Behind the Smarts

May 1, 2004
Since Alex Schuessler founded SmartEquip in early 2000, a growing number of rental companies and manufacturers of construction equipment have applied

Since Alex Schuessler founded SmartEquip in early 2000, a growing number of rental companies and manufacturers of construction equipment have applied SmartEquip technology to drive up the utilization of rental fleets, and to provide a broad range of electronic parts, service, and maintenance solutions to manufacturers, dealers and fleet managers. SmartEquip's rental customers range in size from single-store independents to leaders of the RER 100, and its manufacturers range in size from $5 million to more than $1 billion in annual revenues. Schuessler recently joined RER to discuss SmartEquip's plans to drive efficiency improvements and the role of information technology in the rental industry.

RER: What was the motivation when you started SmartEquip in early 2000?

Schuessler: The single most important motivation initially was to improve the physical and financial utilization of equipment fleets and to bring the resulting increased profits to both rental companies and to the manufacturers that supply them. Previously I was a founding partner with Caterpillar Rental Services Network, an independent consulting firm that worked in more than 45 countries to advance Cat's rental business initiative around the world. Our task was to bring best practices to the rental business and one of the obvious strategic targets was to maximize equipment uptime, and with that the financial utilization of rental fleets.

The problem in targeting financial utilization in today's environment is that once you reach industry-typical levels of about 55 percent, you hit a very expensive wall. Not only is it very difficult and costly to generate even an additional 1-percent improvement, but not getting there leaves a lot of money on the table, because the increased rental revenue would have gone more or less directly to the rental company's bottom line. In many ways it's like filling a hotel room for one additional night. The cost of doing so is negligible to the business, but the rental revenue is very real. For a Top 20 company, a modest 1-percent improvement would immediately translate into millions, if not tens of millions of dollars — sometimes more than the company's earnings for the entire year. Recognizing the overwhelming magnitude of this lost value, my partners and I set out to build a technology solution that could invoke a several-percent improvement of financial utilization and change the economics for our industry.

Why did SmartEquip choose to build technology so strongly focused on service, maintenance, parts, and safety of rental fleets?

Because that was where efficiency was bleeding most profoundly, especially given the ongoing shortage of qualified mechanics in our industry. We had to make service and maintenance processes shorter, cheaper, and much more accurate, and to do so we had to achieve four things. First, we had to design a way to deliver self-updating, always-current service and parts support documentation — such as parts catalogs, service, troubleshooting, safety, operator, and other information — to each asset in the rental fleet, and this information had to be customized dynamically to the equipment serial number and to its own service and operating history. Second, we needed to tie that support information to the rental company's local, regional, national, and warehouse parts inventory, as well as to the electronic inventory and order fulfillment systems of their vendors.

Third, we needed to enable service technicians and parts managers to generate their pick lists — their internal parts transfer orders — and place their vendor parts orders in one extremely simple and extremely fast sequence of steps, while taking all errors out of the process. And fourth, we had to make all of this work while allowing the rental company to continue using its existing rental management system, purchase order, work order and financial system, while transmitting PO information to manufacturers. In that same vein, we had to make our technology work in the low-bandwidth “thin-client” environments of most rental companies today, as well as be able to extend our software into the field via wireless handheld devices.

It took us several years to formalize and build the solution. Over the first two years we very quietly developed our rental-industry system, e-FleetPro, and then beta-tested it in the real-world rental shop operations environments of a number of very different rental companies with very different efficiency and sophistication profiles.

Today we have gone back to these environments and have begun to measure efficiency and accuracy gains for rental companies that not only come from increased fleet utilization, but also from human resource cost savings and parts cost reduction, and that brings both transactional and operational efficiency gains to the manufacturers that supply them.

For a rental store branch with about $5 million in fleet size, this can amount to about $12,500 per month, or $150,000 per year, per location. We are presently developing new functionality designed to make that number bigger. We are seeing similar efficiency gains for manufacturers that participate in the e-FleetPro network to support their customers' fleets and to provide direct electronic parts ordering, service support, and safety bulletin delivery. Not only do they provide much higher levels of customer satisfaction, but they witness a tremendous reduction in their cost of fulfilling parts and service support.

How unique is your solutions profile to the needs of the rental industry?

When we started the company, we assumed that other equipment-intensive industries like power generation, aircraft and automotive would all be highly familiar with the types of problems we had identified with respect to equipment and fleet support, and that they would have developed solutions to address them.

In fact, in early 2000 our business plan was to identify those solutions and to license them for our own product. We were right in that these industries did know the problems at least as well as we did, but wrong in assuming they had developed solutions. For example, the maintenance officer of one of the largest national airlines recently told me that the cost of fleet downtime in the airline industry — say, an aircraft being delayed by an hour while mechanics are trying to identify, locate and pick the right part — could generate hundreds of thousands, sometimes more than a million dollars of cost per single event.

Yet, despite this order of magnitude difference, these industries are no closer to a solution today than our industry was five years ago, and we are finding ourselves being approached by companies in these other verticals, being asked to identify how our technology could be of help there. Some of them, for example GE Power Systems, tested our technology and got strong efficiency results from their internal “six-sigma” test. Consequently, one of the strategic decisions for SmartEquip today is how we make our technology available to other industries — should that be through organic growth of our company, or through licensing agreements with solutions providers already operating in those industries? We get a kick out of the fact that the industries we originally considered as inherently more glamorous than our own may now very well end up following the rental industry in making their business processes more efficient.

How receptive was the rental industry to your products?

Well, quite frankly it took us longer to get to this point than we originally anticipated — I think for three reasons. First, operational efficiency was not a lead concern for most rental companies even five years ago. Rental operators were making great money through top-line growth — rapid expansion through organic growth, or by acquisition — not by being obsessive about the efficiency of running our fleets and squeezing revenue dollars out of each asset. When those years came to an end, we started getting smart and learned that service, safety, and preventive maintenance were the second most expensive aspect to owning a fleet, right after depreciation. But because the industry changed, our customers are much more in tune with an operational efficiency focus today than they were when we started the company.

Second, we had to learn how to convince our rental customers that the answer lay in a technology solution, not just in people management, and that this would involve introducing a new kind of technology. Dan Kaplan has been preaching for years the importance of technology in growing rental profitability, or in halting the slide in profitability, and he is absolutely right. The problem is that typically, for most of us, that meant focusing on improving traditional rental management systems — not in layering on a new interactive service support, part ordering, and fleet maintenance technology that could talk to the systems of manufacturers, dealers and distributors. From a sales and customer education perspective, it took us a while to get our prospective customers comfortable with that notion, as well as to form relationships with the rental management systems providers in the industry.

Third, and finally, our system invites the participation of manufacturers in bringing fleet efficiency to their rental industry customers, while also generating transactional efficiency benefits for themselves. Most manufacturers saw the benefits from the very beginning — some of them so much so that they urged us to play a much broader role with their e-commerce and customer support technology across the board. Multiquip and JLG are two examples of companies that over the past year applied our technology much more broadly, as part of their in-house e-commerce efforts, and we have learned a lot from their forward-thinking philosophies. But it took several quarters of successful runtime of our technology, even in limited release, before manufacturers became genuinely enthusiastic about embracing, and committing to this approach to the rental industry. And it took some time for us to convince them that we were not seeking to replace their existing systems, but to extend their reach.

What are your plans for SmartEquip looking into the future?

This is a very important year for us. Over the past six months we developed a series of partnerships with the majority of rental management systems, and we are working closely with them to support their rental customers with our e-FleetPro technology. This has significantly expanded the size of our target footprint in the rental industry, and we are expecting to see a lot of independents coming on board over the next 12 months. Second, we are much more aggressive in marketing to smaller manufacturers our hosted version of e-CommercePro, which provides them an electronic platform for publication and e-commerce for parts and service support without having to invest in infrastructure. This product is also priced on a subscription basis, which guarantees these manufacturers near-term as well as ongoing ROI. Third, we are launching e-DealerPro, which allows manufacturers to provide a similar level of support to their dealer networks, as well as — on the dealer's behalf — to the dealer's customers.

This is extremely exciting, and we are getting close to announcing partnerships with the majority of dealer management systems. We will also be announcing several new, and still confidential initiatives over the next quarter. One of the exciting new areas involves safety and risk management — another large untapped source of savings. Beyond that, we will continue to enhance fleet utilization improvements and bring down the cost of equipment ownership. We always find ourselves returning to that very same basic value proposition.