Equipment rental is attractive for several reasons: lack of risk, ease of replacement, cost effectiveness, lower maintenance costs, reduced transportation and less servicing requirements.
Rental, or “power by the hour” model is not a new concept, but promises to gain momentum in the coming years. The equipment rental compound annual growth rate (CAGR) in North America is expected to increase by more than 10 percent in the next five years.
The American Rental Association’s (ARA) five-year forecast for the equipment rental industry revenues projects U.S. equipment rental revenue will reach $48.9 billion in 2017 and grow at an annual rate of 4.3 percent, topping $56 billion in 2020.
According to Grand View Research, the global construction equipment rental market is expected to reach US$84.6 billion by 2022 due to increasing construction activities across the globe as well as rising government investment in emerging economies. Equipment rental is attractive for the end-user customer for several reasons, including lack of risk, ease of replacement, cost effectiveness, lower maintenance costs, reduced transportation and less servicing requirements.
Rolls-Royce originally made the concept famous in the aviation industry. Rental allows a company to buy the functionality of a piece of equipment for a certain number of in-use hours rather than the actual piece of equipment. For manufacturers of long-lasting durable goods like heavy equipment or aircraft, this represents great opportunity, but it’s also important that they maximize equipment uptime in order to maximize revenue.
Perfect storm for rental
There are several social, political and economic factors creating a ‘perfect storm’ for manufacturers and rental houses, 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.
In the near-term, manufacturers and those in the equipment dealer/distribution chain must be equipped to handle the $1 trillion investment President Trump has promised to improve the national infrastructure. This means equipment that has been sitting idle will need repairs and maintenance to get it up and running, and there could possibly be an influx in new orders.
With an emphasis 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 equipment as a way to cut down on time and cost. Manufacturers and equipment service organizations must be ready to service these goods – any downtime results in lost revenue, so assuring the correct service parts are in the right place at the right time is critical to success.
In the long-term, expect the power by the hour model to become more common. Maximizing uptime will require manufacturers to optimize their after-sales service organization to deliver high service levels and service parts availability. By optimizing service parts inventories throughout the entire service 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.
Customers today have higher expectations than ever before, thanks to brands that provide on-demand experiences like Amazon, Zappos or Uber. If a piece of equipment a customer is relying on to generate revenue goes down, he or she will expect quick and efficient repairs; if the repair isn’t made quickly or correctly, the chance of that customer leaving for a competitive brand increases tremendously.
This high level of availability offers challenges and opportunities for manufacturers associated with a power-by-the-hour model, 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 manufacturers and service providers must adopt the right technologies and business practices to be successful.
For the end-user customer, it’s a win-win situation. There is little risk associated with renting – replacement is less complicated, it can often 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.
Manufacturers 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.
One of the biggest areas of opportunity is in after-sales service. Because of the way the rental model is configured, the manufacturer and/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.
Manufacturers could take it one step further as ‘smart parts’ become more prevalent. If a part, like an alternator, sends a signal to the customer and a cloud-based technology at the OEM/rental center, the preemptive repair occurs before anything has failed, avoiding downtime.
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