The drive to control costs never ends, and fleet managers can sometimes feel tapped out of ideas to cope with it. The reaction is too often “procurement,” focusing on pricing and demanding that suppliers negotiate lower fees.
There is nothing wrong with expecting vendors to provide competitive pricing for products and services. However, the real value of an experienced fleet manager can be lost if this is the sole method used to reduce costs. Fleet management isn’t simple purchasing;
it is a more complex discipline, and good fleet managers know they can use many other strategies to cope with rising costs.
Fixed Costs Can Be Flexible
It sometimes seems that fixed costs “are what they are,” and once a fleet manager has negotiated the most advantageous pricing, little else can be done. Nothing could be farther from the truth. Negotiating the lowest possible capitalized cost, the best possible “rifle shot” monies, or the lowest lease rate factors are indeed important; however, these actions only form the basis for fixed costs. Fleet managers should direct their efforts toward managing these costs as they accumulate after the vehicle is placed into service. Willie Sutton, when asked why he robbed banks, replied “because that’s where the money is.” Fleet managers know the money in fixed costs is in depreciation, which can be as much as 80 percent of fixed fleet expense. Some leased fleets may be content to turn in vehicles to the lessor to be sold, managing only vendor expense in controlling costs. Lessors primarily use auctions for resale, which provides the advantage of exposing vehicles to competitive bidding while enabling the quick sale of large numbers of vehicles. But markets are available to fleet managers beyond auctions, and simply turning out-of-service vehicles over to lessors to sell ignores these options, and thus, opportunities for the cost savings they can provide. Strategy 1: Don’t Just Sell Vehicles—Market Them to Control Depreciation Costs
There is an important distinction between selling and marketing. Marketing fleet vehicles begins with bringing the best possible product to the buyer and exposing that product to the greatest number of markets and potential customers. The first step in creating this product lies in the “raw material” — choosing the right vehicles for the job and equipping them to fulfill the mission. Don’t underspec a vehicle to save money. Make certain that the powertrain is capable of carrying the loads required and research what equipment enhances future value and what does not. The next step is “production” of the product. While a vehicle is in service, enforce a rigorous preventive maintenance schedule and use vehicle condition reports to track and act upon conditions that require attention. Don’t allow dents and other damage to worsen to the point they reduce vehicle value. The final step lies in identifying and attacking various used-vehicle markets. The first and most lucrative market is the driver, followed by other employees. Drivers know their vehicles and are more likely to buy when the time comes. Don’t merely “ask” if the driver is interested. Make certain he or she knows that the vehicle can be purchased from the moment it’s picked up at the delivering dealer. Provide services and products that facilitate purchases, as do retail used car dealers: financing, insurance, and extended warranty coverage. When the vehicle has been targeted for replacement, send a preliminary price quote with the new vehicle selector. Include sample pricing for financing/leasing and warranty terms. Finally, make the purchase process run smoothly; create a package with all the forms and paperwork necessary for the transaction. For vehicles not purchased by drivers or other employees, auctions aren’t the only market available. Consider establishing relationships with national fleet wholesalers and use them for a select number of vehicles each model-year. Not all vehicles are “auctionable,” that is, attractive to buyers whose own markets are direct retail. Specialty vehicles such as upfitted vans and work trucks can often bring better proceeds through wholesalers than at auctions. Some wholesalers (and brokers) bring specific market knowledge that auctions may not, such as regional or industry-specific buyers who don’t use auctions as a source for their needs. Strategy 1 Steps:
Fleet insurance costs consist of two categories: liability and physical damage. Liability insurance costs are generally part of an overall corporate liability package negotiated by the treasury or risk management department with little or no input from the fleet manager. Most mid-sized and larger fleets self-insure for physical damage, using a monthly accrual based upon the previous year’s loss experience and established by the risk manager. It’s easy to feel helpless when budget time comes and both liability and physical damage charges are imposed. It does not, however, need to be this way. Fleet managers can actively work to minimize both expenses. Insurance companies that write fleet vehicle liability coverage do so by assessing and quantifying their risk. A fleet manager can take steps to reduce this perceived risk. For example: Create a corporate fleet safety policy and training program to develop safer, more informed drivers, and to demonstrate to the liability carrier that safety is a priority. All fleet drivers should undergo formal safety training each year, and safe driving techniques should be a part of any and all regular driver communications. The policy should include formal accident review and a reward/penalty program for drivers who have, or have not, been involved in accidents. Communicate with the company risk department and the liability carrier to determine equipment and fleet policies that offer direct reductions in liability premiums. For example, a formal policy prohibiting the use of cellular telephones while a vehicle is driven, with consequences for violations, might result in such a reduction. The same can also hold true for a seat belt policy, which should include not only drivers, but all passengers as well. Equipment such as side airbags and even navigation systems often are encouraged by insurance carriers and can lower premiums. Achieving premium reductions is possible in some cases by using crash test ratings when building vehicle selection. Work closely with human resources to make safe driving a factor in recruitment, hiring, and retention. Motor vehicle records (MVRs) should be a key hiring requirement and an integral part of the ongoing safety program, not only for employees, but for any and all permitted to drive a company vehicle. Physical damage accruals are generally based on the previous year’s loss experience and take the form of a monthly charge accrued either per vehicle or fleet-wide. Thus, any reduction in actual physical damage costs is carried forward in controlling budgeted physical damage expense. Some things to consider:
Variable costs, which include maintenance, repair, and fuel, can also be a rich source of cost savings/control strategies. Again, focusing efforts where the money is results in the greatest savings with the least effort. The two largest variable costs are fuel and maintenance/repair. Fuel costs, particularly recently, dwarf all others as a percentage of variable costs. Historically exceeding 60 percent, recent fuel price volatility and increases have pushed them as high as 80 percent or more. Maintenance and repair costs have also risen, and although they do not dominate variable expense to the extent that fuel does, they are nonetheless fertile ground for costsavings strategies. Strategy 3: Track and Manage Fuel Costs
Sometimes, it seems concern about fuel costs waxes and wanes with pump prices. When gasoline prices hit an average of near $3 per gallon last year, there was a flurry of activity in the fleet industry, as fleet managers saw fuel budgets swamped and sought relief. As they declined, so, too, did the interest. Managing fuel costs should be a major focus of every fleet manager’s cost containment efforts, no matter the pump price. Fleet fuel expense is a function of many things that go beyond the number of gallons purchased and the price per gallon. Much as we’d all like to believe, drivers don’t always do the right thing, and their actions can range from minor policy violations to outright fraud. Capturing key Level III data is the starting point in analyzing fuel expense and taking action to control it. You cannot control or reduce an expense unless you know what it is, and fleet fuel is no exception. It is not enough simply to know that driver A purchased “X” dollars of fuel on a particular day. Fleet managers also must know how many gallons were purchased, the grade of fuel and service type, even the transaction day and time. No matter the means drivers use to buy fuel, without that level of detail, cost control efforts are severely hampered. Fleet policy regarding fuel expense must be clear, simple, in writing, and available to all drivers. Limits on personal use should be established, as well as expenses associated with it. Fuel data should be available in a form that enables the fleet manager to mine it for potential savings. Exception reports are critical. They can reveal shortcomings in policy as well as violations and fraud. What kind of information can be mined? How can a fleet manager, who has little control over pump prices, control fuel costs? Besides the obvious, encouraging drivers to find the lowest local pricing, there is likely what is known as “slippage” in nearly every fleet. If the proper level of detail is captured when fuel transactions are conducted, a fleet manager can find any number of opportunities to reduce fuel expense:
A time-honored resource to cope with rising costs is in maintenance and repair expense. Even though today’s vehicles are built better and more dependable, and warranty coverage is far more extensive than before, there remain areas where dollars are wasted and where fleet managers can take action. As with fuel expense, information is the key to finding opportunities for savings, beginning with a strict preventive maintenance regimen. “Pay me now or pay me later” was the tag line of an old commercial, and it is every bit as true today. Major component failure and premature wear can be avoided if drivers are tasked to have vehicle PM performed on a timely basis. Most fleet maintenance management programs provide the means by which drivers are reminded when PM is required, as well as the means to purchase it. Fleet managers must also have access to exception reports, revealing vehicles that have not received regular PM, and a method to communicate reminders to drivers. Much of this process can be automated, using “push” technology, where a system identifies exceptions and can “push” reminders out to the driver automatically. Keeping a close eye on warranty dates can also help avoid unnecessary repair expense. Minimal warranty coverage on most cars is 36 months/36,000 miles and covers all components except wear items such as brake pads, tires, belts, and hoses. Drivers should know what their warranty terms, coverage, and expiration date. Manufacturers can void a warranty if repairs on covered items are performed outside of their certified dealer network. Make certain all repairs are handled by dealers and instruct drivers to contact the fleet department or maintenance provider for guidance when questions arise. An aggressive marketing program for the sale of vehicles to drivers and other employees, as previously described, can provide substantial savings in depreciation costs. But some of these savings may be offset by unnecessary repair and tire expense, which occurs when drivers who plan to purchase a vehicle try to “over-maintain” the vehicle as it approaches replacement. Here are some ways this practice can be avoided.
While rising fleet costs may seem inevitable, good, experienced fleet managers can use these and other strategies to cope. Given the proper tools and authority, a fleet manager has more control over these expenses than may seem possible at first glance. Create a plan, a process by which it can be implemented, and take the expense bull by the horns to find real savings.
media brand
0 Comments
See all comments