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Measuring Efficiencies

When it comes down to it, it's all about systems. Erik Olsson knew that from years in manufacturing. No matter how good a product is, without efficiency in production and delivery, a business cannot be profitable. When Olsson came to RSC along with Freek Nijdam and others from then-owners Atlas Copco, they began to look at the business from a manufacturing perspective, a different set of eyes than those of veterans of the equipment rental industry.

It wasn't that the rental veterans didn't have wisdom, knowledge and systems. But it was time to adapt to a larger size and a new era. And coming from manufacturing disciplines they saw inefficiencies quickly. Many of RSC's staff was skeptical at first of the new ways of thinking, coming from Europeans whose background was in manufacturing and not in rental. But the inherent logic of the concepts and, more importantly, the results won them over.

“One reason RSC is so successful today and has the leading margins in the industry is the fact that we were able to transfer over some of that manufacturing thinking into what a service industry is,” says Olsson. “The concepts of capital efficiency, continuous improvements, what gets measured gets done and to create metrics around things that a manufacturer lives with day in and day out trying to squeeze margins out.”

Olsson got much of his schooling in rental from RSC veteran Tom Bennett, whose extraordinary rental career began as a young man working at the wash rack and culminated as CEO of RSC, one of the industry's largest rental companies. Another mentor was Nijdam and when Nijdam took over the leadership of RSC after Bennett retired, he and Olsson sought to deepen and expand upon the existing metrics.

“What we did was bridge and combine,” says Olsson. “There were metrics around of course before we came, but we were successful in bridging the different metrics and saying, ‘If you do this with utilization and you do this with price and you did this with your efficiencies, you're going to get this result here.’” The result has been, in a nutshell, a level of profitability that ranks among the industry's best.

Olsson says he is determined to prove wrong a commonly held rental industry belief that you can have high utilization or high price, but not both. “We have been successful in breaking that belief,” he says. “If we have high utilization and are exceeding our customer's expectations, that's when we have an opportunity to charge a higher price.”

RSC set out to measure things that hadn't been measured before, particularly in regard to fleet. “Fleet per salesman, fleet per driver, fleet per mechanic,” says Olsson. “You can improve in each area.”

One of the concepts the Atlas Copco team brought in was an idea common in manufacturing, but not so much in equipment rental. “Capital efficiency was the first thing we started to attack,” says Olsson. “As a rental company, you have to make use of the capital you have invested in the fleet and we had a lot of fleet that was not utilized, so we saw that as a tremendous opportunity to increase revenues without investing more money into the fleet. So thinking a little bit like a manufacturer, [incorporating concepts such as] just in time, and buying fleet really the moment that you need it, and that you shouldn't order 400 air compressors at once, you should order one if you need one.”

Who needs parts?

Another area Olsson and his team looked at was efficiency in service, particularly parts. RSC virtually eliminated its parts inventory; today it has about $2 million worth of parts companywide on $2.7 billion worth of fleet.

“We found that when we do a repair, on average we'd need four parts,” Olsson explains. “If you're lucky, you have two of those in stock, so you have to order the other two and wait for them. So, we said, why not wait for all four parts? That's a change we did a couple of years ago and our repair process got faster. We're definitely into lean.” RSC's studies have shown that between eight and nine out of 10 repairs required the ordering of parts. So if you're ordering parts anyway, why not order, essentially, all of them? Other than very basic items such as filters and lightbulbs, the company orders virtually all its parts, drop-shipped daily by its preferred suppliers. Parts take up space and require supervisory personnel and an organizing system. But why stock them when you can get them the next day anyway?

If a company's shop is organized properly, the diagnostics can be done a day in advance of actually performing the repair. Still, the meticulous RSC didn't just observe this anecdotally; its own metrics show that the average length of time a piece of equipment moves through the shop is one day. The ability of a supplier to provide fast, consistent delivery is a critical part of RSC's decision-making when it comes to choosing the manufacturers it partners with.

Service technicians didn't all buy into the philosophy immediately, since most mechanics are trained to feel comfortable with large parts inventories in stock. One branch manager laughingly tells of a branch dumping its parts inventory and watching mechanics crawl into the dumpster to retrieve them.

But now that repairs are achieved three times as fast as before on a companywide basis, the severest skeptics are being won over.

Clockwise RSC

Among the improved efficiencies Olsson refers to is the physical layout of RSC facilities. Of course a company with 470 locations cannot expect exact physical uniformity given the varieties of properties RSC rental centers are located on. But the vast majority of RSC locations follow the same procedure of routing all equipment in a clockwise circle around the building, so staff will always know the location of each unit on the property and the likelihood of accidents caused by machines going in opposite directions and crashing is greatly reduced.

For example, a truck will pull in the yard, go first to the fuel island to re-fuel the equipment and scan in information such as hours and fluid levels. Machines that require a quick check go to the first area, while machines that require parts or repairs will be parked in another area. Next around the circle is the rental-ready area. All vehicles and machines follow the one-way traffic pattern. “We look towards process flow to really be effective,” says Hank Stodghill, who served as branch manger in Gilbert, Ariz., for six years before recently being named district manager for the Phoenix area. “Every vehicle moves in the same direction, so the possibility of an accident is significantly reduced.”

Olsson and other RSC management staff also reexamined RSC's relationships with suppliers. Having worked for Atlas Copco for so many years, Olsson has a good feel for the problems manufacturers face. That awareness helps Olsson in developing relationships with manufacturers, relationships he views as partnerships.

“We have consolidated down to basically two suppliers per product category,” he says. “The relationship has to be win-win. If we truly partner with manufacturers there are so many ways where we can work together to squeeze costs out of the system on both sides.”

The obvious areas are electronic ordering and making payments electronically and reducing paperwork. “Also, there are products we can spec better,” Olsson adds. “It's a constant dialog and effort to reduce waste, finding things we don't need which also helps further our sustainability efforts.”

Total cost of ownership

Olsson's familiarity with the manufacturing end of the business helps him analyze what those manufacturers can bring to the table, and he views the relationships in broad terms. “For us it's a total cost of ownership type of relationship where product cost is one component, but there are other expectations,” he says. “The biggest issue really is parts supply and the effectiveness of how quickly they can deliver parts and service.”

RSC's benchmarking measures trends. “We can benchmark one location to another, one region to another and then figure out why there is a difference somewhere,” says Olsson. “And we can show local staff that there's an opportunity for improvement they can go after.”

RSC views its customer service in a similar manner as it analyzes the service it receives from its suppliers — a total value package. “It's not one thing, it's 20 things, it's 50 things that we have combined,” says Olsson. “It's the whole service chain, the whole experience the customer has with us.”

For example, RSC tracks the currency of its preventive maintenance, aiming for 100-percent currency. “Now, with the $2.7-billion fleet we have, 98 percent of that is current on our manufacturer-recommended preventive maintenance,” he adds. “We track every individual piece and our mechanics get a flag in the system when something is due.”

The company is also proud of its 24/7 in-house call-in center, staffed fully by RSC employees who can pull a customer's account on the screen and have a meaningful interaction.

“With our own employees answering it, they have a vested interest in how the customer is being handled,” points out Todd Allen, regional vice president of operations for the mountain region. “It's another example where we're trying to do what the customers want. And we track response time 24/7 — on the weekend, over a holiday, whatever — because our customers keep working.”

Metrics include measuring what customers want. “We know they want availability, we know they want reliability with the equipment, and we know they want billing accuracy,” says Allen. “We measure and track all of this, it's a very ingrained part of our business.”

“We measure on-time delivery and 95 percent of our deliveries are within a one-hour window,” says Olsson.

An important aspect of capital efficiency for RSC is the fleet being a liquid asset that flows to where it is needed. The fleet can move between stores and between districts, even between regions.

“It's another great strength for our salespeople and branch managers, knowing that they don't only have the $3- or $4-million fleet that sits on the yard belonging to them, but they have access to $30 million or $40 million in fleet that belongs to the district around them,” Olsson says. “The company owns the fleet, not the branch.”

“Demand rules,” adds Allen. “We have the ability to move the fleet where our customers want it. Our customers tell us that availability is a key thing that they want. You never have as much equipment as you want, so you have to figure out ways to become more efficient to get the equipment to the customer and be proactive on their needs. For example, if we know we're beginning a dusty season, we'll bring appropriate types of equipment to that market. And if a market has four stores, you're not dealing with four separate entities, you're dealing with one entity with four outlets.”

Aerial equipment is the largest component of RSC's fleet, followed by earthmoving equipment and forklifts, but the company has a wide-ranging fleet that varies according to needs of particular markets.

“Our fleet is fairly typical of the rental industry itself and a good reflection of what our customer base is really renting,” says Olsson. “We are customer-driven, not product-driven. We don't buy products and say ‘here, rent this’ or say ‘we're not going to rent that product.’ We rent what our customers want us to rent and then we try to do it as efficiently as possible.”

Electronic service

RSC has for years been on the forefront of electronic interchange with its customer base. Its Total Control System is oriented towards large customers where they can manage project information, jobsite cost information, their own purchase orders and interface between the customers' ERPs and RSC's.

RSC Online is a popular program where customers can have access to their accounts and get reports customized at the intervals they want them, essential services that make it easier to do business with RSC. RSC Online enables customers to reserve equipment or schedule and arrange rental needs at any time, schedule pickups or cancel equipment 24/7 with e-mailed confirmations; and instantly review and pay RSC invoices online, using a credit card or direct bank withdrawal.

Involvement, commitment

RSC realizes that effective customer service extends to the front line — the drivers. A couple of years ago, the company began including drivers in its variable compensation system. “Drivers actually meet more customers than anybody in our company,” Olsson says.

With enhanced compensation opportunities, involvement means a deeper commitment to serving the customer. “We've given them training on how to interact with the customers,” Olsson says. “They give out business cards, they have important interactions with the customer and many times they pick up orders and develop business for us.”

Training days

RSC has focused considerable attention on training and recruiting for sales staff.

The emphasis on customer service skills carries over into recruiting — which RSC figures to do a lot of in 2008 as it expects to continue to increase its sales force in 2008. While technical skills for some positions are obviously foremost — particularly in service technicians — people skills and customer service skills are more highly valued than rental industry experience when it comes to sales positions. And in inside sales as well people skills are often more highly valued than knowledge of equipment, which can be more easily learned.

Another service RSC offers are mobile tool rooms, portable units that can be placed at a jobsite, custom-stocked with tools, small equipment and hardware consumables, selected for particular jobs. The tool rooms include real-time inventory and tracking capability. The service provides convenience, cost-savings, and reduces equipment theft and duplicate requests. Tracking uses unique RSC software and bar-code technology and reduces paper in the transaction.

Up the road

A lot of factors determine how fast a rental company can grow, but Olsson says he and his management team want to keep the company growing at a high rate. RSC's goal is not to be the biggest company in the rental industry, but the best. “It's more important to deliver value to our shareholders, to be a great company to work for and to exceed our customers' expectations,” he says. Nonetheless, he does have a growth plan for the company.

Olsson describes RSC's growth objectives as, essentially, four-pronged. First is same-store growth, achieved by the addition of sales people carving out new territories and gaining more business through the same store and the company overall servicing the markets more effectively.

Second would be new locations. RSC opened 21 new locations in 2007 and Olsson hopes for that number to increase in the coming years. A third area would be acquisitions — focusing on smaller, complementary acquisitions to fill in geographic holes or solidify market position. Fourth would be going into new areas, both geographically into states or markets the company is not in presently, or new product areas the company is not currently renting.

Even though the current economy has its uncertainties, RSC sees strength in its primary construction/industrial customer segments and its management is optimistic about growth prospects in the coming year.

A Visit to Gilbert

For those with history in the rental industry in the western states, RSC's Gilbert, Ariz., location is well known. Once the hub of Valley Rentals, for years one of the stronger independents in Phoenix and other Arizona cities, Gilbert is now the nerve center of RSC's six Phoenix-area rental centers. It houses some of RSC's regional and district staff, as well as a dynamic rental operation.

There are six branches in the Phoenix area and an order for equipment may come in at any one of them and be serviced from any location.

“When an order comes in, no matter where a customer is throughout the valley, we can service them from one location,” says Hank Stodghill “If they really want to talk to Mike on the counter [in Gilbert] and they're working in the Northwest Valley, they can still call in to Mike. He sets up the order, he gets the equipment, he does whatever is needed to make that order happen. Regardless of where anybody calls from, whatever they need and wherever the fleet is, we'll make it happen. If the fleet is in the very southern part of the valley, we can deliver it up to the north. To the customer, it's seamless. We just make the transaction happen, they don't know what's happening behind the scenes. They call one guy and we just handle the logistics.”

Delivery trucks are dispatched using satellite links from the branch to the trucks directly, rather than through past methods such as two-way radios or cell phones. The information is broadcast instantly.

“All of the information that the inside salespeople are putting into the contract, the driver receives in real time,” says Stodghill. “If we make changes, he sees it instantly, he has the same information in the field as we have here.”

Four years ago, before beginning to use the satellite system, the average pickup time off a jobsite was two to three days, explains RSC dispatch manager John Flores. Now it's less than a day in our market.

“From here we can directly dispatch trucks by assigning tasks to them,” says Flores. A truck can roll into the yard, he sees on his display what he needs to load or unload and never needs to come in the office to ask, ‘What do I need to load up?’ He sees unit numbers, buckets, attachments, gets it all loaded, comes in, grabs his paperwork and he's back on his truck.”

On the truck, the driver has a display showing him customer name, contact number, equipment, attachments details, and other pertinent information. When he completes his assignment, he notes it electronically and goes on to the next task, without having to call in. “It keeps him rolling; the dispatchers can see his progress and give him more assignments or call him into the yard if needed.”

No matter how much a large rental company aspires to uniformity between branches, so that every facility gives the customer an equally satisfying experience, there are always going to be differences between branches, reflecting local markets, local personalities of personnel and differences in physical layout of buildings. But a company can create a unified system that is virtually seamless to the customer and as efficient as possible in relationships with other branches. RSC gets a high grade for developing systems that can do the job and working together with the right attitude.

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