It is a question that all managers face. The shareholders, banks, and investors all want a better bottom line and everyone is expected to contribute. Sales must sell more, operations must be more efficient, and manufacturing must be more productive.
Fleet managers have an especially challenging task as it pertains to helping the bottom line.
First, what they manage is a cost. A fleet vehicle helps drivers do their jobs, which creates revenue. But, a fleet budget is an expense, which reduces the overall company bottom line. Second, fleet managers frequently have to manage that cost with limited resources and little or no staff. Finally, at some point, the fleet manager has squeezed most of the obvious waste out of the fleet, and it becomes subject to the law of diminishing returns.
Where should a fleet manager focus his or her efforts? Working to increase productivity (and thus revenue), or continuing cost-reduction efforts?
How can productivity be measured as it pertains to fleet? Is it limited to drivers and how the vehicles they are assigned help or hurt them in job performance? Or, is it simply the measure of how much work the fleet department/manager can accomplish given the resources they have?
There is no short answer; however, a thorough measure of productivity should include both.
Fleet vehicles are provided for a number of reasons (other than pure compensatory purposes, as with executive fleets). These reasons include:
- To support the sales force.
- To service customers and customer accounts.
- To deliver products to customers.
In each case, productivity can be measured fairly simply by tracking how many sales calls, service calls, or deliveries the driver makes. Changes in the fleet can have an effect on these numbers, both positive and negative, including:
- Downsizing, either the vehicle count or fleet inventory (territory changes).
- Selector changes, different makes and models, body styles, and vehicle types.
- Telematics or GPS products and services.
- Policy and procedural changes.
Internally, there are a number of ways internal fleet department productivity can be measured. Telephone statistics (hold times, calls answered, and dropped calls), tracking problem solving (time from initial notification to final resolution), and overall cost/performance are all departmental productivity measures.
Clearly, fleet management can have an impact on productivity, sometimes a substantial one.
Realizing Cost-Reduction Opportunities
On the other side of the ledger, fleet management can be a fertile ground for cost-reduction efforts, primarily within the operation of the vehicles themselves, but departmentally as well. There are two overwhelming costs that fleets can manage: depreciation (fixed) and fuel (variable). Together, they make up as much as 80 percent or more of a typical vehicle’s lifecycle costs, and, thus, are big targets for a fleet manager’s cost-reduction efforts.
Other cost categories, such as physical damage costs, maintenance/repair, and tires can be managed as well. Although the costs aren’t as large as those for depreciation and fuel, savings can be had.
Departmentally, careful outsourcing can help achieve savings, not just in personnel costs. Cost-reduction efforts can be leveraged by hiring outside expertise, better technology, and more detailed reporting.
Finally, with the new emphasis on procurement and strategic sourcing, fleet managers can be the key product expert that, combined with the negotiation skills of sourcing, can reduce costs by leveraging purchasing power into lower fees and rates. There is little question that the hard work of a savvy fleet manager can bring substantial cost savings to the company.
It’s clear that fleet managers can help both the top and bottom lines of the company income statement. But, certainly fleet managers have fewer resources, and less time to use them, than ever before. A decision has to be made. Should those resources and that time be spent increasing productivity or in reducing cost?[PAGEBREAK]
There are only two ways a company can increase profits: by increasing revenues or reducing costs. Logically, increasing revenues only increases the bottom line by a factor equal to the company’s net-profit margin. For example, if the company’s after-tax margin is 10 percent, a dollar in new revenue will result in 10 cents of new profit.
Conversely, cost-reduction increases profit at a dollar-for-dollar rate. A dollar in cost reduction translates to a full dollar in profit. Looking at the two, it would seem that a focus on cost reduction would be the logical choice when a fleet manager is parsing out time and resources to the job.
But, are these two activities simply two sides of the same coin? Or, are they two processes which, when fully implemented, serve to create a third: maximum efficiency?
Some engineers and business consultants might disagree, but it doesn’t really matter how things are defined. The ultimate goal of all business activity is to maximize the spread between input and output. For fleet managers, this means doing both: increasing productivity (output) where possible, while, at the same time, shrinking costs (input), making the organization as efficient as possible.
The company’s output is simply the product or service offered to the marketplace, and maximizing output is the essence of increasing productivity. For a fleet manager, this means several things:
- Maximizing “capacity” or the fleet’s ability to handle the most output. For a sales fleet, this might cover the application of GPS capability to help drivers find the most efficient route from customer to customer. For a service fleet, it would be enabling the driver to service the most products and customers.
- Matching output to market demand. This doesn’t necessarily mean stuffing more product in the trunk; it is geared more toward carrying the most product as it pertains to market demand. Piling product into a vehicle, if there is not an equal demand, serves only to increase inventory, and thus increase cost. Indeed, this process might even involve reducing output in a lagging market.
- Enabling maximum flexibility. In relation to output matching, this would mean enabling drivers to adjust quickly when faced with volatile market demand. This might mean using pool or surplus vehicles or part-time drivers to help match input with output.
There are others, but all of the above will help the fleet to be more productive, increasing output, and, thus, the bottom line.
On the other side of the ledger, there are also a number of paths to reducing cost, or input.
- Apply the “Pareto Principle.” Named after Vilfredo Pareto, a 19th century economist, the principle holds that relatively few items hold the most value. Though this is generally applied to inventory, (the Pareto Principle is more commonly known as the “80/20” rule) fleet costs fit nicely into the theory. Focus efforts where they’ll have the largest effect. In fleet, this means concentrating on depreciation and fuel costs.
- Simplify. Make company vehicle use as simple as possible. This might mean using fleet programs such as maintenance or accident management, where a single phone call can get drivers help. It could be using a flat rate for personal use rather than any complex formula.
- Benchmarking, whether internal (versus history) or external (versus outside standards), it is important. Establish cost standards, measure them, track performance, and take action where needed to avoid or reduce costs.
- Don’t forget indirect or “soft costs.” Downtime is the most common soft/indirect cost a fleet will experience. Keeping drivers on hold, for example, doesn’t send hard funds out the door, but definitely has a cost. Drivers on hold aren’t doing the job.
- Look internally for excess cost. Are your corporate cost allocations appropriate to your department? Does risk management have the correct loss experience when calculating allocations for physical damage self-insurance? Don’t allow the fleet to become a “dumping ground” for bits of excess cost transferred intracompany.
- Reduce clerical and administrative tasks, but never outsource management authority. A fleet supplier can manage the title/tag/registration process far more efficiently than a fleet manager can internally, but no supplier will be as stingy with your company resources as you will.
The Bottom Line
Overall, the picture is clear. Business activity, strategically, is a series of inputs and outputs. Inputs are costs, outputs are products and services. Productivity increases help to increase output, cost reduction decreases input. Ultimately, the combination of the two results is maximum efficiency. One thing fleet managers often find is drivers will tend to embrace the former, and resist the latter.
More often than not, productivity increases involve providing drivers with additional resources (better vehicles, redesigned upfits, etc.). Seldom would these specifications be resisted by drivers. On the other hand, cost control takes resources away (smaller vehicles, more stringent personal use limits, closer tracking of their expenses, etc.).
It is important, therefore, that no matter what side of the ledger the fleet manager’s efforts happen to be affecting, stakeholders in the fleet process should be consulted and their own input valued.
When an “either/or” question is asked, the answer frequently isn’t one or the other, and nowhere is this more true than asking whether productivity or cost reduction should be a fleet manager’s focus.
The answers are yes and yes — both are important, and both are processes, which, taken together, move toward the end goal of efficiency.
When productivity is maximized, and costs are minimized, the company is running at peak efficiency. Fleet managers, by helping drivers do more and seeing to it that the costs of doing more are reduced, are an integral part of the company’s drive for efficiency.