Fleet Management Information for Sweeping Professionals
Managing Tomorrow's Fleet Assets Todayby John Dolce
Photo at right shows John Dolce with Alan Heydorn, editor of Pavement Magazine, show organizers.
One part of fleet management is making sure that your organization's rolling stock is, in fact, kept rolling. Equally important, however, is your ability to manage the assets of the fleet. These include -- in addition to the vehicles -- facilities, components, parts, and other tangibles. It should also involve getting a clear handle on the varying life cycles inherent to each.
The fact is that, today, fleet managers in most operations are also asset managers.
Costs vs. Utilization
Operating and maintenance costs are familiar to fleet managers. Operating costs include fuel, taxes and registration, among other items. Maintenance costs basically include parts and labor.
Most operators keep a close watch on their fleet utilization factor. For example, if a vehicle is in the 20,000 to 30,000 gross weight class, it should probably have a targeted utilization factor of 80 to 85 percent. Highly specialized vehicles, however, can have utilization factors as low as 30 percent and still could remain cost-effective because of their uniqueness and lack of availability for rental when needed.
Both operating and maintenance costs can be tracked manually or electronically, on a simple computer program. The point is, no matter how it's done, it's critical to track and analyze life cycle costs, as well as annual costs. Look for peaks and valleys. Review the results carefully, because they can prove very valuable.
While the percent of utilization may vary from company to company, the principle is essentially the same -- if it isn't being used fully, consider getting rid of it. And, by the same token, if you aren't yet at a fairly high utilization of your current vehicles of the same type, be cautious in purchasing additional vehicles of the same type, no matter how good a 'deal' it appears you'll be getting.
Life Cycle Costing
A main consideration of fleet managers is to maintain the highest possible vehicle availability and utilization for the lowest possible cost. Put another way, when the cost of operating and maintaining an old vehicle is greater than the cost of operating and maintaining a new vehicle, buy or lease a new vehicle. This is the basic tenant of life cycle costing. It's also good business.
Life cycle costing isn't something that can be done every now and then or when the asset manager "feels like it." Maintenance costs of older vehicles change frequently based on usage, proper or improper application, fleet mix, density and operational changes. Therefore, the buy, rebuild or remain status quo analysis must be done at least on an annual basis. Quite often it must be done more frequently in order to reflect what is currently happening in the fleet. Failure to review how those changes might affect a fleet is tantamount to operating with only partial information. As is the case with most things financial, partial information can lead to serious problems down the road.
To Buy or to Lease
One of the most often-pondered questions is whether to buy or to lease. Buying usually makes sense if cash is plentiful; leasing makes sense if it isn't. Leasing might also be a worthy consideration for a new company that can't get a loan because of insufficient collateral or an insufficient credit history.
Both leasing and buying make possible the acquisition of new, updated vehicles that are equipped with state-of-the-art technology and engineering changes that reflect productivity demands. Don't underestimate what new technology and engineering can do for the bottom line. Both can lower operating and maintenance costs, thereby substantially reducing overhead.
Incurring Costs with Age
As vehicles age, additional costs are incurred. By keeping track of the additional costs, it is possible to predict future performance. Providing component costs are reviewed in annual summaries, it is fairly easy to examine each annual period, noting unusual or high-cost areas. These areas can then be identified as scheduled or unscheduled costs.
Scheduled component costs are considered part of the cost of doing business. And, although any costs, even those you expect, are hard to think of as desirable, at least scheduled costs come as no surprise because they're considered part of the cost of doing business. Plus, scheduled costs are usually lower than unscheduled costs for like items.
As inherent costs develop in a given operating environment, it is possible to predict new model costs in the future. By simply modifying vehicle specifications, it is possible to limit fixed costs. For example, higher-capacity brakes can lower brake service costs. Shockproof lighting or moving from incandescent to fluorescent helps reduce lighting costs. High performance alternators can reduce electrical starting costs as they extend the life of the entire charging system. If one model or type of product historically works best in a given operation, specifying that brand or model can result in additional cost reductions in the future.
Replacing Old Vehicles
Effective asset management means replacing old vehicles just after amortizing a large initial investment -- and just before incurring significant costs. By grouping like vehicles together, it is possible to establish a class average so that individual vehicles can be compared to the average.
If a vehicle is below the average, historical cost trends should be reviewed and an average projected for both the class and the vehicle. Then, an economical replacement time can be established.
Total unit costs are impacted by each of the following costs and by the rates at which each rises with and apart from the others:
Depreciation--this fixed cost represents the set portion (allowed by tax laws) that is expensed to a given year for a portion of the total cost of the equipment. Depreciation is different in each business application. The downward trend of this cost prevails if the vehicle is maintained and, therefore, its useful life lengthened.
A new vehicle represents principal, interest and a high purchase price. Given the economic climate of today's financial environment, a strong case can be made for extending the life of the vehicle through proper maintenance. On the other side of the coin is that interest rates are currently among the lowest in many years, and there is an accelerated depreciation program in place for large capital purchases. The trick is knowing when the life extension process has run its course and is no longer the most cost-effective option, given the current factors in the marketplace for new and used replacements.
Operations--unfortunately, the cost of operation tends to rise gradually throughout the life of a vehicle due to increasing fuel, maintenance and related costs. Maintenance costs tend to increase as vehicles age. This item alone has the greatest impact on diagnostic cost benefits.
However, if the cost of maintenance is kept down through an effective scheduled maintenance program, including preventive maintenance inspections, drive write-up control and timely component replacement, vehicles will last longer and cost less to operate. That is, unless and until the machine becomes obsolete.
Downtime--when a vehicle is not available for service, it still has a cost per hour, per diem or per mile. This cost should be indexed and unacceptable variations should be noted.
Obsolescence--is a function of work need. Obsolescent equipment usually does not meet the requirements of the workplace, which renders crews, no matter how skilled, unable to perform their work, or creates a needless higher cost to perform the needed services.
Inventory costs--in many operations, parts and supplies impact as much as 10 percent of the total budget. Therefore, it is critical to manage this inventory carefully and profitably, even though 10 percent of the budget probably approximates the correlating life cycle costs.
Life costs--include fixed and variable expenses over time and mileage.
Comparing Old and New
In preparing for an old versus new economic analysis, each related cost should be listed. The only exceptions would be the cost of money and tax write-offs, as these are usually the controller's responsibility. It should be determined, however, whether the controller considers vehicle cost an expense or capital. Be careful! This is not a one-size-fits-all area, as the answer depends on corporate strategy, the company's financial structure and the availability of cost.
For example, in evaluating whether to buy a new pickup truck or keep using an older model, it was determined that the new vehicle would be less expensive to operate and maintain. Therefore, it was deemed cost effective to buy a new pickup and sell the old one. Even though the old vehicle had worked well for some 90,000 miles, it was obvious that the difference in cost in buying a new vehicle could instantly be wiped out in the event of a major overhaul in the old vehicle.
The scenario changes somewhat when there are 10 old vehicles at stake. In this case, it's actually better to keep all 10 of the older pickups rather than buying new ones since the volume of major repairs is less likely to cancel the savings.
Of course, it's important to consider the blue book value of older vehicles, as well. With new truck prices into the six-figure range, even a small percentage drop can mean thousands of dollars lost. Unfortunately, large, rapid declines in resale value are not uncommon. Worse yet, they are often difficult to predict.
Clearly, other factors can skew this analysis. However, the point is that if a new vehicle will cost less to own and operate than an older one, it probably makes sense to acquire the new. If not, keeping the old vehicle would be advisable. It's a simple matter of analyzing the cost of maintenance versus the cost of money.
Tax rules change every year. It's important to be sensitive to tax rules when evaluating a vehicle, as they are a product of our ever-changing economic environment. Be certain that both the information and the frame of reference used are current from a tax standpoint. If they're not, seeking the advice of a qualified tax accountant who is familiar with their company strategy and the fleet industry would be money well spent.
Art of Science
Staying on top of all the elements involved in successful fleet management is an art. It's also a science, depending on the situation and the approach taken. Fleets are like snowflakes, no two are alike. The one thing they all share, however, is that careful and precise fleet management is an absolute necessity to ensure success in today's highly competitive market.
John E. Dolce has more than 30 years of experience operating fleets of various types and sizes, in both the public and private sectors. Dolce conducts university-level seminars on vehicle maintenance, management, and fleet management in the US and Canada, and has written two texts on the subject. John Dolce may be reached at (973) 226-9061.
Another fleet management article by John Dolce is offered on the WorldSweeper.com website. It is entitled 'Determining Whether to Work on Vehicles In-House or to Sub Out the Work'.
Dolce offers a handout called 'Daily Vehicle Management Activity.' This is available for download as a pdf file from WorldSweeper.com's forms area.
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