Why automating parts ordering is critical to construction's growth

Do you know how much parts ultimately cost the job site? 

ONE down paving machine costs a Florida contractor $112K per day¹

In today’s construction business, the answer to one question above all others will tell you whether money was made or lost on a construction project: Did all heavy equipment stay operational for the life of the project?

If you question how critical it is to keep construction equipment online – and how crucial down equipment is to the ultimate bottom-line success and failure of a job site – consider the fact that downtime for an asphalt paver is measured on a per-minute basis: 

$234 per minute, to be exact. Right out of the contractor’s pocket.

Parts procurement workflows are mission critical to the success of the $2.1 trillion construction industry in the United States, and legacy parts procurement workflows cost heavy civil contractors billions in waste each year.

The construction industry – America’s backbone – deserves a new era of cost reduction and efficiency. America’s builders need technology built our way to empower the hardworking men and women on heavy civil fleet teams who make it all happen.

Faster procurement workflows – and aggregated data on machines to anticipate failures – would unlock tremendous growth in construction. It’s time to make it happen.

For better or worse, we are our equipment

To put in perspective just how impactful machines are to job sites, consider that a man with a shovel can dig up to 7 cubic yards of dirt in a given day. A full-size excavator can dig up to 1,000.

This means excavators are 143X more efficient than we are at digging dirt alone.¹¹ 

But here’s the kicker: the world’s most efficient excavator with a failed hydraulic pump is nothing more than a very expensive lawn chair. Any construction pro knows that there’s no worse feeling than sitting on a piece of down equipment as you watch your margin slip away.

When I started in the construction equipment industry 12 years ago working for our family’s equipment rental business, I was immediately struck by the dramatic effect that the parts workflow had on our bottom line. More broadly, I was shocked by how this chronic problem is industry wide.

Down equipment is the contractor’s ultimate risk. When a machine goes down, so can the job. For the top 500 U.S. heavy civil contractors, those downtime costs could add up to $30 billion per year.

For contractors, there is no room for error. On average, contractors make only 4.7% margin on job sites.² Often, margins sit in the razor-thin 1-3% range.

The pressure on machines is tremendous. Every job site depends on its equipment output, and estimators factor 100% equipment uptime when bidding jobs. 

But in reality, 100% uptime is unattainable with legacy procurement workflows and limited data available today. Each machine requires two to three unplanned repairs annually. For a fleet of 1,000 machines, that’s an average of 9.6 unplanned repairs per working day annually (factoring 2,500 annual repairs). No wonder it’s so hard to get ahead!

This all means that operational strain on parts procurement workflows to drive uptime is constant and intense. The bottom line is that a contractor’s fleet team are the margin makers.

Here’s what it all comes down to: It is the legacy parts workflow that drives the costs. The process is riddled with communication errors, siloed parts access, and zero visibility. It’s about time we fixed the system for ourselves.

A machine is a fragile symphony of its interdependent parts³

Machines are composed of 1,200+ codependent parts.⁴ The 3.1M pieces of construction equipment sold over the past decade have ~4 BILLION interdependent parts in the U.S. alone.⁵

If one part breaks, it can compromise the entire machine, which can halt an entire job. Operators then have to pause their work, push back the completion date, and absorb higher direct and indirect costs. 

And always remember that parts make up the majority of profits for OEMs and dealers, so it’s not surprising that the price index for parts highly correlates with whole machine sales.

Manufacturers and dealers sell the machines at tight margins in order to benefit from the lifetime value of the parts margin. Meanwhile, over just the past three years alone, equipment costs have risen 128% and parts have risen 130%, according to the Federal Reserve Bank of St. Louis. The economic incentive for the sellers of machines is to sell as many parts as possible.

However, the main economic incentive for contractors is to keep machines running smoothly so the job finishes on time or early.

Obviously, for contractors, there is a “dream state” in which fleet teams could harness the data across their mixed-brand fleet to anticipate parts needs before they happen and gain other needle-moving, margin-expanding insights into their team, fleet, and vendors. A simple, digitized workflow would unlock this higher level of productivity, win more bids, and expand profit margins.

But as any construction pro knows, we live a long way from that “dream state” today. The relationship between parts and fleet teams is more nightmare than dream. Let’s start by understanding how the process works today ...

Legacy parts workflows cost billions each year by manually coordinating 'known-unknowns'

Today, contractors spend 3-5 hours each day to make 80+ phone calls to coordinate the countless messy issues listed in this graphic:⁶

Issues with equipment will always exist. But the time wasted and hassle caused shouldn’t.

Consider this: today, when a part breaks, 70% of the time the part number is unknown,⁷ and 80% of the time the serial number is unknown.⁸ That is why, on average, it takes a contractor five business days from the moment parts are needed to the moment they arrive at the machine.⁹

Think, for example, about any time an excavator has an error code. The questions are formulaic:

• Who can diagnose this?
• How can I get the correct information to my local equipment dealer?
• What parts do we need, and when can the parts arrive?

These questions aren’t complicated.

Nor are these questions unique to construction equipment. For instance, everyone makes retail buying decisions that they can easily research and solve online. But in the construction industry, buying decisions based on sequential questions that require significant manual coordination between internal team members and external vendors. 

In order to get the excavator running again, coordination is needed between equipment operators, site supervisors, technicians, shop supervisors, parts orderers, fleet managers, dealer parts counter-reps, and the dealer parts and service reps. We counted for you: that’s eight people at a minimum.

Worse yet, we know from Brooks’ Law that increasing the number of people in a coordinated effort leads to “combinatorial explosion” of communication. That means it’s 30X harder to coordinate between 14 people than 3 people:

​​The problems don’t end with communication, of course. Once contractors do get through to the local equipment dealer via calling, texting, or driving, they are beholden to what’s in stock at that location and one price. This workflow leads to enormous direct and indirect costs to contractors.

Manufacturer parts ecommerce sites are predicated on 'known-knowns'

Equipment manufacturers have online ecommerce portals for their own brands designed for parts lookups and orders. But once a contractor grows into a multi-branded fleet, they are beholden to many different portals served by many different vendors.

An average heavy civil fleet works with over 40 different parts vendors. Here’s what their desktop toolbar looks like with 40 vendor sites open:

Yet the desktop is not how work is done in the field – today, virtually all work is done on mobile, which is even harder to navigate per the image below:

It's Brooks’ Law on steroids.

Here’s the critical nuance: platforms built by equipment manufacturers are designed to serve them, not their customers. They focus on the parts lookup and the transaction itself, as opposed to truly understanding the workflows before and after the transaction out in the field.

More broadly in ecommerce, there are thousands of parts sellers on Shopify, Amazon, and eBay. It’s not that contractors don’t have choice on parts suppliers; they are inundated with choices.

Yet 9 of 10 parts transactions are done through local equipment dealers today. That’s because local dealers have earned personal trust over decades, serve as the brand experts, and carry parts inventory.

Viewing parts transactions from the dealer side is the other side of the same coin. The “cost to serve” each parts transaction is very high for dealers, and for the exact same reasons that it’s so annoying for customers: multiple communication modes with manual work necessary to find part number(s) or the machine serial number.

This increases the time to serve any given transaction and results in inaccurate orders 50% of the time.¹⁰ And no one wins when inaccurate parts are received.

Equipment dealers are aware that doing business is not as easy as it could be today. In a 2018 McKinsey study of 660 contractors, 40% said it “takes too long for the dealer to respond to my request.” A chief digital officer of a major equipment dealer put it plainly, “We are a billion-dollar business that waits for the phone to ring.”

So, every stakeholder agrees that things must change. What will that change look like?

Reimagining how the future of parts commerce happens on a purpose-built, agnostic platform

Modern workflow technology should reimagine how parts are procured and bridge the “digital divide” to propel construction to a new paradigm of higher efficiency, margins, wages, and growth.

Purpose-built technology would help contractors and dealers bridge the digital divide by solving parts needs together faster:

Solving Parts Needs Faster = Ability to Do More Jobs (Growth)

Bridging this digital divide has exciting data implications beyond more efficient parts transactions for contractors and vendors. A purpose-built, agnostic platform would automatically crowdsource data across teams, fleets, and vendors that is not captured today.

Crowdsourced data will be the “source of truth” for contractors and vendors alike, enabling unprecedented productivity and insights that serve the industry:

• One place to:
  • quote and order from any vendor
  • communicate internally and externally on any quote or transaction
  • organize all vendor information, quotes, orders, and invoices
• Results in real-time:
  • vendor scorecard insights
  • performance insights across machines and mechanics
  • parts time and cost savings insights across the fleet
  • recommendations on what maintenance to perform before breakdowns occur

By 2030, we will spend 95% less time than we do today procuring parts and have recommendations on what parts are needed ahead of time. An aggregated, purpose-built platform will be informed not only by individual fleet data – but across the entire ecosystem of North American fleets.

There will be complete transparency of service levels for any vendor, driving more business to the top vendors in communication and service. The downstream effects will be a dramatic improvement in equipment life cycles, job site profitability, and lower infrastructure costs to society. 

In the process, commerce in the construction equipment industry will evolve from siloed and difficult to digital and seamless.

With more job site profit combined with more time and capacity per employee, there will be more demand for equipment to support more jobs. Like removing a bottleneck in manufacturing, construction will experience new levels of output, fueling a beautiful upward spiral of growth.

End-to-end visibility and customized recommendations will empower key stakeholders to make informed decisions — at lightning fast speeds.

The days of merging multiple .csv files to generate reports will be a thing of the past. Machines, fleets, organizations, and the construction industry as a whole will benefit from a windfall of actionable insights.

Sources

1. According to Ajax Paving Industries of Florida, downtime costs for an asphalt paver are $234/minute
2. 4.7% profit margin according to For Construction Pros
3. Exploded diagram image of scissor lift here
4. SkyJack 3219 parts manual (manually counted how many parts are listed)
5. 2022 machines sold according to Power Progress
6. 80+ phone calls/day for equipment coordinators are based on in-person observations and Gearflow data
7. 70% of the time the part number is unknown is based on Gearflow data
8. According to a major OEM dealer, 80% of the time the serial number is unknown
9. 5-day average fulfillment time is based on Gearflow observational data 
10. 50% inaccurate orders is based on Gearflow data
11. Human vs Excavator stat