Can you control what you rent or is it costing more than it should?
According to the 500 contractor responses to the Wells Fargo Equipment Finance 2016 Construction Industry Forecast, the top three reasons that contractors rent rather than buy equipment are:
- 42% indicated they rent project-specific equipment
- 29% said because the level of work does not justify a purchase
- 17% stated they like the flexibility of returning equipment
If your primary reason for renting equipment is that you need specialized equipment to satisfy a particular project or a project is not big enough to justify buying specific equipment, then there is little option other than renting. Basic economics drives a straightforward decision that allows you to control costs simply with a “turn off/turn on” service.
Is it that simple? Is it really so easy to control your costs by renting equipment?
The financial argument certainly feels simple: a rental charge hits the P&L and not the balance sheet. You only pay for the equipment when you want to rent it. The equipment rental company has to worry about storing equipment when it’s not being used, managing maintenance and effectively removing all the headaches that come with managing a large equipment fleet.
However, what we hear time and again when we talk with construction companies is that physical reality is not quite so straightforward. The fault doesn’t lie with the rental concept but with the way that job sites, procurement, and rental companies interact.
- The job site needs something in a hurry and bypasses procurement to go straight to the rental company and order what they need.
- Procurement doesn’t understand a one line email from a project supervisor or a scrawled message on a white board and orders the wrong size/type of machine for the job causing delays and unnecessary expenditure
- The job site finishes with the piece of equipment, but no one has responsibility to manage the equipment so it sits in the corner of the project site, racking up rental charges, adding to the rental company’s revenues and contributing to the project costs
- All of which undermine that third reason for renting: the flexibility of returning equipment? If no one remembers to return something then the flexibility is not really a benefit at all!
So in order to take advantage of the undoubted financial benefits of renting equipment, you need to address the issues described above. You need to find a way of improving the interaction between jobsite, procurement and the rental companies. Some areas to consider are:
Use your vendor’s online tools. Most of the larger rental companies and an increasing number of smaller vendors offer online information for you to track what you have on rent and to keep an eye on your expenditure. These are great tools for helping you manage your rental equipment. The problem, of course, is that you are unlikely to have just one vendor, which means you spend all your time jumping from one website to another and trying to bring all the information together, almost certainly ending up with you tracking everything in a spreadsheet, or multiple spreadsheets if you have many projects.
Out-source your rental procurement. There is a growing number of on-line rental marketplaces such as BigRentz and Kwipped cropping up, helping contractors manage their rental processes. These businesses take the place of your procurement department doing the work of contacting multiple rental companies to find the best price and availability for your job site. There is no doubt that these services can be a good way of looking for best rates, but they don’t resolve any of the issues around equipment once it hits the job site. And someone has to take a margin somewhere.
Use technology to bring the job site, rental company, and procurement processes together. To really resolve the basic issue you have to find a way to make information flow between the three parts of your business process. Job sites need to be able to request equipment efficiently from an on-line catalog which helps standardize requirements and eliminate ‘mistaken’ ordering. That also means that job sites need to be able to track the status of their requests easily and in real-time to reduce the uncertainty of wondering whether or not the equipment is going to arrive in time for the project goals.
Procurement needs to be able to determine what is available for job sites to rent and provide that information easily to the job sites. That means procurement can negotiate best rates up front and reduce the need for multiple conversations. This speeds up procurement and has the added advantage of standardizing job site tools and equipment which can help reduce risk, and improve safety and training issues on the job site.
The rental company needs to be involved from the initial conversation. It is in the interests of all parties to establish long-term agreements with agreed rates and terms. If you can achieve that starting point then technology should allow you to route rental purchasing to preferred vendors automatically to speed up procurement and reduce time delays for the job site. After all, if you’ve already negotiated the rates, your job site knows what they can order, at what rate making it easy for them to order the approved equipment allowed to order why can’t that order flow automatically to the job site.
Most importantly at every stage of the process, you must have complete visibility to all parties of what is on the job site, what it’s costing you and when it’s due for return. It’s tempting to go for open-ended rentals, but asking for an estimated off-rental date and chasing to see if the job site still needs the equipment when that date starts to approach is just good management. Electronic off-rent requests should be a natural part of the job site so that a request doesn’t just go to the rental company but also back to procurement and the AP to help control your AP payment processes.