The Meaning of Fleet Management

The fleet operation at Florida Power and Light is a good operation for study. It is an example of a company whose fleet policies are an outgrowth of usage profile. Additionally, it is an example of the current evolution of fleet management- a job differing today from a decade ago as the word processor differs from the steno pad.

Don Ashton moved to Miami in '79 to take the helm of Florida Power and Light's automotive and construction equipment department. The utility is one of the nation's largest, providing gas and electricity to a 27,000-square-mile area, with terrain ranging from dense, humid cities to dense, swampy glades.

Before FPL, Ashton worked for nine years as manager of automotive field operations for Southern California Edison and as a senior corporate planner. Before that, he has worked with Boeing, General Dynamics, and Ford. His B.S. is from Lawrence Institute of Technology, with grad work at the University of California and Harvard.

Ashton encapsulates what might be called the new breed of fleet manager. Schooled more in return-on-assets than in drive-train mechanics, Ashton represents the latest evolutionary state of the fleet manager's function. There are no parts catalogs on his credenza and only a few photographs of pre-WWI trucks on the walls of his company's swank vehicle-management suites. FPL's automotive operation employs a 20-persen staff to centrally administrate 4,700 company-owned vehicles and 3,000 contract vehicles-cars and pickups owned by employees but operated under contract for company business. Ashton explains the vehicle mix: "We have only 474 company-owned passenger cars and station wagons-a very small number-because of our contact-vehicle program. For the cars, we additionally have approximately 1,000 company-owned pickup sand vans, primarily Rangers and S-10s, no minivans yet; another 800 pieces of special work equipment, ranging from forklifts to cranes; another 400 medium-duty trucks and pieces of specialty equipment; 430 lager trucks, including tractors and larger buckets; 530 heavy trucks; and 800 trailers. That adds up to about 1,500 company-owned cars and trucks under 10,000 GVW."

But the company has double that number in its contract-vehicle program, about which Ashton comments: "I've worked for a lot of companies, and this is the first in my experience that has a program like this. When developing it, we had to work with certain givens. First off, we do not do much of our own maintenance. We have a couple of garages where we do some specialty work, but most of our maintenance continues to be farmed out, for reasons I can detail later.

"The challenge with a large fleet is to make it more administrable. What we've done is look at various alternatives: owned, leased, or contracted. Because of the relatively low usage of many employees, we knew we couldn't economically provide them with an owned or leased car. We have done economic analyses showing that above mileages of about 1,500 miles per month it is economical to provide a vehicle. But below that, it is better if the employee provides a vehicle on contract. Of course, when use is only occasional, we provide either a pool vehicle or cents-per-mile reimbursement. But for that broad middle range-from, say, 200 miles up to 1,500-we generally use a contract program."

The basics of the contract-vehicle program are simple. The person can put his own vehicle on contract to the company for business use. The vehicle must be owned, not leased, and it must meet certain parameters. Those parameters are fairly loose, but there are no sports cars, luxury cars, or recreational vehicles in the contract-vehicle fleet. The vehicle must be safe and have a business-like appearance-no mag wheels or bizarre graphics. Vehicles are also subject to periodic checks to ensure conformity to the agreed-upon parameters.

In return, the company provides the employee with interest-free financing for up to 75 percent of the cost, up to a maximum of $7,200. The company also reimburses the driver at the current rate of $.21 per mole of company use. Of course, insurance is one of the occasionally forgotten costs of ownership. And FPL's approach to contract-vehicle insurance has turned out to be of benefit both to the employee and the company. Equivalent insurance in Dade County would run an employee about $700 per year if purchased privately. But because of the employee profile, the company has a very low risk factor. The employee gets the advantage of being in a very select, low-risk insurance group. The cost to the company for this insurance is about $225 per year, for which the employee reimburses FPL approximately $5 per month. It covers not only the employee, but his family, for, yes, $5 per month. Additionally, the company aids the employee in vehicle acquisition by providing him not only with recent Blue Book listings of dealer cost but also with an up-to-date printout of dealers who offer a discount to contract-vehicle purchasers similar to a fleet discount. "If you're going to buy an Olds," Ashton comments, "we'll provide you with a list of local Olds dealers who have promised discounts for employee purchases. And dealers will be added or deleted because of recent employee experience."

The company has no national account program to cover service. 'We try to deal with local vendors and to allow the employee the flexibility of going where he wants; that's been our tradition. However, we do have arrangements with our high-volume vendors for fleet discounts."

Employee reaction to the contract-vehicle program has been positive, to say the least. If you see a meter reader climbing out an "unmarked" Mitsubishi Tredia, chances are it's a contract vehicle. An engineer takes several bidding contractors to a job site in his company-contracted Mercury Cougar. A district manager drives city planning officials to lunch in his Olds Cutlass.

FPL does not have a strict holding time for its company-owned vehicles, "Disposal is based on vehicle condition and model obsolescence," Ashton explains. "With passenger cars, it isn't a critical factor, since we buy so few of them. But with trucks, it's very critical, because if a truck is down, you've got crews down."

Once a year, when approaching the budget cycle, Ashton meets with all the division automotive supervisors to determine which vehicles are giving them the greatest operating problems and which have been requiring the longest lead time for securing repair and replacement parts. "From that, we can come up with a composite of the vehicles that we want to eliminate from the fleet," Ashton says. "Input from the individual managers as to the problem vehicles helps us draw our composites, so we can then send out a listing saying these are the vehicles we want to look at replacing."

After a period of public display at a salvage lot, vehicles are sold through sealed bid or auction. The problem is that by disposal time, vehicles are off Blue Book. Ashton explains: "A typical truck that we sell is 15 years old; a typical car is eight years old. We've run a number of economics analyses, and the one that makes the most sense to use is this: As long as you can gets parts to fix a vehicle and as long as it's doing the job, we don't find it economical to replace it."

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This particular analysis is the result, however, of FPL's owning far more trucks than cars. "If you have a sales-person fleet, that's different," Ashton continues, "because they have to constantly take customers out. But we have very few passenger cars to start with; our vehicles are work vehicles; we run them till they die. It's a psychology that has become imbedded because of maintenance of heavy trucks, where model year isn't critical, only parts availability."

FPL was one of the first utilities in the country to become involved in truck salvage. Ashton comments: "We have found that we are one of the best suppliers of hard-to-get parts for our fleet. In some cases, we may be the only source."

FPL first instituted a trial program in '79 at a five-acre automotive yard in Hialeah. Units released from field service were transported to Hialeah and examined. Then a vehicle description was placed on a "pick list," which was sent to all operating departments so that they could determine any further application to units in field service. Vehicles with components that could be utilized in keeping other fleet trucks running were segregated for salvage; all other vehicles were then sold.

Salvage candidates were then examined in detail, with potentially recycleable components itemized and priced. The cost and value of the removed components and the scrap value of the stripped hull were compared with the expected sale price of the unstripped unit. If the salvage proved economical on the books, it was performed.

Although FPL's salvage operations applies to trucks above 10,000 GVW Ashton cautions fleet mangers responsible for car and light-truck fleets not to dismiss salvage out of hand. He estimates their salvage programs saved $1.5 million last fiscal year, saving which could easily counterbalance more costly automotive programs. "Many fleet mangers at other utilities are also responsible for truck operations, and you can't consider just part of the operation when judging the whole."

FPL does not do much in-house maintenance. What may be more economical on the job-by-job basis is not necessarily more economical in the long run. Ashton explains: "We don't don in-house maintenance because, years ago, we thought there was value for us, as a company, to develop relationships with small vendors in the cities in which we operated. A lot of these people were out captive customers, and we felt we should do the same for them. So normally, we have small vendors do our routine work.

"We have priced opening our own shops and doing extensive maintenance, but when we considered the overhead of building a large shop and what we would pay our own people, we found we couldn't compete with a small vendor, even over a term of 10 years. Most utilities do have their own maintenance, and maybe if we'd started years ago, we could do it. When I was with Southern California Edison, we had in-house maintenance, but we had to close some specialty shops because we simply couldn't compete with vendors for the routine work. We couldn't replace alternators or rebuild engines as cheaply as a vendor."

Ashton is obviously one fleet manager who relies on detailed analyses before making decisions. And because of the scope of many of these analyses, sifting through the data would take months without the aid of a computer. FPL's Corporate Automotive Reporting System (CARS) is the tool that allows the department to function efficiently. "All of our fleet costs are captured through the on-line system," Ashton says. "CARS identifies: actual costs incurred by each vehicle; equipment usage and performance; ownership costs, including depreciation, taxes, license, and overhead; and operating costs, including maintenance, lubrication, inspection, and fuel. Since we do our work primarily with vendors, we process the vendors' invoices into our system. We pay the vendor off of the computer system. And at the same time, we enter that information into the data base. It tells us a number of things. Before paying a vendor, we can determine whether or not we've recently had a similar repair on that same vehicle and whether or not that vendor did it. We can avoid duplication of repairs or losing written warranties. That probably is the single greatest value."

CARS also affords FPL the ability to identify the bad factors, to say Brand X has historically had brake problems. "We have enough hard information," Ashton says, "to go back to the manufacturers and say, "This isn't an isolated incident Here's the track record.' We completed 1983 as our first full year of monitoring our costs through computers. Our cost for maintenance was $2.2 million under budget and $1 million under the actual cost of maintenance for the previous year. This, again, was primarily because of our ability to take advantage of warranties to cover repair."

FPL's system operates on an IBM mainframe 3084-B. Additionally, the company uses ITT terminals dedicated to automotive. The clerk in each division use them solely for inputting automotive invoices. System-wide, the company has 12 terminals for inputting cost data and changing the data base, and approximately 90 terminals where people can query the system to find out how well particular vehicles are performing."

The software package used for fleet tracking and maintenance was designed in-house. "It cost us more to design it in-house," Ashton explains. "We looked at a number of systems we could purchase, and I leaned toward purchasing because you can have a system available more rapidly. But the reason we ended up developing it in-house was two-fold: One, the purchased systems are basically designed for over-the-road truck fleets. Our fleet is primarily construction equipment; we don't care about how many miles a vehicle runs; mileage is not a factor of major importance. Second, to have the credibility that we needed and to get the attention of management that we required, I needed to have a system tied directly to accounting. Our system ties directly to accounting and pays vendors through this system. The system runs a statement for the vendor, sends a copy to him and a copy to accounts payable. Accounts payable pays the vendor that a month; the vendor knows he's going to get so much; and we resolve any differences the following month, rather than processing an invoice from each vendor for each job or getting an invoice from the vendor at end of month."

This level of computerization seems a far step from index cards with penciled-in-mileages, but it is indicative of the direction fleet management is moving. "With the utilities at least," comments Ashton, "there is a different type of fleet management emerging over the last few years. You find people with a lot more financial back ground and a lot fewer people who have come up through the ranks. For example, my background, in addition to fleet management, is in corporate planning and data processing. The management challenge is to organize, staff, and control it doesn't make any difference that it's a fleet. I'm responsible for approximately 150 million corporate dollars. And I do the same as any other manager with that responsibility.

Specifically, that means that questions and reports on how dollars are utilized. "I frequently ask: Are we effectively utilizing our assets and our resources? How could we better use them? We have many options: We can put those dollars into the fleet, or we can put them into the plants or offices. We want a good return on our money, and if we can't get it, we don't do it. Our fleet has a replacement value of $152 million, and that doesn't include contract vehicles. Last year, the care and feeding of our fleet cost us $30 million."

The dollar figures Ashton mentions are indicative of the field in which fleet mangers are currently playing. Some surveys have shown that fleet mangers have difficulty communicating with upper management. Ashton's approach may be instructive;

"We submit our reports to management in an able abbreviated version. When we submit our budget, we try to give the corporation quick overviews of how we're performing in various areas, comparing our cost to the C.P.I. or other relevant indices, such as depreciation. These are the types of things that the computer has enabled us to do, things that would have taken months before. But this type of analysis shows unequivocally what they call the bottom line, and that's the name of the game."