Ep. 101: Solving Supply Chain Hurdles with Technology with Alexander Schuessler of SmartEquip

construction supply chainThis episode identifies some of the biggest obstacles for contractors when it comes to supply-chain management—and how it has evolved in the past few years. Host Peggy Smedley and Alexander Schuessler, founder of SmartEquip and president of its International Group, talk about how technology can help increase efficiency—both today and in the future. They also offer tangible advice and strategies for contractors who are looking to get started using technology such as this—and the best steps to implementation.

Never listened to a podcast before? Here's How to Listen to a Podcast.

If you want to listen to more recorded podcasts, click below to see the CONEXPO-CON/AGG archive of episodes.

 

Listen on your favorite app: iTunes | iHeartRadio | Stitcher | Spotify | Google Play

Show Transcript:

Intro:                              

Welcome to CONEXPO-CON/AGG Radio, highlighting the latest construction technology and trends to drive your business forward. Coming up in March of 2020, CONEXPO-CON/AGG is North America's largest construction trade show. We bring you expert advice from your favorite brands, startups and industry peers. For even more news, sign up for our weekly 365 e-newsletter at conexpoconagg.com/subscribe. We've got another great guest on the show today, so let's dig in.

Peggy Smedley:              

Welcome to CONEXPO-CON/AGG Radio, brought to you by the Association of Equipment Manufacturers. I'm your host, Peggy Smedley.

Peggy:              

We have a great episode for you today. We will be talking all about the biggest obstacles for contractors when it comes to supply chain management and how all that technology can help. Now there's no question, buying and managing parts for your equipment can be costly and consuming. SmartEquip has an interesting statistic on its website I want to share with you. For a typical North American rental company, the average time it takes for a service technician to identify a repair part and create an internal request for the part to be ordered is just under 22 minutes.

Peggy:              

Now think about this. However, creating and submitting a purchase order adds another 25 minutes to the process. Talk about time consuming. Add to the fact that industry is facing a skilled labor shortage and construction needs to find ways to leverage technology to increase efficiency across the project. Technology certainly can help. It can increase equipment uptime, improve accuracy, and reduce total cost of equipment ownership. As always, we have a great guest to join us to talk about how technology is evolving. Please welcome Alexander Schuessler, who's the founder of SmartEquip and president of its international group. Alex, welcome to the show.

Alex Schuessler:             

Great. Thank you, Peggy. I'm delighted to be here.

Peggy:              

So Alex, when we talk about all of these things, when we talk about technology and we talk about the benefits, there's always some obstacles for contractors when we think about what they need to do to apply technology to get over business obstacles and I think people are afraid of technology to apply that. But you've been able to find a way that when it comes to supply chain management, technology can actually help. Let's talk about that.

Alex:                                

Yeah, you know, it's really interesting because people are pretty much used to the idea that if you're on a construction site that much hinges in terms of sticking to the schedule that you set for yourself being on time, hitting your cost, your budget and everything else, so depends on getting the right building materials to the site. And so whether we call it that or not, we think of a building material supply chain and in exactly the same way we spent a lot of time thinking about needing the right experts to be doing the right job at the right time. And there, again, very naturally, we may not call it a people supply chain, but that's really what we're doing. We're rescheduling across different inputs in both of these cases. In one case it's building materials. In another case it's people. And we're scheduling across them and trying to make sure that there's a minimum downtime in a project and that we get the right people, the right materials to the right job. And it's exactly the same for the equipment that you need.

Alex:                                

You've seen a big shift of contractors into the rental space. More and more equipment that gets rented rather than owns because built into the whole rental equation for a lot of these contractors is a simple realization that if I can go ahead and get my equipment delivered to the job only for the time that I need it, then I don't have downtime there and I'm using my resources efficiently. So in all of these cases, whether we call it that or not, we have a supply chain at work and obviously those people, for all of your listeners that have ... If you even had an informal reading of technology, supply chain is a very, very big term. It's been around as a popular term since the '90s.

Alex:                                

And yet, as you said correctly in the beginning, we're still pretty afraid of it because it does speak of big technology a lot of the time. We think of manufacturing as an area where supply chain is very important. We think of manufacturing as an area where a lot of technology has played a very large role. But we're not used to thinking about that in terms of construction sites necessarily and what's required there.

Peggy:              

The biggest point we should make, and I'd love for you to talk about how it's evolved over the years, because I think we have to talk about that improving of efficiency. The idea of bringing costs down, repair services and when you bring all this together, that's when we talk about a supply chain at work that now I think the construction industry, when you just described a building supply chain management system is really all of these things that the construction industry really needs to start thinking about because now it's a different thing that what we think about today is really evolved from what they might have imagined it to be. Is that correct?

Alex:                                

Oh, you're exactly right. And what's really interesting, there are several cases in North America as well as in Europe where companies that in the past to have specialized on equipment rental, for example, on renting equipment to contractors, they've really broadened their scope and they've begun to handle more and more of the logistics. And logistics is another term in this context of supply chain. And the idea there is that we're not just going to send you a telescopic material handler when you feel you need it, but let us become involved in the entire building project and let us determine jointly what the optimum allocation is, the optimal allocation is for that particular unit, when you need it and when it should be picked up again. So there's an overall focus on the efficiency of that.

Alex:                                

What's been really interesting for us though is to dig a step deeper and that is that if you are a contract and you have your own equipment fleet, which most contractors do, you have another responsibility on your hands which is not as visible to the outside as it is to you when you're ... Especially when you're in crunch time. And that is your success of the project and overall your profitability is a contractor will hinge on whether your equipment is available and usable. And so the whole issue of scheduling downtime and especially dealing with unscheduled downtime when there's equipment breakdown and the like is very, very difficult.

Alex:                                

So what we did is we said "Well, why can't you apply the same type of supply chain logistics that you increasingly are becoming comfortable with, with regard to building materials, with regard to people, with regards to the equipment itself. Why can't you benefit from that in terms of your own spare parts management for example." So if I have a piece of equipment and it may be one, two, $300,000 that I paid for it, that equipment if it's sitting there because it needs a $10 part is going to lose a lot of money in terms of uptime, but also in terms of holding up the rest of the project.

Alex:                                

So we went ahead and said "Okay, what is required for you to ensure that the equipment will be running?" I mean, a lot of companies have moved into increasing parts stock so that if there's unexpected downtime, you can be assured that you always have the right spare parts available to you. So that's one approach in all of this. And we've taken a different one, which is you can't just keep stocking parts to make sure that everything is available. We've really focused on tying you more closely and more efficiently to the dealer that might be responsible for that piece of equipment or if the equipment is not distributed by dealers to the manufacturer directly.

Alex:                                

And what we've done is we've made sure that two things are in place. Firstly, you want to make sure that if you need the right documentation to conduct your service, your maintenance, everything relating to the operation of that equipment, that you have that always available in electronic form. That could be on your screen, at work on your desk. It could be on your phone, it could be on your laptop. But we want to make sure that it's really intelligent, too. We don't want you to have to dive in and say "Well, it's this particular unit of this particular manufacturer and let me find the serial number." No, what we do is we're fully integrated with your day to day work and we know that your particular asset, your particular piece of equipment already carries that serial number. And if you're noticing that something needs to be done to it, we already have on standby in your application, the required service procedures, what parts will you be needing, which of those parts do you currently have an inventory, and if you don't, which of your surrounding dealers-

Peggy:              

Alex, can I quickly interrupt?

Alex:                                

Sure.

Peggy:              

So if I'm listening right now, somebody wants to say so are you actually saying "Look, we are actually making sure we're optimizing not your downtime, but your uptime right now." And that's the big key here is what you're talking about.

Alex:                                

That is exactly right. There are two ways of looking at all of these things. You can look at them in a very literal way, which is we want to make sure that you have a part available. And that in itself is not particularly interesting. What makes it interesting is that the consequences, the immediate economic consequences that if you have the right parts available at the right time, then you're guaranteed uptime. That's number one. And you can start becoming very detailed in what the economic consequences are because you know what the job costing, you know what the cost of downtime is. Contract has become incredibly sophisticated understanding what an hour of downtime costs on a per unit basis within a job. So rather than think of this as your dealer is sending you a spare part or your manufacturer's sending you a part, you can really start thinking, as you say, of them delivering to you uptime for that equipment and you will know immediately what the economic value of that uptime guarantee then is.

Peggy:              

So the other thing that comes to mind is the reduction in my mind is I keep hearing you talk is reduction in overtime. So you know, when equipment goes down and people and technicians are having to work on it, you know you're talking about this idea of improved technician's time. You know, everything that goes into when we're talking about big equipment, what's happening here, you're managing this equipment so much better by understanding what you have on hand.

Alex:                                

Yeah. That's actually an extremely good point. When we first rolled out our technology in the early 2000s, we had certain thresholds we had set for ourselves in terms of how much time we would actually save and what the economic effects of that's time savings would be. It turns out that we underestimated the economic side because what we had underestimated is the extent to which contractors and other types of equipment fleet owners depend on overtime. It's by far the most expensive resource in an already very scarce labor market. Saving an hour of overtime can easily translate into two or three hours of regular time. And because there's such a high seasonality in the building industry in general, that's the first focus of your savings. That's absolutely right.

Peggy:              

When you look at this, how does the technology impact overall profitability efficiency? I mean, is there a strict way of looking at best practices with this? I guess that's where I'm thinking because you were doing a great job and I apologize for interrupting, but I was thinking if I'm listening to this, I'm saying help me understand profitability right away because that's how people react. That's how we as construction industry say, how's it going to impact my bottom line, right? That's the first way we think. So-

Alex:                                

That's right. And there's a direct and an indirect side. And the indirect side is in some ways even more impressive, but even the direct side will surprise you. So often when we, especially in the older days, say five to 10 years ago, when we would approach somebody with a fleet, we would do an internal analysis with them to understand the equipment lifecycle. And what we mean by that is what is the overall cost of ownership for a piece of equipment? You may, let's keep the numbers simple, you may buy a new unit for $100,000. Over the lifetime that you own, that depending on the kind of equipment it is and then how long you own it, but it's reasonable to say you'll spend about $50,000 in parts and another $50,000 roughly in labor. And then there's some back office costs, which we'll come back to I'm sure, but at the end of its life, you may resell it and you already may sell it and you'll make it $35,000 back, let's say.

Alex:                                

So overall if you look at the labor part of that, those was $50,000, that's a big chunk right there. And that's an eye opener for a lot of people because many contractors have spent a lot of time looking for alternate parts suppliers. For example, thinking, look, I used to spend $50 in this part. I can get it for $42 somewhere else. There was a lot of research that usually goes into it. There are some safety and warranty considerations some of the time, but that's been seen a lot of the time as one of the great areas of savings. When the fleet start putting in these kinds of technologies where both the parts management as well as the labor time management come into effect, you suddenly realize why am I spending my time focused on these fairly minor savings when by using the technology to get the right information to the right people when they need it, I can be saving one, two, three, four hours on a job, sometimes more than that. When I can be reducing misorders of parts. Every time I misorder a part, my equipment is down.

Alex:                                

So to give you a little bit of a feel for that, what we have found across our customers is that if you're looking at the typical length of time people hang onto their equipment and that sort of the median cost of equipment, something like 35% of that cost, the total cost of ownership is labor cost. That's a big chunk and and if you can make that labor efficient, especially again, as you said, when there's overtime involved in top of that, and as you also mentioned early on, if it's a tight labor market for that particular technician time, that's an enormous amount of time that you can save and that's the direct cost.

Alex:                                

Now at the end of the day, that direct cost is important, but the reason you holding that equipment in the first place is because you're doing jobs. And jobs have a high level of interdependency. You want the right equipment at the right time, and there's a lot of choreography among the different inputs that you're managing. So you also have to look at the overall effect on the project itself. And that's not just driven by the cost of labor, that's the entire profitability of the job. So, it is an enormously large and still largely untapped area for savings to be had.

Peggy:              

So basically what we're talking about, we're eliminating a lot of this manual stuff that we've talked about. That drudgery that most people talk about. And we're really talking about having a real insight into data. Having a real insight into the supply chain overall, and verifying all of the information, the functional information that happens at that supply chain where we can improve efficiencies, we can improve the processes overall. And when we see that and we see that information that you're talking about, construction companies can look to technology to improve processes, improve the bottom line in so many ways. And when we talk about a shortage of labor, we're really saying this is going to make a big difference in ways that they've not imagined right now. And you're giving them a view into that that they have not even imagined at this point because they're seeing things they didn't even know existed.

Alex:                                

That's exactly right. And you've mentioned technology a few times now and that's really where the big shift has happened. People have had a realization that having visibility of data has always been an important component to all of this. And if you're looking at jobs fighting applications and software platforms, and if you're looking at fleet management platforms and so forth, and look at their development over the last few decades, in all cases, whenever a new version comes out, there're new data tables and new data fields. There're many different ways of handling warranty of equipment, which is a highly important area for profitability overall. And people have spent a lot of time enlarging these systems, especially the data structure to handle more and more of this. The problem has been until not so long ago that every time you add a new data table, you need more people to administer those tables and to enter the information into those tables, which is a real problem.

Alex:                                

And so where we've differed and the approach we've taken has been look, the equipment is there, but the information is there as well. So you may not know exactly which several thousand parts fit that particular machine, but certainly your dealer does. They have all the data there and the manufacturer does, which they then send to the dealers and so forth. So we realized that there are literally millions and millions of sources of data out there in the world that are being re-keyed by people that own the equipment. And so we thought, well, what if we started connecting it all? What if we started saying that if you have a particular scissor lift and it has a particular serial number, which requires a particular type of vault coil, which is different than the previous serial number range, we don't want a single person to ever have to touch that. We want it to be the case that when the manufacturer changes that information, it'll filter all the way through to the dealer but also to the end user.

Alex:                                

So all of a sudden all these tables that have been added to these various systems that you want it to be paying attention to sort of starting to fill themselves. So that at the end of the day, the profitability comes from the fact that the person you have out there repairing equipment, that's holding a wrench in his or her hand, all of a sudden, instead of chasing that information half their time at least, that information is now finding them and they know exactly what part is required for a particular service. They know whether they have that part in their own inventory, or whether their dealer does, or where they have to go somewhere else altogether. And they're really focused on their wrench time, not on the search time. And as a consequence, equipment uptime is up. And then you said several times, so is profitability.

Peggy:              

Is there a best practices to implementation when we talk about this?

Alex:                                

You know, it used to be very, very difficult. It used to be very difficult. When we started, which was back in 2000, the state of technology then was to implement a system like this. It would be a massively complicated IT project and it would be in the millions of dollars at the start up. And then once you were up and running, there would be a monthly subscription rate so that you would have access to a network and co-carry the cost of that network so that information could run across. The world has changed so fantastically in the last couple of decades that everything today is as we like to say, technology is a SaaS type of model, which means you go ahead and instead of buying computers and data centers, and installing [crosstalk 00:20:59]-

Peggy:              

Software as a service, is what you're saying. SaaS.

Alex:                                

Software as a service, thank you. Yes, exactly right. And so instead of going ahead and purchasing everything, you basically call the provider much like you would call a cable company at your House and say "Listen, I don't want to buy an infrastructure so I can watch a movie. I want to go ahead and send you a check every month, and that you, in exchange, send me the information that I need." And at most, I want maybe a little cable box, although that tends to annoy me. Nowadays, you don't even need those anymore because they're built right into your TV.

Alex:                                

And in a very similar way, increasingly this kind of technology gets built into the dealer management systems, to contractor management systems, to rental management systems, so that once you're up and running, we can go ahead and looking at your fleet in real time, we can make sure that the right manufacturers and dealers are sending you the right information at the right time. So it's part of your service workflow then. All that is enabled by technology that has shifted dramatically. When we started the company, we have to be a high technology company. Nowadays, our focus is primarily on onboarding new suppliers, onboarding new fleets, and making sure that the data flow is correctly across the network that we've built over the last two decades.

Peggy:              

So with all this in mind, I guess my question would be what can contractors kind of expect in the future? How will this supply chain management or other technologies continue to evolve in let's say the next 12-24 months. I know that's a big ask, but what's your thoughts on that?

Alex:                                

You know, I think the most interesting thing will be a merging of some of the technologies that are out there. And I don't mean merging in the sense that they'll all emerge into one platform, but the functionalities will play together much more nicely. So I'll give you one specific example.

Peggy:              

Are we saying interoperability? More of that type of "play nicely"?

Alex:                                

So we thought in the past, as different technology efforts separately. So we've talked a lot just now about information flow management for service information for example. And then we've had a number of companies that have provided telematics for equipment. So the idea that there's a device on your equipment and it can somehow tell you in real time or near real time or on a regular schedule, depending on the provider and the setup, what the oil pressure is doing on a physical piece of equipment. And there's been a lot of hope in telematics and it's really only recently in recent years that it's become more sophisticated and the reason it's becoming more sophisticated, and I think that's what's gonna drive the next few years in terms of big upstep, is it's not enough for the equipment to tell me what its oil pressure is. It has to tell me whether it's out of the ordinary. And in fact it should call me when it's out of the ordinary. Not to tell me every hour what had happens to be.

Alex:                                

And to establish those thresholds, a big change is just starting to happen. It used to be that you would have to code it on the equipment itself. That it would tell you, hey, I'm out of the ordinary bounds. But now because more and more telematics providers are starting to merge with information flow like ours, they will know in real time whether a particular oil pressure or any other performance indicator of a piece of equipment is within the normal bounds.

Alex:                                

So the various technologies we're starting to play together much more nicely and that's not driven by technology concerns, it's driven by the interest of the user in terms of what you need when, and when do you need the equipment to speak up and say, I have a service coming my way or that's something is not right and here is the documentation that will tell you how to repair it. And by the way, the three parts that you need are already waiting on your shelf because I went ahead and ordered those. All components of that example I just gave you exist today. They're now all being strung together that more and more of this in real time stuff will start happening,

Peggy:              

So we need to have a construction industry that wraps their arms around this because they're not there yet. They're still not embracing all of this as quickly as they should.

Alex:                                

But the rate of adoption has really increased dramatically. And our technology experience began on the equipment rental side, as you mentioned in your introduction. And it used to be that you would have to be a rental company with at least one or 200 locations before the economics made sense. We now have companies that have two locations that subscribe to this. It's not an IT effort for them, in the sense they, they call us, they sign up, they subscribe into there. And then, rather than leaving it to them to have our information flow work with their telematics units, increasingly it will be possible that their telematics provider, which in some cases is the manufacturer himself. In other cases, it will be a third party, that they will already be interfacing with this technology. And that's what you'll see more and more of.

Alex:                                

So I think right now we have some of the progressive users stepping onto these platforms. The fear of having to deal with an IT project is much lower because it isn't one. It's as simple as that. They subscribe to the service, which also means that if they're not happy on an ongoing basis, month to month with the return on investment, they can also sort of stop their subscription. So I think a lot of the fear factor is being taken away and I think more and more people are learning. We have a large number of smaller fleet owners now that are using this technology, which five years ago would have refused to listen.

Peggy:              

Alexander, thank you for your time today.

Alex:                                

Thank you very much.

Peggy:              

As you've just learned, technology can help take some of the complexity I think out of the supply chain and it can help streamline administrative tasks and improve profitability for all of you construction companies. And as a result of using technology in general, all of this equipment, you fleet owners can save millions of dollars as well as increased asset availability and usage. On the supplier side with manufacturers, dealers and other vendors can really optimize parts inventory across all of their supply chains. This is something I think the industry needs today more than ever, and it's going to be interesting to see how technology and the supply chain continues to evolve in the years ahead. Well, that's all the time we have today. So join us next time. I'm your host, Peggy Smedley.

Outro:                             

That's going to wrap up this edition of CONEXPO-CON/AG Radio. If you like the show and think other people should listen too, make sure to subscribe and maybe leave a review on iTunes. We'll be back next time with another great guest. Until that time, be sure to visit conexpoconagg.com/subscribe to sign up for our weekly e-newsletter. More than 30,000 other construction industry pros are already receiving news and insights to move their business forward.

 




Related Articles