The supply chain operations of most utilities, governments, and municipalities could be more efficient if their fleet management programs were more effective. One reason such programs typically aren't very efficient is that few organizations think of their fleet operations as prime targets for innovation. Accordingly, they may not excel at tracking and measuring asset utilization, controlling operating and maintenance costs, or economically adhering to governmental and internal standards and specifications.

By rethinking how they manage their fleets, many companies and government agencies could save money, improve service, and even free up significant amounts of operating capital. Two principal steps are needed to make this happen. The first is doing a better job of integrating fleet management with the organization's supply chain strategy and execution. The second step is developing ongoing programs to ensure that the right number of vehicles is available to perform the right jobs for the lowest total cost of ownership (TCO). As shown in the diagram, TCO addresses vehicle procurement, operations and maintenance, and disposition and replacement. Here is a simple, multi-stage approach you can follow to achieve this second step:

Buy smart. Fleet managers need to assess the value that each vehicle brings to the organization. They can begin by evaluating the existing fleet: analyzing vehicle types, utilization profiles, and operating costs; reviewing administrative and operating practices related to procurement, deployment, maintenance, and disposition; and determining replacement scheduling. After that, a "right sizing" exercise will help determine if the fleet's size and makeup is appropriate. The resulting ability to rationalize vehicle classes, standards, and specs will help drive out excess costs. In many companies, this is facilitated by a "standards and specifications" committee. This group includes field operations and fleet management experts who work together to develop a standardized fleet configuration that assigns the highest possible volumes to each class of vehicle.

Deploy smart. It's important to know if vehicles with the right specifications and capabilities are being used, and that those vehicles' order and delivery characteristics meet the demands of the field organization responsible for their use. Thus, the goal of this step is to chart replacement-order cycle times (i.e., which vehicles should be replaced and when) for all vehicle classes.

Run smart. Next, managers should conduct a comprehensive review of maintenance and repair practices, examining everything from on-hand inventory and vendor management practices to mechanics' productivity and facility costs. The goal is to develop a reliable cost baseline and a clear idea of how effectively the operation is running.

Sell smart. Selling smart—discarding vehicles identified as being surplus or at the end of their "useful life"—is very important to life-cycle cost management because of its role in maximizing residual value. This may be accomplished by culling vehicles when they will bring in the most cash, typically through wholesale auctions. One way to "sell smart" is to closely track the commercial value of the vehicles being sold. This may influence your approach to standards, specs, and future purchases at the beginning of the cycle in a way that will enhance marketability at the time of disposition.

Once you have determined your fleet's optimal size, operating characteristics, maintenance program, and service profile, it then makes sense to consider outsourcing. Until you reach that point, you won't have the internal benchmarks needed to evaluate proposed outsourcing costs and services. With that information in hand, it's relatively easy to measure the viability of outsourcing the management of your entire fleet or of specific areas such as maintenance and repair, warranty management, and parts management.

The four assessment stages outlined above are key to successful fleet management. However, companies also need hands-on implementation to ensure that programs produce the anticipated results. This is the truly tricky part, and the reason why few organizations launch a comprehensive fleet-reengineering program all at once. Instead, most choreograph individual initiatives, implementing new capabilities as time, resources, and budgets permit. An example might be rationalizing vehicle classes and specifications, and then following through later with a strategic program for vehicle acquisitions.

A large utility recently undertook this type of scaled fleet-optimization program. Its main objectives were to reengineer fleet standards and specifications and to implement a strategic sourcing initiative aimed at single sourcing with one vehicle manufacturer. Accomplished over six months, the program's relatively modest investment yielded dramatic savings:

• A 20+ percent reduction in vehicle-acquisition costs
• A drastic reduction in vehicle classes, from 450 to 32 in the core fleet
• Standardized vehicle life cycles
• Vastly improved maintenance and repair practices
• Additional reductions in administrative costs
• A sustainable, ongoing process that promises continued savings

Lastly, all organizations should be aware that geographic positioning system (GPS) technologies and predictive monitoring techniques are just around the corner—and that high-performance fleet-optimization programs will be needed to fully reap the benefits that these technology breakthroughs can provide.