The Challenges of Managing Fleet Costs
Vehicle-centric companies, such as trucking and distribution companies, are experts in fleet management and usually have the in-house resources to do it quite well. However, for the rest of us in other industries, executives are primarily focused on managing the core of the business – whether it’s building high rises, manufacturing computers, or servicing HVAC equipment. Fleet managers simply don’t have the expertise or the inclination to invest much time or energy in improving fleet operations. Unless you are an expert in fleet management, vehicle expenses by their very nature are decentralized–usually occurring in small transactions spread across numerous locations and employees. On the surface, fleet management costs seem very difficult or control.
Contrarily, taking the time to focus on fleet management issues via basic operational policies and a little centralized control can significantly enhance worker productivity and result in major cost savings. Optimizing fleet management can ensure that mobile workers get the transportation their job requires while simultaneously yielding over $1 million in cost savings for a typical mid- to large-size enterprise. Whether your company’s fleet is large or small, the same concepts apply.
What Are the Costs of Operating a Fleet?
Fleet expenses are usually segmented into direct and indirect costs. Finance managers typically focus on direct expenses either paid out to vendors or to employees for expense reimbursements. Direct costs are more easily measured, and usually are the focus of cost-reduction efforts. Indirect expenses are less obvious and typically more difficult to track, but they can have a greater impact on the business.
Direct Fleet Management Costs:
Indirect Fleet Management Costs:
- Driver downtime
- Lost revenue
- Customer satisfaction
- Comapany value
- Environmental issues
For many fleets, depreciation is a huge expense, so many cost-reduction strategies are focused on managing depreciation. Acquiring the right fleet vehicles for the lowest cost, reducing fuel costs, decreasing labor expenses, operating vehicles for the optimal life cycle by application, and obtaining maximum resale value for used fleet vehicles are all an important part of the equation. First, let’s focus on the fleet vehicles you don’t need.
Should I provide company owned vehicles to mobile employees or reimburse drivers who use their own vehicles?
One of the first questions managers must consider is “Why should we provide company owned fleet vehicles? Why not require that employees use their personal vehicles for business transportation and then reimburse them per mile for the usage?” The answers to these questions depend on a few factors. Is it important for your drivers to transport bulky cargo such as materials, tools, hardware, or sales samples? If so, then providing a fleet vehicle is the obvious choice because providing employees with a van or a truck is required to get the job done.
Another issue to consider is company image. If controlling your corporate image is high on your priority list then you will likely want to provide a company owned fleet vehicle. Have you ever seen a Domino’s pizza delivery guy driving around town in a rusty Chevy and thought to yourself “Next time I order pizza, I should call Papa John’s?” Rusty Chevy’s don’t exactly project the best corporate image. Conversely, a mobile employee trying to land a new service contract taking a prospective client to lunch in a flashy BMW may not send the best corporate message either because it can imply your profit margins are a bit too fat.
Additionally, if your company can acquire, finance, insure, and repair fleet vehicles at wholesale prices, while your employees are forced to pay retail prices, you may want to consider providing a company owned fleet vehicle. Especially if you reimburse your employees for the full cost of using their vehicles for business at retail prices, an employee-provided vehicle will be more expensive than the alternative. If you reimburse your mobile employees at a rate that’s less than their full operating costs, your employees are actually picking up part of the tab to work for you which is a risky if you are in a highly competitive market. This gives other employers, your competition, a better chance to entice your top producing mobile employees to jump ship.
Finally, safety and liability risks are virtually the same whether your employees are driving the company’s fleet vehicle or their own. But only with the company owned fleet vehicle can you ensure that the vehicle has been properly maintained and won’t cause an accident or break down during a critical moment.
Fleet Cost-Reduction Strategies: Direct Expenses
Eliminating excess vehicles every year is critical. Every company has changes in the size of its workforce. Employees come and go or are promoted into positions that don’t require a vehicle. A 20% annual change among driver populations is quite common, and many of the fleet vehicles those workers were driving can just sit unused for extended periods of time. In field-service applications, fleet vehicles are often shared by many workers at a branch location. The number of fleet vehicles needed is related to the level of business activity for that branch location, Branch managers often hold on to extras vehicles to avoid being caught short.
In both cases, those excess vehicles have a cost, even the ones that are fully depreciated. They still have to be insured. The vehicles can still be damaged and must be repaired. Occasionally, someone will replace the tires or change the oil plus there’s the cash-value carrying cost. This means the cost of holding an excess vehicle can easily be estimated at $1,000 per year. You can identify underutilized or excess vehicles by obtaining odometer data through a GPS fleet tracking system, by tracking changes in the driver database automatically through the HR department, and by benchmarking revenue dollars per vehicle across branches. Identifying and disposing 50 excess fleet vehicles currently sitting unused at branch locations can save your company up to $52,493 per year.
To be continued in How to Save $1 Million with Better Fleet Management – Part Two….