Equipment industry perspectives

Telematics and your business

Changes in equipment and technology allow us to do our jobsmore effectivelyBy Ron Slee, R.J. Slee & Associates

The driver for the product support world is the machine. It is as simple as that. The consumption of parts andservices is dependent on the number of work hours and the application in which the machine works. This hasalways been true. The driver for equipment sales, on the other hand, is either new business, replacing a machineof a competitive brand, or the replacement of worn out equipment. This worn out equipment reaches the point ofno return when the cost of repair and maintenance exceeds the residual value of the machine. This makesreplacement a more cost effective solution.

For decades now, we have been looking at systems, processes, and technologies to help us reduce the owningand operating costs of the capital equipment that we sell and service. We have used preventative maintenanceprograms, inspections, component replacement before failure, life cycle management, and oil analysis, to name afew different approaches. All of them have been successful to one degree or another.

Equipment Industry Perspectives

3 Now we have telematics

3 From there to market potential

4 Next comes equipment management

5 Market coverage becomes a key

5 Customer retention

7 Combatting competition

7 Telematics facilitates how youoperate your business

8 Management measures, KPIs, anddashboards

Table of Contents

3Equipment Industry Perspectives

Now we have telematicsNow there is a game changer in place. A disruptivetechnology. It is telematics.

This innovation has gradually penetrated the market,starting with a global positioning system (GPS) thattracks the location of a piece of equipment. Initially,the GPS was suggested to assist in insurance claimswhen equipment was stolen. You could find amachine and you could also disable the machine fromstarting. Various secondary suppliers put “their”hardware on “our” equipment and used “their”software to provide a service to “our” customers. Thatit did a job for the customer is true, but it also createdsome critical thinking within our manufacturers andservice providers, as well as our business systemproviders.

Today, this has morphed into a complete machinetracking and status tool. We know the location of themachine. We know how many hours it is working. Thatis a big help in determining market potential.

From there to marketpotentialIn the capital goods business, the parts and servicedepartments have been given a pass on marketshare. We have never had a good gauge, a goodmeasure for it. With telematics, there is absolutely nouncertainty. Eventually every machine in our businessarea of responsibility will have telematics built into it.From this, we will know all there is to know; how manyhours, how much idle time, engine rpms, to name afew. From this we can make a much more preciseforecast of parts and service consumption for eachmachine. With a forecast of consumption and theactual purchases, it is clear we will be able to calculatemarket share. No more hiding. It will be there foreveryone to see.

This will lead to business systems that will reportmarket share for each customer, for each marketsegment, and for each sales territory. Now we canmeasure our performance. Now we can developlogical strategies to obtain higher levels ofperformance in growing the business.

The actual and accurate machine work hours andmachine idle hours delivered through telematics helpdealers be more precise in determining their marketpotential. In fact, almost every manufacturer has itsown version of a market potential calculator. WithVolvo, it is “PotCalc.” (This is their acronym forPotential Calculator). With other manufacturers, thereare tools available that can be taken to the partnumber level of consumption based on populationinformation.

The market potential calculator allows us to determinethe personnel levels in the business. Withmanagement measures in place and performancestandards established, the business can measureeach store against the goals and against other stores.This provides much more traction to best practices inthe business. If the departmental staff levels areknown, then hiring and training decisions are easier tomake. It also allows the creation of a “dashboard” ofactual performance against standard on a daily basis.The dealer management system allows the leadershipto see at a glance the specific performance of a storeor a department against standards. Using graphicssuch as traffic lights this makes it even easier. Anyonecan see the results.

RubyCMYK: 10, 100, 100, 2

CMYK Color Palette

GraphiteCMYK: 25, 18, 12, 55

CoralCMYK: 0, 65, 100, 0

AmberCMYK: 0, 38, 100, 0

CitrineCMYK: 2, 10, 100, 0

JadeCMYK: 42, 0, 100, 0

EmeraldCMYK: 60, 0, 95, 0

RubyLight: 10, 100, 100, 2Dark: 10, 100, 100, 22

GraphiteLight: 25, 18, 12, 55Dark: 25, 18, 12, 75

CoralLight: 0, 65, 100, 0Dark: 0, 65, 100, 20

AmberLight: 0, 38, 100, 0Dark: 0, 65, 100, 0

CitrineLight: 2, 10, 100, 0Dark: 0, 38, 100, 0

JadeLight: 42, 0, 100, 0Dark: 60, 0, 95, 0

EmeraldLight: 60, 0, 95, 0Dark: 65, 0, 100, 20

TurquoiseLight: 71, 0, 48, 0Dark: 71, 0, 48, 20

TopazLight: 61, 0, 0, 0Dark: 75, 20, 0, 0

AzureLight: 75, 20, 0, 0Dark: 95, 45, 0, 0

CobaltLight: 95, 45, 0, 0Dark: 87, 70, 0, 0

SapphireLight: 87, 70, 0, 0Dark: 87, 70, 0, 20

AmethystLight: 67, 90, 0, 0Dark: 67, 90, 0, 20

TourmalineLight: 4, 94, 46, 0Dark: 4, 94, 46, 20

TurquoiseCMYK: 71, 0, 48, 0

TopazCMYK: 61, 0, 0, 0

AzureCMYK: 75, 20, 0, 0

CobaltCMYK: 95, 45, 0, 0

SapphireCMYK: 87, 70, 0, 0

AmethystCMYK: 67, 90, 0, 0

TourmalineCMYK: 4, 94, 46, 0

4Equipment Industry Perspectives

Most capital goods consume an equal amount of laboron maintenance as they do on repairs over theirlifetime. This makes the job of calculating marketpotential rather easy. The critical point is that thesupport businesses, the dealers, and distributors, musthave complete and accurate populations for thecapital goods they are supporting. With telematics inplace, we have the accurate and complete populationstatistics, and we can calculate the market potential foreach machine and as a result, for each customer.

■ With the actual hours of work, for each machine, wecan calculate the maintenance cycles.

■ With standard hours for each interval, we cancalculate the total hours for maintenance.

■ We can obtain the ratio of parts consumed to laborworked for maintenance work.

■ We can also obtain the ratio of parts consumed tolabor performed for repair work.

With these facts, we can calculate the annualmaintenance revenue.

This helps us make a determination of the actual life ofeach machine in work hours. It is from this total life ofthe machine that we can calculate the repair revenueavailable. Over the work life of a machine, themaintenance hours are typically equal to the repair hours.

Next, we need to obtain the labor rate formaintenance and the labor rate for repair. That allowsus to translate the labor hours into total labor revenueopportunity. Finally, with the ratio of parts to labor forrepairs and maintenance, we can calculate the finalnumber for the parts opportunity.

There will be some final adjustments based on “wear”parts to be added, but you will have the potential foreach unit and each customer. Finally you know whatyou sell to each customer so it is a simple matter tocalculate market share. Now we can establishstrategies to improve our market penetration. Beforetelematics we could only guess.

Next comes equipmentmanagementTied to telematics today we also have electroniccontrol units on key systems and components withinthe machine. We now have much more precise andcritical data from which we can assist in equipmentmanagement with the customer.

We still have the same goals:

■ Reduce the owning and operating costs for themachine owner.

■ Protect the residual value of the machine.

Now we have system tools to help achieve these goals.

Today, most capital equipment has built in telematicsthat can be activated by the customer. Each of themajor manufacturers, of construction equipment, havetheir own telematics product. For instance, forKomatsu the product is called Komtrax. Somemanufacturers, such as Joy Global, go further andhave what I call “mission control” centers around theworld, where all machine activities can be monitored.This is managed with life cycle maintenance systems.We now know everything that happens with a piece ofequipment as it happens.

5Equipment Industry Perspectives

That provides us with unbelievably good informationfrom which we can manage the business:

■ We can monitor the equipment to minimize suddendeath conditions.

■ We can manage the maintenance intervals withmuch more accuracy.

■ We can plan inventory with more certainty.

■ We can provide machine use information.

■ We can monitor idle time, which will allow a muchbetter resale value.

There is much we can do.

Market coverage becomes a keyLet’s start the market coverage discussion for partsand service with the assumption that we need todevelop strategies for market coverage that willprovide a plan for improved market penetration, aswell as a plan for protecting the business that isalready enjoyed by the support businesses, thedealers, and distributors.

We need to be able to monitor the performance of thecapital equipment. Tracking the hours will allow us toschedule maintenance and, with the use of oilsampling, schedule repairs before components fail.This has a dramatic impact on the operating costs forthe owner of the equipment. By managing our marketcoverage based on telematics, we will be able tomanage our service assets better.

The maintenance requirements are very straight-forward. We can schedule our manpower andmaintenance vehicles well in advance. We will bephysically touching the machine on a regular basis,which will allow us to stay on top of the conditions ofthe asset. We will be taking oil samples from each ofthe compartments and tracking metallic wear patterns.Similarly, with telematics we will be aware of internal

temperatures of the block and other critical internalcomponents.

We will be aware of the rpms of engines to determineidle times and periods of intense work. We will beaware when the air flow is inhibited with clogged airfilters. With all of this data, plus oil sampling results, wewill be much better able to perform our support dutiesfor parts and service. Being able to schedule slowmoving parts to match with the componentreplacement schedule will reduce emergencyservices charges, but more importantly, will reduceunscheduled downtime. All because of telematics andoil sampling.

Customer retentionThe Holy Grail in the world of customer service is“customer retention.” According to a verycomprehensive study performed in the 1990s by theHarvard Business School in the industrial distributionindustry, if you can increase customer retention by 5%you will increase your profitability by 45%. This study isbetter explained in James L. Heskett’s book TheService Profit Chain. With that in mind, your first orderof business should be to retain all of the customerswho currently do business with you. Telematics canhelp here, as well.

By managing our market coverage

based ontelematics,we will be able to manage our service assets better.

6Equipment Industry Perspectives

Let’s start a market coverage discussion for parts andservice with the assumption that we need to developa strategy for market coverage. This strategy mustaddress improving market penetration, as well asprovide a plan for protecting existing business. Tobegin, we should establish market coverage with thegoal of retaining 100% of the customers alreadyassigned to a sales person. How do we get thatdone?

Many dealers are now using computer telephonyintegration (CTI) to track and deliver customer profileinformation from every customer telephone call. Someof the information they’re tracking includes:

■ Customer profile information (such as birthday,anniversary, personal preferences, etc.)

■ Machine ownership information

■ Purchasing information

Every customer who has a change in their buyinghabits can be highlighted when they communicatewith the dealer. Imagine a customer who purchasedparts or service each month for the past several years.Then for whatever reason they stop buying. Whathappened? Well even before the “what happened”questions we should be asking if we were even awareof the change in the buying habits. In the old days, wewould not have known that.

The dealer business system should be highlightingchanges in the buying habits each and every week, sothat action can be taken in a timely manner. Thechanging buying habits also means that we need tostay in touch with the customer in a completelydifferent manner. That is part of market coverage. Butthis coverage is more defensive in nature. It isprotecting what you already have and not lettinganyone else get near it. I call the sales personalityhere a “hugger.”

Now we move to increasing the market share andachieving better market penetration. From a marketingperspective, we need to segment customers such thatwe create groups with similar needs and wants, forexample the top 10% of the parts business or thenumber of machines a customer owns; 1 to 3, 4 to 12etc. That is what marketing calls “marketsegmentation.”

We can couple the hour data collected via telematicsand the machine population and market segmentationto realize the market potential for parts and servicesfor each customer, and each “market segment.” Fromthis, we can create a market coverage plan to capturemore business from current customers and attempt toobtain business from customers who are usingequipment, but not purchasing from you.

Being able to schedule slow moving parts tomatch with the component replacementschedule

will reduceemergencyservices charges,but more importantly, will reduce unscheduleddowntime.

7Equipment Industry Perspectives

Combatting competitionMarket penetration and obtaining business you havelost is not easy. It takes a special type of sales person.Rarely is this sales person the same as the “hugger.”This sales personality I call a “hunter.” The “hunter”helps grow the business—taking back businessyou’ve lost to competitors—whereas the “hugger”merely makes sure you don’t lose any business.

We need to go back to the fundamentals ofprofessional selling. Research is a critical element, ifyou want to increase market share and marketpenetration. The research here involves finding outwho the customer does business with on specificparts families and service programs. Then it isimportant to find out what the customer likes aboutdoing business with this competitor. From thatresearch, we create a plan of how we can combat thecompetition and get back the business that shouldrightfully be yours. Then we need action—theexecution of the strategy and the plan.

Telematics facilitates howyou operate your businessNot since the arrival of computers at equipmentdealerships in the 1950s has there been as significanta technological advance to assist dealers astelematics. Telematics allows the dealer to beconnected to each and every machine in the territoryand monitor the activity and health of each machine.

■ We can plan maintenance.

■ We can schedule repairs before failure.

■ We can contact the customer when dangerousconditions arise.

■ We can establish a trade in or auction value basedon actual hours of use.

■ We can establish market coverage strategies.

■ We can better manage customer retention.

■ We can recapture business we have lost.

That is a substantial list yet, there are a lot morepositives.

For the first time in the parts and service businesses,the sectors of your business that provide the vastmajority of your profits and customer contact can bemeasured against the potential market. That is acritical point. Now we can calculate market share.Parts and service businesses will no longer get a pass.We will be able to evaluate the performance of theparts and service businesses against the revenue thatthey should be realizing.

This will be a difficult transition for the currentmanagement and supervision. They will be exposed iftheir results are not acceptable. This will be newterritory for all parties. That takes us to how will wemeasure success.

RubyCMYK: 10, 100, 100, 2

CMYK Color Palette

GraphiteCMYK: 25, 18, 12, 55

CoralCMYK: 0, 65, 100, 0

AmberCMYK: 0, 38, 100, 0

CitrineCMYK: 2, 10, 100, 0

JadeCMYK: 42, 0, 100, 0

EmeraldCMYK: 60, 0, 95, 0

RubyLight: 10, 100, 100, 2Dark: 10, 100, 100, 22

GraphiteLight: 25, 18, 12, 55Dark: 25, 18, 12, 75

CoralLight: 0, 65, 100, 0Dark: 0, 65, 100, 20

AmberLight: 0, 38, 100, 0Dark: 0, 65, 100, 0

CitrineLight: 2, 10, 100, 0Dark: 0, 38, 100, 0

JadeLight: 42, 0, 100, 0Dark: 60, 0, 95, 0

EmeraldLight: 60, 0, 95, 0Dark: 65, 0, 100, 20

TurquoiseLight: 71, 0, 48, 0Dark: 71, 0, 48, 20

TopazLight: 61, 0, 0, 0Dark: 75, 20, 0, 0

AzureLight: 75, 20, 0, 0Dark: 95, 45, 0, 0

CobaltLight: 95, 45, 0, 0Dark: 87, 70, 0, 0

SapphireLight: 87, 70, 0, 0Dark: 87, 70, 0, 20

AmethystLight: 67, 90, 0, 0Dark: 67, 90, 0, 20

TourmalineLight: 4, 94, 46, 0Dark: 4, 94, 46, 20

TurquoiseCMYK: 71, 0, 48, 0

TopazCMYK: 61, 0, 0, 0

AzureCMYK: 75, 20, 0, 0

CobaltCMYK: 95, 45, 0, 0

SapphireCMYK: 87, 70, 0, 0

AmethystCMYK: 67, 90, 0, 0

TourmalineCMYK: 4, 94, 46, 0

8Equipment Industry Perspectives

Management measures,KPIs, and dashboardsWe have identified all of the elements to managingthe business with the new technology of telematicsand a better understanding of the value of the use ofoil sampling.

■ We have an accurate machine population.

■ We have calculated the potential parts and servicebusiness for each customer.

■ We have segmented the market place to allowgroupings of customers for coverage.

■ We have a strategy to protect the business we have.

■ We have a strategy to obtain the business that weshould have.

■ We have a reporting method and strategy toprotect customer retention.

■ We have a tracking system for maintenance.

■ We deliver customer information for all transactions.

We will need to define all of the measures and wherethe data will be coming from. This means we will haveto create management reporting, not just financialreporting. We will need to develop standards ofperformance. This will lead to providing the properstaffing levels for parts and the correct backlog forservice. So we have the key performance indicators(KPIs), the metrics to manage the business.

But we have to be very careful. Metrics and culture aretightly interwoven. Culture is about behavior. Metricsoften drive that behavior. If metrics are not alignedwith a company's culture, it is very likely thatundesirable behaviors will result. You must ensure thatyou have selected measures, metrics, and standardsthat consistently promote your culture and the rightbehaviors.

We must never forget that what worked yesterdaymay not work as well with telematics in place. Don'tassume that your metrics are correct. Be open tohealthy debate with the front line to arrive at metricsthat everyone understands and accepts. This is whatyou are trying to do. Only then will you get thecommitment required to succeed.

The time is now.

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Ron Slee is President of R.J. Slee & Associates, a management consulting firm specializing in the operationalaspects of businesses in the heavy equipment, material handling and data processing services industries. Thecompany, an AED sustaining member, is headquartered in Rancho Mirage, California. In nearly thirty years in theindustry, R.J. Slee & Associates has worked with several hundred dealerships, distributors and manufacturerslocated in Canada, the United States, Europe, Asia Pacific, the Middle East, Russia and Latin America. Betweenhis work with dealerships representing most of the major manufacturers and his management experience indealerships, Ron has gained first-hand direct knowledge of the challenges and opportunities most dealershipsconfront in the parts and service operations. He has written numerous articles and monthly columns for Industrypublications for over twenty years.