Cleveland Brothers is a construction equipment company founded in 1937 that operates through four divisions: construction equipment, rentals, power systems, and aggregate products. It has over 1,200 employees across 27 facilities in central Pennsylvania. The document discusses life cycle costing (LCC), which evaluates the total cost of owning a piece of equipment over its lifetime, including purchase price, fuel, maintenance, repairs and resale value. It provides an example LCC calculation for a Caterpillar motor grader over five years to demonstrate how LCC determines the lowest overall cost rather than just the initial purchase price.

1. LIFE CYCLELIFE CYCLE
COSTINGCOSTING
Harrisburg
10/1/08

2. AgendaAgenda
 Welcome / Introductions Tom Kirchhoff
 Cleveland Brothers Jack Pajan
 What is Life Cycle Costing? Jack Pajan
 Custom Support Agreements Daren Ashurst
 LCC Example Bill Hitchcock
 LCC Calculator Bill
Hitchcock
 Lunch

3.  Landscape Contracting Company
Founded in 1937 by Bob and Roy
Cleveland
 Established Caterpillar
Dealership in Central
Pennsylvania in 1948
 Acquired HO Penn in 1965
 Companies split in 1968, Roy’s
family became sole owners of
Cleveland Brothers
 1980 – Jay Cleveland Sr. and Bill
Kirchhoff assume control
 2001 – Jay Jr. and Tom Kirchhoff
assume control
 Acquired Beckwith Machinery
and One Call Rentals in 2005
Company HistoryCompany History

4.  Cleveland Brothers operates its business through
four primary divisions:
 Construction Equipment – large construction, general
construction, mining, industrial equipment, and product
support
 One Call Rentals – compact construction and other smaller
equipment
 Power Systems – truck engines, generator sets, chillers and
other power systems equipment and industrial engines
 CB Con Agg – crushing and screening products for the
aggregate and construction industries
OperationsOperations

5. Branch Locations/TerritoryBranch Locations/Territory

6. Total CapabilitiesTotal Capabilities
Cleveland BrothersCleveland Brothers
 Total Employees ………1292Total Employees ………1292
14401440
 Servicemen …………… 586Servicemen …………… 586
707707
 Service Trucks ………… 184Service Trucks ………… 184
242242
 Total Number of FacilitiesTotal Number of Facilities 2727
Since October 7, 2005Since October 7, 2005 August 2008August 2008

7. LIFE CYCLELIFE CYCLE
COSTINGCOSTING
Harrisburg
10/01/08

9. What Is COSTARS?What Is COSTARS?
 COSTARS is a new approach to the State
Cooperative Purchasing Program
 COSTARS encourages a partnership
between Local Public Procurement Units
and The Commonwealth

10. DGS/COSTARSDGS/COSTARS
 DGS requires Local Public Procurement
Units to register as COSTAR members.
 The CONTRACTOR agrees to sell items
under this contract to DGS-registered
COSTAR members.
 The CONTRACTOR is not permitted to use
the contract to sell to non-COSTAR
members.

11. Cleveland Brothers
Equipment Company is
Proud to be a COSTARS
Supplier

12. STATE/PIGGYBACK CONTRACTSSTATE/PIGGYBACK CONTRACTS
 2420-02 DGS All CAT
equipment
 2540-04 PennDot Graders/Wheel
Loaders and
BHL
 2540-06 PennDot Asphalt Rollers
_____________________________________
NATIONAL
 NJPA National Joint Purchasing

13. Government Buying Challenges:Government Buying Challenges:
 Meet Community/State/Federal
needs and Government rules
 Make the best use of taxpayer
dollars
 Maximize Value to your
Community

14. Governmental Acquisition MethodsGovernmental Acquisition Methods
 State Contract / Piggybacking
 RFP/RFQ
 Criteria Based Bid
 Leasing
 Rental / Purchase
 Low Bid Meeting Specification

15. Low Bid ShortcomingsLow Bid Shortcomings
 Promotes creative SPEC writing
 Decision based on only 20% of Total Cost
 Award based on text, not iron
 Taxpayer’s $$ invested in low VALUE
 Unfair to both Taxpayer & Suppliers

16. Consumable Goods v. CapitalConsumable Goods v. Capital
GoodsGoods
 Consumable: Something used up in the
production process
 Capital: Not used up (durable); used to
make other things that are of value

17. Here’s the Point:Here’s the Point:
You CANNOT
determine the VALUEVALUE
of Capital Goods by
using the PRICEPRICE!

18. TheThe VALUEVALUE of Capitalof Capital
GoodsGoods
Total Cost Over the
Productive Life
(Life Cycle Cost)

19. There’s a better way to get theThere’s a better way to get the
most reliable equipment at themost reliable equipment at the
lowest total cost!lowest total cost!
LIFE CYCLE COSTING

20. Life Cycle Costing is not NewLife Cycle Costing is not New
 Endorsed by several governmental associations:
– NIGP – National Institute of Governmental
Purchasing.
– NASPO – National Association of State
Procurement Officials.
– NAFA – National Association of Fleet
Administrators.
– ABA – American Bar Association (Model
Procurement Code).

21. “Life Cycle Costing is a form
of Value Analysis that
establishes the best value
over the life cycle”.
NIGP Specification Writing, 2nd Ed
What is Life Cycle
Costing?

22. “Life Cycle Costing is a type of
price/performance evaluation. It
involves a broad-based
evaluation of operating,
maintenance, financing, other
ownership and usage costs, and
resale or residual value in
addition to acquisition price in
making a contract award”.
NASPO, State & Local Gov’t Purchasing Principles &
Practices, 2001

23. ““ Life Cycle Costing is aLife Cycle Costing is a
mathematical model to assistmathematical model to assist
fleet managers in makingfleet managers in making
financial decisions byfinancial decisions by
consideringconsidering ALLALL vehicle orvehicle or
activity costs over the course ofactivity costs over the course of
its life.”its life.”
Christopher D. Amos, CAFM
Commissioner of Equipment, City of St. Louis
NAFA Senior Vice President

24. Life Cycle CostLife Cycle Cost
Selling PriceSelling Price
- Trade In Value- Trade In Value
- Buyback- Buyback
+ Extended Warranty+ Extended Warranty
+ Fuel+ Fuel
+ Sched.+ Sched.
MaintenanceMaintenance
+ Repairs+ Repairs
= Life Cycle Cost= Life Cycle Cost
+Total Maintenance+Total Maintenance
& Repairs (TM&R)& Repairs (TM&R)

25. NINE MAJOR BENEFITSNINE MAJOR BENEFITS
1. Measuring machine quality
2. More accurate budgeting
3. Insurance policy
4. Protects against rapid depreciation or low
resale value
5. Guarantees the cost of routine maintenance
6. Assures dealer commitment to availability of
parts and service
7. Helps agencies buy best machine for the job
8. Protects taxpayer dollars by ensuring true
lowest cost

26. Who uses it?Who uses it?
 44 of 50 (88%) US states specifically
allow awards based on Life Cycle
Costing
 Other 6 don’t specify but some known to
practice it: Alabama, Michigan. Missouri,
South Dakota, West Virginia, Wyoming

27. AdvantagesAdvantages
 Eliminates most risks of machine ownership
 Eliminates the hassle of unexpected repairs
or unforseen downtime.
 Easier to Budget
 Protection against a dealer who doesn’t
stand behind what they sell
 Gets the most value for the money for your
taxpayers

28. AdvantagesAdvantages
 Better purchases, better equipment, more
productivity
 Peace of mind knowing that you’ve utilized
your budget wisely and have made the best
equipment choice at the lowest total cost

29. You control the Process:You control the Process:
 You establish the performance
requirements
 You finalize machine/attachment needs
 You determine your maintenance role
 You control options/specs

30. Life Cycle Costing clarifies theLife Cycle Costing clarifies the
process:process:
 Designed to attract qualified suppliers
 Gives all suppliers and equal opportunity
 May eliminate those lacking confidence
 Enables you to accomplish more with less

31. Potential Bonus!Potential Bonus!
 You know the minimum repurchase value
 You have a floor with a guaranteed
buyback price
 You can sell at a higher price
 Your budget benefits from any higher
differential

32. Questions?Questions?

33. Customer Support AgreementsCustomer Support Agreements

34. What are CSAs?What are CSAs?
Customer Support Agreements: A CSA is any
agreement between a Dealer & Customer, for the Dealer to meet
some or all of the Customer’s Equipment Management needs.
Agreements
Powertrain

35.  TM&R, Total Maintenance & Repair covers the majority of the machine
for contract service.
 PCRP, Powertrain Component Repair Program covers the major PT
components “only” for “out of chassis, major failures”.
 PCLP, Powertrain Component Life Program provides for replacement PT
components at a prorated price based on an established life cycle.
 IOP, Inspection Only Program provides comprehensive machine
condition monitoring / reporting on a scheduled basis.
 PM (TLC or Monitor Service), Preventative Maintenance provides
scheduled machine fluid & filter replacements at CAT recommended
intervals.
All CSA program terms and conditions are flexible to meet any
customer’s needs. Billing arrangements are generally “cost per hour”
based on individual machine operation.

36. TM&R – Breakdown of ExpenseTM&R – Breakdown of Expense

37. What does a Total Maintenance & Repair
(TMR) contract provide for:
 All in-chassis or out of chassis repairs to the machine (i.e.; turbo charger,
final drive, water pump, transmission, drive shaft, hydraulic cylinder, etc.)
 All associated travel time & mileage charges (to and from your site)
 All contract hauling charges (if an engine needs repaired in our facility)
 All inspection & adjustments to the powertrain to stay in compliance with
Caterpillar Warranty Requirements, (i.e.; engine valve lash or unit injector
adjustments)
 All S.O.S. (Scheduled Oil Sample) analysis and follow up (24/7)
 All report writing, record keeping and distribution to your contacts

38. CSACSA
CoordinatorCoordinator
Assigned to your specific machineAssigned to your specific machine
MachineMachine
ConditionCondition
ReportReport

39. Field ServiceField Service
TechnicianTechnician
Dispatched for CSA machine service & repairsDispatched for CSA machine service & repairs
DiagnosticDiagnostic
InspectionInspection
ReportReport
Page OnePage One

40. Field ServiceField Service
TechnicianTechnician
Dispatched for CSA machine service & repairsDispatched for CSA machine service & repairs
DiagnosticDiagnostic
InspectionInspection
ReportReport
Page TwoPage Two

41. PM (TLC)PM (TLC)
TechnicianTechnician
Expert in your machine’s PM needsExpert in your machine’s PM needs
PreventativePreventative
MaintenanceMaintenance
ReportReport

44. CSAs In Other IndustriesCSAs In Other Industries
 Xerox

45. CSAs In Other IndustriesCSAs In Other Industries
 IBM

46. CSAs In Other IndustriesCSAs In Other Industries
 Airbus

47. CSAs – Value Added ServiceCSAs – Value Added Service
SolutionsSolutions
 Caterpillar

48. CSAs – Measured growth inCSAs – Measured growth in
contracts in past 18 to 24contracts in past 18 to 24
months:months:
 Number of CSA contracts in 2006 equaled 718
 Number of CSA contracts through 2008 equals 814
 Our industry, and current customers are affirming
that CSAs and “fixing costs” make good business
sense!
 13% Growth!

49. Using Life CycleUsing Life Cycle
CostingCosting
Bill Hitchcock

50. 2.5
1.7
1.5
1.5
0.8
0.7
0.5
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5
Productivity
Availability
Operating Costs
Utilization
Resale Value
Interest Rate
Selling Price
Percent Change
The Seven Factors AffectingThe Seven Factors Affecting Bottom LineBottom Line

51. 2.5
1.7
1.5
1.5
0.8
0.7
0.5
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5
Productivity
Availability
Operating Costs
Utilization
Resale Value
Interest Rate
Selling Price
Percent Change
The Seven Factors AffectingThe Seven Factors Affecting Bottom Line Cost/HrBottom Line Cost/Hr

52. 2.5
1.7
1.5
1.5
0.8
0.7
0.5
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5
Productivity
Availability
Operating Costs
Utilization
Resale Value
Interest Rate
Selling Price
Percent Change
The Seven Factors AffectingThe Seven Factors Affecting Bottom Line ROIBottom Line ROI

53. 2.5
1.7
1.5
1.5
0.8
0.7
0.5
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5
Productivity
Availability
Operating Costs
Utilization
Resale Value
Interest Rate
Selling Price
Percent Change
The Seven Factors AffectingThe Seven Factors Affecting Bottom Line CostBottom Line Cost

54. Life Cycle CostingLife Cycle Costing
ExampleExample

55. Life Cycle CostLife Cycle Cost
Selling PriceSelling Price
- Trade In Value- Trade In Value
- Buyback- Buyback
- Extended Warranty- Extended Warranty
+ Fuel+ Fuel
+ Sched.+ Sched.
MaintenanceMaintenance
+ Repairs+ Repairs
= Life Cycle Cost= Life Cycle Cost
+Total Maintenance+Total Maintenance
& Repairs (TM&R)& Repairs (TM&R)

56. CaterpillarCaterpillar
120M AWD120M AWD
Motor GraderMotor Grader

57. LCC AssumptionsLCC Assumptions
 5 Years
 500 hrs per year utilization
 5 Year Warranty
 Trade
 Buyback
 Diesel Fuel @ $5.00 per gallon

58. PurchasePurchase
PricePrice

59. Trade InTrade In
AllowanceAllowance
Cleveland Brothers Equipment Co., Inc.
1979 Caterpillar 120G
Equipped: Cab ; heat; 12' blade; front balderson coupler; hydraulics to front; front scarifier; 2
front & 1 rear light; Beacon; turn signals; Suspension seat; front & rear wipers; 6
forward adn 6 reverse speeds; All 2-piece rims; Left side outside mirror; float on
blade
Selling Price: $32,000
Hours: 3,500
Serial Number 087V04846
Bill Hitchcock
Phone: (570) 822-8141
Mobile: (570) 407-9594
Email: bhitchcock@clevelandbrothers.com
When you buy from Cleveland Brothers, you buy more than just iron.
Cleveland Brothers Equipment Co., Inc.
5300 Paxton Street, Harrisburg, PA 17111
(717) 635-7409 (866) 532-9023 Fax (717) 564-3964
www.clevelandbrothers.com

60. BuybackBuyback

61. ExtendedExtended
WarrantyWarranty
CoverageCoverage

62. FuelFuel
ConsumptionConsumption

63. ScheduledScheduled
MaintenancMaintenanc
e & Repaire & Repair
ExpenseExpense
(TM&R)(TM&R)

64. Life Cycle CostLife Cycle Cost
Selling PriceSelling Price
- Trade In Value- Trade In Value
- Buyback- Buyback
+Extended Warranty+Extended Warranty
+ Fuel+ Fuel
Sched. MaintenanceSched. Maintenance
+ Repairs (TM&R)+ Repairs (TM&R)
= Life Cycle CostLife Cycle Cost
$215,900$215,900
(32,000)(32,000)
(107,500)(107,500)
7,1507,150
41,25041,250
21,08021,080
$145,880$145,880

65. Example:Example: PricingPricing
Initial PurchaseInitial Purchase
PricePrice
BuybackBuyback
Net PriceNet Price
$170,000
(105,000)
$65,000
DealerDealer
AA
DealerDealer
BB
DealerDealer
CC
$125,000
(70,000)
$55,000
$130,000
(80,000)
$50,000
High Buyback values are a result of Superior
Resale value in the market & is a direct return
on investment to your agency

66. Example:Example: Add Fuel CostAdd Fuel Cost
Net PriceNet Price
Fuel CostFuel Cost
TotalTotal
$65,000
23,150
$88,150
DealerDealer
AA
DealerDealer
BB
DealerDealer
CC
$55,000
39,400
$94,400
$50,000
36,250
$86,250
Superior Fuel Economy offsetsSuperior Fuel Economy offsets
substantial price differentialssubstantial price differentials

67. Example:Example: Add MaintenanceAdd Maintenance
Net PriceNet Price
MaintenanceMaintenance
TotalTotal
$88,150
20,250
$108,400
DealerDealer
AA
DealerDealer
BB
DealerDealer
CC
$94,400
24,300
$118,700
$86,250
23,000
$109,250

68. Example:Example: Add RepairsAdd Repairs
Net PriceNet Price
RepairsRepairs
Life Cycle CostLife Cycle Cost
$108,400
7,400
$115,800
DealerDealer
AA
DealerDealer
BB
DealerDealer
CC
$118,700
10,200
$128,900
$109,250
8,500
$117,750

69. Factors contributing to lowerFactors contributing to lower
Maintenance Costs:Maintenance Costs:
 Superior Designs
 Technological Advancements
 Longer Service Intervals
– Lowering cost of fluid, filters & associated labor
 State of the art manufacturing & best
practices built into every machine
– Increase durability
– Improve reliability

70. Factors contributing to lowerFactors contributing to lower
Repair CostsRepair Costs
 Premium Products backed by Superior
Service
– Requires fewer repairs over the life of the
machine
– Superior Service Locations & Capabilities
– Superior Parts Availability

71. Location LOCATIONLocation LOCATION LOCATIONLOCATION

72. External Clients Utilizing CAT LogisticsExternal Clients Utilizing CAT Logistics®®
Industrial
Aerospace &
Defense Technology
Automotive
Consumer Retail

73. LCC Calculator from Cleveland
Brothers

74. Where can I get moreWhere can I get more
information?information?

75. SummarySummary
 Adds a new dimension to purchase evaluation
 Strengthens competitive low cost philosophy
 Removes Guesswork from Budgeting
 Establishes all major costs in advance
 Creates standards for quality evaluation
 Saves worry about downtime costs and lack of
availability
 Ensures that suppliers stand behind products
 SAVES TAX DOLLARS!SAVES TAX DOLLARS!

76. QUESTIONS?QUESTIONS?

77. THANKTHANK
YOU!YOU!