By Matt Pritchard
Organizations are always looking for ways to boost their profit margin by making operating costs as efficient as possible. There are many expense categories where there is opportunity to pair back costs and an organization’s fleet management expenses are no exception. Establishing key performance indicators (KPI) from the fleet organization, vehicles, and vendors, will allow you to enable effective fleet management and maximize operating performance.
Below are five areas where your organization can pin point savings opportunities that can boost your organization’s bottom line.
Right sizing the fleet
To ensure that your organization’s fleet is appropriately sized for the tasks at hand, it’s important to review the number of vehicles in use according to mileage, vehicle type, and actual usage. The most significant vehicle cost—beyond the initial purchase—is operational expenses over the life of the vehicle. This cost can range from $5,000 to $8,000 annually. If an organization has a 100+ vehicle fleet, it will cost more than $500,000 per year to maintain vehicles. Therefore, it’s imperative to determine which vehicles are being fully utilized.
Fleet managers can use vehicle tracking or asset management tools to assess engine hours, number of trips and mileage rates to determine vehicle utilization. If there are vehicles in a fleet that are not being used efficiently, a manager may want to consider alternative options, such as rentals or short-term leases.
Optimize vehicles’ life cycle
Another way to maximize your organization’s fleet is to keep an eye on vehicles’ maintenance costs. By tracking vehicle usage annually, fleet managers can determine which vehicles would be considered higher usage and would benefit from being redeployed into less strenuous applications.
It’s also beneficial to set up a vehicle replacement strategy that replenishes vehicles at multi-year intervals to help stager replacement costs. This approach also improves maintenance-related costs as newer vehicles have become more efficient.
Reduce acquisition costs
To streamline acquisition costs, take into account the total cost of the vehicle ownership. This includes purchase price, total maintenance cost, amortization, and fair market value at “end of life”. This assessment can also determine if it’s more economical to purchase or lease a vehicle based on forecasted life cycle.
Additionally, when an optimized vehicle replacement strategy has been developed, start negotiations with dealer (or lessor) at invoice price. Options such as multi-vehicle purchases, delivery costs, service and maintenance programs or an extended warranty should be negotiated with a reasonable flat fee profit for the dealer. Resist going to a local dealership and purchasing vehicles off the lot. You can save thousands per vehicle by purchasing base models instead.
Curbing maintenance and fuel costs
Over the life of a vehicle, maintenance and fuel costs will make up the bulk of operational expenditures. Implementing OEM-recommended service schedules (mileage or engine hours) as part of your Preventative Maintenance can ensure vehicles are safe, running at optimal efficiency, increase vehicle availability and lower unscheduled maintenance cost. Fleet managers may also want to consider extended warrantee options, depending on application and life cycle.
Fuel is by far the most volatile fleet-related expenditure with price and vehicle usage impacting the budget, it presents a challenge to manage costs. This can be addressed by:
- Negotiating fuel pricing, incentives and rebates with fuel distributors;
- On-site fuel delivery program to increase employee productivity, and;
- Driver training programs to avoid excessive idling, hard acceleration or braking and the use of GPS tools for route optimizations.
By taking the time to review your fleet size and vehicle usage, lifecycle costs (acquisition, maintenance and fuel costs), your organization can streamline its fleet operating costs and add to the organization’s bottom line.