Your smallest expense is also your costliest one.
Parts buying is complicated, time-intensive, and requires your most skilled labor. And while a rental company’s management team often may not realize it, from an operating perspective it also typically is by far the costliest type of procurement. Point-of-Rental Software and SmartEquip have recently integrated their software platforms to provide a faster, more seamless parts ordering process.
For a typical North American rental company, the average time it takes for a service technician to identify a repair part and create an internal request for the part to be ordered is just under 22 minutes. Subsequently creating and submitting a purchase order adds another 25 minutes to the process. This makes parts ordering the most time-consuming form of buying. And, because it requires the involvement of skilled technical personnel, it also comes at a high hourly labor cost.
While rental companies typically dedicate less than 5% of their annual total dollar spend to parts, which makes parts purchasing one of the smallest expenses dollar-wise, the number of parts-related orders may account for as much as 75% of all purchase orders, making it by far the most frequent type of spend. And because the costs from time intensity and labor skill requirement apply whenever a part is being ordered, it is the number of orders – not their value – that drives the cost to the rental company. Therefore, parts as the smallest expense from a dollar view are also the costliest one, from an operating perspective. And yet, rental companies seeking greater purchasing efficiency traditionally have not paid much attention to parts, one reason being their relatively low value.
How Can Technology Help Purchase Profitability?
As complicated as parts procurement has been to rental companies, and as much as it has driven costs up and revenue down, answers are available. They just happened to have lived in the wrong places. More specifically, the hundreds of manufacturers whose equipment makes up your rental fleet, already hold and maintain most of the information you need (and currently chase), across thousands of different enterprise systems. Technology can now connect the millions of parts- and service-related pieces of information OEM’s store, and custom-deliver them into your company’s parts, repair, service, and purchasing workflow.
Here are some examples:
Parts Master Data Management: Maintaining your master data traditionally has consisted of reentering into your system information that already lived in your suppliers’ systems, such as part numbers, part descriptions, unit-of-measure, etc. Each time a part number is either changed or added by a supplier, it was up to you to update your own system.
Parts Identification: Your technicians may not instantly know the serial number of a unit they are working on, but your rental management system does. When you first assign an asset number to your equipment, you map it to a manufacturer serial number. So how can we use the information so we can stop worrying about complicated machine- or serial-number specific information?
Administrative Streamlining: And, finally, just as the connection to your suppliers will auto-update your item master files, enable you to quickly identify the correct asset- and context-specific part, the very same parts information can now write itself on to an internal stock pick ticket, auto-populate your purchase order, and electronically submit that PO to your supplier.
The Impact on Profitability
If your average equipment repair time has been reduced by, say, 90 minutes, you not only save 90 minutes of service technician time, but also increase your equipment availability by 90 minutes, which increases rental revenue.
And it’s high-margin revenue. Say that you now have 3% point greater fleet availability, and that your company’s financial utilization is 50%, your rental revenue will increase by 1.5% points, while any associated cost increase from the increased rental will be very small. In other words, while increasing revenue, you have increased profitability even more!
Automate your purchasing with SmartEquip
Using technology to automate purchasing can have a tremendous impact on earnings and profitability. To learn more about what SmartEquip can do for you, schedule a demo.
Dr. Alexander A. Schuessler is the founder of SmartEquip and president of its International Group. He is also a member of the technology committee of the European Rental Association.