Business Management: Seven ways to turn your parts into profit

By Ben Preston

The pandemic has created a shift toward digitization like we have never seen before. With that shift, it’s an opportunity to do things that you could not do before. To take advantage of it, look for disruptive “opportunities.”

Gearflow’s mission is to help suppliers of all sizes in the construction equipment industry seize the digital opportunities that are being presented right now.  

It starts with parts. Original equipment manufacturers are placing a heavier emphasis on part sales during the downturn because of the high margins that generally come with parts.

Additionally, more people are interested in fixing the equipment they have right now vs. buying new equipment.

However, parts are often overlooked as a revenue opportunity by dealers and rental companies. 

The reason? Parts only make up at most two percent of spending for the typical mid-sized rental company. So why should rental companies and dealers focus on parts? In parts, simply put, shavings make a pile. 

It is not the parts transaction alone that makes parts a great opportunity; it’s the aggregate of many opportunities found in parts that can turn your parts into a needle mover for your business.

Here are seven opportunities in parts that can be leveraged to positively impact the bottom line.

1. Increase efficiency of parts procurement
The process to procure the parts you need to maintain a fleet can be painful, especially when equipment downtime is factored in.

For the typical small- to mid-size contractor, rental company or dealer, the process is largely the same. The first step is diagnosing the machine on site or swap out the equipment and bring it back to the yard. Then it’s time to identify the part number and then log in to the OEM’s dealer portal, and if they have the part, place the order and wait for it to ship. But if they don’t have the part, staff then trolls Google and calls around for the part. Then, it’s a waiting game for shipping or taking the time to pick it up locally.

The cost of a down piece of equipment climbs with every hour spent on the phone tracking down parts. Any increase in the efficiency of your parts procurement process directly cuts down on that cost and puts money back into your bottom line. 

As OEMs and aftermarket part suppliers continue to invest in their parts inventory management systems, real-time pricing and availability of their inventory continues to become more readily available. Rental companies and dealers should train and equip their crews with mobile-friendly access to this inventory through their ERP or by way of platforms such as Gearflow.  As soon as a piece of equipment goes down, the replacement part can be purchased and shipped the same day to get that equipment back up and running as soon as possible.

2. Minimize inventory costs
Over-ordering and mis-orders have become par for the course. With the restocking fees that come with many part suppliers, parts inventory can get burdensome on the bottom line. With the increase in parts accessibility, rental companies and dealers can hold fewer parts in inventory. 

High Reach 2, an equipment rental company with five locations in Florida, transformed its parts department from a sunk cost to a profit center after investing in improving the efficiency of its parts department. Since then, it has added two locations and 14 service trucks while decreasing parts inventory by 15 percent. With the proper inventory management software, dealers and rental centers can hone in on and stock 90 percent of the parts needed without any excess.

3. Mitigate downtime with preventive maintenance
The construction industry has traditionally been a very reactive business. Even with the implementation of condition-based monitoring, such as fluid analysis, maintenance has been a seek-and-destroy process. For example, an oil analysis reveals the iron contamination in an engine is too high, so technicians order the parts suspecting of causing the issue for replacement. Today, the advances made in telematics has allowed this process to become proactive. Telematics data can now enable enhanced condition-based monitoring to trigger preventive maintenance. 

Equipment managers can now marry up iron sample information with machine trends to develop a plan to repair or replace parts before an emergency occurs.

Jason Threewits, digital service manager for Carter Machinery, shares how equipment managers can get the most out of telematics data. “It allows us to recommend to the customer to think about doing X, Y and Z, because the data is telling us that you’re heading for the wall. Let’s fix it before it starts chucking parts out of the side of the engine and becomes a catastrophic failure.”

Unless equipment managers have established processes and an open mindset for change, Threewitts says they will not have a successful integration and implementation of telematics data. “It is absolutely where data goes to die,” he says. “Data without a process or a purpose is just dead on arrival.”

4. Decrease costs with high-value parts
High value does not always mean lowest price. When you are racing to get a piece of equipment back up and running, saving $100 on a part is not the priority.

The most important factor in procuring parts is not price; it’s trust. Trust that the part you are putting in your machine is high quality and trust that the supplier you are working with will get it to you quickly.

The growth of aftermarket parts has introduced parts optionality to equipment owners. Aftermarket part suppliers either source parts from the same factories as the OEMs, manufacture exact replicas, or purchase slow-moving parts in bulk from the OEMs and resell them. Aftermarket parts, including powerhouses such as TVH, make up close to half of all parts sales in the United States.

High-value parts can be found with both OEMs and aftermarket part suppliers. Transparency, optionality, and access to high-quality parts supply will continue to grow and offer rental companies opportunities to cut costs by sourcing only the highest value parts for their fleet.

5. Embrace parts e-commerce
Digital disruption has already begun in the industrial supply industry with the rapid emergence of e–commerce, but rental companies often overlook their parts ecommerce opportunity. Most, if not all, OEMs abide by a dealer model, so once a rental company is established as an authorized dealer, the rental company can do what they want with the parts inventory they buy from them.

This includes selling new parts online to end consumers, even if the parts are ultimately drop-shipped directly from the OEM. Similar to what is happening in the automotive world, many OEMs are catching on to the opportunity parts e-commerce represents for them and their dealers.

For example, CNH recently opened MyCNHiStore that allows end consumers to buy parts online through their closest dealer. The invoice comes from the dealer, the dealer gets paid on the transaction, and the part is shipped either from the dealer or from one of the CNH warehouses. The dealer also has the opportunity to set up its own storefront that looks like its own website. This allows the customer to only see the inventory available with that dealer as well as learn more about the dealer with which they are working.

CNH also allows the sale of noncompetitive OEM parts through its site. This turns parts into a revenue-generating machine with no added work beyond picking, packing and shipping orders.

6. Monetize obsolete parts
Many rental companies have been around for generations. It doesn’t take long to stock up on a large amount of slow-moving and obsolete parts. Obsolete parts are a growing problem to the tune of eight to nine figures for some of the largest rental companies and OEMs. However, the obsolete parts problem can be mitigated with an increase in accessibility.

It’s a good bet that someone is Googling for that obsolete part sitting on your shelf. However, the only way to connect the dots is to surface your obsolete and slow-moving inventory on Google. This requires an e-commerce presence supported by strong technical SEO.

7. Understand your customer’s fleet
The data that comes from a part sale represents the most overlooked opportunity of them all. Many suppliers refuse to service a competitor’s equipment. However, the best competitive intelligence and lead generation can come from the parts and service business. Selling parts to your customers is a conduit for highly valuable customer data. Understanding your customer’s fleet and the level of maintenance their equipment requires opens up opportunities to offer equipment for sale or for rent to help reduce their total cost of ownership.

Take action
The pandemic has made parts e-commerce an opportunity that businesses should no longer ignore. The rapid change in consumer behavior has led to a rapid growth in e-commerce in industrial supply and automotive parts. Amazon Business is growing at an even faster rate within these sectors and construction equipment supply is next. 

Businesses that use the current crisis to divert themselves away from the status quo and transform the way they think about reaching their customers, particularly in parts, will avoid getting left behind.

Editor’s note: Ben Preston is the co-founder of Gearflow, which offers a way for rental centers and dealers to quickly transform into an e-commerce-enabled business without the cost. Learn more at www.gearflow.com.

This article originally appeared in the November-December 2020 issue of Pro Contractor Rentals magazine. © 2020 Urbain Communications LLC. All rights reserved. 

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