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May 5, 2017

Equipment firms’ new focus: ‘power-by-the-hour’

  • Some organizations may need to transform their after-sales service businesses to become more customer-centric and efficient.


    This year is bringing both challenges and opportunities for those in the heavy equipment industry. With a proposed $1 trillion makeover of the U.S. infrastructure — consisting of new or repaired roads, seaports, airports, sewer systems, schools, electric grids and more — both manufacturers and equipment rental companies must be equipped to meet these new demands.

    In comes “power-by-the-hour,” which is an agreement that allows a company to lease or rent equipment for a certain number of in-use hours, buying the functionality rather than the actual piece of equipment. Rolls-Royce originally made the concept famous in the aviation industry, but for manufacturers of long-lasting durable goods like heavy equipment or aircraft, this is a model they must start watching. It also means rental companies and manufacturers must maximize equipment uptime to maximize revenue.

    According to Grand View Research, the global construction equipment rental market is expected to reach $84.6 billion by 2022 due to increasing construction activities across the globe, as well as rising government investment in emerging economies.

    Here are three common questions surrounding this changing market:

    1. What does the future hold?

    In the near-term, both manufacturers and rental companies must be equipped to meet the increased demands expected to come with the national infrastructure improvements. This means equipment that has been sitting idly will need repairs and maintenance to get up and running, and that there could possibly be an influx in new orders.

    With emphasis placed on improving roads and bridges, military fleets and oil and gas production, many of the companies providing services to these areas may turn to equipment rental as an option instead of purchasing new goods, as a way to cut down on time and cost. Manufacturers and rental companies alike must be ready to service these goods — any downtime results in lost revenue, so ensuring the correct service parts are in the right place at the right time is critical to success.

    Long-term, expect the power-by-the-hour model to become more common. Maximizing uptime means after-sales service organizations must be equipped to deliver high service levels and service part availability. By optimizing parts inventories throughout the entire service supply chain — from central stock locations to dealers and trunk stock — manufacturers can reduce service parts inventories by as much as 60 percent and increase gross profits by 5 to 20 percent, while maximizing the uptime of rental equipment to deliver top line improvements.

    2. What is driving the trend?

    A combination of both a new way of thinking and a market force are driving the shift to the power-by-the-hour trend. There are several social, political and economic factors creating a perfect storm, including the volatility of orders for durable goods over the course of the past few years, millennials in the workplace, a changing political climate and emerging technologies becoming more commonplace.

    Today’s customer has higher expectations than ever thanks to brands that provide on-demand experiences like Amazon, Zappos and Uber. If a piece of equipment they’re relying on to generate revenue is down, they will expect quick and efficient repairs. And if the repair isn’t made quickly or correctly, the chances of that customer leaving for a competitive brand increases.

    3. Who has the most to gain/lose?

    There are both challenges and opportunities for manufacturers and rental companies, and some organizations may need to transform and optimize their after-sales service businesses to become more customer-centric and efficient. This can be a significant revenue driver, but companies must adopt the right technologies and business practices to be successful.

    For the end-customer, it’s a win-win situation. There is little risk associated with renting: replacement is less complicated, it can oftentimes be more cost effective, maintenance costs are lower and there are fewer transportation and servicing requirements. More customers are going to start shifting to this model in the near future.

    Organizations that don’t adopt rental models could get left in the dust, and those that do adopt rental models without improving the efficiency of their after-sales service functions will face challenges. Across all industries and verticals, the ways of doing business are shifting. Customer expectations are evolving: they expect quick, reliable service, and brands that don’t provide that experience will be left behind.

    The biggest area of opportunity as the market shifts to a power-by-the-hour model is after-sales service. Because of the way the rental model is configured, the manufacturer or rental center is only making money when the piece of equipment is up and running. This means that service parts must be available at the right place and time to ensure a quick repair, and ultimately minimize downtime.

    The opportunity for both manufacturers and rental companies is huge — and power-by-the-hour done correctly will give them the chance maximize revenue while simultaneously increasing customer loyalty.

    Gary Brooks is chief marketing officer at Syncron in Atlanta.

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