What’s included in EaaS?
Typically, EaaS agreements include things like scheduled heavy equipment maintenance and repairs, factory updates and any unscheduled repairs. Here at Volvo, uptime is actively monitored 24/7 by our Volvo Fleet Management team in conjunction with your local Volvo dealer.
What’s NOT included in EaaS?
Things typically not included in an EaaS agreement are fuel/DEF, consumable wear items such as tires/rims, undercarriage and ground engaging tools (GET). Accidents or issues arising from misuse are also typically excluded.
It’s important to note that EaaS rates also don’t include machine operators nor site management. If you need help to improve operator skills or site efficiency, it’s easy to add options to an EaaS agreement like an Eco-Operator competency program, site assessments or digital services like Connected Map, for example.
What are the financial benefits of EaaS?
EaaS flips the script on traditional fleet ownership and offers several advantages versus leasing options.
- Optimal cash flow – The cost of running a fleet is directly tied to its usage. Operate just a little in a given month, and your cost is low — operate a lot, and your cost increases accordingly. But revenue generation increases in the same manner, meaning your net cash flow is aligned. This is particularly helpful at the start of a project, a time when fleet investment is typically at its peak, but revenue is either just beginning or still projected.
- No CapEx (Part 1) – Leasing became popular because it could be booked as an operating expense and didn’t impact a customers’ balance sheet. However, the latest accounting standards are clear — leases should now register as capital expenditures (CapEx), not operating expenditures (OpEx). Capital is finite and has a cost, which means less capital available for other/better investments and the internal cost of capital should be added to a lease calculation (up to 10% per year in some companies). Volvo EaaS qualifies as an operating service according to these accounting standards, making it a solution today to secure fleet use as an OpEx over the long term.
- No CapEx (Part 2) – Additionally, with a Volvo EaaS, you no longer have to invest in spare parts inventory (typically a CapEx) since we as the manufacturer include all maintenance and repairs. We include an uptime guarantee as well that can drastically reduce — if not eliminate — the need for backup or standby machines, which can be a massive (and often hidden) cost.
- Transparency – Fleet ownership is clearly separated from fleet use. The manufacturer’s responsibilities are defined versus yours, greatly simplifying operational management. All parties then have a shared and aligned focus on fleet uptime and operation.
- Risk management – Your financial risks are managed if not eliminated, while the manufacturer bears the full cost of any unscheduled repairs or breakdowns, effectively meaning a full warranty for the life of your contract. The hourly rates are defined over the long term (years), and you don’t have the risk or headache of disposing of old iron at the end of the day (stranded assets). Your manufacturer takes on that responsibility so you can focus on other priorities.
What are the operational benefits of EaaS?
- Fleet productivity – Typically, the manufacturer should tailor the fleet scope, size and specifications to your needs so production is secured and your operation is optimized to get your jobs done. At Volvo, we actively manage the fleet with you, partnering to drive efficiency.
- Production-driven pricing – With EaaS, the more a fleet works, the cheaper it is by the hour. At Volvo, if forecasted fleet hours are exceeded, we’ll even pay a credit back at year end, reducing net costs further. This is opposite of a rental or lease contract where “working too much” triggers penalties and increases net costs.
- Uptime guarantee – With EaaS, you should expect much more uptime. At Volvo, for example, we include an industry-leading availability commitment for the life of a contract, so you’re assured our fleet is the right fit and ready to work.
- One interface – Clear lines of communication should be defined and used between the manufacturer, supporting dealers and your company so that operations are always aligned on fleet uptime.
- Scalability – In your EaaS contract, it should be easy to add more hours of service, expand the fleet and/or geographies, and so on.
Is EaaS for everyone?
EaaS works best for large, predictable blocks of usage hours (i.e. a significant fleet that will run a number of years). Shorter term needs for few/individual machines are typically best served by rental alternatives. And remember, there’s still a place for leasing, and good reasons to purchase key portions of a fleet. EaaS is just another alternative you can consider.
I should also mention EaaS is a new concept for most businesses — a paradigm shift. But it can radically change your mobile fleet costs and management for the better, so it needs careful study to understand how it can impact your business and whether or not it makes sense for you.
How does the EaaS setup process work?
Setting up your EaaS contract should be simple — it’s really just about good communication. At Volvo, for example, we find a sequential approach works best: first we define your needs, then we build proposed service solutions with pricing options, and finally we make an agreement and deliver the service. Our fleet management team works closely with your local dealer(s) to ensure the EaaS is structured correctly. The same team then works with the dealer(s) day by day to deliver a high-quality service that enables you to go about your business.
My hope is that you now have more insight into what Equipment as a Service is and how it works. Here at Volvo, we have customers already succeeding with this fleet solution and many more interested in learning if it’s a good fit for them. You can always reach out to me with any additional questions you have, or contact your local equipment dealer and they can help you determine if EaaS is a viable option for your business.
By David Nus
Head of Fleet Management – Region Americas
David started his career with Volvo as an intern in the sales engineering team of VME Americas (Volvo Michigan and Euclid) back in 1989 and has taken on various roles since. As Head of Fleet Management today, he helps deliver more uptime to Volvo customers via Equipment as a Service and related fleet solutions.