The Car and Truck Fleet and Leasing Management Magazine

Maximize Fleet Utilization to Keep Costs Under Control

July 2004, by Staff

An area sometimes overlooked in the search for cost savings and control is fleet utilization. Fleet managers can affect significant cost reduction by making certain that, first, the company obtains the most use out of each vehicle and, second, by seeing to it that the overall use of the fleet is maximized.

The former is a matter of careful replacement cycling, the latter of tracking existing usage. The combination can be a powerful cost saver, but requires careful record keeping and must be monitored regularly.

Start with Fleet Policy As with most fleet management processes, success in maximizing utilization begins with a sound and universally applied fleet policy.

Vehicle replacement policy will determine how efficiently vehicles are ultimately used; proper cycling begins with detailed record keeping. Fleet vehicles should be replaced, for the most part, at that point in their service life when the combination of fixed and variable costs are at their lowest, but take into consideration condition/appearance and the risk of major component failure.

The bulk of fixed costs are in depreciation. The depreciation “curve” begins with a precipitous drop as soon as the vehicle is brought into service, then will level off with time and mileage accumulated.

Variable costs, primarily fuel and maintenance/repair, chart a different course. For the average fleet vehicle traveling 24,000 miles per year or so, the first year to 18 months will show very low cost/use ratios, as mileage is accumulated with only preventive maintenance and fuel expense. Somewhere in the 35-45,000-mile range, the two largest items of predictable repair, brakes and tires, will be performed. At that point, the cost/use ratio will spike, and then fall as mileage is accumulated on the investment. This “ratchet” effect will continue; however, the ratio will not fall back to the original level.

Thus, smart fleet managers will capture not only total dollar expense, but mileage as well, in order to track cost/use ratios by mileage increments.

Key to this process is a closely monitored preventive maintenance program, which will ensure that the vehicle warranty stays in effect, and also prevent major component failure. The risk of such failure is certainly one of the most important considerations in maximizing vehicle service by extending replacement. The mere absence of engine/drivetrain failures is not a green light to keep vehicles in service.

Condition/image is another consideration, particularly with vehicles on which graphics identifying the company are used. The longer vehicles are kept in service, the more physical wear and tear will begin to show, and the less attractive a vehicle will become. Therefore, decisions on maximizing vehicle service life combine vehicle expense tracking, monitoring the risk of component failure, and maintaining company image.
Efficient Fleet Utilization

Proper replacement cycling will ensure that you get the most efficient use out of each vehicle during its time in service. But there are also ways to keep vehicles from becoming idle, as well as ultimately reducing fleet size.
Every fleet vehicle has a mission. Sales vehicles provide safe and dependable transportation for those who sell company products and services, as well as customers. Service vehicles bring your service people to your customers. Even executive vehicles provide an important part of your compensation programs to attract, hire, and retain management and executive talent. In nearly every case, the mission can be reviewed and changes made such that the fleet can do more, sometimes with less.

Most companies will have a mileage threshold, under which an employee is reimbursed rather than a car provided. That threshold is often arbitrary; the mileage level chosen without considering cost factors. For example, if the company policy reimburses drivers of personal vehicles at 36 cents per mile, and the cost of providing a company vehicle is $500/month, the threshold would be 1,389 miles (500 divided by 36). Do this simple math, and set your policy accordingly. You may find that you are providing cars to employees whose business mileage is lower than the threshold. (An exception can be made for large metropolitan areas, which have a large number of calls in a small geographic area, but drivers spend no less time in their vehicles.) This kind of policy review can help keep the size of the fleet manageable.

Managing Processes
Probably the simplest and most effective way to maximize fleet utilization is by putting surplus units to use. Not only can these keep vehicles from becoming idle, but it can also save hard dollars:

  • New Hires: When a new driver is hired, most companies will either order a new company-provided vehicle from the factory, or purchase one from dealer stock. If a factory order is placed, and the job requires transportation, the company has three options. The first two - either renting a vehicle until the factory order is delivered or reimbursing the driver for the use of a personal vehicle - run up unnecessary expense. The third option is to provide the driver with an existing unit, either a pool or surplus vehicle or one that has been turned in for replacement. These vehicles are usually in the latter years of their lease payments (or fully depreciated and subject only to a nominal administrative fee), and can be an excellent, low-cost alternative to the cost of out-of-stock purchases or rentals.
  • Replacement Vehicles: With careful planning and some analysis, a fleet manager can also have strategically placed pool vehicles available for use as replacement for vehicles in the shop for repairs. Rentals can cost in excess of $40 to $50 per day; with the average length of a collision repair in the 7- to 10-day range, renting can cost more than the total monthly payment of a pool car.
  • General Supplementary Transportation: These same pool vehicles can also be used for general transportation purposes, such as for employees on temporary assignment, auditors, visitors, etc. They can be provided a pool car in lieu of a rental. Employees, or even subcontractors and consultants, on long-term assignments can also use a pool vehicle, if transportation has been factored into their contract.

    Keep in mind, however, that pool vehicles, while providing hard cost savings when in use, are dead cost when idle. Once the logistics have been determined (i.e., locating the pool vehicles only in large offices where the need is greatest), careful record keeping and tracking of use is a must. Many fleet management software systems provide the user with the ability to complete a “trip ticket” which captures all data critical to the assignment: 1.Driver name. 2.Department. 3.Date. 4.Mileage/time of day out. 5.Mileage/time of day in. 6.Purpose. 7.Fuel readings.

    Break the cost of keeping a pool car in service down to a daily rate, so that the cost can be charged back to the user. In addition, the same sort of breakeven analysis can be performed as that in the vehicle-assignment policy, which will make it easier to determine if the pool car is justified.

    Other Methods

    Another way to maximize utilization, though somewhat extreme, would provide new hires, or those drivers whose vehicle is totaled or experiences major mechanical failure, with a surplus vehicle. For example, if a driver in Baltimore has left the company, while concurrently a driver in Philadelphia has totaled his car, move the Baltimore unit to Philadelphia and assign it to the new hire. Then, simply have that driver keep the vehicle in service until it is scheduled for normal replacement. Naturally, the amount of life left in the transferred vehicle should be weighed against the cost of transportation in order to be effective, but there are few better ways to toss money out the window than to have to sell a surplus vehicle early in its service life.

    Service and delivery fleets often require drivers to make stops at the office or warehouse to replenish product and parts supplies, or to pick up items for delivery. Make certain that vehicles are spec’ed properly to maximize carrying capacity while maintaining variable cost efficiency. Routing software can be used to determine the most efficient routes for drivers with regularly scheduled stops. If you can get the cooperation of the department(s) affected (sales, service, etc.), a thorough review of territories can sometimes result in fleet reductions.
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