Fleet Right-Sizing and Lifecycle Costing Article
by Mercury Associates
Size Does Matter
It has been impossible to escape the effects of the economic downturn. Virtually every industry has felt the pressure to reduce costs or avoid them altogether and fleet operations are not exempt. Fleet managers are struggling to find ways to maintain a high level of service to their customers while at the same time lowering their expenses. Often the question for many fleet managers is "where do I start"? One answer is fleet size and composition. After all, the number of vehicles and the various types of vehicles drive about 80% of the costs of doing business. These costs include the cost of the vehicles, staffing to maintain the fleet, parts inventories, and vehicle depreciation just to mention a few.
Fleet Creep
Fleets are established and grow based on the mobility needs of the organization. In government fleets for example, public services such as road maintenance require a fleet of heavy trucks and equipment to do the work directly such as snow plowing, patching, and construction. In addition, there are vehicles for groups such as managers and supervisors, crew transportation and other support functions that are equally necessary. Even though many of these vehicles can be associated with multiple services, the overall size of the fleet can blossom quickly. And, during good financial times, there is a tendency to purchase highly specialized units that improve the work functions but have limited use in other areas.
Unfortunately, the size and composition of the fleet rarely tracks the actual needs of and changes to the organization. For a variety of reasons the organization will retain older units as spares or for "special" circumstances (including emergencies and seasonal use) and as a result the size of the fleet begins to creep up with units that are under-utilized. When thinking about how to reduce costs, this element of the fleet operation is truly low hanging fruit for the fleet manager.
Where Do I Start?
The most important key to determining how to evaluate the need for a vehicle in the fleet is to have a realistic set of measurements. The measurements should include a realistic minimum use for the year, a minimum frequency of use, a maximum age and a maximum cost per meter for every class of vehicle in the fleet. Armed with this information, the fleet manager should then compare every unit and identify those that do not meet the criterion. It would also be beneficial for the fleet manager to assess alternatives to retaining the unit such as rental equipment, short term leasing, or reimbursements for using personal vehicles.
Making the Case
As mentioned earlier, the fleet exists solely for the mobility and service needs of the larger organization and as such, changes to fleet must include the fleet users. When the fleet manager has identified units in the fleet that appear to be excess units, the users must be included in discussions regarding the eventual actions that should be taken. It is up to the fleet manager to explain the criteria that was used to identify the vehicle as an excess unit, clearly articulate the costs associated with retaining the unit, and to present the user with reasonable alternatives that will allow the user to meet their needs. There are potential savings in the following areas:
- Maintenance costs
- Inventory costs
- Staffing
- Depreciation
- Insurance
- Future replacement costs
There may also be some short term gains such as windfall profits from the sale of vehicles. Although these discussions can be uncomfortable (and even contentious) for both parties, the benefits to the organization as whole should be obvious and common sense will usually prevail.
