In the United States, the last 20 years have been good to us in the rental business. For the most part, the rental industry has enjoyed attractive rates and strong growth. Given that environment, there were very few problems that we couldn't grow our way out of.
As a result, management focus was primarily on increasing top line revenues. We acquired or merged with competitors, we hired more salespeople, targeted new markets, increased inventories and opened more stores than ever in history. Then, to get even more customers, we offered increasingly newer equipment at increasingly lower rates.
The result was lower profit margins. Our old remedy for every problem, to increase sales and customers, wasn't going to work the magic it had in the past. And it won't work today. We need a new solution that will increase profits, one that will not require more customers, more inventory or more stores.
What is the answer in an era of ever-increasing competition, when rental rates are at near-historic lows and when profits are down?
The challenge is not confined to your stores or your markets. The answer may have more to do with process than with management.
The rental industry, like other industries approaching maturity, is forced to continually focus on developing increasingly more efficient methods, or processes, of doing business. Over the past 10 years, advancements in technology have helped redefine almost every process involved with rental management. The development of more sophisticated systems has changed the way we handle reservations and write contracts, and how we track our inventories. They have changed the way we manage our relationships with our customers, the way we pay our bills, collect our receivables, manage our fleets and measure productivity. Computers, cell phones, global positioning systems and palm pilots have allowed us to collect more information about our customers and our employees, and share that information on a “need to know” basis. In short, efficiency, and profitability, has been significantly improved by organizing critical business information in an integrated, user-friendly format. Technology has allowed us to reduce costs and improve efficiency in almost every process of our business except for the maintenance and repair process, which hasn't changed significantly in 40 years.
The need for re-engineering the maintenance and repair processes became very apparent when our consulting firm, Script International, was involved in a global project to develop a network of rental operations for a major construction equipment manufacturer. Over a period of six years, we worked with hundreds of rental stores of every size in more than 40 countries in North and South America, Europe, the Mid-East and Africa. While the sophistication of each market, and the operations of individual rental companies were vastly different, every one showed significant potential for improvement in the area of maintenance and repair. In most rental service operations our observations were that inefficiencies in the maintenance and repair process could be observed in the functions of four major areas — maintenance shop, field service, parts management and service management. Since “maintenance and repair” and “salaries and wages” typically reflect two of the largest expense items, these inefficiencies represent a large potential for cost reduction.
We observed that in a typical rental shop, technicians often spend as much as 20 to 30 percent of their time without a wrench in their hands. Much of this time is spent chasing information and data; troubleshooting information required for an accurate diagnosis; machine specifications and lubricant data; service manuals that identify the recommended repair procedures; or current parts schematics that identify the parts required for the repair. An additional amount of time is then required to generate the parts request, communicate and verify the information with the parts staff, and then determine parts availability. This inefficiency with technicians is particularly a problem in the U.S. where we have had a shortage of qualified mechanics for the past 30 years. Mechanics are indeed a scarce commodity, which would suggest that we should design our workflow to maximize their efficiency. Yet, our current process doesn't treat them that way at all.
The field service technician usually faces the same challenges as the shop mechanic. However, he operates under the handicap of not having ready access to any of the technical support information, such as troubleshooting guides, parts and service manuals, and estimated repair times. As a result, the field service mechanic tends to spend a significant amount of time on the radio or cell phone with someone in the shop explaining the details and symptoms of the failure, and then determining the availability of the required parts. This process often requires the involvement of three people — the field mechanic, the mechanic or service manager providing the technical support from the shop, and someone from the parts staff that determines timing and availability for the required parts. As a result, field service mechanics often lose 30 to 40 percent of their “wrench time.”
Parts departments also lose 30 to 40 percent of their effective time, which seems to be concentrated in four areas — data maintenance, communications with mechanics, communications with manufacturers, and data entry. The data maintenance challenge is particularly difficult for rental companies because of the tremendous diversity in the types, models, and brands of equipment typically found in rental fleets. Each manufacturer provides the information in different styles and formats, including paper manuals, microfiche, CDs, or some type of Web-based system. With the exception of the Web-based systems, each format requires a continuing commitment to update both engineering and pricing changes for every brand and model. The Web-based systems seem to reduce the amount to maintain these files, but limited Web access and slow response time have limited their popularity.
In most shops, communications between the mechanics and the staff of the parts departments create a bottleneck at the internal parts window. In most cases, mechanics are expected to “queue up” in a line with other mechanics to request the necessary parts. Each one is typically carrying the parts books, and their notes with the reference numbers and part numbers, plus the model and serial number information of the specific unit. Before the repair can be completed, the parts person must verify the correct parts number for the specific unit, the cost of the part, and then determine whether it is in stock, or has to be ordered. If the cost is acceptable, and the part is in stock, the parts person retrieves the part, enters it on the work order, and gives it to the mechanic to finish the job.
However, if the part is not in stock and needs to be ordered, even more time is lost. Like the reference manuals, each manufacturer has its own ordering format and procedures. With all of the advances in computer systems, we were surprised that the vast majority of parts are still ordered by phone or fax. This is not only cumbersome and time consuming, but the verbal communication chain from the mechanic to the parts person to the supplier causes a large number of mis-orders, which are costly to both the rental company and the supplier. Several manufacturers indicated an error rate of more than 15 percent on verbal phone orders. As a result, many manufacturers have encouraged orders by fax as a way to increase accuracy and efficiency, although ironically, they also report that about half of the fax orders are followed up with a phone call asking “Did you get my fax?”
After the order has been sent to the supplier, the parts person must still key punch all of the transaction information into the system. This usually includes entry into both the purchase order and work order systems, but may also include building required fields in the inventory system that describes the part, pricing, vendor and re-order information.
In addition to the data management for parts and service, there are also significant time requirements for filing warranty registrations and warranty claims.
From a profitability standpoint, the impact of a major improvement in the repair process is extremely attractive not only because it has the potential of reducing two of the largest expenses, but also because the net reduction in the time required for maintenance and repair would increase fleet availability, or uptime, which creates a potential for increased rental revenues.
Our consulting experience with rental companies included feasibility studies, site selection, management profiling and training, inventory selection, and start-up support for the new stores. After 12 to 18 months of operation, we would typically return for an operational and financial review that would compare actual performance to the business plan. We would carefully analyze and compare income and expenses, fleet utilization, revenue per employee, and other areas. After doing a number of these reviews, a pattern began to emerge. In country after country, we observed that stores could ramp up their utilization rather predictably, typically to the 50 to 60 percent range, and then utilization seemed to top out. It became apparent that, while many factors influenced utilization, increased uptime as a result of a shortened service cycle could have a major impact on improving fleet utilization.
Past advances in service technology such as microfiche, CDs, or even Web-based solutions have been developed by manufacturers to meet their specific needs, and while they may provide great value to manufacturers, they have not created the same value for rental companies.
For technology to achieve the maximum potential impact on service operations, new solutions need to be designed to meet the needs of both manufacturers and rental companies, and be specifically designed to integrate with both the system of the manufacturer and with the leading rental management software. Manufacturer systems need to be able to talk with rental systems providing a continuous, two-way communication pipeline for safety and engineering information, technical support, and price and availability information.
In addition, rental companies need to be able to receive this information inside their own management system, with no effort on their part, and be able to create electronic parts orders from manufacturers that simultaneously supply the information required for internal work orders and purchase orders. In a perfect world, the rental system would continuously advise the manufacturer system of exactly the inventory in each fleet, and the manufacturer would then push only the right information about each fleet to the right location at the right time.
Economically speaking, these are not the best of times. We can no longer survive, let alone profit, simply by cutting rates, or by leaning on suppliers to trim margins when there is no more fat to trim. Continued cost efficiencies must be accomplished by both manufacturer and rental center to achieve a healthier bottom line. The one area left where this can be achieved is in maintenance and repair. Improvements here will mean major dividends on both the income and expense side of the ledger.
John Caskey Jr. is executive vice president of SmartEquip Inc. He can be reached at [email protected].
