Imagine you’re on holiday and want to drive around. Would you choose to buy or rent a car? You’d rent one, of course! The answer is so obvious that the question sounds rather ridiculous. In the B2B sector, we are faced with many similarly clear-cut cases where renting should be the obvious solution. Nevertheless, the rental of capital goods is still very much in its infancy in this area. Often, customers are not even given a choice because many suppliers only ever sell their products instead of renting them out. This is primarily due to internal structures. Most companies have a sales department. However, many sales staff find the concept of renting out goods difficult to implement. This naturally leads them to dismiss the idea completely, based on their belief from past experiences that “Renting is of no interest to our customers”. And in many cases, they are right. Certain product groups, such as consumer goods, are, of course, simply not suitable to be rented.
Driven by the popularity of the principles of the sharing economy in the area of consumer goods, an increasing number of people are recognising the opportunities posed by renting in the B2B sector and are asking themselves: “Could we increase our turnover and profit by renting out our products?” However, this question isn’t always as easy to answer as that of whether to rent a car on holiday. Businesses, on the one hand, need to identify their customers’ precise needs as well as weigh up the potential opportunities against the internal challenges. Customers, on the other hand, are faced with a number of in-house approval processes when deciding whether to procure capital goods. These could prove problematic in the event of unforeseen bottlenecks in capacity. The way in which the equipment is to be used and the required level of maintenance also need to be taken into account. Besides tying up capital, products that are only used a specific amount at certain points in time still generally need to be maintained even when they are not in use. As is often the case, determining whether the products in your portfolio are potentially suitable rental items requires you to stand in your customer’s shoes.
In the following, we look at product characteristics that can be used to help determine whether a product is suitable for rental in the B2B sector. The higher the product in question scores for each of these criteria, the more it lends itself to be rented.
- High purchase costs: high purchase costs for the quantity required
- Varying frequency of use: if the frequency with which the capital good is used varies depending on the season and there are peaks in capacity at certain points in time
- Models change frequently: short technological product life cycles and frequent new product releases
- Reusability: the product must be able to be rented out again once it has been returned (otherwise: hire purchase)
- High maintenance requirements: after a certain period of time, the cost of servicing capital goods often exceeds the original purchase price
Rental products do not necessarily always have to meet the above criteria, but these factors help businesses to initially determine suitable products.
If a product is determined as being suitable to be rented and the decision is taken to rent it out, the next step is to put the required processes in place. In order for a company’s rental business to succeed, it is essential to clearly establish the future rental procedures: This is important because ERP systems generally do not provide an out-of-the-box solution. The following aspects are crucial for ensuring sufficient process support:
Article master data for rental products
The article master data for rental products generally differs from that for ERP. The main difference, of course, is that rental activities generally do not involve any products being sold. Instead, the company is providing a service. The prices also differ from the equipment prices. It is beneficial to set dynamic prices that are adjusted according to the rental term.
Rental items
All items available for rent must be able to be identified by a unique electronic ID (in the form of a barcode) or an RFID chip. This ID is important for the entire logistical process and is required for the rental equipment to be tracked (rental – maintenance – rental). If the items are hired in bulk (e.g. batteries), they can be managed as sets and not as individual items.
Order processing
The creation of rental orders is similar to the creation of standard orders. A rental order requires a customer, a consignee, payment terms and conditions, an order number and date information.
The creation of order items differs significantly from that of conventional sales orders. The first step is to reserve the rental equipment subject to availability. Besides entering information about the quantity, the rental term also needs to be entered. Each reservation is made on the basis of this information and once a particular item has been selected, its availability should be reduced accordingly. The maintenance costs must be listed as a separate cost under the item. Information such as the order item, price, logistics costs and supplier reference number are similar to the details found in a sales order.
Logistics
Once the order has been placed, the rental items are picked and shipped to the customer. As opposed to during conventional sales transactions, all the rental items are returned at some point, before being reconditioned and rented to another customer.
Items that are not suitable for being rented out again after being returned are generally not eligible rental products.
Cross-company rental orders
The process outlined above describes the simplest example of a rental transaction. Cross-company rental orders, e.g. when the rental order is placed with a regional subsidiary branch that does hold any rental items in stock, are more complex. These require two separate orders to be processed in parallel and two invoices to be issued – one customer invoice and one intercompany invoice. When planning a strategy for future rental transactions, it is important not to forget these cross-company processes.
ERP integrity
Close connections with the ERP data are crucial for success. Customer master data, article master data and order transfer data are particularly important for ensuring the processes are integrated.
Rental processes are presenting new challenges to many companies because businesses have very little experience in this area. The learning curve is slow and the necessary procedures can take several years to grasp. Concepts such as the consignment of rental equipment, items provided in bulk, shop systems, neutrally priced rental equipment and non-pickable items are emerging as the processes continue to evolve and may differ from industry to industry. However, when opportunities present themselves, it is worth taking on these challenges. After all, starting up a rental business could increase turnover, give your brand more visibility, increase the trust placed in your products and, in turn, boost sales.
Seeking professional support to help optimise your business processes can significantly speed up the creation of a successful rental business and make it appear more professional. The experience we have gained from helping to roll out a customised application in 18 regional subsidiaries of a large North German supplier of security equipment has shown that new rental processes (flat fees, long-term rental contracts, threshold prices) can be developed and improved even after ten years.
This article appeared on vertriebsmanager.de