Why Dynamic Life-Cycle Costing

is essential for Dealers

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 Presenter: Tim Swain CMO ISolutions
Key Take home messages:

What is Life Cycle Costing?

What is Dynamic Lifecycle costing?

How can Dynamic Lifecycle Costing Can benefit your Dealers Goals?

Question: Please email tim.swain@isipl.com

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 What is Dynamic Life-Cycle Costing?

DLCC is the process of forecasting

every maintenance event for an equipment
to the end of its life, in real time.

‘A live zero-based budget’

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 What is Dynamic Life-Cycle Costing?

• LCC = Actual Costs + Future Costs

• LCC covers not just costs but

utilisation, productivity and resource
requirements (labour, components,
parts and consumables)

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 What is Dynamic Life-Cycle Costing?
Why not just use last year as a basis
for forecasting?

• Maintenance costs are not consistent –

understanding where an asset is in its life
cycle is important

• Dynamic – forecasts are sensitive to changes

in many variables - application, utilisation,
component changeouts etc

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 Is DLCC practical?

Yes, 25+ Dealers are doing it in AMT

But, calculation assumptions and rules need to cater for different EM relationship levels:

0 – DO IT MYSELF No involvement with customer High volume of equipment, very little to no information
received from the customer. System needs to ‘self
1 - ACCESS Connected to Product Link and VisionLink maintain’ itself

2 - INFORM Fleet reporting

3 - ADVISE Recommendations from Condition Monitoring Advisor

4 - SUPPORT PM Contracts

Dealer actively involved with the Equipment and is

5 - MANAGE MARC/CSA Contracts
updating utilisation and maintenance history

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 Why DLCC is essential?

Dealers are looking to use equipment intelligence

to proactively grow product support business

DLCC is possibly the most powerful equipment intelligence

data for Dealers

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 Component Sales
• Components = 30-40% of product support sales Business Case
Product Support sales $100m
(includes parts to rebuild Exchange units)
Components for Maj Acc (80%) $28m

• Major accounts = 80% of component sales 5% increase =

Incremental sales $1.4m
Incremental profit $280k
• To implement a proactive and targeted sales approach
one needs a component forecast

> Component forecasting needs DLCC

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 Component Inventory Optimisation

• Exchange and Reman components = 25-35% of inventory

Business Case
• Historically low stock turn and high redundancy Component inventory (PEX) $25m
• ‘Historical demand’ logic does not apply for optimising Stock turn = 1.5x

component inventory levels

Increase stock turn to 2.0x
= Reduction in inventory of $6m

• A component forecast is the starting point for determining

component inventory levels

> DLCC delivers component forecasting

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 Rebuild Centre Work Planning

• Component Rebuild Centres (CRCs’) are large capital investments

• CRC throughput is critical for achieving investment returns
• Procuring the parts for rebuilds often involve long lead times
• Effective workflow planning involves:
1) correlating the component forecast with the CRC capacity
2) procuring the parts in advance (often long lead times)

> DLCC delivers component forecasting to support CRC workflow planning

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 Product Support Sales

• The challenge for PSSRs’ is where to focus their energies (many customers, range of product support)
• To effectively prioritise opportunities PSSRs’ need to know, by customer
• The market potential
• Their market share
• The opportunity they are missing

> DLCC determines the market potential

Example
Which customer represents the greater opportunity:
• Customer A – Sales of $400,000 at 80% market share
• Customer B – Sales of $200,000 at 20% market share

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 Budgeting
The Sales Budget should be an output of understanding the market
potential and setting market share targets by market segments

Market
Market Sales
Potential
Share Budget
(DLCC)

A ‘zero-based budget’ needs DLCC

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 Machine Sales

• Proactively approach customers for equipment replacement:

• Identifying what is due for replacement
• Identifying optimal replacement points

> DLCC forecasts when equipment is due for replacement

and
determines optimal windows for replacement

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 MARC/CSA Contract Quoting

LCC is essential for

calculating the
maintenance costs at
different points in the
equipment’s life

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 MARC/CSA Financial Reporting
Understanding future revenue vs future costs
DLCC
is required to meet accounting standards

NOW
Future Billings
Future Costs

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 MARC/CSA/Rental Cost Optimisation

Understanding the
A 3rd unbudgeted -ve PCV
Engine is forecast
future cost forecast of
$70,000
Reporting $10,000
is critical to ahead of budget

Engine changed early

identifying contract risk at 13,000 hours for
slightly lower cost

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 Rental Profitability

DLCC is essential for Over the LCC the rate

is too low

determining rental
NOW

profitability and evaluating

rental rates
At this point it
appears that the
rate is too high

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 Why DLCC is essential

Component Sales
Sales

Dynamic Component Inventory Optimisation

Rebuild Centre Work Planning

Life-Cycle Costs
Product Support Sales
Costing
Machine Sales
Working
Capital
Budgeting

MARC/CSA Contract Quoting

Risk
MARC/CSA Financial Reporting

MARC/CSA/ Cost Optimisation

Business
Rental Rate Calculation Planning

Rental Financial Reporting

Rental Cost Optimisation

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 The case for one system
Component Sales

Component Inventory Optimisation

A common set of data and calculations are required

Rebuild Centre Work Planning

Master data (coding structures) - Equipment details
Product Support Sales Utilisation (current and forecast)
Machine Sales Maintenance schedules - Work history

Budgeting

MARC/CSA Contract Quoting

Why have different systems that lead to duplication

MARC/CSA Financial Reporting of data, inconsistencies and inefficiencies?

MARC/CSA/Rental Cost Optimisation

Rental Profitability
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 The case for one system

Example

If the CSA Coordinator schedules a component early due to a CM alert, surely

this should automatically feed into:

 CSA Financial reporting

 Component Inventory Optimisation/Procurement
 Rebuild Centre Work Planning
 PSSR customer intelligence
 Product Support Sales Market Share Analyses
 Machine Sales Opportunity Forecasting
 Budgeting
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 The case for AMT

• Performs Dynamic Life-Cycle Costing

• Developed for Cat Dealers
A single equipment platform
• Designed to enhance:
to support
• ERP systems (DBS/SAP/Infor/Dynamics)
many Dealer processes
• CRM systems
• Integrates with Cat solutions

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 The case for AMT

Not just a DLCC tool

AMT has comprehensive

functionality to support the
following Dealer processes

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 The case for AMT

Cat Endorsement
“AMT is Caterpillar’s preferred software tool
for the management of Caterpillar mining products.”
March 21, 2013

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 The case for AMT
System of choice
 Caterpillar Inc. Global Mining  Finning – Chile  Tractors Malaysia

 Caterpillar Inc. Job Site Solutions  Finning – UK  Tractors Singapore

 Borusan  Finning – Canada  Trakindo

 Barloworld  Relianz (formerly Gecolsa)  Wagner Asia

 Cashman  GMMCO  Wagner Equipment (USA)

 Cavpower  Hastings Deering  WesTrac – NSW

 China Engineers  NC Machinery  WesTrac – WA

 Congo Equipment  Pon – Norway  Wyoming Machinery

 Delmas  Pon – Sweden  Wihuri Oy Witraktor

 Ferreyros  Tractors India

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 Where AMT fits in the Dealer Solution

AMT CRM AMT Enhances CRMs’

Customer & Opportunities - Provides equipment specific information
Equipment
Management - Feeds component opportunities

Cat Each equipment is a customer

generating its own product support
Systems
ERP AMT Enhances ERPs’
(DBS – SAP – Infor – Dynamics) - Adds value to Dealer processes
Financial Transactions
- Does not replace any ERP functionality
- No impact on ERP financial integrity

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 Scalable Architecture
NEW AMT Mobile
• Built on the Microsoft Application Platform
• .Net Framework
• SQL Server (including the BI stack)

• Compliant with industry standards

• XML Web Services
• HTML5
• Virtualisation (eg. VMWare, Hyper-V)

• Proven to scale
• Used in enterprise environments – thousands of users, millions of transactions
• Supports multi-tenancy, multi-currency, multi-lingual deployments

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 Defined Integration

• Structured AMT Integrators ERP

• Generally 3-10 interfaces needed Asset Register

Workorder – Invoicing
• Integrated to: Parts Pricing
• DBS
Cat Systems
• SAP
AMT Builder - SIS Web
• Dynamics AX Product Link – VisionLink
• Infor M3 SOS – MineStar - ECA

Customer Systems
Workorder
Dispatch

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 Conclusion
Dealers are:
1) expanding their EMSolution offerings
2) using Equipment Intelligence to drive internal processes

> AMT is the enabling solution

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 Contacts
Ian Sedgwick Tim Swain

Cat Business Director Chief Marketing Officer

(T) +61 2 9966 9096 (T) +61 2 9966 9096

(M) +61 416 357 605 (M) +61 414 411 900

(E) ian.sedgwick@isipl.com (E) tim.swain@isipl.com

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