Using Exception Reports to Avoid Wasting Fuel Dollars
There are only two ways that a company can increase the bottom line: increase sales or reduce expenses. Increasing sales only improves profits at the company’s after-tax profit margin, i.e., at a 5-percent margin, a dollar increase in sales produces only a nickel of profit. Expense reduction, however, drops to the bottom line dollar for dollar.
The two largest items of fleet expense are depreciation (fixed) and fuel (variable), and are the most fertile ground for generating precious cost savings. In recent years, more and more companies have begun to use fleet fuel cards for driver convenience, ease of administration, and, most importantly, for the full range of fuel data such cards produce.
Merely having data is one thing; using it is another. Taken in its raw form, fuel data will show what was purchased, where, for how much, and when. But smart fleet managers have learned to manipulate this information in ways that reveal where dollars can be saved, how they can be saved, even how the company fleet policy is or isn’t being followed.
Fuel data includes a wide range of information, including (but not limited to) the following:
• Gallons purchased. • Cost per gallon. • Type of fuel. • Date of purchase. • Vendor. • Total cost. • Unit number. • Driver name.
Some fuel card providers will include other information in the billing.
This information can now be parsed, mined, manipulated, and analyzed in a number of ways, allowing fleet managers to learn more about their drivers’ buying trends and vehicle fuel performance.
Although most fuel card providers offer standard reporting, exception reporting is usually the most common and successful way to pinpoint problems and ultimately save money. Exception reports can be broadly defined in two ways: reports which list vehicles or drivers whose data falls outside of a provided benchmark, or, second, a report requested by the customer using specifically defined fields of information or calculations. Either way, savings can be substantial.
Gas Mileage Report
The most common exception report is the gas mileage report. Using a benchmark provided by the fleet manager, this report will list those vehicles whose fuel performance falls outside the norm. The benchmark is usually one of two:
1. The average fuel economy for the entire fleet or selected vehicles (such as make/model/year) within the fleet.
2. An arbitrary average (CAFE mileage, for example) or industry standard.
The fleet manager will also establish a range such as: all vehicles whose mileage is some percentage or fixed amount above or below the norm to be excepted. Obviously, those that exceed the benchmark aren’t necessarily a problem, provided the numbers are reasonable. But those below the benchmark aren’t performing up to standard and further analysis can provide clues as to why. Keep in mind, of course, that one of the pitfalls of using a cost/use ratio such as miles per gallon or cost per mile lies in the integrity of the data received. If the mileage reported is not accurate, some exceptions can be wildly off base. For instance, if the benchmark is 20 miles per gallon, vehicles showing ridiculously high or low mpg can be chalked up to bad data. One way of avoiding this problem is using dollars per card, or gallons per card, a technique used by Dave Haviland, corporate fleet manager for Acosta, Inc., a larger food marketer based in Jacksonville, FL. This technique will be covered in more detail later in the article.
Now that you’ve noted your exceptions, further reporting can “drill down” to the causes. If a cost-per-mile exception report is used, the fuel card provider can also provide data showing average cost per gallon, revealing that drivers are using full-service pumps or buying high-octane fuel, both of which cost more than self-service regular. Some providers can also show non-fuel purchases by drivers such as food or other sundries in addition to fuel purchases. Exception reporting can assist in catching outright fraudulent use of fuel cards as well. In some cases, drivers will use fuel cards to purchase fuel for personal cars or for family members. This will be caught when fuel efficiency is excepted, and mileage data is confirmed.
These reports can also help in limiting bad data. Drivers using fuel cards must input a mileage figure to activate the pump. Unfortunately, card swipe pay-at-the-pump machines will accept whatever number the driver posts. If the driver doesn’t know the mileage and isn’t inclined to check, he or she can put in an estimate, or, for that matter, any number at all, which will skew the data. Exception reports can show cards that have posted bad mileage numbers, and the fleet manager can follow up with the drivers to make certain they understand the importance of obtaining the right mileage. Indeed, the impact of erroneous mileage numbers can be far-reaching. Many companies use mileage data generated by fuel card use for their overall fleet data, used to generate maintenance reports, and even replacement forecasts for budgeting.
Exception reports can also be very useful in preparing vehicle selectors. If a fleet is using several models within a selector level, reports of fuel efficiency by model will show which are performing best and which might be dropped.
Savings generated using such reports can be substantial. As an example, in a fleet of 500 units, driving 25,000 miles per year, an improvement of a single mile per gallon in fuel efficiency will drop $750,000 to the bottom line (at $1.20 per gallon).
Fuel exception reports are a wonderful tool fleet managers can use to find precious dollars within the largest operating expense. But, at the same time, they can be used to pinpoint the misuse of company funds and help enforce corporate fleet policy.
Weekend Fuel Purchases
Acosta provides an excellent case study on the use of fuel exception reports to accomplish all three of these goals. While the Acosta fleet, run by Dave Haviland, totals approximately 3,400 vehicles, the company has a total of 5,500 fleet cards in use, which include drivers who receive a reimbursement allowance. Acosta uses Wright Express’ fleet fuel card.
“As most fleet managers, I’m always on the prowl for cost savings,” Haviland said. “Naturally, when a fleet manager looks for savings, you go where the big game is in operating expense, that would be fuel.” Acosta has a company vehicle policy that permits personal use, but doesn’t pay for personal use fuel.
“My first thought was to check and see when our drivers were filling up the tank,” he continued. “I looked to the Wright Express people to provide an exception report showing fuel purchases made on Saturdays, Sundays, and Mondays.”
But there was a question of how to track this usage. Fuel prices have been volatile in the past three years, and Haviland knew that looking at variations in dollars expended could be misleading. “Rather than track dollars, I decided to track gallons purchased per card. This would show pure consumption and, if necessary, I could make reasonable assumptions as to what, if any, savings could be generated.” The goal was to strictly enforce the company policy of not paying for fuel consumed during personal use. Haviland would use the fuel exception report to do it.
Gathering Past Performance
Haviland began by reminding drivers in June 2003 of the company policy regarding personal use fuel and that the fleet department would review fuel purchases to determine where the policy was applicable. He then requested a history report from Wright Express showing average gallons per card in fuel purchases for the prior two years. Haviland tracked fuel consumption in ensuing months against that average. For example, in June 2001, the company averaged 85.13 gallons per card, and in June 2002 the average was 84.06. In the first month of the enforcement period, June 2003, average gallons per card actually increased to 88.17.
“I pretty much chalked that up to the drivers not having gotten the message yet,” Haviland said, “I believed that as the months went by we’d see some improvement.”
In addition, the exception reports now show weekend fuel purchases broken down by branch, with a copy sent to each branch manager.
“The branch managers were instructed to review the weekend purchases,” Haviland said. “If there were any that were not a result of documented business use, the drivers were to be notified that they would be responsible to reimburse the company.” As the months went by, Haviland tracked the data, and saw a clear trend developing:
July 2001 - 81.73
July 2002 - 89.18
July 2003 - 84.89
August 2001 - 92.32
August 2002 - 91.98
August 2003 - 83.83
September 2001 - 79.29
September 2002 - 86.24
September 2003 - 86.84
October 2001 - 90.18
October 2002 - 89.94
October 2003 - 86.13
Except for the month of September, when per card gallonage was roughly the same, each month showed a clear reduction in the amount of fuel purchased per card. Haviland says that he will need more data to determine the ultimate success of the program, but he is confident that the savings are real.
“I think that September was an aberration. Every other month thus far shows savings and I’m sure this will continue to be the case.” Drivers now know that their fuel purchases are being tracked and are less likely to purchase fuel on a weekend. If they do, they know that they’ll have to reimburse the company.
Using a conservative average of $1.30 per gallon purchased, the savings are as follows:
• July 2003 - 4.79 gallons per card, $6.23 per card, $34,265
• August 2003 - 8.15 gallons per card, $10.60 per card, $58,300
• October 2003 - 3.81 gallons per card, $4.95 per card, $27,225
An estimated $119,790 in savings over four months (with September a wash) averages to about $30,000 in monthly savings or $360,000 per year by simply tracking fuel purchases and enforcing company fleet policy.
“I realize that the method isn’t perfect,” Haviland said. “For example, drivers may well use a vehicle on the weekend, but not purchase fuel until Tuesday or Wednesday of the following week. There is simply no way to document this.” With that said, of course, eliminating weekend purchases, enforced using a fuel exception report, saves nearly $400,000 annually. Haviland’s experience is a clear, real-world example of how fleet managers can use fuel exception reports to find savings.