM operating costs include:
•Diesel fuel costs.
•Equipment operator costs.
•Machine repair and upgrade costs – engine, instrument, and electronic parts; new technologies, etc.
•Maintenance costs – filters, oil, and grease (FOG) costs.
•Track and tire cost – tire and/or track repair costs.
Accounting for owner and operator costs provides the information necessary to determine where to cut costs. Accounting for owner and operating costs, allows a company to determine what costs eat away at the bottom line.
Fuel Consumption Reduction Versus Cutting Other Ownership and Operation Costs
Determining the effect of owner and operating costs on the bottom line is a crucial exercise. The Peurifoy and Schexnayder Method allow companies to fully understand the discrepancy between gross profit and net profit.
But, it does not always require a complex PSM calculations — f IC = AIC=IC[i(1 + i) n /[(1 + i) n 1]], for example.
There is a universal truth with respect to heavy equipment costs. Reducing fuel consumption is the only means of cutting heavy-equipment costs without lowering quality.
With One Exception, Cutting Heavy-Equipment Costs Means Lowering Quality
After calculating owner and operator costs — the two cost categories of PSM — one thing becomes abundantly clear.
Cutting heavy-equipment costs — with one exception — means lowering quality standards.
Purchasing a machine is one facet of owner costs. But, to reduce the significance of the cost of purchasing a machine, a company or owner/operator must sacrifice quality. To lower the price of a machine, a purchaser must buy an older machine. Or, they must purchase an inexpensive make. Or, the company or owner/operator must purchase less expensive model.
Without fail, a company sacrifices quality when trying to save money during a machine purchase.
The Peurifoy and Schexnayder Cost-Estimating Method show that financing programs are costly over the life of a machine. Buying used equipment means buying a machine with a lower salvage value than that of a comparable newer machine. Used machines typically have higher maintenance and repair costs. They require new tires sooner, for example.
The same can be said of purchasing parts. Inexpensive parts are almost invariably cheaper, lower quality. The same can be said of hiring operators with less experience in order to pay a lower wage. The quality of an inexperienced operator is almost invariably lower than that of an operator who expects a higher wage.
Across the board, with regard to heavy equipment, less expensive means less quality.
There is only one exception: diesel fuel savings.
Reducing Diesel-Fuel Inefficiency Fastest Means of Increasing Heavy-Equipment Profit Margins
With the exception of diesel-fuel consumption reduction, every cost-cutting approach hurts quality in one respect or another. The question is, then, what are the most effective means of cutting diesel fuel costs. “Fuel costs are a function of how a machine is used in the field and the local cost of fuel,” (Peurifoy and Schexnayder 2002).
The Peurifoy and Schexnayder Cost-Estimating Method assume fuel costs — in conjunction with diesel prices — are a function of operator methods. As such, some heavy equipment technology companies now focus energy on improving the efficiency of operators.
GPS heavy equipment operating devices allow companies to monitor operating efficiency by tracking machines; adding up idle time; logging machine speed and engine RPM, and weighing loads with on-board sensors.
Engine idle reducers drop the RPM of an engine governed by an engine speed lever or selector switch. If and operator does not engage the machine for more than a few seconds, the engine idle reducer activates
However, there is another approach to reducing fuel consumption that removes the human-error variable from the fuel-consumption equation: atomizers.
Atomizers: Function and Effectiveness
Fuel atomization is a means of increasing the energy output of a unit of fuel. Diesel — and all other petroleum fuels — are not homogeneous. Instead, petroleum fuels are a mixture of molecular clusters. The more clusters in a fuel mix, the less clean a fuel burns. When fuel burns poorly, it does not burn completely, resulting in potential energy lost as exhaust pollution.
Atomizers distribute fuel molecules evenly in diesel.
By breaking up diesel fuel molecule clusters, atomizers allow an engine to burn fuel more completely. Complete combustion saves fuel.
Saving fuel saves money.
Types of Atomizers
There are two types of diesel fuel atomizers: catalysts and injectors. Catalysts are fuel-line, pre-combustion atomizers. Injectors are also pre-combustion, but use a different mechanical process to atomize diesel fuel.
Injectors atomize fuel with air pressure. Traditional injectors force fuel into diesel engine cylinders with around 6,500 psi of pressure. Some new injectors do so with ten times that sum. High-pressure injectors are expensive and can damage engines unequipped for the pressure, but the future of injectors has potential.
Fuel catalysts are mechanical devices — cylinders housed on the fuel line — made of precious and noble metals. Catalysts break up the naturally-occurring clusters in fuel. The Rentar reduces fuel consumption by between 3% and 8% on track and wheeled heavy equipment and trucks. The Rentar reduces fuel consumption by up to 12% on marine diesel engines. And, the Rentar reduces fuel consumption by up to 30% on furnaces and boilers.
Clear Path to Cutting Heavy-Equipment Costs
Wages are the greatest operating cost, by a small margin. But reducing wages to save money is cutting off your nose to spite your face. Cutting fuel costs is the most effective and impactful means of cutting operational costs as a heavy equipment company.
And there are two means of cutting diesel fuel costs: improve operator efficiency and improve the diesel combustion efficiency.
The Rentar Fuel Catalyst is the most productive, efficient and impactful means of cutting operational costs. The Rentar is guaranteed to produce a return on investment within 12 months and it has a 10-year guarantee.