Moore on Pricing: 13 pain points in private fleet management
Private fleet operations are faced with more challenges than ever as the three major external cost drivers—hours of service, equipment modernization, and fuel cost—are clamoring for attention.
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Private fleet operations are faced with more challenges than ever as the three major external cost drivers—hours of service, equipment modernization, and fuel cost—are clamoring for attention. To help fleet managers navigate these hurdles, I focused this column on costs that management can set out to control through better internal processes and training.
To set the groundwork, I sat down with my good friend Tom McKenna, CEO of consulting firm Navesink Logistics and a go-to guy in fleet management for over 30 years, to talk about what private fleet owners have on their list beyond these three perennial challenge areas.
“Everyone has relatively the same driver availability, equipment, and fuel markets,” says McKenna. “Given this reality, management needs to create their opportunity in 13 controllable operational areas.” He adds that private fleet managers often fail in one or more of these 13 areas, and these failures have a direct impact on driver, equipment, and fuel costs beyond what the markets may bring.
As a former private fleet manager myself, each of these “pain points” resonated with me. See what you think:
1. Not knowing whether it makes sense to backhaul product on a “freight collect” basis or to handle freight for third parties. This a strategic question that takes some modeling and expertise that some fleet operators just don’t have in-house. Get some help if you need it, but don’t overlook this potential revenue stream.
2. Poor fleet utilization. Trucks and drivers make money moving, so apply lean principles to all activities from depot to loading to last stop.
3. Not optimizing delivery schedules, routing, and payload. Software is available in the cloud and through third parties at low costs to improve even the smallest fleets’ efficiencies.
4. Not using the best maintenance option. It’s hard to justify in-house maintenance with less than 25 units. Evaluate in-house vs. contract for your type of operation.
5. Ineffective negotiation with original equipment manufacturers, dealers, and component manufacturers. Find leverage through joint buying with other, similar businesses/divisions and be an active shopper. The easy solution, such as the local dealer, is not always the best one.
6. Using equipment that does not have the best specifications. Similar to No. 5, the least expensive equipment may come back to you in higher fuel and maintenance costs.
7. Not using warranty programs. Warranty coverage can often be overlooked when repaired in remote areas or by uninformed, in-house maintenance teams.
8. Arbitrary equipment replacement policies. For some fleet owners, the time to get new equipment is when the CFO says there are funds available—not when a formal lifecycle plan says so. Management needs to lay out the replacement plan factoring in utilization, resale market, and availability of capital.
9. Deficient management of labor costs. Paying people fairly is both a science and an art. An example of “bad art” is in pay methods that provide no encouragement for productivity. If you’re going to spend more, make sure you’re getting more.
10. Driver turnover. Private fleets enjoy a lower driver turnover rate than commercial carriers. Fostering a culture that is supportive of the important customer-facing role that drivers serve will help reduce this cost.
11. Improperly managing workers compensation. Together with the points in No. 10, a cause of dissatisfaction is often non-competitive wages and benefits. Management often finds that they need to create a unique class of workers in the company as “drivers” to have the flexibility to align compensation to the unique requirements of the function.
12. Excessive tractor power. This problem is often tied to No. 5 and No. 6, but can be a result of not having a strategy for third parties or backhauls. We have seen companies buy heavy equipment for potential backhauls or third party work only to find it to be too expensive for the light duty they need for their own company. The reverse happens as well, where light-duty fleet equipment is found to disqualify the fleet from third party loads.
13. Disjointed safety and compliance practices. Part of having a positive sustainable culture is to insist on compliance. Those of us who have had to clean up operations after low-compliance managers know the pain and expense of poor safety practices.
As every fleet manager knows, there’s more to worry about than the efficient use of drivers, equipment, and fuel. As Tom McKenna indicates in this list, the many operational decisions we make everyday affect our major cost areas, and it’s in these decisions that make or break careers in fleet management.
About the AuthorPeter Moore Peter Moore is Adjunct Professor of Supply Chain at Georgia College EMBA Program, Program Faculty at the Center for Executive Education at the University of Tennessee, and Adjunct Professor at the University of South Carolina Beaufort. Peter writes from his home in Hilton Head Island, S.C., and can be reached at [email protected]
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