Final of 3 - 20 Opportunities to Reduce Fleet Costs

by Mike Corbett, Publisher

The most frequent question I hear from upper level management is: "How can we reduce fleet costs?" This article is Part 3 of a three part series identifying twenty cost reduction opportunities or actions fleet organizations can take to save big dollars. Parts 1 and 2 appeared in the July-August 2015 and September-October 2015 issues and are available on our website at www.fleetnews.com. Part 3 describes cost reduction opportunities 14 through 20.

Cost Reduction Opportunity 14: Improve technician productivity (available hours) and accountability

Management of labor, next to the fleet asset itself, is the most critical issue to fleet competitiveness. There should be 100 percent accountability of all direct and indirect labor. In order to achieve this, complete work task definitions should be used in the fleet information system along with labor task standards from reliable commercial reference services.

Rules for charging time must be established in order to understand labor reporting. Is time charged by the minute or in 10 or 15 minute increments? Is time charged estimated by the technician in real time using barcode readers or is it averaged out by the technician at the end of the shift? There are huge differences in reliability between these data capture methods.

These are key because in the end you need to answer the question: Is my database reliable enough so that I can accurately evaluate my maintenance and repair business? Or, is my database merely used to bill customers? If the former, you have a good chance of understanding and evaluating your fleet business and improving its competitiveness. If not, your database doesn’t reflect reality and becomes primarily a billing mechanism. What is yours?

Typical maintenance findings show most maintenance and repair shops report less than 70% direct, billable hours for their technicians in a given year (1,560 of 2,080 hours available). But this is still merely the quantity of hours. The quality of those hours must also be determined to achieve a competitive fleet maintenance operation (see cost reduction opportunity 15).

Many fleets are also subject to the negotiated labor agreements of their jurisdictions. Often, departments or working units are lumped together. Negotiations then involves granting the same wage and benefit packages for numerous, yet different, departments or businesses. This causes wage creep over time.

Comparing fleet wages is almost always ignored and still more differences and wage creep occurs over time. For example, public sector time-off provisions are overly generous in comparison to the private sector: vacation time (average 3 weeks), holidays (over 13 days), sick leave (average 9 days). Add paid daily break times (.5 to 1 hour per day) and other leave time such as family leave, jury duty and military leave to the equation and wrench time in a maintenance operation continues to shrink against private competitors.

Other mandated time off provisions such as organization meetings, union meetings and training can bring the number of productive hours for any employee to be under 75% before they even get to performing actual work. All of these issues are key to the future viability of public maintenance operations.

One last note. The quantity of direct hours also has an impact on the shop labor rate. For every 5% change in the direct labor percentage, the labor rate can increase or decrease $4 to $5 per hour.

In conclusion, more staffing (and probably fleet vehicles) is needed if the productive hours available from fleet technicians suffers in order to maintain the fleet and keep vehicles on the road. Improve technician accountability and productivity and you will be on your way to ensuring a competitive fleet maintenance operation.

Cost reduction opportunity 15: Improve direct labor efficiency (quality of hours)

We also have to consider not just the quantity of hours but the quality of those hours. When reviewing the quality of hours or technician efficiency, productivity can be substantially less than 70%. In these fleets, indirect time (or non-wrenching time) may not even be documented or retained for analysis.

What can be done to increase the quality of time or labor efficiency? A number of actions should be taken: Track and understand the ratio of PM to repair work orders with a goal of over 70%. Shop load all PM’s and statutory inspections developing time standards for PM and routine repair tasks. This will keep the flow of the shop moving and all employees full of work to be accomplished. Establish WO status codes which will aide in determining the reasons for shop delays as well as the extent of both target (routine) and non-target work and costs. Track tows, breakdowns and comebacks to understand the quality of work and where mechanic training should be focused. . Assign more work than can be done every day of shop operation. Under staff the shop and sublet the “peak” work load.

One essential area is the scheduling and completion of all preventive maintenance work. The City of Santa Barbara’s Fleet Management Division implemented a self-service, online preventive maintenance (PM) reservations and scheduling program as a tool to help them manage their fleet resources. This has resulted in efficiency improvements such as decreased staff time needed to manage the PM program, improved PM schedule compliance and increased customer satisfaction.

Finally, tracking direct and indirect time only deals with charged time not the efficiency of that time. There are published time services available for most repair tasks and every fleet can easily develop PM standards and inspection times. Fleet managers should focus on their most frequent repair jobs and establish those times and expectations for all employees. Finally, information system reporting should focus on “locked” reports for technician efficiency and performance evaluations.

In conclusion, direct labor efficiency is the kingpin of fleet maintenance competitiveness and the major task of every fleet maintenance supervisor. Without qualified technicians meeting commercial standards for completing routine repair jobs, a fleet relinquishes its competitiveness and becomes a candidate for outsourcing.

Cost reduction opportunity 16: Review other related fleet businesses – vehicle pooling, fueling, washing services

Management guru Peter Drucker stated that "the easiest, and perhaps the greatest productivity gains come from better defining the task at hand and from eliminating what does not need to be done." Thus, the critical question for many fleets is, what businesses shouldn't we be in? Which of our services no longer provide a premium value for our customers?" What are our priorities?

Another key question is, what services can better be performed by someone else? Corporate fleets routinely contract out a whole range of fleet services and work as partners with leasing companies, auto
manufacturers and national account providers in the effective management of their fleets. They continually assess such relationships and hold these service providers accountable changing them when do not meet their needs.

At the same time, public fleets that provide soup-to-nuts fleet services are often carrying an intolerable burden of overhead costs. Why aren’t public fleets acting like private fleets when it could be cost competitive for them? The answer to these questions will determine whether fleet managers will be able to right themselves or are to be challenged by an emerging host of alternatives. We see increased outsourcing of three fleet businesses in particular that are often performed in-house.

Fueling Services

All fleets should perform a business case analysis of their approach to fueling vehicles. Many public fleets are in the conventional fueling business with large investments in facilities, equipment and infrastructure. A significant number of these sites do not account for all of the costs of the fueling service and the cost of fuel is greater than realized. Our studies has performed the in-house versus commercial option many times and the cost argument is break even at best. For many fleets, the decision to own in-house sites hasn’t been challenged in years and the fleet requires operators to use these sites at a high cost of fuel.

While current facilities may be convenient to operators, there is limited fuel usage and throughput for a closed fleet and the inherent risks and costs of being in this business and its multitude of fuel choices. There are numerous municipalities that have performed this analysis and made the decision to outsource fuel and have made successful arrangements for emergency fueling, often a perceived impediment to this option. If outsourcing is selected, consider the use of one commercial fuel system with the requirement for nightly, automated transfer of all fueling data to your systems. Consider options that permit a wide range of vendor transactions in addition to fuel, such as washing, pool and maintenance and repair services. This would consolidate all outsourced transactions and allow for easy transfer of the data.

Vehicle Washing

Vehicle washing is often done on the run with various methods by operators or with a combination of in-house wash racks for heavy duty equipment and outsourcing with local commercial fueling options.
There is some support for owning and utilizing wash racks for cleaning heavy equipment and related vehicles and equipment. Most operators of these equipment are required to wash their vehicles on a weekly basis. However, the cost of environmental standards including connections to the sewer system and physical facility requirements need to be included in the costing of these options. With regard to light duty units, numerous private options are available in many jurisdictions and should be considered as a better alternative to the cost of in-house washing systems.

The total cost of washing services and customer input should be considered before creating a washing plan that is both cost effective and meets the varying requirements of customer departments. Key is identifying the full costs of in-house wash racks and light duty car washes, including environmental and facilities requirements as well as the time and convenience of customers.

Vehicle Pooling and Car Sharing

One of the high profile issues of the day is the competitive fight over new entries to the taxi and transportation markets, such as Uber, Sidecar and Lyft ride-sharing, as well as tech buses by companies like Google in the San Francisco Bay area.

According to Scott Beyer reporting for BigCitySparkplug.com, “Liberal politicians in California, New York and across the U.S. have been desperately trying to block the 21st-Century ‘sharing economy’ that is epitomized by Uber ride-sharing and Airbnb apartment subletting. Desperate to protect crony monopolies willing to pay high taxes and make tremendous campaign contributions, liberals have dredged up Great Depression-era laws to protect wealthy taxi services and hotel owners who used to be largely insulated from competitive pricing.”

Most fleets purchase their high use vehicles and equipment and own motor pools or provide intermittent transportation options for their customers. Most public fleets have centralized or locational motor pools available to their employees at key sites where large numbers of employees are employed.

More and more, fleets are expanding the use of commercial rental options to augment the fleet and support overall fleet reduction. For example, if the rental yards knew that the City needed a skid steering loader twice monthly, they would make sure their inventory was adjusted for that need.

Fleets are expanding their options by negotiating master agreements for the use of commercial rental cars and equipment. Vehicles are available from Enterprise, Hertz and other firms for replace-ment vehicles when vehicles are being repaired, for peak demands or special fleet uses, or to lease equipment along with an operator to satisfy the short term need. Many are finding that occasional or spare units are a better value when rented.

Another option is to encourage reimbursement for the use of personally-owned vehicles for short trips or as a backup when fleet vehicles are not available. Reimbursing employees for the use of a personal vehicle is a common prac¬tice used to control fleet size in the U.S. These normally take the form of car allowances and/or direct mileage reimbursements.

Personal vehicles should be considered where operators are occasional users and commute in their own vehicle. This is a simple inexpensive way to extend the fleet. In many of the low use applications, a person who occasionally needs transportation should be allowed to use their personal vehicle and be reimbursed at the standard IRS allowable mileage rate. Finally, new market entries like Uber and Lyft provide a more cost effective option than taxis in urban environments.

Cost reduction opportunity 17: Know and track key fleet numbers and benchmarks

A capable fleet manager ought to have key fleet numbers in their heads in order to properly manage and make decisions. These numbers are critical to managing millions in fleet resources and inventories of vehicles, equipment, fuels and parts.

Take this test. Do you have a “working knowledge” of your fleet taking this intimate knowledge to every meeting, personal appearance and discussion in your daily activities in your organization?

* Number of rolling stock managed and maintained by fleet
* Replacement value of the fleet
* Number, average age, average annual utilization (miles or hours) of fleet – light duty, heavy duty
* Average annual days of use – motor pool vehicles
* Number of FTE’s and by cost center – management, maintenance and repair – light duty, heavy duty, fueling, motor pool, washing services
* Annual asset/fleet management cost per vehicle
* Annual maintenance and repair cost per vehicle – by major type
* Annual parts cost per vehicle – by major type
* Annual sublet repair cost per vehicle – by major type

What are these key fleet benchmarks for your fleet? Yes, you should be aware of these numbers for every day usage.

* Ratio of technicians to fleet vehicles (all rolling stock)
* Labor Hour Productivity: Ratio of direct technician labor hours to indirect technician labor hours
* PM to Repair Hours: Ratio of scheduled maintenance (PM) work orders to unscheduled repair work orders
* Downtime percentage (%) – by major vehicle type
* Fuel markup (%)
* Parts markup (%)
* Labor rate – by major fleet type
* Sublet markup (%)
* Target maintenance and repair costs (routine) percentage (%) versus non-target maintenance and repair costs (driver-caused such as accidents)

If you know over 95% of these numbers off the top, you’re doing the job.

Cost reduction opportunity 18: Evaluate the maintenance, repair and replacement of hand tools and small, miscellaneous equipment

One area of opportunity for cost reduction is shining the spotlight on the extensive number of hand tools and small, miscellaneous equipment existent in many fleets.

For example, one Southeastern city assigned four full time employees (FTE) to maintain 800 units of small, miscellaneous equipment with virtually no utilization data. We examined the costs of this repair unit and the replacement costs of these units. The conclusion: the cost to repair these units of equipment (with in-house labor) was equal to the cost to replace these same units EVERY year.

Fleet managers have numerous opportunities for fleet reduction when it comes to managing the size and composition of fleet assets. The size and composition of the fleet drives all fleet costs as the asset cost is the largest cost in the vehicle cost equation.

While there are issues as to tracking these small units of equipment, we have found that many fleets are 15-30% “overfleet” and adjustments in one area of the fleet will affect costs throughout the organization. This is clearly a cost reduction opportunity for fleet managers who will identify these units and how they are used.

Cost reduction opportunity 19: Take a fresh view of the fleet and build a Business Plan

If you were to start your fleet management business today, how would you do it? I recommend that you step back, take a fresh view of your fleet operation and build a business plan based on how you would start a new fleet operation from scratch. Would you duplicate most everything you are doing today? That is the question.

Strategic or Business Planning is a process through which we can envision the future and develop strategies and actions that focus on achieving the objectives established in the Business Plan.
Strategic or Business Planning has many benefits: It clearly defines the purpose of the fleet organization. It establishes realistic goals and objectives consistent with mission in a time frame consistent with capacity for implementation. It communicates those goals and objectives to the organization’s customers.

Strategic or Business Planning ensures the most effective use is made of resources by focusing on key priorities. It provides a base by which progress can be measured and establishes a mechanism for informed change when needed. It brings together everyone’s best and most reasoned efforts that have important value in building a consensus about where the fleet organization is going. It provides a clearer focus of organization, producing more efficiency and effectiveness.

Strategic or Business Planning bridges staff and customer advisory group, builds strong teams and provides the glue that keeps everything together and solves major problems. The end result is that the strategic planning process, comprised of strategy development and action plans, may be key to improving your operation and building a competitive fleet.

Phase I or Strategy Development can answer key questions to include:

* Why are we in the fleet management business? (Vision, Mission, Driving Forces)
* How do we do business? (Values, Culture, Climate)
* Where are we now? (What strengths, weaknesses, opportunities and threats impact the mission?)
* Where do we want to be? (Goals, Objectives, Strategies, Gap analysis)

Phase II (Development of Action Plans) can answer the following: How can we get there? These include specific action plans and tactics that implement our strategies often characterized as the “right people doing the right things at right time in right way for the right reasons.” It also includes resources – people, property, time, money and technology (knowledge).

How will we know we’ve arrived? Management is key - establishing budgets, controls, and reporting systems and designating someone to monitor the specific elements of the strategic plan.

What is needed to make it happen? Development of Annual Action Plans as action orientation is key to success especially actions harmonious with strategies. Responsibility for implementation includes action steps required to implement, a performance measurement system and an implementation schedule.

Finally, an implementation approach with plans and resources required, individuals, teams, across departments and a monitoring approach along with the delineation of priorities identified as Immediate – High – Intermediate – Low, Get to, Deferred complete the Business Plan. One quote comes to mind: “If you don’t know where you are going…that’s probably where you’ll wind up - nowhere!” (Clark Crouch)

Cost reduction opportunity 20: "Step Up" and involve yourself with passion

Many fleet managers let their organization's bureaucracy get the best of them. They need to “step up” in their bureaucracies and aggressively participate in ongoing corporate and government policy processes. Moreover, Fleet Managers need to construct proactive customer relations with the right touch of formality. These actions “plug” them and their agencies into opportunity, influence and impact on their transportation costs and logistics.

Involvement in process opportunities seem unlimited: the annual budgetary process, labor relations processes such as negotiation and contract management, safety management of the workforce, physical facilities and services, capital program development for organization-wide services and information system and overall process design. These and other management processes offer unlimited opportunity to influence decision making and impact fleet costs and fleet competitiveness.

Some fleet managers use the budgetary process as a way to control fleet size and communicate annually in one to one meetings with each customer department. Capable managers know that cost control is a “partnership” with their customer departments. Some fleet managers sponsor annual pre-budget meetings with each customer department jointly reviewing costs, equipment utilization, replacement programs and emerging service issues. Other issues include “charges and rates,” pooling, private car and equipment rental services, transportation services such as buses, taxis, Uber and Lyft, vehicle disposal and new vehicle selection.

Participation in the negotiation and management of labor is paramount as labor is the next largest cost to the fleet itself. Every day new studies identify the high cost of public employment which impacts the competitiveness of every public service and the taxes we pay. Fleet managers often sit on public negotiating teams and are able to point out how ineffective work practices increase costs and slow operational efficiency. Those that don’t are missing a big opportunity.

Vehicle abuse, misuse and neglect and vehicle accidents involve substantial costs, some as high as 25-30% of overall maintenance and repair costs. Opportunities to manage down these costs exist on accident review boards, safety committees and mere tracking of drivers and their significant incidents.

Fleet managers also have to keep their eye on growth and capital development for service and fleet expansion and continuing efforts to expand the use of technology. Involvement in these and other jurisdiction processes plugs the fleet manager into areas where influence and coordination can be directed to impact the cost competitiveness of the fleet.

In the end, many fleet organizations are not competitive for a whole host of reasons: upper management hasn't been asking the tough questions; revenue growth has been easy; fleet management doesn't work towards a higher standard; or it plainly has no plan for staying competitive. In today's environment, adequate is no longer good enough. Now it's up to you to implement a competitiveness management program for your fleet. We’ve given you 20 opportunities to get more competitive. Now get going. Final