Beyond the labor shortage
By Josh Nickell
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Beyond the labor shortage

Investments in technology and productivity can help

When I talk to rental companies, by far their biggest concern in their business — aside from supply chain issues — is the shortage of skilled labor. It might take 12 to 18 months, but manufacturers will ramp up supply to meet demand. The labor shortage issues, however, are much more complex and will take years and likely a generation or more to make meaningful impacts.

As an association and industry, we are doing many things to attract talent, improve awareness, create career paths, build education and certification programs, pay attractive wages and retain talent. However, the root of the problem is there aren’t enough young people choosing trade career paths like becoming a mechanic or driver. We are committed to it, but it is a long road.

Attracting and upskilling skilled labor needs to be a focus, but too often we are forgetting that labor only is one of many levers in our business. It’s an easy one to get distracted by, because traditionally, an effective and efficient way to handle an increase in business was to increase headcount and fleet size. That isn’t the only solution. While we continue to address the labor shortages, it’s time to turn our attention to building more operational efficiency into our business.

Software. While there is an argument to be made that some technology is just a distraction, most technology is designed to improve our processes by making them simpler or easier and eliminate wasted effort. I think we can all agree that handwriting profit-and-loss statements is incredibly inefficient, yet there are many areas of our business that we continue to do manual processes that are more difficult to repeat and scale.

The first place you should look is your current rental software provider. I’ve reviewed how hundreds of rental companies implement their rental software and can guarantee you aren’t using the tools you are already paying for to its fullest, and there likely are additional features they can provide that also would make an impact. There are plenty of good reasons why we haven’t leaned into technology in the past — change is hard, new processes and habits take time to develop, technology has a cost, etc.

However, when you think about it from a labor-savings perspective, saving just six minutes per hour for a technician will increase efficiency that is equal to more than five 40-hour work weeks saved per year.

In 2017, my rental company performed a published study with SmartEquip. When the study was released, we focused on the return on investment. If we instead focused more on the labor efficiency, it paints a different picture. Our average time to pull a manual, order a part, approve it, pay for it, etc., including everyone involved, averaged 60 minutes.

Once we digitized our workflow with SmartEquip, the average came down to six minutes. That is a savings of 54 minutes per part order. I’m not arguing that SmartEquip is the solution for everyone, but it is a perfect example of how investment in quality technology can have a huge direct impact on your labor needs. So, next time a software vendor shares an innovation with you, whether it be online ordering for customers or digitizing the inspection process, you should take your labor savings into consideration. It might be easier and cheaper to buy more software than buy more labor.

Electrification. While there are still some hurdles to electrification, it is a segment that is growing rapidly and will eventually dominate the modern contractor job site and backyard of the weekend warrior. When we consider change, it’s easy to focus on the negative like upfront cost, but when we look at electrification through the lens of a labor shortage, there are some huge positives. Most electric engines are very low maintenance. Most rental companies perform a service on a unit after every rental and preventative maintenance at regular intervals. Your team spends a large amount of time on gas and diesel engines. Every time you add a new unit with an electric vs. an internal combustion engine, you are saving time for service technicians and mechanics.

Six Sigma and 5S. The factory line was created for efficiency by Ford. Toyota later revolutionized this idea by creating Six Sigma. In its simplest form, it is about eliminating waste in a system. Waste can be many things, including errors, time and movement. A Six Sigma organization constantly is looking for ways to eliminate waste. When you look at the future of the modern rental store, it’s time to look for waste in every process we perform.

When is the last time you stood in your shop and analyzed the flow? It’s an eye-opening process to track. Is everything your teams need accessible? Is it within as few steps as possible? Is there a more efficient way to perform that task? Is the location or home of every item and tool visible so that every person — new hire to sales rep — could return it without any mistakes, etc.? The right equipment or tools help us eliminate waste. We know this intuitively when we recommend a mini skid steer to a landscaper that with an attachment can turn a three-person job into one that only requires one person, but it’s easy to forget in our own shops.

Analytics. Most modern industries invest heavily in data and analytics to improve decision making. The equipment rental industry has not been an early adopter or big investor in big data. That needs to change. We should be investing in telematics, analytics software and sharing data with manufacturers, customers and
other rental companies in an anonymous way.

The data industry most commonly refers to three types of analytics — descriptive, predictive and prescriptive. We already are comfortable with and use descriptive data. A good example of this would be the sales, customer and utilization reports from our rental software. The opportunity for efficiency lies in predictive and prescriptive. When we consider telematics on a machine, descriptive analytics would tell us the engine temperature, predictive analytics would use multiple data points to tell us the machine might have an issue or experience one soon, and prescriptive analytics would alert us to swap out the unit and perform testing on the hydraulic system before a major repair is needed. There are many other use cases from rental rates to fleet management that could be drastically improved with more data.

We are in the early stages of data-driven decisions in the equipment rental industry. High-quality analytics and particularly predictive and prescriptive analytics require mountains of data. The more data, the better the results. This kind of information benefits everyone from our suppliers to customers, but it requires an openness to share and invest in ways that are new. If, collectively, we all make the decision to share our data and invest in analytics, we will all reap the benefits. If we ignore the opportunity, then only the largest companies with the biggest budgets will profit off the opportunity.

It may not be obvious, but better data results in better decisions which requires less labor. For example, if we can prevent major repairs with telematics or better manage demand with dynamic pricing and fleet analytics, then we will be able to better focus our labor on the most valuable targets.

A bonus in productivity. If you ask the average rental company owner what their most important metrics are, earnings before income tax, depreciation and amortization (EBITDA) and profitability often come up as they would in any industry, but the rental-specific ones most often used are dollar and time utilization. It is time to implement a third: Productivity. We need to start tracking revenue and EBITDA per hour worked and compare them regularly with our peers, always seeking out how to improve that ratio and evaluating how the concepts and investments mentioned earlier in this article impact that number.

There are many opportunities to build a more efficient business, which will be a key focus of the ARA Rental Innovation Conference & Exhibits scheduled for March 9-10, 2022, in Dallas. Mark your calendar now, because this will be the perfect opportunity to see the best innovations in the industry to help alleviate your workforce needs and improve your business. 

Josh Nickell is the American Rental Association (ARA) vice president, equipment segment.

Josh Nickell

Josh NickellJosh Nickell

Nickell, a 20-year rental industry veteran, has spent a good portion of his life in a family rental business as a third-generation owner. His experience also includes working for a national rental company, an international rental software provider and serving the industry in a consulting capacity. Through decades of experience, he has gained unique perspective and knowledge of the construction, industrial and general tool rental industry. Nickell leads program development and member engagement for the equipment segment of ARA membership.

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