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Fleet Cost-Reduction Strategies: Direct Expenses
Reduce fuel costs. Fleet operators should focus on miles per gallon. Fuel costs are a large direct operating expense, especially for fleets with high mileage each month. Many fleet managers approach fuel cost savings by looking for purchase discounts, which aren’t really feasible unless the fleet can fuel in volume at a single site. Fleet fuel cards can be used to direct driver purchases away from premium fuel, which offers some benefits, but the most significant fuel savings come from selecting more fuel-efficient vehicles. Moving away from heavy vehicles and larger engines can provide 30% to 50% fuel economy increases. Using a fleet tracking system to identify poor driving behavior that burns excessive fuel, such as speeding and unnecessary idling can reduce fleet fuel costs by approximately up to 12% per year. Also, a fleet fuel card will help move 8% of fuel purchases away from premium fuel.
Secure the best fleet financing. Proper vehicle financing should absolutely be considered. Leasing vs. ownership of fleet vehicles is a common funding decision for fleet managers, and the economic analysis often ends in a tie. The decision to lease or own frequently hinges simply on balance-sheet considerations.
Fleet Cost-Reduction Strategies: Direct Expenses
Sell used vehicles in competitive resale markets. Most fleets value their used vehicles based on market values published from various industry sources like KBB. Fleet managers are usually satisfied with the sale of an individual fleet vehicle if they realize close to the market average or, worse, an amount more than book value. This approach ignores that those published market values are the mean of a distribution of high and low prices. Far too often in a negotiated sale, the purchasing vehicle dealer or driver knows the condition of the vehicle better than the seller, and pricing it at market average gives the upside to the buyer. Only by pricing negotiated sales above the market average or by selling in a competitive bidding market with a larger population of buyers can sellers actually capture above-the-mean value for themselves. This approach can provide an additional 5% in average resale prices, up to $75,000 per year.
Reduce accidents and insurance costs. Typically most insurers will reduce your insurance premiums by over 30% if you install a GPS fleet tracking system. Moving beyond depreciation to other operating costs, fleet vehicle accidents require an average of $1,500 to $2,800 in repairs, but total accident costs are perhaps closer to $11,000 per incident when indirect costs such as injuries, liability, property damage, and workers’ compensation are included. Typical fleet annual accident rates range from 15% to 40% of all vehicles, so the savings opportunities by reducing accidents can be substantial. By mandating pre-employment and annual motor vehicle records checks, requiring safe-driver training, and enforcing a safety scoring system, your fleet can reduce its accident rate by over 15% and save up to $375,000 per year.
Fleet Cost-Reduction Strategies: Direct Expenses
Use the right vehicle with the right equipment for the job. Feature and model creep are common causes of excess fleet vehicle depreciation. Drivers love four-wheel drive, extended cabs, plush leather seats, V-8 engines, and all kinds of other features. While providing fleet vehicles with those options may be good for morale and can be a good business decision, it will add to the depreciation cost. Trading in older vehicles for more fuel efficient fleet vehicles is also a good decision and this will be discussed further. Also, choosing fleet vehicles without regard to expected resale value can result in higher depreciation. For example, if you convert fleet vehicles from SUVs to sedans and remove some unnecessary amenities you can save up to hundreds of thousands of dollars in fleet expenses.
Negotiate well with vehicle manufacturers. After selecting the right vehicle, acquire it for the best possible price. Vehicle manufacturers compete aggressively for market share and have significantly increased purchase incentives for fleet customers who buy new vehicles. By sourcing with only one manufacturer, your fleet can improve net discounts by approximately 5%, reducing depreciation by up to $225,000 per year.
Does your company have mobile employees such as sales reps or field service technicians who routinely need vehicle transportation to do their work? If so, managing your mobile employees and fleet vehicles effectively is an important part of maximizing revenue generation and customer satisfaction. Most executives understand the importance of keeping these employees productive, but they are often not aware of the significant productivity and cost-savings benefits that come from efficiently supporting employees’ transportation needs.
The Challenges of Managing Fleet Costs
Vehicle-centric companies, such as trucking and distribution companies, are experts in fleet management and usually have the in-house resources to do it quite well. However, for the rest of us in other industries, executives are primarily focused on managing the core of the business – whether it’s building high rises, manufacturing computers, or servicing HVAC equipment. Fleet managers simply don’t have the expertise or the inclination to invest much time or energy in improving fleet operations. Unless you are an expert in fleet management, vehicle expenses by their very nature are decentralized–usually occurring in small transactions spread across numerous locations and employees. On the surface, fleet management costs seem very difficult or control.
Contrarily, taking the time to focus on fleet management issues via basic operational policies and a little centralized control can significantly enhance worker productivity and result in major cost savings. Optimizing fleet management can ensure that mobile workers get the transportation their job requires while simultaneously yielding up to $1 million in cost savings for a typical mid- to large-size enterprise. Whether your company’s fleet is large or small, the same concepts apply.
Vehicle tracking systems should be considered if your company has more than two vehicles. If your company has more than two vehicles, then you have a fleet. The goal of fleet management is to extract maximum value and minimize the cost of maintaining of vehicles. Fleet management is a complex and comprehensive challenge. It involves much more than just knowing where drivers and vehicles are located or routinely checking oil levels in your fleet vehicles. Fleet management includes vehicle procurement, vehicle maintenance, vehicle disposal, vehicle tracking and the management of logistical, operational, functional, regulatory and compliance requirements.
With the assistance of modern technology such as fleet GPS devices or vehicle tracking systems, fleet management has now become much easier and cost effective. Fleet management is an important and often overlooked part of many private organizations. Due to the economy, private fleet operators today are under more pressure than ever to control expenses. Optimizing your fleet’s operations can improve your company’s productivity, reduce costs and have a positive impact on the bottom line.
GPS fleet tracking systems are successfully being utilized in the largest cities in America for good reasons. According to Helen Rane Carbone, Chief Programmer and Analyst for the Chicago’s Department of Transportation “Before we implemented GPS, our fleet managers and dispatchers had virtually no real-time information on the whereabouts or activity of our fleet vehicles. We relied on very basic communication using two-way radios and hand-written reports. This was never able to provide the type and depth of information we needed for real performance monitoring, improvement, and accountability, which is expected of all city departments.”
According to Carbone, “before implementing a vehicle tracking system, simply keeping track of mobile resources from a dispatcher’s perspective – vehicle and driver scheduling, routing, call response, location in the case of emergencies – was a very difficult daily task. Truly measuring fleet and mobile employees’ productivity was practically impossible.”
Cities like Chicago are also using GPS fleet management systems to enhance their efforts to go green. Fleet managers are using real-time vehicle location data to optimize routes and reduce excessive idling in an effort to reduce gas consumption, CO2 pollution and other hazardous greenhouse gas emissions. According to Ms. Carbone, telematics plays a big part in many of Chicago’s environmental initiatives in becoming a true green fleet. “Fleet GPS management systems help with everything from the number and type of vehicles we’re using for a particular task, how they’re being used, and the amount of CO2 emissions they’re producing. Everyone is looking to big cities like Chicago to lead the way in this, and remote fleet management has gone from being a valuable tool to an absolute necessity.”
One of the best things about real time fleet tracking is that it enables fleet managers to work hand in hand with their drivers and other mobile employees, even when they are thousands of miles apart. Every day there so many unforeseen circumstances arise, resulting in the need for last minute changes. So having a real time two-way communications system between fleet manager and commercial vehicle drivers is critical to a running an efficient fleet. Taking into account things like traffic jams, accidents, unpredictable weather conditions, delivery instructions, last minute pick-ups, and employee issues is an important part for a successful person managing fleet vehicles and drivers. Commercial vehicle tracking facilitates instant and accurate responses to ensure that the best solution can be deployed with the least amount of time or costs.
An average day someone overseeing a mobile workforce can involve matching busy schedules with the nearest available resources or service personnel to a new or changed location. Without a fleet management system, a telephone can be used to stay abreast of the constant changes, and to communicate with mobile employees. But a vehicle tracking device is by far superior to using a telephone to communicate – even if you have a smartphone with SMS text messaging, email and GPS navigation. The bottom line is a telephone no matter how smart it is, just doesn’t compare to a vehicle tracking solution.
Fleet management and trucking company owners should consider investing in eco-friendly driver training for their fleet truck drivers. Running a green fleet will decrease your fuel costs, vehicle emissions, reduce fleet vehicle wear and tear, and improve your company’s image. Eco-safe truck driver education courses teach drivers how to eliminate identify and eliminate poor driving habits that waste gas and produce harmful CO2 emissions.
Typically drivers who complete eco-friendly training usually see an improvement in MPG of between 10% and 25%. In addition , green driver training courses can dramatically improve fleet safety with the effect of reducing fleet accident rates and the associated costs. Intelligent route planning and speed control techniques learned in the course can generate substantial fuel economy savings for your entire fleet.
Tracking dozens of fleet vehicles at once is a tough job for any fleet manager. Upcoming vehicle emissions regulations in California are making the job even more challenging, especially because the logistics of ensuring that a non-California truck doesn’t end up on California roads incurring fines could be quite difficult. The California Air Resources Board (CARB) is currently debating a diverse set of regulations that will have a significant impact on fleets operating in California. CARB actually fined several California companies for failing to inspect their diesel trucks. Fleet management should be aware that currently eighteen other states are considering vehicle emission regulations similar to the CARB rules.
Fortunately fleet managers, fleet vehicle owners and truck drivers have an ally on their side – the NAFA Fleet Management Association (NAFA). NAFA is working hard to ensure its members’ needs are being considered in CARB’s decision making process. NAFA recently formed a new sub-committee of NAFA’s Fuels & Technology Advisory Council called the CARB Advisory Council. The primary purpose of the NAFA CARB Advisory Council is to give input to the CA Air Resources Board on regulatory decisions that impact fleet managers in California. The new council plans to meet with CARB leaders on a regular basis in order to promote NAFA’s position of supporting emissions reductions and fuel efficiency instead of mandates that are financially infeasible. In addition, the council will keep NAFA members current on any new or potential legislation that could have an affect on them.
For fleets having a tough time managing the strict emission requirements, they should consider investing in a green fleet GPS management system that can stop wasteful driving habits and reduce carbon dioxide emissions. Excessive Fuel Reports can calculate how much money this is costing and shows how much CO2 is being emitted due to poor driving habits. FieldLogix Green Reports give each vehicle a Green Score and ranks each driver by who is the most efficient. In addition to cutting fuel costs, a GPS tracking system can increase workforce productivity, improve customer service, and helps you to do your part to protect our planet while saving time and money. Each year fleet vehicles burn close to $9 billion of fuel annually due to unnecessary idling and speeding. Chances are each of your fleet vehicles burns up to 800 gallons of fuel per year due to unnecessary idling alone, which costs about $2400 per fleet vehicle annually.
A recent report from New York City Mayor Michael Bloomberg’s Office included recommendations that will save NYC taxpayers an estimated $71 million in fleet management cost over the next four years by streamlining government fleet management, centralizing fleet operations, cutting vehicle fuel use, and decreasing the number of fleet vehicles. It’s part of the Mayor’s overall plan to save taxpayers over $500 million over the next four years by significantly increasing government efficiency.
According to the NYC Mayor’s Office report “the city spends approximately $667 million annually on fleet operations — this includes $283 million on maintenance, $120 million for fuel, $14 million for fuel tank compliance, maintenance, and spill remediation, and approximately $250 million for vehicle and equipment procurement. Maintenance expenditures consist of salary, which includes overtime, differential and fringe benefits; overhead – including building maintenance and rent; and vendor expenditures, including parts and maintenance services. Salary alone represents 70% of the NYC’s expenditures for maintenance.”
Bloomberg’s administration wants to centralize the city’s fleet operations. The report showed high quantity of decentralization across the city’s fleet operations which is not very efficient. The city employs more than 1,500 fleet management people that repair vehicles at 126 shops, each with their own set of equipment, staff, and parts inventory. Based on these numbers alone, it is clear that there is room for improvement in the fleet operations department.