Is a hidden cost lurking in your facility?
If your company is like most companies, you’re spending significant—and unnecessary—money on rental equipment. And that cost is flying under the radar.
While practically every facility needs rental equipment occasionally, rentals should be a short-term solution. But, once rentals are on site, they often get lost in the mix. The supply chain crisis only compounded this issue, since rentals spiked as companies waited months for equipment.
When TFS takes on new clients, we always conduct a baseline assessment to understand the client’s current situation and needs. One thing TFS executives have noticed is a surge in long-term rental equipment. That results in a substantial—and essentially untracked—cost.
“People tend to forget that rentals are two to three times more costly than a lease,” said Nate Josic, Regional Vice President at TFS. “And what happens often is that a warehouse manager sources a rental to fill an immediate gap, but that forklift gets forgotten. As a result, the company pays for it much longer than originally intended.”
Common billing processes make it surprisingly easy for forklift rentals to fall off a company’s radar. For example, new purchases typically go through a formal capital approval process. That means specific purchase orders (POs) are set up monthly to pay for new asset purchases; those POs are subsequently tracked in the SAP or payable systems, which keeps everyone in the loop. In contrast, rentals are typically combined on a blanket PO with other short-term maintenance requests, leaving them to accrue monthly expenses until someone takes notice.
“It’s common for facilities to bring in a rental and use it for a month or two, then completely lose track of the payments. That’s because it gets billed against a blanket PO versus a specific purchase order created for an asset for a limited period of time,” explained Josic. “Because of that process difference, companies are not only losing track of how long an asset’s been at their facility, but they are also losing visibility into how much they’ve paid over time.”
Without adequate fleet management and tracking, he continued, it’s easy for warehouse teams to forget how long rentals have been part of their fleet. What’s more, until someone on the finance team finally takes notice, it can be tempting to let the arrangement stand rather than begin the lengthy procurement process.
“Eventually, those ‘lost’ rentals do fall on someone’s radar, but where do you go from there after it’s been six months and that piece of rented equipment becomes a necessity to the operation?” asked Josic. “Going through that buying or leasing process takes a lot of time and effort that most companies aren’t willing to spend unless they’re mandated to, so what often happens is the rental stays on, and the costs keep adding up.”
Rethinking the rental approach
Rentals can be effective in bridging short-term needs. Nevertheless, there is a benefit to taking a step back and asking a few questions before making the call. Consider the following:
How long will my company need this forklift?
This is the first and most basic question. Does current and future volume warrant the need for this equipment? If it’s a long-term need, can you get a discount? Does the current volume make this rental a necessity? If not, it may make more sense to return it and save the expense.
Can you reallocate a forklift from elsewhere in the organization?
The solution to your fleet gap may be collecting dust in another warehouse.
“You’d be shocked how often a big site has assets sitting in one department that could be used in another department,” Josic said. “They don’t reallocate them because those departments aren’t communicating about even their level of utilization on that piece of equipment.”
Holistic data is the answer, but if you don’t have that, a few calls to different facility managers can save significant money in the long run.
Do you have a plan to source a more permanent solution?
Typically, a rental should only last between one and three months. Beyond that, it’s time to take a second look at if warehouse activities justify continued usage. If so, are there longer-term solutions or alternatives that may work better for that length of commitment and drive prices down?
Making rentals work for you
Even when it appears rentals are the best option, it’s important to ensure you enter into the best arrangement given your operational needs and budget.
For starters, it pays to assess how the forklift will be utilized on the warehouse floor. It may be tempting to take anything you can get, but you could be paying for more than your operation needs.
Josic shared an example: “Let’s say a company needs a forklift to move a 3000-pound pallet; the only thing available as a rental is a forklift that can handle 10,000 pounds. Sure, that meets their needs for the time being, but it’s overkill. With more time and resources, they might have discovered that a 4,000-pound forklift was available a month later and swapped the big lift out for the smaller, less expensive one.”
But finding the time and resources to stay on top of the rental market isn’t easy when you’re already stretched. In those cases, a partner can be useful.
“TFS or a fleet manager can help in those cases by examining all options—and staying on the case,” Josic said. “That way, if only a 10,000-pound forklift is available, we can keep looking for the smaller option that’s a better fit. When that option becomes available, they can significantly lower their costs.”
Many operations and finance people aren’t aware they can negotiate a discount with rental companies if it becomes clear that a short-term rental may be required for longer than initially expected.
“Not everyone realizes that there is the option of picking up the phone and asking for a discount, especially if they come in saying they’ll sign a 12-month commitment,” says Josic.
Lastly, it pays to explore your options. Many companies have their go-to sources for forklift rentals, but that doesn’t guarantee they get the best price or range of options.
“TFS has an advantage in that regard,” added Josic. “Thanks to our nationwide partnerships, we’re able to source from a wider pool of options and find a lower-cost alternative. It might be 30 minutes away or across the country, but we can track alternatives down.”
Again, rentals are not an inherently bad idea—but unintentional misuse can cost companies far more than they realize. That’s why it pays to consider alternatives, explore rental options, and put best processes in place.
