Our industry is facing unprecedented supply chain disruption, which is having a significant impact on dealers’ ability to grow and achieve revenue and profitability targets.
It’s also impacting their ability to maintain the equipment in the field. Let’s take a brief look at these issues:
Supply chain disruption: Most dealerships have a cadre of salespeople who must sell equipment to get paid, and they’re actively looking for opportunities. But what happens when they find an opportunity and the equipment they need is on backorder or unavailable due to allocation constraints? It appears that manufacturers will continue to have issues for a significant period of time. Things will likely improve gradually, but clients and salespeople may not be in a position to wait for things to get better.
Grow revenue: The inability to deliver equipment limits a dealership’s ability to do this, and in most cases may cause declining revenue on the sales side. The potential for lost customers grows with each lease renewal as long as there isn’t enough available equipment to service the demand.
Grow profitability: Loss of top-line sales revenue also impacts the profitability of the dealership. If you can’t grow the customer base and you can’t upgrade the base, it’s very difficult to grow profitability.
Equipment service and parts availability: The supply chain challenges are also impacting the availability of parts. Without the needed parts, it’s difficult to keep the equipment in the field running properly.
A Different Strategy
As an industry, we’ve developed a practice of upgrading customer equipment on a regular cycle—in many cases, a three-year cycle. This generates a significant amount of a company’s top-line revenue. In reality, however, it doesn’t do much for the profitability of the company.
This upgrade cycle does provide revenue for the manufacturer and the sales rep. We can resolve part of the equipment supply issues we face by reducing the frequency of equipment replacement for our customers. This change reduces the equipment required for upgrades and would make additional units available for new sales, increasing the potential to grow the installed base.
For equipment leases that are expiring, there are two options you have that will help with the situation.
Option 1: Renew the Lease for Existing Equipment
This will lock the customer to you and provide revenue to make up for the inability to sell new equipment. You can treat this like an upgrade for sales and for salesperson compensation.
In most cases, there’s a buyout from the leasing company. You have to check with them to see what the length of the term could be and the amount they’d allow you to finance.
The difference between the buyout and the amount leased would be profit because there’s no additional cost. To further improve the ability to retain the customer, you’ll want to build the service into the lease. You don’t want to pre-fund the service, but by having it in the lease, it’s significantly more difficult for the competition to upgrade the client.
Option 2: Lease Rollover
This is less-desirable because it typically rolls over for only one year at a time. The account is more vulnerable because the lease buyout is typically very low and the competitors may have equipment in stock to place with new clients.
If the service wasn’t included in the original lease, then in most cases, there may not be any way to add it to the rollover, and that increases the risk as well.
Another strategy that can be useful is to refurbish used equipment that you have in inventory or that may be available in the wholesale market. You may find that you can lease it for a higher price since it’s refurbished.
When using this strategy, you’ll want to choose models that have a history of performing well and that the service department is proficient at servicing. When refurbishing trade-in equipment or lease buyout from existing customers, you can look at the history of the machine to ensure that it has been performing well.
A Process That Works
Equipment that comes back to the dealership for any reason will fit into one of three categories. The decision should be made immediately when the equipment is brought into the building. Here are the recommended evaluation criteria and related process for the categories:
Return to lessor: All equipment from a manufacturer you don’t support or that has a buyout price higher than the value of the machine should be wrapped and set aside to be returned. This would include models and individual machines with poor performance in the field.
Refurb: Equipment that has a good history and has performed well in the field is a candidate for refurbishment. You’ll want to consider the meter count as well. If the meter is low, it should be readily accepted by a client; machines with higher meters will be less desirable.
Machines that are refurbished should have all the wear components replaced, including a full PM. The machine should be disassembled to the point it can be thoroughly cleaned, and the covers should be scrubbed to a like-new appearance.
Reclaim: This process may fall into two categories. For machines that are still operating well but may not qualify for refurbishment, you may want to keep some units as service loaners and/or equipment swaps.
Machines that don’t fall in that category should be disassembled for parts. The person assigned this responsibility would need to look at the counters for wear items. Items that still have a significant amount of life left should be tagged and placed into inventory with a modified part number showing them as used parts.
For some items—wiring harnesses, covers and other parts that are rarely ordered—you should maintain a limited quantity in the used inventory. Optics units, finishers and ADF units may also fall in this category.
However, you may want to keep multiple inventory items for drive units, fuser units and other units that can be rebuilt. If the unit still has a significant life left, stock it. If it’s approaching time to rebuild the unit, I’d suggest rebuilding it so that you have it ready.
Consider keeping one set of circuit boards for machine models in the field. Circuit boards in excess of that might be of value to companies such as Hytec. In some cases, spare circuit boards can also be used for advanced exchange with the manufacturer.
The Result
Applying the suggestions in this article will allow a dealer to have equipment to sell, both new and refurbished. This also allows the existing equipment to have a longer life in the field while generating profit for the dealer and the salesperson.
The dealer will also have a source of lower-cost parts, and won’t be solely dependent on the supply chain. This strategy addresses all the current issues and will serve dealers now and in the future when the supply chain issues are resolved.
Overall, it allows dealers to grow their top-line revenue and profitability while also providing better service to their customers.
