Is "Equipment as a Service" Right for You?
Volvo Construction Equipment has a pay-per-use package for equipment called Equipment as a Service (EaaS).
It's available through its dealers and it allows fleets to purchase a set number of hours of machine use over a period, including having the dealer execute most maintenance, all while providing an agreed upon rate of uptime.
The user never has ownership of the asset—but sets control of the terms according to what’s best for the fleet and jobs at hand. At the recent Equipment Shift conference of the Association of Equipment Management Professionals (AEMP) in Miami, two Volvo Construction Equipment experts shared the pros and cons of EaaS.
“EaaS is a usage-based service contract covering the expected use of a fleet over a long term,” said David Nus, head of fleet management for Volvo. “It's a holistic service that includes the machines or the fleet and all their upkeep. The customer pays for the fleet use as it's being used, typically by hour, or if you had a non-highway fleet or transport fleet, it could be by mile, could be by kilometer.
“You pay to use the fleet as you use it,” Nus said. “So, it's not time. We're not talking about specific assets anymore; this is a service and that’s a very important point.”
As a service, there are financial benefits for the user. The cost of EaaS is not a capital expense—it is an operational expense.
Better cash flow
“From a cash flow standpoint, you become very efficient,” Nus said. “If you think about your current procurement method, if you go out and buy 10 haul trucks, you're paying maybe $5 million for those 10 trucks up front, and then you're going to run them for the next five years, six years, 10 years, 20 years, to get a return on your investment.
“That may be very profitable. It works, but from a cash flow standpoint, you're putting up money up front and you're getting your feedback later,” Nus said.
“With equipment as a service, you're not paying upfront,” Nus said. “Generally, you pay as you use; the more you use, the more it costs. But the more you use, the more revenue you should be generating with that fleet, as well. So, your costs and your revenues are moving in line with each other, which has a lot of benefit.”
How to make a business case for CAPEX
Other benefits include having the very latest technology in the fleet. Volvo dealers would be providing the newest machines on the lot. And there are CAPEX advantages, too.
"When you don't own the fleets, you don't have to worry about disposal of the fleet or some stranded assets staying on your balance sheet, which cost you down the road," Nus said.
"From a strategic standpoint, by sending out the fleet management to somebody like us, it allows our customers to focus on their core business," Nus said. "Fleet is necessary to run their business, but it's not a core business."
What's not covered
"We don't supply operators; we don't give you guys that are really working on your core products," said Matthew Fogtman, head of fleet operation for Volvo CE. "So, we're not giving you site management. We don't have periodic inspections. Fuel and DEF are not included.
"There are consumable items, as well as tires and ground engagement tools [that are not included], and accidents, misuse, and insurance are not included in equipment as a service, typically," Fogtman said.
There are some other limitations, including short-term projects (rental would be better), a need for only a small amount of machines, the need for "special machines' (special costs more), and the return condition of equipment.
In short, EaaS is better for longer jobs and larger amount of "typically equipped" machines that can't be sent back wrecked or misused.
"One big thing we feel is important for Volvo is for customers to run fleets lots of hours," Nus said. "They are really all about time. They want the machine to be reliable. They're ready to go to work every day. And that's kind of what we're selling here. We're selling uptime when we talk about this with our customers, because if you think about it, if you're buying this service off of a supplier like Volvo, the more you work, the more you get paid.
"So, the minute one of the machines breaks down in the fleet, the supplier's not getting paid, so they have a very aligned incentive to keep you up and running," Nus said. "And that has a lot of value, I think."
About the Author
Frank Raczon
Raczon’s writing career spans nearly 25 years, including magazine publishing and public relations work with some of the industry’s major equipment manufacturers. He has won numerous awards in his career, including nods from the Construction Writers Association, the Association of Equipment Manufacturers, and BtoB magazine. He is responsible for the magazine's Buying Files.