Rental in Transition

Last week I went to Riga to participate in the annual convention of the European Rental Association. With the theme ‘Rental in Transition’ the convention rightfully worded the pivotal junction in time. Fuelled by the European Green Deal we are poised to rebuild our economy towards net zero emmisions. This means construction will boom requiring lots of construction equipment. The big challenge for OEM, dealer, rental and construction companies will be to manage the installed base of construction equipment from a carbon footprint and emmisions perspective.

Collective bargaining

When the representative of the EU, the consultant from the Boston Consulting Group and the chairman of the European Construction Industry Federation talked about the need and drivers for transition, I had this nagging question. Suppose I own a construction equipment fleet of 1b$, the majority still being internal combustion engine (ICE) based, how do I monetise that investment if the awarding of new construction jobs is based on lower carbon footprint and emission levels?

This is big. This is a challenge of major proportions. Though the delegates subscribed to the mid-term sustainability and transformation goals, for the short-term there’s that ominous questionmark of the how-to. The impact and magnititude of the sustainability transition shows how OEM, dealer, rental, construction companies and legislators are intertwined. This requires a serious dose of collective bargaining.

Preparing for the transition

Regardless of how the transition is going to pan out, for all players in the value chain it is imperative to prepare for the transition. It will become increasingly important to understand the usage profile of construction equipment versus generic equipment attributes.

Let me explain with an example in the car rental industry. When you rent a car it typically comes with a mileage allotment per day. If you drive more, you pay more. If you drive less you still pay the daily rate. You could also split the rental model in an ‘availability’ and ‘usage’ component. Especially if the usage component drives carbon and emissions output, splitting the rental model can motivate the user for a more sustainable use.

This simple example sits at the core of asset-centric business models. It’s not about owning of having an asset, it’s about using it. See here the incentive to digitally transform your business and get access to equipment usage information. Bye the way, if you are catering to the larger construction companies, you will know that providing the usage data of construction equipment is a critical element of the rental service.

Carbon offsetting

Most of the delegates flew to Riga. Upon buying their airline ticket each had a possibility to purchase the carbon-offsetting option. How many did buy that option? Today the majority of the rental companies offer a similar carbon-offsetting option for rental equipment. How often is that option selected? A brief survey amonst the delegates revealed the non-scientific value of ±5%. Rental today is a very price sensitive industry.

When I look at the construction deadlock in my own country, the Netherlands, I see that each new project must submit a carbon and emissions overview before even getting a building permit. We heard the EU representative make remarks along similar lines. “We will use carrot and stick”. And we know of sustainability-forefront-cities only awarding projects to eco-frontrunners.

Does this mean that we can only use electric or hydrogen based equipment for future construction projects? Contemplating on the sheer size of the sustainability challenge, the answer will be ‘no’. There simply isn’t enough construction equipment to get all the work done. But if you want to continue using ICE equipment, you need to get smart at carbon-offsetting options. At the conference we heard that a CO2 calculator is a good start, but we need to make it easier to use and equipment usage based.

Beyond Equipment

For the mid and longer term we have an adject challenge when replacing ICE equipment with electric and hydrogen based alternatives. For ICE equipment we can build on the existing infrastructure of fosile fuels. And for remote locations we can very easy offer a fuel management option. 

If we want to deploy electric and hydrogen based equipment, it often means we have to supply the complete EV or hydrogen powertrain as well. This implies that the rental paradigm will change from equipment rental to complete solutions rental. From an asset management and equipment availability perspective that will mean that the complexity will increase. This will feed the argument for accelerated digital transformation.

In completely different acumen we could label this as ‘servitisation’. When the contractor needs to excavate 100 tonnes of rock, he’ll need an excavator, dumpster truck and complete power train. As food for thought for rental, would it be too far off to start selling electricity/ hydrogen as well?

Beyond Riga

It was great to be in Riga. To hear so many people in the industry. The challenge is big. Yes, there are some threats. Yes, there is a level of denial and green-washing too. On the other hand, the challenge provides a great number of opportunities too. Those who embrace those challenges and embark on their digital transformation journey, those will have the upper hand in a rental market that is in transition.

Previous blog on rental.

Maximising Asset Availability for Rental Equipment

Four years ago we moved to the country side and bought an old farmhouse on a large plot of land. Having big construction and landscaping plans we regularly rented all kind of equipment to get the job done. The journey I experienced was tough for the companies that rent out equipment and for my DIY-projects progress. I wish some of these rental companies had state-of-the-art service execution systems, such they could drive both a better customer experience and value delivery.

Job and Equipment planning is tough

The most important thing I’ve learnt 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/ 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 over four years. As a result I’ve become proficient in reverse engineering the processes of the rental agencies. It’s tough for rental agencies too. If only they had better visibility and planning tools. Speaking of the devil, I happen to work for a company that provides those tools and has implemented them in both business-to-business and business-to-consumer contexts.

The happy path

A rental fleet represents a significant investment so it may sound obvious 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 for equipment visibilty, 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 anymore 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 Turn-Around-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 turn-around-time (TAT). The time it takes to clean, inspect and service an equipment after its return, making it available for the next customer.

Suppose you have a rental fleet valued at 1b$, then your daily cost for interest and depreciation are roughly half a million $ per day (based on a annuity scheme at 4% interest and five year term). Thus if you can turn TAT-days into rental-days, 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 equipment upon return using FiFo, you want to prioritise those units that have an adjacent rental period. By applying prioritisation rules, you can better plan the capacity of the rental return and servicing functions as well as making sure that the most revenue generating units as turned around first.

An example of the non-priortised 

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. To ‘free-up’ capacity for the turn-around team in favour 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 live, 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
  • Create reporting that depicts plan versus actual versus outlook on equipment level

In the past four years I’ve learnt 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 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.

This article is published on Field Service Digital.

Why you should put service campaigns at the heart of your go-to-market

It’s common sense that owners of products, equipment and assets want a maximum of uptime at minimal operational cost. But how much emphasis does this get in the procurement cycle? For many buyers, it is difficult to define the service requirements over a multi year lifecycle. At the same time, buyers do have implicit expectations regarding lifecycle support, often derived from brand perceptions. This is a nice mix for OEM’s to strategize on.

The bulk of lifecycle cost is in operating the asset

To create an asset lifecycle strategy we will have to look at it from cradle to grave, including both the OEM and the asset owner’s perspective. In the following picture you can see the cost elements that go into each phase.

Lifecycle of assets and costs © ServiceMax

What you can see in the picture is that the cost of operating and maintaining the asset is typically a multiple of the cost of acquiring the asset. In the image from Accenture below, the ratio between product expenditure (capex) and the service expenditures (opex) comes to life. For example, if you had purchased a piece of industrial equipment for $1m, you would spend an additional $7.3m over its lifecycle to keep it running.

Initial product purchase relative to total product lifecycle cost © ServiceMax

Nominal output of the asset

Let’s go back one step. Why does somebody buy an asset? Not for the pleasure of owning it, but to use it. In using it, the asset produces a nominal output/outcome, and that generates value for the asset owner. To maintain the nominal output while wear-and-tear is degrading the asset, a mitigating lifecycle strategy needs to be put in place to secure the value potential of the asset. The following picture shows a typical asset lifecycle.

Typical asset lifecycle © ServiceMax

In this picture you’ll see service interventions like preventive maintenance and break-fix that serve the purpose of uptime. An intervention like an engineering change serves the purpose of prolonging the lifecycle of the asset as well as potentially boosting the original nominal output.

  • Extending lifecycle: mid-life upgrade, retrofit or overhaul.
  • Expanding output: booster-packs, product or software upgrades.

Product engineering beyond Point-of-Sale

Both extending the lifecycle and expanding the nominal output of an asset can be plotted against the continuous process of product engineering. Once a product hits the street, engineering receives feedback on its use through quality, warranty and maintenance channels.

Acting on asset feedback, engineering can design newer revisions of that product as well as define upgrade and booster offerings for the existing installed base.

For some OEM’s the asset feedback loop is an integral part of their Go-to-Market. Imagine you operate in an very competitive and tech savvy market. Timing is essential in building market share. At ServiceMax, we’ve come across OEM’s that go GA with a product when engineering is at 80%. They use the service organization to ‘bestow’ the customer with goodness and attention to make up for the missing 20%. In doing so, the service organization retrieves relevant intelligence to complete the engineering process. As part of the deal, the customer gets the benefit of both the latest technology as well as engineering changes post-point-of-sale. A win-win for both OEM and asset owner.

Using the product lifecyle as a means to customer intimacy

Whether you launch your product at 80% engineering completeness or at 100%, most OEM’s will continue to engineer their product beyond GA. The question is, how would you like to make those product improvements and engineering changes accessible to your existing installed base. In other words, have you setup a process to manage asset lifecycle service campaigns?

Service campaigns can stem from two different emotions. A negative and a positive one. In the end, when you manage your campaigns well, you’ll achieve higher levels of customer intimacy.

  • Negative emotions: These are quality and complaint driven engineering changes. A customer expects a certain quality and nominal output level, but is not getting it. The customer expects the supplier to fix it as quick as possible at no extra cost. Though a complaint and quality issue may start as a negative emotion, an OEM’s capability to act on it determines if the emotion remains negative or turns positive. In addition, service campaign capabilities will deliver efficiency and compliance benefits to the OEM.
  • Positive emotions: These are engineering changes that will enhance the capabilities of the asset. As such, you go above and beyond the nominal output specifications promised at point-of-sale. In general customers will perceive this as a positive, adding credibility to the OEM’s leadership and brand value. With service campaigns an OEM can reinforce that positive emotion as well as monetize it.

Service campaigns drive pro-active service

If customers buy assets to use them, OEM’s are very well positioned to facilitate the usage of those assets throughout their lifecycle. The OEM designed the product. The OEM has all the expert knowledge of how and why the product works. Now, if the OEM gets feedback on how each individual asset performs in the field, the OEM is sitting on a gold mine of data, ready to be servitized and monetized. The vehicle to deliver those services to the installed base is called – service campaigns.

This article is published on Diginomica.

Keeping Your Assets in Shape

Do you have this feeling that the battery of your phone drains faster and faster? Internet forums are full of testimonials and resolutions for keeping your battery in tip-top shape. How does this apply to B2B products, equipment and assets? Can asset owners monitor the performance of the equipment, and what handles do they have to maintain output/ outcome at the nominal level promised at point of sale?

For many years I’ve captured the digital and service transformation journey in a single tagline: “from fixing what breaks to knowing what works.” The message is driven by a simple principle: customers expect things to work. Even more, they expect the outcome of the asset to be stable over the lifecycle.

Another simple truth is that everything eventually deteriorates and breaks. This prompts the following questions:

  • What is the life expectancy of the asset? 
  • What do I need to do to keep the asset in shape?
  • What can I do to extend the life cycle of the asset?

Building a Fitness Plan

Preventive maintenance might be the first thing that comes to mind as the way to keep your assets in shape. But what does preventive maintenance (PM) prevent? And how does it affect asset performance and life expectancy? This was a tough question to answer when one of my counterparts in procurement, who was looking to reduce the selling price of a service contract, asked me, “What will happen when we reduce the PM effort by lengthening the interval?” This was even more difficult to answer when it became a numbers game, and the purchaser asked me to prove the offset between PM and break-fix. 

So where do we look next? I propose condition-based maintenance.  

We know that the performance of an asset will deteriorate over time, and we know the rate of deterioration will depend on various attributes like aging and usage. Because these attributes are measurable, we can use them as levels to trigger a service intervention. 

So rather than taking a one-size-fits-all approach based on time intervals, you can create a custom fitness plan for keeping your assets in shape. One that looks at the condition of the asset in relation to its expected performance. This can look like an intervention being triggered when the output of an asset or the viscosity of a lubricant drops below a certain threshold. 

To continue with the fitness metaphor, we often don’t just want to stay in shape—we also want to increase our longevity and even get in better shape as we age. When it comes to your assets, this is where mid-life upgrades, booster-packs and engineering changes come into play. And in the same way you use predefined levers to trigger service interventions, you should use these levers to trigger updates, upgrades and lifecycle extensions.

Both of these service strategies use asset health at the core of your service delivery model, steering you away from ‘fixing what breaks’ and towards ‘knowing what works.’

A Real Life Example

Imagine you have a pump and valve combination that has a nominal capacity of 140 m3/h.

If you used a preventive maintenance model that runs every 6 months, it would not take into account the age of the pump and valve combination, nor would it account for the corrosiveness of the transported materials. 

But if you took a condition-based approach using IoT-connected sensors, you could measure attributes like vibration, temperature, and energy consumption and use them as indicators for asset performance. For example, if the capacity drops below 130 m3/h, a service intervention would be triggered. It’s like the pump saying: “I’m not feeling well, I need a medicine.” On top of this, if you detect the pump is consistently pushed beyond original specifications, you can know that it’s necessary to initiate an upgrade conversation to safeguard asset health and durability.

Asset Centricity

The common theme of these service strategies is asset centricity. It’s about putting asset health at the core of your service delivery model and continuously comparing an asset’s current output with its expected performance.

By looking at current performance, expected performance and demand, you can also advise your customers on when it’s time to downgrade or upgrade the asset. Through this asset-centric lens you can truly become a fitness coach, advising your customers on the right fitness program that will keep their assets in tip-top shape.Learn more about IoT and condition-based maintenance here.

This article is published in ServiceMax Field Service Digital on September 1st, 2021 and Field Service News on August 25th, 2021.