6 Innovative Cost-Reduction Strategies
Photo via iStock.com
For a long time, if asked, most fleet managers would say their job, and their days, consisted of “putting out fires,” dealing with emergencies real and imagined, and reacting to events in the field.
But, new-vehicle prices continued to increase, fuel costs skyrocketed, and added to those days was the never-ending demand for cost savings. Rightly focusing on those fuel costs — and their fixed cost counterpart, depreciation — fleet managers squeezed as much as they could out of the cost of providing company vehicles.
Fortunately, there is new technology available that can bring some innovative strategies to the table, and help fleet managers continue to produce savings that are so important to management.
Telematics encompasses a number of technologies, combining telecommunications, satellite navigation, and more. Put simply, it is technology, which, when applied to vehicles, allows the sending, receipt, and capture of data about the vehicle’s location and operation.
The most common use of telematics is in the form of GPS navigation. This provides drivers with location and directional information, which helps drivers know where they are, and how to get to where they’re going. That, in itself, can save money for fleet managers, as drivers who know where they’re going burn less fuel, and drive fewer miles, than those who don’t.
But, there is other data that telematics devices and programs can provide:
- Idle time: How much time does a vehicle spend idling?
- Sudden acceleration/braking incidents.
- Downtime: the amount of time the vehicle is not in operation.
- Vehicle location and driving patterns.
Tracking the above data can result in significant cost savings. Reducing idle time, for one, improves fuel efficiency. Without telematics, it is nearly impossible for a fleet manager to know how long drivers are permitting vehicles to idle, wasting thousands of gallons of fuel across the fleet during the year. Sudden acceleration and hard braking can be a window into a driver’s habits, both of which waste fuel and add wear and tear to the vehicle.
Downtime during working hours can often show how long a driver is spending with a customer or on a service or delivery call. Working with the stakeholder in the company (sales or service, for example), a fleet manager can offer this data to a sales manager or service manager, who can then determine whether time is being spent productively. Downtime data can also show the fleet manager, and the driver’s manager, if the driver is taking three-hour lunch breaks, or otherwise being unproductive during work hours.
Combined with specialized routing software, telematics can help companies whose drivers travel a regular route to find the most cost-efficient route to use. Service managers can program the day’s service calls and do the same. All in all, telematics give fleet managers data they generally don’t have now, and can be used to find savings that otherwise would seldom be found.
Sharing a Ride
Car share vehicles give fleets a convenient and cost-effective option to maintaining a pool of vehicles. Photo by Chris Brown.
Many fleets make use of pool vehicles, or cars kept in service to provide employees who need occasional transportation on company business. Pool vehicles can be used at a corporate location or a branch office where such transportation is occasionally required. But, pool vehicles cost money to keep in service when not in use, and fleet managers don’t particularly like them. There are new alternatives available to fleets, and fleet managers would do well to consider them. One is a car share service.
Car share services began in high density metropolitan areas where owning a car — or simply driving and parking one — can be very expensive. Many cities do have public transportation, but some residents wanted to have the freedom to drive somewhere on their own. Up sprang car share services in the mid-1990s, and now there are literally hundreds of such services nationwide. Car share services rent vehicles by the hour — some even by the minute — and can be an excellent alternative to maintaining a fleet of pool vehicles, or even to reimbursing drivers for business use of their personal vehicles.
Car share services provide the user with a smartphone app, which is used to reserve a car at a nearby location (some services will even deliver the car to the user). The driver simply picks up the car, drives, and returns it, paying only for the actual time used, as opposed to traditional rental cars, which charge by the full day.
The practicality of actually replacing a company-provided vehicle with a car share program is still subject to debate. Many drivers of assigned company vehicles must carry items such as paperwork, sales and point-of-sale material, product samples, and other “tools of the trade.” Such items would have to be loaded and unloaded each day, a cumbersome process at best. But, for fleets that use pool cars for occasional drivers, a car share service can provide cost savings.
Even newer than car share services are ride share services. Ride share companies match drivers with others who may be traveling to the same place, or somewhere in between, again using either an online system or a smartphone app. Ride share services are a more formal, and more flexible, version of carpooling, which traditionally have been used for decades by commuters. Both ride share and car share services not only can replace pool cars, but can be used in lieu of rental cars for part time or temporary employees, as well as employees who travel to a company location for long-term assignments, such as auditors and industrial engineers.
Creating a Virtual Used-Car Lot
Thanks to the digital age, fleets can maintain a virtual "car Lot" of out of service vehicles for sale, making it more convenient and cost-effective to sell them. Photo via iStock.com.
Fleet managers have known for a long time the benefits of selling vehicles to drivers and other employees. Many a fleet manager has realized substantial reductions in depreciation costs by increasing such employee sales.
But, too many fleet managers spend their time merely selling cars, and little or no time actually marketing out-of-service vehicles. Aggressive marketing of company vehicles can open up markets beyond just the company, and result in more sales and the resulting cost savings.
First, think of the dozens, or even hundreds, of vehicles that will be replaced each model year not simply as cars to sell, but as inventory for a “virtual” car lot, a used-vehicle sales location that exists not on a corner, but in cyberspace. Set up a website where not only drivers can go, but anyone interested in purchasing a well-maintained, well-equipped used car. Include photos of the vehicle, list equipment, offer maintenance records on request, and publish a price. One need only go online to any new car dealer website to get ideas as to how to actively market cars for sale.
Further, don’t wait for a driver to ask for a price for the used vehicle, make a price quotation part of the new vehicle ordering process. Quoting a price when new orders are placed enables the driver to “shop” the price, and likely discover that the same or a similar vehicle cannot be found at the price quoted by the fleet manager.
Another part of a successful virtual used-vehicle lot is the addition of ancillary products and services that make buying the vehicle easier. Financing and leasing options, warranty extensions, maintenance programs, and insurance coverage can be made available via a number of suppliers, giving buyers a “one-stop” shopping location. A successful virtual used-vehicle lot can help market and sell more cars to employees, and reduce depreciation expense.
Reading the Fine Print
Fleet managers use any number of cost-efficient outsourcing programs and services, ranging from maintenance to accident management, registration renewals to fuel card programs. It’s easy, unfortunately, to take these programs and how they work for granted.
Most fleet service agreements are fairly standard, and most fleet managers know, in general, what’s in them. But, sometimes, hidden in both contract language and in the program, are details that can help save money. Start with the agreement itself. First, negotiate with the supplier a service level agreement, and make them stick to it. When they sell their products and services, suppliers will paint quite a picture of savings; when they win your business, incorporate those savings into the contract, and provide for penalties when and if the savings don’t materialize.
Look through your master lease agreement; most fleet open-end, TRAC leases bill in advance, and billings are often determined by the date on which delivery is taken. The “rule of the 15th” says that if the vehicle is delivered prior to the 15th of a month, the first billing will be for that month and the coming (advance) month. If the vehicle is delivered after the 15th, the first billing will be only for the coming month. The more vehicles whose in-service date is immediately after the 15th of the month, the more “free” use the company can have.
If you use a fleet fuel card program, learn what kinds of controls the program allows the fleet to use. It is one thing to take action after purchases are made, another entirely if they can be prevented in the first place. Here are some of the controls many fleet fuel card providers provide:
- Time of day/day of week: Card use can be limited to the work week and hours the driver is expected to put in.
- Dollar limits: Dollar limits can be placed weekly, monthly, or even by transaction.
- Transaction limits: Drivers can be limited to a fixed number on a daily, weekly, or monthly basis.
- “Hard” or “soft” controls: So called hard controls will shut the card off when limits have been exceeded. Soft controls will allow one more transaction based on a phone call to the supplier.
- Merchant lock out: particular merchants can be “locked out” of the program.
- Fuel only: most fuel locations today have convenience stores. Cards can be designated “fuel only,” eliminating the possibility of drivers purchasing non-fuel products such as tobacco, food, beverages, even lottery tickets.
Working with a fuel card supplier, fleet managers can maximize the effectiveness of the program by using controls to best match the company fleet mission. Savings can be substantial.
“Outsourcing” is often uttered as an obscenity in fleet management circles, and can summon visions of fleet management companies, reaching over the head of the fleet manager to senior managers, taking over the fleet and sending the fleet manager careening into the unemployment lines.
It shouldn’t be so. Smart fleet managers know that suppliers can bring resources and expertise to bear far beyond those the company can provide. The key is to be strategic in determining what should be outsourced and what shouldn’t be. That’s right: There are definitely fleet management functions that should never be outsourced.
Think of it as follows: No supplier can determine how the three key corporate resources of time, money, and personnel can best be used than an experienced fleet manager. Those functions which decide how, when, where, and how much of these precious resources are used, management functions, are always best controlled in house.
Conversely, there are those functions that are merely clerical or administrative in nature, repetitive tasks that merely take up fleet managers’ time. These tasks include, but aren’t limited to:
- Registration renewal.
- Payment of parking tickets.
- Order processing.
These tasks don’t require any special expertise, but, if done in house, can consume resources better used elsewhere. These tasks should be outsourced.
Use a maintenance management program, but set limits on what a supplier can approve, and keep decisions above those limits in house. Use an accident management program, but keep the repair authorization and repair/replace decisions in house. Technology has made outsourcing of clerical and administrative tasks more cost effective than ever, but there isn’t yet technology that will manage precious resources as well as an experienced fleet manager.
‘Shorting’ a Fleet
Depreciation is, by a long shot, the single greatest fixed cost your fleet incurs. Fleet managers have a unique tool to control it; the open-end, TRAC lease. It provides great flexibility in replacement cycling that fleet managers don’t often use.
Certainly, it is important to have a formal replacement policy, one that is most often an algorithm of time and/or mileage, e.g., 36 months or 75,000 miles whichever occurs first. And, the TRAC lease allows fleet managers to set different replacement policies for different vehicle usage. But, that flexibility can also be used within the established policy, that is, under certain circumstances vehicles can be kept in service longer, or they can be taken out of service sooner, than the policy requires.
Fleet managers can take advantage of an unusually strong used vehicle market to “short sell” the fleet’s vehicle by taking them out of service before replacement policy has been reached. Done right, shorting replacement can result in thousands of dollars of increased resale proceeds, and, depending on fleet size, hundreds of thousands or even millions of dollars in TRAC adjustment credits. Granted, these are one-time savings, but savings nonetheless. And, getting a new vehicle before it is expected won’t bring many complaints from drivers.
Blessing or Curse? The Well-Managed Fleet
At some point, fleet managers will face the fact that they’ve already squeezed most of the excess cost out of the fleet operation, and fleet managers will need to be more creative in the search for savings. Thinking “outside” the box, using technology, strategic outsourcing, and digging deep into fleet programs and agreements can all offer precisely the kind of innovative cost savings that even successful fleet managers can use.