The Car and Truck Fleet and Leasing Management Magazine

Are You ‘Over-Fleeting?’

January 2004, by David Fern

One of your responsibilities as fleet manager is to explain to senior management that you are not “over-fleeting.” Validate your explanation by demonstrating that you not only follow company guidelines, but also that you use every means possible to effectively manage cost and utilize your fleet in a continually changing environment. You must also implement procedures to guarantee your fleet is “right-sized” for the company in order to maximize fleet utilization. The following critical steps will help support your presentation to senior management, demonstrating that you are using all viable means to justify your fleet’s required capital outlay.

Operating Plan

Having a fleet operating plan in conjunction with a policy and procedure manual doesn’t guarantee smooth operations. Any organized team has a coach who puts a winning game plan together. When the team begins to lose, the plan must change. In the same way, the operating plan and the policy and procedures manual needs to be continually updated. A “Best Practices” approach is an excellent way to supplement and enhance current plans and procedures. This continual updating process requires input, time, and effort from all departments. Talk to all levels, from drivers to senior management. Better to have more input than not enough when making critical decisions about your fleet. The operating plan should include basic information in determining how your fleet is managed:

• Cost measurements.

• Replacement guidelines.

• Disposal or reassignment criteria.

• Policies and procedures.

• Reporting requirements.

Cost Measurements

A comprehensive fleet analysis report is crucial to managing your day-to-day fleet. If you do not have an internal mechanism to establish a report, then attempt to obtain one from your fleet leasing company. The minimum information reported for each vehicle should include:

• Mileage (average usage and mpg).

• Repair and maintenance costs.

• Fuel costs.

• Lease costs (depreciation and lease charge).

• Insurance.

• Any other pertinent information crucial to your company/fleet.

A regional report is beneficial if your company has regional or branch locations. Determining the bottom-line cost of each vehicle is critical in maximizing the utilization of your fleet. Specific cost problems or opportunities by vehicle or specific region or branch can be isolated with regional reports. When measuring different costs, look beyond those associated with current fleet vehicles. Replacement vehicle costs must be justified too. Recommendations and communications to senior management, based upon black-and-white facts, must be made on an ongoing basis. Communicate with different operating groups, involve them in understanding fleet objectives and maximum fleet use. They will not be surprised when a decision is made based upon facts already in their possession.

Replacement Guidelines

In order to optimize your replacement policy, check all related costs, fixed and variable. Most fixed costs can be calculated easily. The depreciation, lease expense, and insurance costs are readily available. Variable costs — fuel, maintenance, and repairs — can be uncovered by scrutinizing the fleet analysis to obtain an average lifecycle cost. While these costs are crucial to establishing the bottom line for a vehicle, other indirect costs can influence policy decisions. Company image, lost opportunity (downtime), and rental replacement can also add to vehicle cost. Do your homework on vehicle performance at the front end, and questions can readily be answered later. A standardized fleet helps prevent “over-fleeting” and reduces costs. Vehicles can be reassigned with ease, and the use of a sole source vendor can cut costs if volume discounts are negotiated.

Disposal/Reassignment Criteria

The disposal of underutilized vehicles has an immediate cash payback. However, vehicle reassignment can also help the bottom line in a similar way. Reassigning vehicles due to low mileage, downsizing, etc. means a new vehicle order is not necessary to replace an aged, overused vehicle. This reallocation enables the company to function at peak efficiency. As fleet manager, you effectively communicate the need for a continual review of cost cutting and cost eliminations with all relevant departments. A review of cost cutting helps verify that the established operating plan and policies and procedures are executed properly. This process includes maximizing fleet cost effectiveness with such steps as using sound lifecycle guidelines to replace vehicles. If you eliminate costs just to improve the bottom line, beware! Without an established operating plan to address this issue, the effect of cost elimination simply to improve the bottom line can be disastrous to your company’s customer service. Any such decision not only needs the support of all departments but also must be made upon factual evidence you can produce. Regularly review underutilized vehicles in an effort to meet cost-efficiency needs in other ways. One of the best alternative methods is implementing “pool” vehicles. The use of pool vehicles can be established at many levels, from service to management courtesy vehicles. First, verify the number of employees versus the number of vehicles at each location. If you have more vehicles than employees, opportunity has just looked you straight in the eye. Pool vehicles are not assigned to a specific individual, but to a specific location. If some vehicles have been in service for a long period and have low mileage, the reason for this underutilization must be determined. Pool vehicles are used only for replacement due to break down or for local deliveries. Determine if the pool vehicle can be used more cost effectively in another location or utilized by more than one employee without negatively impacting customer service. A single-source vendor for fleet needs allows interchanging vehicles for use in different locations and later as pool vehicles. Fully depreciated, high-mileage vehicles can be used for either local delivery or transport, enabling your location to perform a much-needed function with very little overhead expense (repair, maintenance, fuel, and insurance). Think of pool vehicles as reusable microwavable dishes with food stored inside. They can be reused to reheat many different items. Pool vehicles can have a life after their initial use. Don’t throw these vehicles away; you may have another use for them.

Policies and Procedures

The policies and procedures section of your operating plan should be distributed to all employees affected by your fleet, not only drivers, but also managers and other department heads. Included in the policies and procedures should be sections addressing:

• Eligibility requirements.

• Cost measurements.

• Replacement or reassignment guidelines.

• Maintenance and repair.

• Accident reporting.

• Driver records.

• Fleet vehicle utilization.

• Other issues relating to your company.

Also covered should be an explanation of the decision-making process and the company’s reporting of the requirements listed above for all areas. Policies and procedures must be aligned with established corporate goals and must contribute to the company’s overall success. Fleet managers need to communicate these ideas and objectives to all personnel. Two of the most important policies and procedures sections are accident reporting and driver records. Consistently communicate changes, updates, etc. to employees. Accident reporting and how to handle the situation is crucial information. The driver should make two calls immediately: to the insurance company and to the fleet manager. Under no circumstances should the driver admit any fault to the insurance company or law enforcement. Let the legal/insurance process unfold. All company vehicle drivers must have their driving records on file. Records of employees who drive on company business and are not assigned a company vehicle should also be checked.

Reporting Requirements

Several reporting requirements are needed to effectively manage the company’s fleet. Accident notification, unscheduled high-dollar maintenance, and emergency requests are just a few examples of reportable situations. Each section of the policies and procedures should include a defined mechanism for communicating fleet needs and requirements. A simple way to communicate vehicle replacement or disposal to the fleet manager should be established. When a situation arises that exceeds the fleet manager’s authority (for example, capital outlay for a non-standard vehicle), an approval process spelled out in the operating plan eliminates confusion. Repair/replacement analysis over a certain percentage level can be sent to senior management for approval. Remember, it is always important to get the additional approval in writing and then filed in the event of later review. “Over-fleeting” not only can be applied to your company’s fleet, it is also relevant to policies and procedures that support fleet function. A good rule of thumb is to make sure that all the policies, procedures, approvals, and documentation requirements are in place, communicated, and annually checked for compliance, usually budget time. However, periodic reviews of all areas should be done throughout the year. Validating the fleet function to senior management is a necessary evil that doesn’t have to be as painful as it appears. By following simple common-sense principles, your job as fleet manager can be less of a burden. David Fern has more than 15 years of fleet management experience. He currently works as a fleet consultant.

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