Four years ago, we moved to the countryside and bought an old farmhouse on a large plot of land. Having big construction and landscaping plans, we regularly rented all kinds of equipment to get the job done. The experience was a bit of a headache for me, and I bet for the rental companies as well. I wish some of these rental companies had state-of-the-art service execution systems so that they could drive both a better customer experience and value delivery.
Job and equipment planning is tough
The most important thing I learned in those four years of home improvement is that a piece of rental equipment is just a small piece of the planning puzzle. As an example, for my landscaping, an element of the work was the relocation of a lot of dirt. For this, I needed a mini excavator. The availability of the excavator was intricately entangled with ten or more other planning items. You can imagine my surprise and frustration when the excavator wasn’t available on its due date. And the alternative had only half the capacity.
This is one of many examples I accumulated during four years. As a result, I’ve become proficient in reverse engineering the processes of rental agencies. It’s tough for rental agencies too—if only they had better visibility and planning tools.
The happy path
A rental fleet represents a significant investment, so it may sound obvious that you’d want to know where all that equipment is and in what state. When you visit a rental yard or a construction site, it becomes clear that knowing what is where is not that easy. If my personal experiences are representative of equipment visibility, then WYSIWYG is a rather common implementation.
WYSIWYG works fine when the rental process follows the happy path. Meaning: actual pickup and return date are as planned/booked; equipment doesn’t break and/or require servicing; no conflicts between availability and demand for equipment.
Going back to my landscaping job and the excavator. With half the capacity, my rental period mathematically doubled. With half the capacity, interlinked activities got pushed out as well, causing additional delays. In the end, my rental period tripled. Because my excavator originally was booked by another customer, the rental agency phoned me in the third week to expedite its return. I was not happy, and certainly, I did not pay any more than the original contracted amount.
Does this sound familiar? Can you imagine how much it costs for a rental agency to mitigate the not-so-happy path? Cost in headcount and lost revenue generation?
Reducing turnaround time
Knowing that a piece of rental equipment is only making money when it is rented out, a key driver is to reduce the so-called turnaround time (TAT). This is the time it takes to clean, inspect, and service equipment after its return so that it is available for the next customer. Preventative equipment maintenance, not reactive maintenance, could save you millions.
Suppose you have a rental fleet valued at $1b and your daily cost for interest and depreciation are roughly half a million dollars per day (based on an annuity scheme at 4% interest and a five-year term). If you can turn TAT days into rental days, then cost days become revenue days. Suppose each piece of equipment has four rental periods per year, and you reduce your TAT by one day, you save $2m in cost. Add your sales margin, and we’re talking serious numbers when renting out equipment back-to-back.
Defining servicing priorities
This brings us to the most challenging issue in the rental business. Instead of reducing the TAT for every piece of equipment upon return using first-in, first-out (FIFO), you want to prioritize those units that have an adjacent rental period. By applying prioritization rules, you can better plan the capacity of the rental return and service functions and make sure that the most revenue-generating units are turned around first.
Using those same priority rules can also help you manage the capacity of the yard. We’ve seen examples where excavators, dumpster trucks, and cranes not having an adjacent renter are ‘left’ at the customer site post rental period to save yard space and free-up capacity for the turnaround time in favor of ‘hot rentals.’
Managing the lifecycle of the equipment
Rental equipment can have a rough life. Let me be honest. I sweated my excavator to an extent I would not have done if I owned the excavator. In setting their rates, rental companies take these use cases into account. After each rental period, there is a decision to be made: do we maintain the existing equipment or do we replace it?
The math behind the decision is simple: is the earning capacity of the equipment more or less than the cost to sustain it? To make the equation come to life, you need both historical data and forward-looking data.
Keeping a record of historical data is pretty much possible in any business tool. For the forward-looking piece, you’ll need a tool that supports asset-centric use cases for your assets.
- Plotting the future preventive maintenance activities
- Plotting the future calibration and certification activities
- Aligning future service interventions such they don’t break or clash with rental periods
- Creating reporting that depicts plan versus actual versus outlook on equipment level
In the past four years, I’ve learned a lot about the rental business. Though a rental fleet is a significant asset on the balance sheet, in rental operations we still see a lot of appointment-centric and reactive strategy business practices. Modern-day tools allow rental companies to apply asset-centric business practices. Becoming proactive and getting a better return on the asset investment.
Do you want to see our rental offering in action? Check out ServiceMax Asset 360 here.
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