A large corporation has projects going on in five states at once. On each project, the contractors work with local rental companies that specialize in aerial equipment, earthmoving, compaction, generators and supplies.
If the local project managers contact five different rental companies, they can get everything they need. Twenty-five calls, 25 or more deliveries, 25 or more invoices, 25 sets of negotiations over rates, an infinite number of variables and considerations and possibilities for error.
Is there an easier way? According to many companies, yes. Outsourcing is the '90s style of business - a philosophy to be embraced even more into the next decade, they say, by reducing the quantity of vendors. Through sole-source contracts and preferred vendors, profits can be increased, preaches the new generation of executives.
"What's different today in the rental business is that [the customer] wants to make one call to one 800 number and expects you to satisfy all his needs," says Tom Bennett, CEO of Houston-based Prime Equipment. "They don't want to have to make 25 or 30 different calls to get a project handled. They want to be able to work anywhere in the continental United States [or beyond], and they want consistent pricing, consistent service and on-time availability. Anything less than that is just not acceptable. That is the standard that is being set."
For the larger rental chains, the creation of a national account facilitates the relationship with the customer. Rental companies offer benefits for national account status, such as preferential pricing, priority status on equipment delivery and service, a national line of credit, used-equipment locator services, toll-free national account phone numbers, and even dividend programs based on percentages of annual expenditures.
The terms of the relationship are, more often that not, dictated by the customer. But no matter what the terms, the goal for the rental company is to be the first call the customer makes. To do that, the rental company needs to be prepared to satisfy every - or almost every - need the customer has.
Some companies develop sole-source relationships with clients where they exclusively handle every equipment and service need the customer has. Others aim for preferred-provider relationships as one of a limited number of companies their customers regularly work with.
But whatever the terms of the relationship, the goal is to be first on that list. "We want to be the first choice every time they need something," Bennett says. "We want to be the first call."
Some companies develop sole-source relationships with clients in which they exclusively handle every equipment and service need the customer has. Others aim for preferred-provider relationships as one of a limited number of companies their customers regularly work with.
But whatever the terms of the relationship, the goal is to be first on that list. "We want to be the first choice every time they need something," Bennett says. "We want to be the first call."
With the ability to be a one-stop shop increasingly important, the first-call concept is becoming the model governing higher levels of the equipment services industry. Consolidation is occurring not only in the rental industry, but in many others, including construction. As companies become bigger, they centralize functions and relationships. Big becomes more comfortable doing business with big. With the growing pressure to outsource services, management personnel for large corporations, construction companies and industrial facilities are discovering that renting equipment is more efficient and cuts costs.
For many corporations, the transition to rental is often a leap of faith that requires assurance. Such customers look toward rental companies for a level of support considerably more complex than just providing equipment. The rental company's services may include fleet procurement; evaluation, disposal and maintenance of equipment; equipment financing; parts management; operator training; and consultation on applications. Also, rental companies partner with clients on a project basis, helping them to plan equipment needs for the entire length of a construction project.
Sometimes partnering leads to additional services such as fleet management in which the rental company manages and maintains the customers' equipment inventory in addition to renting it machines. Some customers own a limited inventory or employ a limited staff of service personnel and want the rental company to enhance its support capability. In some cases, they ask the rental company to manage existing service staff or completely take over the management of fleets the customer owns (see box below).
The range of possible services that rental companies can provide - national-account, sole-source or preferred-provider customers - continues to widen. "Some sole-source customers may simply want availability of high quality equipment in a particular geographic area at a fixed price," says Gerry Plescia, president of Hertz Equipment Rental Corp., Park Ridge, N.J. "While fleet management may enter into a different arena, the scope of work becomes a critical factor and may be customer- or facility-specific. This service may range from a rent-vs.-buy analysis to parts management to asset management to on-site personnel or barcode tool-room management."
The terms of these more complex relationships need to be negotiated, requiring rental companies to put together teams of employees far more skilled than the industry required in the past. The availability of personnel with the combination of skills required for this type of analysis may be one factor holding back the development of the services that rental companies can provide. In addition to knowledge about processes, it takes a high level of financial expertise to structure deals properly, so that they make good sense for the users and bring profit to the providers.
Getting to know you For most rental companies offering services at this level, it's not a matter of putting together cookie-cutter programs and selling that program to customers. More likely is a customized approach to the needs of specific companies, which requires considerable study of a customer's ways of doing business.
"Before we go after a company, we make sure we know about the company and what its needs are," says Gary Stewart, vice president and chief marketing officer for Fort Lauderdale, Fla.-based NationsRent. "We do a needs analysis from their perspective, covering how their business works and what its needs are. We don't want to sign up an account until we learn about that business and determine if we can service it properly."
"If you're selling to the steel industry, you have to know their processes," says Bob Miner, vice president of strategic planning for Greenwich, Conn.-based United Rentals, which now has about 25 salespeople dedicated to increasing the company's national account business. "You have to know the steps, the components, the language. You need that to have credibility, and they need to know that you know what they're talking about."
Customizing a program for a corporate customer may involve structuring the flow of communication on a wide range of issues. Probably foremost and simplest is the structure of the billing procedure, which rental companies commonly modify to the customer's convenience, with increasing emphasis on electronic forms of billing and payment.
Rental companies can provide customers other types of information to enhance service. For example, NationsRent provides a monthly status report on each piece of equipment.
"We provide monthly summaries that tell them what equipment they rented during the month, matched with purchase order numbers," says Rod Lanning, national accounts director. "This includes an outstanding-equipment report so they can keep abreast of what is out on rent. It helps them manage their business so they know from a central point of contact how much they're renting from a company with multiple locations."
Prime, for example, provides custom tracking reports that detail each type of equipment customers use so they can pinpoint savings and efficiencies. Scottsdale, Ariz.-based Rental Service Corp. is taking it a step further. RSC recently unveiled a service on its Web site called E-Facts, which allows customers access to their accounts (See box, page 46).
Just as rental companies provide information and reports to customers on a regular basis, the customers often keep checklists measuring the rental companies' performance. "A lot of corporations actually run report cards on you," says Prime's Bennett. "They can tell you every time your welder ran out of fuel, every time a compressor wouldn't start, every time a boomlift was a little erratic. They are measuring your performance. It's a pretty good educational process [for the rental company]."
Rental companies involved in sole-sourcing develop their own reporting systems in conjunction with their clients. HERC's customer-driven performance report, for example, measures key services such as on-time delivery, availability, service and invoicing. Greenville, S.C.-based American Equipment Co. (AMECO) has developed a sophisticated client-review process that encourages feedback from the client, allowing Ameco to then study its performance for future enhancements. A grading system can also be designed to reward a rental company if it meets agreed-upon objectives.
To be chosen as a preferred provider for a major corporation, rental companies need to pass through a rigorous process. In addition to a strong proposal, customers will scrutinize the rental company's safety and training procedures as well as its track record. Many customers want documentation on the level of training received by each rental company employee visiting its facility. Environmentally sensitive facilities such as petrochemical plants will put visitors through their own safety training courses to prepare them for potential on-site hazards.
Such facilities often have, for their own liability protection, an inspection program that reviews each piece of equipment coming onto their sites. The inspection might range from a quick check to a complete inspection that could take hours, checking everything from proper tire inflation and fluid levels to the performance of the gear shift mechanism.
"There are volatile gases and chemicals in many facilities," says United's Miner. "Machine performance must be perfect. If [controls malfunction and a machine] rupture a gas line, it could cause a major disaster."
Size matters The ability to provide equipment for a national corporation on a national level requires size, thus limiting this type of relationship to a few major players. However, preferred-provider relationships take place on regional and local levels as well as on project bases. For example, Las Vegas-based Ahern Rentals recently served a number of large hotel/casino projects in the Las Vegas area. South Plainfield, N.J.-based Binder Equipment did the same on a major resort complex in Atlantic City, N.J.
Multiregional players such as Phoenix-based Sunstate Equipment Rentals sometimes prefer to concentrate on excelling as a preferred provider on a local level in a particular city. Armed with success on that level, it then works to spread the relationship into other areas.
However, only a few rental companies - such as United, HERC, Prime, RSC, National Equipment Services, Ameco and NationsRent - can operate nationally. If a customer has a project coming up, these major players have facilities not too far from that project. If not, they have the capacity to decide whether they want to pursue a start-up or acquisition in the area, if that makes sense on a long-term basis, or set up a temporary facility either on the actual grounds of the project or nearby.
Such companies also possess the flexibility to provide equipment they don't carry in their inventory. When companies work on a sole-source relationship, they are guaranteeing they will take on all the equipment needs of the customer. If the customer wants something they don't have, they can arrange to find a way to get it for them, either by purchasing it themselves, re-rental from another company or an arranged referral.
While the larger firms tend to have the ability to function as one-stop shops for their select customers, not all of them will agree to provide every need. Some companies will first do a cost/benefit analysis to decide if they would want to carry certain types of equipment. However, size once again provides the advantage of being able to invest the capital to obtain equipment to satisfy the temporary need of a customer, with the resources to dispose of it once it is no longer required.
"We will get the item if we can do a good job and add value," said one general manager. "But if we're just going to get in the way, we won't do that. Being all things to all people doesn't cast the industry in the best light or cast our company in the best light. The customers know you have limitations, and they appreciate if you are straightforward about what your limitations are and do not go outside that scope."
Going outside the scope also demands preparation. "To provide a sole-source service, you have to develop systems, and you need third-party relationships because you rarely have everything, especially on large projects," says Gary Bernardez, vice president of global business development for Ameco.
Systems, information technology and qualified people to run them are what rental executives agree is necessary to succeed in being the first call for large customers. They also agree that the outsourcing trend will continue to increase in the coming years, driving the industry to develop new standards of service.
A recent survey of U.S. businesses - and the trend is certainly global and not just domestic - indicates that more than 50 percent of them, covering a wide range of industries, have increased outsourcing over the past two or three years. And, the consensus is, the trend is beginning to gain momentum, with the models and practices still just beginning to take shape.
In regards to outsourcing relationships, one aspect is clear - the customer will determine the structure of the relationship. More than ever before, the customer calls the shots and decides how the national-account, sole-source or preferred-provider relationship will be structured. And then the customer will determine who gets the first call.
With the ability to be a one-stop shop increasingly important, the first-call concept is becoming the model governing higher levels of the equipment services industry.
In addition to knowledge about processes, it takes a high level of financial expertise to structure deals properly.
More than 50 percent of U.S. businesses, covering a wide range of industries, have increased outsourcing over the past two or three years.
