[CAT® OIL & GAS] The ABCs of CVAs

Hi, I am Chris Berrie, a sales manager here at Caterpillar. Welcome to Cat® Power Podcast, a series of podcasts focused on various subjects within oil and gas. Today, we're going to talk about the Customer Value Agreements, or CVAs. Ralph Warner, the CVA development manager for Caterpillar Oil and Gas is here to tell us why CVAs exist, what they include, and why you should consider setting one up for your equipment. Thanks, Ralph, for joining and welcome to the call.

Ralph: Thanks Chris. I really appreciate the opportunity to talk about CVAs.

Chris B.: Now, the idea of Customer Value Agreements, isn't new, is it? This is something Caterpillar's had in place for a while now?

Ralph: Yeah, that's right. Previously we called them CSAs or Customer Support Agreements. They were really focused on completing the maintenance task and when we relaunched them as CVAs, or Customer Value Agreements earlier this year, they were much more focused on value added services that help you accomplish your goals.

Chris B.: Thanks Ralph, can you explain to the listeners what you mean by value added? How does a CVA deliver value to a customer?

Ralph: CVA value is accomplished by combining multiple services that make Caterpillar equipment easy to own while focusing on cost optimization, high availability, and safety. Other areas of focus are hassle- free maintenance, peace of mind from equipment health management, and security of expert dealer support.

Chris B.: Okay then, let's talk through each one of those. Can you tell me more about making Caterpillar equipment easy to own?

Ralph: Yeah, all elements of the CVA are a part of a single agreement you establish with your dealer. Pricing is known and can be flexible from time and material, predetermined flat rates, or even a set hourly rate covering all maintenance repairs and overhauls. It lets you focus on your work while your dealer takes care of the rest.

Chris B.: And what about hassle-free maintenance? Can you elaborate on this?

Ralph: Yeah, every CVA includes genuine Cat parts delivered on schedule to your location. It's important because Caterpillar parts are designed as part of the Cat engine, transmission, and pump system. They can extend component life up to 50%. Depending on how you set up your CVA, hassle-free maintenance can include trained dealer labor, they can take care of maintenance tasks, the repairs, or the overhauls. You can use the dealer to do all the work, or you can use them to supplement the tasks that you want them to supplement and rely on your people to do the things that you want them to do.

Chris B.: And Ralph we've been asked before about having parts available on the site, whether it's a CONEX box or a local depot. Can you talk about that in the context of a CVA?

Ralph: It's very common in oil and gas that whether it's a site or a mobile spread, that there's contingency parts on site. There's contingency side parts available to keep the assets running in case something happens, or even for routine maintenance. These parts that are kept on hand can be part of a CVA. They can be purchased upfront as a contingency part and be maintained on the consumption level that they are used throughout the CVA.

Chris B.: And you mentioned the third element of the CVA is peace of mind from equipment health management. What does that include?

Ralph: Assets today generate all kinds of digital data. This data is available locally, it's also available remotely. The CVA gives access to this data, to the customers, and to the dealers and the technicians to help make informed decisions about operations, maintenance, and repairs. The dealers can analyze this data for you. They can use their condition monitoring services. They have condition monitoring analysts on hand. They look at this data, they're relying on computer systems and analytics and algorithms to help come to decisions before problems actually occur.

Chris B.: Got it. And how about that final element Ralph? Enhancing field support through technology?

Ralph: Even product support these days is enhanced through technology. Dealer technicians are trained on the product, proper safety and environmental procedures and the digital tools. The digital tools that enable the technicians to enhance their abilities to take better care of the product and be more efficient at what they do. These digital tools enable the dealers to remotely troubleshoot the asset, making fewer trips to site and leaving the dealership or the branch, or wherever they may be located, to the site with parts already in hand to do any repairs needed.

Chris B.: And adding all of that up, it sounds like a lot of different elements to consider. What if I don't need all of that? Does every CVA have to be set up the same way? Is it one size fits all?

Ralph: Not at all. They're tailored for your operations. They can range from supporting your personnel with parts kits and parts agreements, to having a blended approach where your people can do the PMs and some of the routine maintenance the dealers coming in and doing the major repairs and the overhauls. Or you can even have a program where the dealer does all of it. They're doing the routine maintenance, repairs scheduled and unscheduled and overhauls and all on a fixed rate.

Chris B.: And Ralph customers in the field will have a wide variety of assets in their fleet. What assets does a CVA cover?

Ralph: A CVA can cover a single asset, multiple assets or an entire fleet. It's up to you on what you need the CVA to cover and what support you need from your dealership. You may have certain assets that are very critical in nature to you, and you want to put them under a CVA because you need higher reliability and availability from these assets and you want the expert or the dealer watching over them. You may want your entire fleet taken care of by the dealership. It's up to you.

Chris B.: You mentioned earlier that one of the benefits of a CVA is that it keeps your equipment working every day. That's great in good economic times, but what about during the downturn? Like a lot of our customers are experiencing today. Why invest in CVA now?

Ralph: Well, there are multiple reasons to invest in the CVA now. For one you have limited budget for unscheduled repairs. A CVA focuses on planned maintenance, focuses on predictive maintenance and has a condition monitoring services in place to help keep that asset running and pick up on possible issues or problems. This saves you time and money and reduces unscheduled downtime. Reducing unscheduled downtime reduces your cost of operations.

Chris B.: Are there additional reasons the customer should consider investing in a CVA now?

Ralph: Another reason why a CVA is helpful is it can help smooth out your budget and help you manage your cashflow. A CVA can be set up that you have a cost per hour as fixed over term. These types of agreements are typically a minimum of five years and it could be up to 10 years or longer in term. What they do is during the downturn, you've already paid for the maintenance. Your hourly rate is guaranteed through the term and you don't get any influxes from larger repairs like overhauls. The overhauls still get done during that downturn. Your equipment is still maintained at peak performance, but you don't have this outlay of cash that you really don't have in your budget because your revenue stream is down.

Chris B.: Interesting. And I imagine the CVA is helpful if an operation has to reduce its manpower as well.

Ralph: Yes, that's true. More and more operations are trying to do more with fewer people. It's important to help our customers get through troughs. They need to have the critical people in place and maintain these people through downturns and through high demand. Dealers can supplement this process. They can provide additional technicians that when business picks up, they can provide the manpower the customers need.

Chris B.: How can a CVA help a fleet customer concentrate on their core competence and leave the rest to us?

Ralph: Fleet customers benefit from CVAs because there is a dedicated staff at dealerships who do this all the time. Dealers have technical communicators in place. Technical communicators are helping them with recommendations. When they have problems or issues they need to call in and get some advice, these technical communicators give them advice. We've had a gas compression customer who really likes moving to a CVA from just doing time material in the past. They have an active relationship with a lot of people at the dealership who are helping their operations. They have assigned technicians who work with them on doing their repairs and routine maintenance, who check in with them on a regular basis on anything that they need. They have CVA administrators who help schedule the work. They're keeping track of the schedules and the plan, and making sure that the maintenance is done on time when the customer is ready for it and not disrupting work. We have CMAs, Condition Monitoring Analysts, these are people who are watching over their assets remotely, looking at the data that's coming in, relying on artificial intelligence and computer systems to do predictive analytics, to look at a potential problem before it actually becomes a problem. They alert the customer of issues that are coming up, that they see, instead of the customer having to focus on this and react after the fact.

Chris B.: And Ralph, if I'm a well service customer, what would a CVA include for me?

Ralph: So typically in well service, a CVA will contain a parts agreement that includes all the parts the customer wants from Caterpillar and the dealer, they're delivered at the sites that they want, or delivered to a distribution point for them to take to site through their logistics. Either-or, it includes major repairs or scheduled repairs when assets are cycling in and out of the yard and it includes overhauls for the most part.

Chris B.: And Ralph building on that, that would include both Cat and non-Cat equipment.

Ralph: So health services or remote monitoring we can do on any asset. Whether it's a Caterpillar asset or a competitive product asset, everyone's using J1939. This is a protocol that engines communicate over their computer systems. It's consistent across the industry. All engine manufacturers are using J1939 so that we can bring back the same data and we can analyze it and produce fault codes and recommendations based on this data. When it comes to repairs or overhauls, whether or not you want the dealer to do that or take it somewhere else, that's up to you.

Chris B.: So, Ralph, what would a typical CVA look like for a gas compression customer?

Ralph: Well, they can vary quite a bit. Customers have different levels of technicians that they may have available on site and the location of the asset plays a big role in this. Some assets are very close to their headquarters or their regional sites, and some of them are extremely remote. The ones that are very remote may be very close to a dealer branch. There it's more logical to have the dealer perform the maintenance and do the repairs as opposed to dispatching people or even maintaining people in a very remote site. So this is where the dealers branches and the distribution of all the facilities that Caterpillar has and their dealer distribution network globally comes in play for helping a customer with CVAs. The CVA for a gas compression can be as simple as maintaining a parts inventory on site, a set of contingency parts or parts inventory that are set up for PM and unscheduled repairs. When gas compression goes down, there may not be enough reserve power to make it up. So they need to get this asset up very quickly. Meaning parts have to be onsite to do most repairs. Dealer CVAs can include this parts inventory that needs to be maintained on site to make sure that these assets are brought back up online quickly. They can include annual services, technical analysis that are done every six months to once a year, to overhauls on a regular schedule.

Chris B.: By what you've said, it sounds like a CVA is a truly custom agreement. When you can set up to fit around your staffing needs and your business goals. What's the best way to get started in putting one together?

Ralph: Talk to your dealer, contact them, reach out to them. Odds are you probably already have someone from the dealership who was calling on you that you know by first name and they would be glad to help you with a CVA. Many of the dealers have starting points for you. They have three levels of CVAs from parts agreements, to preventive maintenance agreements, to maintenance and repair agreements and each one of these can be customized and modified to meet your needs. You can add the additional health monitoring services you want. You may want to add technician labor in to do the PMs, do the repairs, or do the overhauls. You may want to have your staff do the PMs. And the dealer supplement that by doing the major repairs and overhauls, it's up to you on what you want them to do versus what you want your own people to do.

Chris B.: Well, thanks again for your time today and for taking the listeners and myself through CVAs.

Ralph: Thank you Chris.

Chris B.: For more information about Customer Value Agreements, visit cat.com/oilandgas and follow us on LinkedIn or Facebook at CAT Oil & Gas. Thanks again, and see you soon.