The Car and Truck Fleet and Leasing Management Magazine

How to Sell Management the Value of a Fuel Program

March 2006

The volume and spectrum of data available to fleet managers today is little short of staggering, which can be both a blessing and a curse. The challenge of controlling and reducing costs is constant, and the key to success in doing so is timely and accurate data.

But wading through this vast sea of information can be tedious and time consuming; so-called “interesting-but-useless” data is intertwined with that which can point to real and measurable savings. Most fleet managers, however, know well the “80-20” rule; 80 percent of costs are in 20 percent of fleet cost categories (or at least the large majority). In variable expense, this means fuel, and nothing else is even close. So although it may be interesting to some how many pints of power steering fluid are used, fuel data contains the key to real cost savings. Sometimes, however, what is obvious to the specialist (fleet manager) isn’t so obvious to the generalist (senior manager). How, then, does a fleet manager sell the value of a fuel program? ‘That’s Where the Money Is’
Notorious bank robber Willie Sutton, when asked why he robbed banks, answered simply “Because that’s where the money is.” The same can be said for why tracking and managing fuel expense is important. Even in a well-managed fleet operation, fuel can make up 65 percent or more of variable costs. But although that reality can certainly be communicated up the management line, the specifics of why it is true and ways in which fuel costs can be controlled, sometimes are not. It is useful to consider how senior managers think.

No doubt a CFO or vice president has some field in which he or she has specialized in the past. But as managers move up the organizational chart, they rely more and more on specialists at the departmental level to manage their increasing responsibilities. As thinking becomes less tactical and more strategic, the level of information senior management can absorb to facilitate decision-making becomes more and more general. The CFO, when confronted with fuel costs, is likely to think “We need vehicles, and vehicles need fuel. Drivers stop at gas stations and buy it. I don’t see much that can be done to change that.” The fleet manager, his specialist, is thus challenged to first explain how fleet fuel expense can be controlled, and then provide the means by which the company can control it. Controlling, and reducing, any fleet expense is challenging; a number of obstacles must be overcome. Fleet policy, established in no small part to place limits on expense, can be difficult to enforce. Drivers don’t always respond. Data can be difficult to collect, warehouse, and mine. Most of all, fleet managers today often are limited on the resources and time they can bring to any one project. Fortunately today, tools are available to leverage these scarce resources and make selling the value of a fuel management program far easier. Applying the Advantages
“Selling” is probably the wrong word to use when presenting the program to management. “Reminding” is a better one. Remember, it isn’t out of ignorance that senior management must be convinced that the program can be successful. The first step in preparing a presentation is understanding what a fuel card program can do. There are three categories of fuel card programs:
  • Credit card.
  • Universal independent.
  • Cardkey. Credit card platforms can be issued by any number of providers, including banks and other financial institutions. Universal independent programs are developed independently by a single issuer, as are cardkey programs. The difference between the two is that universal programs have broad_based acceptance, while cardkey programs develop their own network of private fueling sites. All three options have advantages and disadvantages, and the details of each should be carefully weighed before deciding which is best for your fleet. Development of new programs, which can combine advantages of two or all three program categories, is progressing rapidly, so remaining informed is important as well. {+PAGEBREAK+} Some specific program features are critical to success in cost reduction, as well as getting the program approval. Among these features are:

    1. Acceptance. If the platform is either a credit card or universal, drivers should be able to stop at any point in their travels and purchase fuel. A cardkey program should include sufficient locations to cover your fleet’s footprint. If drivers must search for participating locations, any savings will be diluted by the additional cost. 2. Data. Probably the most critical need you have in controlling fuel cost. The program must provide “enhanced Level III” data, including, but not limited to, all driver- and unit-identifying information, full transaction data (fuel type, units, unit cost, total cost, etc.) company hierarchy, and most importantly, mileage. 3. Management Tools. Whether online or desktop, the program should provide systems tools that enable you to manage the account (order/suspend/cancel cards, report cards lost or stolen, etc.), as well as mine and use the reams of data created by transactions. Both standard and exception reports should be available, and it is an advantage to be able to make the system available to others in the company. 4. Controls. A key way to enforce policy is via card controls. Transaction and dollar limits can be implemented to restrict unauthorized use. Cards can be limited to fuel only. Data can be mined to determine who has bought fuel on days or at hours that policy prohibits. Controls should be flexible and applicable in different ways for different vehicles, locations, and missions. Fuel cost data can be mined in several ways, sometimes with surprising results. For example, all or nearly all companies prohibit the purchase of fuel for vehicles other than company units. Assume a fleet of 1,000 vehicles, driving 24,000 per year, averaging 20 mpg, and a fuel cost of $2.30 per gallon. Two percent of all fuel purchases are for non-company vehicles, a relatively conservative estimate. Eliminating such policy violations would save $55,200 each year:
  • 1,000 vehicles x 24,000 miles = 2.4 million total miles.
  • 24,000,000 / 20 mpg = 1.2 million gallons.
  • 1.2 million gallons x $2.30/gallon = $2.76 million total fuel spend.
  • $2.76 million x 0.02 = $55,200 savings. Tracking purchased fuel grades usually reveals that many drivers are, for whatever reason, using premium fuel when they should be using regular. Using the same fleet size, annual mileage, and fuel consumption as above, and assuming a 20 cents per gallon price difference between regular and premium for 10 percent of purchases, we can save another $24,000:
  • 1.2 million gallons x 0.10 = 120,000 gallons of premium.
  • 120,000 gallons x $0.20/gallons = $24,000 savings. These and several other areas of “slippage” in fleet fuel expense (non-fuel purchases such as food, beverages, lottery tickets, etc.) can only be tracked and eliminated if, first, the company can actually capture the detailed transaction data, and second, have a means by which this data can be mined and analyzed. Fleet fuel management programs provide these tools. Depending upon how the company currently handles fuel purchases, “soft cost” savings can be significant as well. Policy that calls for drivers to purchase fuel on their own, then obtain reimbursement via expense reporting, entails significant time for drivers to complete such reports, and the company to process the checks. None of this activity is necessary when using fleet fuel management programs. Another significant benefit is that fleet odometer readings are captured when fuel programs are used; odometer readings updated for every vehicle in the fleet more than once per week. This critical fleet management data is captured electronically and used in tracking fleet expense of nearly every category, without administrative or clerical effort on the part of the fleet or accounting functions. Overall, the benefits of using a fleet fuel card management program are extensive:
  • Driver convenience.
  • Detailed data capture, electronically, on all transactions.
  • Card controls to impose limits on purchases and help enforce fleet policy.
  • Management tools that enable the fleet manager to mine transaction data and take action where savings and control are found.
  • Capture of critical odometer readings on a regular basis, which makes analysis of all fleet operating expense easier and more accurate. Fleet managers see these benefits clearly. What, then, are the best strategies for presenting fuel management programs to company executives to best ensure approval? ‘Selling’ the Program
    What may look like a “no-brainer” to a fleet manager isn’t always immediately clear to senior managers. Fleet management is a combined strategic and tactical process. Fleet managers consume the bulk of their days thinking and acting tactically. Based on regular communications with drivers, vendors, and internal stakeholders, fleet managers spend much of their time “putting out fires,” that is, reacting to situations and events that arise during the day. Senior managers, as has been suggested, think more strategically and depend upon departmental specialists to develop and implement the tactics necessary for strategy. Often, what looks obvious to the fleet manager isn’t to the CFO or other senior manager. {+PAGEBREAK+} Senior managers must consider factors beyond what the fleet department does. For instance, many companies use a corporate purchasing card, travel and entertainment (T&E) card, or a so-called “one card” program. Banks issuing these cards often provide incentives, such as rebates on volume, to sell the program. Such rebates are often a function of both overall spend and average transaction size. Companies also use these cards for fleet expenses such as fuel to increase overall volume and maximize rebates. This practice, however, can actually decrease rebates. Average transactions for purchasing or T&E cards range into the hundreds of dollars; fleet fuel transactions, depending upon the vehicle types, are only in the $30 to $50 range. Using corporate cards for fuel will insert thousands of additional transactions, at much lower averages, to the program, with a substantially adverse effect on the overall average transaction size. Pulling fuel transactions out of a corporate card program, though it will reduce volume, can reduce the average transaction size even more, and result in a lower rebate. Senior managers must also consider the effect that a new program may have on other areas, such as purchasing (as in the corporate card example), sales, service, or accounting. Adding another card to the drivers’ wallets may seem at first to further complicate the process; senior managers most often will be protective of the men and women in the field who sell company products and service customers. Unless they’ve heard that drivers actually have been unable to purchase fuel, it’s the fleet manager’s job to show management where the value is. Think like a senior manager, to whom several key corporate functions may report and who does not have time to review lengthy analyses or reams of data. The “pain” may be yours, as fleet manager, but it is likely that your manager doesn’t feel it. Steps along this process include:
  • Gather information carefully. Make certain that you’ve reviewed current policy, highlighted its weaknesses, and know enough about the fuel card program to show how it will address those weaknesses.
  • Before presenting anything to your management, cull the highlights and leave out the details. Remember, information you find interesting often will not be to senior managers.
  • Emphasize cost savings. Use a model that illustrates unnecessary expense, such as various forms of slippage (fuel for non-company use, non-fuel purchases, fuel purchased for personal use if the policy prohibits it, premium fuel purchases, etc.)
  • When fuel data isn’t available, and thus savings are difficult to document, say it. Loudly. Make sure management knows that there are opportunities for savings and that the company’s current programs and processes do not allow you to uncover them.
  • Make the presentation short and to the point. Use graphs, bullet points, and charts. Your time will likely be limited, and, as with other fleet-related issues, you need to get the point across forcefully. Management usually prefers a simple graph or chart showing the key information they need to make a decision.
  • Use a “FAQ” (‘frequently asked questions’) format to cover anticipated questions and objections. For example: Q: “Our drivers can purchase fuel now with their company purchasing cards. How will this program be any different?” A: “Our purchasing card does not provide the level of data we need to track fleet expense. We are not capturing mileage data, without which we can’t track cost per mile.” Q: “Some of our regions say they have negotiated discounts through local distributors. Will we lose these discounts by using this fuel program?” A: “No. We need only notify the fuel management company of these negotiated prices, and they will bill us net of any discounts.”
  • Depending upon your current process, you may be able to document “soft savings” as well. Expense processing, paper elimination, and check cutting all take time and cost money. Again, no need for the details; document those costs and show the savings. The Benefits are Clear
    The value to the company of some fleet management programs may well be in question, but a fuel management program does not fall into this category. Fleet managers do their jobs based upon current and accurate information. Fuel programs provide such data, and without the precious odometer and mileage data, variable expense cannot be tracked. As previously stated, not all fuel management programs are alike. Each has its advantages and disadvantages, and it is up to the fleet manager to review each program to determine which is best to present for approval. If your fleet is primarily local or regional, for example, a cardkey program may suit your needs. If your company has over-the-road trucks, a program with a strong merchant base in truck locations, as well as other benefits (cash advances, etc.) is better suited. The same goes for aviation fueling and service. Careful analysis of the options will help avoid taking on a program with more, or less, than you need. Bottom line: think like a manager, strategically, and the benefits of a fuel management program will be clear.
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