Private Fleet Management: From necessary evil to strategic asset
November 01, 2011
Total cost of ownership
TCO is an easy-to-understand, but tricky to calculate, number that fleet owners can use to discern how similar vehicle costs compare across your fleet and against others, how these costs trend over time, and when vehicles should be replaced.
To calculate TCO, it is extremely important to develop or purchase an application for capturing, validating, consolidating, storing, retrieving, and sharing operating data on each vehicle. Such a system should capture costs from fuel and maintenance records, as well as less-obvious metrics such as acquisition, insurance, and registration details. The most important contributors to TCO include:
acquisition costs, including
upfitting and delivery;
maintenance and repair costs;
operating costs (fuel, title/tax/registration, permits, insurance, etc.);
administration and overhead costs;
fleet management services (3rd party);
life cycle (in years); and
- miles driven per year.
Using the data elements above, an organization can calculate TCO, develop optimal replacement cycles and create scenario-based tools to understand how changes in the fleet can affect the company’s overall financial performance.
There are many tools available to capture the data needed for TCO modeling. GPS telematics, for example, can help companies track vehicle locations while remotely monitoring speed, breaking, gear-shifting, idle time, and out-of-route miles. Industry research has shown that telematics can reduce fuel consumption by up to 14 percent, while paring vehicle maintenance costs by roughly the same amount.
Telematics-related information also enables companies to understand tradeoffs that relate to myriad other fleet-management decisions, such as buying-versus-leasing and extending the life of vehicles. Plus, captured information can be shared up and down the organizational chain, thus bringing higher-level people into the decision-making process.
Transportation management systems (TMS) are another technology moving rapidly from luxury to necessity. As fuel prices rise, the ability to consolidate shipments into more cost-effective loads and optimize routes becomes even more important; and private fleet managers who formerly perceived TMS as an unaffordable option may now wish to rethink that decision.
Integrated fleet management
Armed with better TCO information on loading, routing, and vehicle use, companies are better positioned to elevate the overall fleet management program: rationalizing transportation assets and specifications; pooling and disposing of vehicles as needed; optimizing sourcing, maintenance and repair operations; and revisiting administrative policies.
Think of this sequence as an “integrated fleet management” program with the nine basic “mile markers” detailed below. One can derive benefit from focusing on just a few of these elements, but the real value comes from a comprehensive implementation, accomplished in a logical order and supported by a proactively designed organization and up-to-date technology.
1. Collect and validate data:
- Assess vehicle quantities and VINs, age of units, classes of vehicles
- Gauge last 12 months of costs
- Calculate mileage and utilization
2. Rationalize the fleet:
- Reduce overall fleet size by using best practice utilization data
- Replace long-term rentals with surplus units
- Reduce average age to best-practice standards
3. Rationalize specifications:
- Reduce variations in standards and specifications to ensure a smaller number of larger classes
- Reengineer specifications that exceed work requirements
4. Pool assets:
- Allocate vehicles designated for assignment to pools (geographic
or local) or for disposition
- Improve management of short term rentals
5. Dispose of surplus assets:
- Eliminate excess vehicles identified through rationalization
6. Revisit/revise sourcing
- Launch a multi-year Strategic Sourcing initiative for all major classes using a levelized replacement calendar
- Implement bid-optimization technology
7. Rationalize maintenance and repair:
- Reengineer operating practices (e.g., move maintenance to 2nd or 3rd shift where possible, implement vendor-managed inventory practices, automate time and productivity reporting, benchmark mechanic productivity)
8. Optimize finance and administration:
- Evaluate benefits/drawbacks of lease versus own
- Compare costs and benefits of insourcing versus outsourcing
- Leverage fleet-management
- Assess/enhance maintenance & repair (M&R) administration (e.g., call center, vendor management)
9. Develop a new fleet model:
- Implement or enhance a life cycle management program
- Institute levelized replacement policies
- Rationalize specifications based on function
- Right-size the fleet by eliminating low-use vehicles
Throughout the program, it will also be important to compare fleet capabilities to industry peers and top performers in other industries, and to define key performance indicators that allow you to accurately measure success. Several other program-wide components are similarly vital. One is intra-organizational collaboration—working across departments to fully understand transportation objectives and obtaining executive support for transportation.
The latter is doubly important, because finding a “champion” who understands the real value of fleet management is often a make-or-break factor. A shift in corporate mindset is equally valuable: moving from a “cost of doing business perspective” to a “strategic asset” perspective. Oftentimes, the fleet is a window through which customers view the company; and no matter what the reality on your factory floor, local service counters, or distribution center, the delivery segment of the supply chain is what customers see.
Taking a holistic, integrated approach to private fleet management can make a significant and continuous contribution to higher, company-wide productivity and lower costs. It’s also likely that companies will increase visibility into their true fleet-management costs and enjoy better employee/crew productivity and morale—all of which create a better image and experience for customers. Based on Accenture‘s experience, potential benefits can include:
reductions of 5 percent to 10 percent in fleet operating expenses;
capital deployment improvements of 10 percent to 15 percent—the result of reducing asset costs and quantity requirements, and improving asset utilization;
increasingly accurate tracking of performance across business units; and
- new abilities to integrate fleet management into a company’s or business unit’s strategic roadmap—consequently improving revenue-generation potential and enhancing the customer experience.
Lastly, a word about sustainability. More and more companies are paying attention to how their products are made and the environmental impact associated with production and transportation. Companies with clear and consistent sustainability programs manage all aspects of their supply chain, from emissions, to safety, to the waste stream.
In the process, they glean a competitive market advantage over industry peers that have not acted similarly. Innovative fleet management can be a significant contributor to a company’s sustainability initiatives, delivering benefits and competitive advantages that are, in all likelihood, highly sustainable.
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