Insight
Assets to Go: EAM and Contract Management for Leased Equipment and Outsourced Labor
How can EAM enhance the ways businesses lease assets?
When you were a little kid, what kinds of presents did you wish for on your birthday? A new bike? An arts and crafts kit? A telescope?
Sure, interests may vary, but all these different gifts had one thing in common: You, a child, could not afford them. That’s why you asked your parents for them and waited patiently for a holiday to roll around.
But what happened when your parents didn’t – or wouldn’t, depending on what you asked for? Well, if you really wanted to play that video game or what-have-you, you would borrow a copy from a friend if you could. In the end, you didn’t pay full market price to own the item in question (and neither did your parents), but for the low cost of a few trading cards or the answers to last night’s math homework, you temporarily experienced the thrill of ownership.
Business owners operating in an asset-intensive industry may feel similarly when deciding between buying new equipment outright and leasing. Leased equipment has its perks, according to the U.S. Small Business Administration:
- Low recurring payments, as opposed to large capital expenditures
- The ability to upgrade technology or change equipment based on needs (again, at low cost)
- Maintenance included in rental agreement
- Payments may be tax deductible depending on the investment
However, equipment leases also bring with them a certain degree of complexity. Suddenly, on top of the new assets in question, business owners must also manage the whirlwind of contracts attached with what they bought. One false move and once-affordable leased assets can quickly turn into huge budgetary burdens.
Enterprise asset management solutions such as IBM Maximo not only directly augment how businesses oversee their equipment leased or owned, but also the contracts associated with leased assets to optimize spend around their machinery and take full advantage of agreements with vendors.
Avoiding costly maintenance while under warranty
When decision-makers enter into an equipment lease with a third-party provider, contracts may include warranties or maintenance packages along with the sticker price. These add-ons make leasing more attractive to interested parties and increase the value of leased assets.
“EAM solutions can automate the maintenance decision-making process with greater accuracy.”
However, depending on the agreement, leased asset maintenance covered by the vendor may only extend to certain components or cover designated types of failure. Anything outside those specifications drops into the lap of the leasing business. Figuring out which side a repair falls on may not be as clear-cut at it may seem.
Contract specifications can be uploaded to EAM solutions with little effort, and the software can automate the decision-making process with greater accuracy. When a particular failure mode registers in the software, notifications can be sent to the proper authority. The message will say whether vendors cover the needed type of maintenance under the current warranty or if lessees must foot the bill. Thanks to EAM solutions, businesses never expend labor costs on equipment unless they absolutely must.
Renewing warranties
Long-term equipment leases require renewal every so often. Depending on the number of leased assets a business employs, leaders may accidentally miss renewal deadlines or get automatically signed up for plans they didn’t need, risking the cost of early termination fees for their negligence. Additionally, leasing businesses may wish to expand or reduce the scope of their warranties, but will need to wait for the appropriate window to do so. One small scheduling faux pas and those companies could miss a cost-saving/value-add opportunity.
EAM solutions not only remind users when contracts are up for renewal, but they can also provide valuable insight into why leases work or don’t work. For instance, business leaders have the power to aggregate failure data related to all maintenance requests performed by the vendor’s maintenance personnel, including how often repairs occurred and the quality of repairs performed. Armed with that information, companies can petition for better service or less accident-prone equipment, both avoiding downtime and leveraging data for greater value.
Optimize labor contracts for outside help
Control over leased assets isn’t the only advantage of utilizing EAM solutions for contract management – advanced software can also enhance how businesses outsource maintenance to third parties as well.
Depending on the size and needs of an asset-intensive organization, it may be more cost-effective to temporarily rely on “mercenary maintenance” rather than expand the maintenance workforce and pay them year-round. According to Maintenance Resources, so long as annual maintenance spend stays below 5 percent the value of the asset, companies stay in the black.
But outsourcing changes the rules because of typically high contractor costs when compared to in-house staff. In the past, we’ve discussed the dangers involved with such a system, but it can be done to budget, provided businesses store and use relevant data intelligently.
Let’s pose a disastrous, albeit possible, example of what can go wrong when they don’t:
An industrial crane under lease by a warehouse for an expansion project breaks down. The failure is not covered by a warranty, so the warehouse must use its own maintenance crew. In an inconvenient turn of events, on-site repair teams cannot prioritize the work order for the crane because of operational issues elsewhere in dire need of attention. The warehouse must outsource.
Business leaders hastily agree to a contract to get a third-party maintenance professional as quickly as possible. The third party sends a professional post-haste, but he arrives without any tools or resources. According to the contract the business signed, they had to provide them. The maintenance professional could go back to headquarters and retrieve tools and parts, but it would come at an additional cost, not to mention the price of labor for all that travel. Whether the business decides to consent or can the maintenance professional on the spot, they have wasted money because they failed to leverage valuable data.
Once companies upload labor contract information onto EAM solutions like a CMMS, they can track third-party maintenance work with greater visibility, not to mention work performed by their in-house maintenance staff. For both, they can monitor the resources allocated to these teams, chart their successes and deficiencies, approve projects and even create invoices.
At the end of the day, EAM and proactive maintenance programs effectively optimize workloads for repair teams and capitalize on their labor. But even when businesses call on hired guns, the coverage EAM provides extends as needed.