Using Fuel Management Reports to Reduce Cost
November 1, 2005
• by Bob Cavalli
Turmoil in the Middle East, hurricanes, massive demand from India and China, a strong U.S. economy - these issues and more have led to increases in gasoline prices the likes of which we haven’t seen in decades. With average prices hovering around $3 per gallon, fleet managers have seen fuel expenses nearly double in the past 18 months.
Fuel card programs can be a strong weapon in the battle to control fuel expense, but unfortunately fleet managers don’t always use the immense flow of data such programs generate to its best advantage. Controlling fleet fuel costs goes well beyond simply tracking miles per gallon fuel efficiency, or cost per mile (cpm) ratios. Most fuel management programs offer users excellent reporting tools that can be used to mine the data to determine where both use and dollars can be controlled.
As Always, Start with Fleet Policy
Your fleet policy document should speak to the limits the company places (if any) on the fuel for which it will pay. The policy should cover several key issues related to fuel usage:
• Personal Use. Who is permitted to drive the vehicle, when, and how often?
Personal Use Chargebacks. How will the company charge drivers for personal use?
Vehicle Expense. Exactly what vehicle expense will the company pay, and what will be the responsibility of the driver?
Expense reporting process. Outline the full process by which vehicle expense is captured and the responsibilities of all stakeholders in that process.
Simply reviewing reams of data is not useful unless a process is in place to take action, and no action can be taken unless the “ground rules” are set up beforehand. That is the purpose of a policy document.
Manage with Exception Reports
There is little debate on how fleet managers can best review and act upon fleet expense data. Which drivers and vehicles fall within acceptable performance parameters is not important. It is of great importance who doesn’t. That is the purpose of exception reports.
The first step in creating such reports is to establish benchmarks, which in turn create exceptions. Fleet managers track two primary data vis-à-vis fuel expense: fuel efficiency as expressed in miles per gallon (mpg), and overall fuel expense as expressed in cost per mile.
MPG benchmarks can have several sources:
EPA mileage estimates.
Internal mpg performance for similar make/model.
External mpg performance for like make/model, similar industries, or vehicle type.
Once benchmarks are established, fleet managers should determine the degree of difference that will prompt the exception report. Keep in mind that if this criterion is set too low (say, a 10-percent variance), too many exceptions are likely to appear. There are reasonable bases for a low level of variance that do not necessarily point to poor performance or program misuse. Generally, a 20-percent variance (if the benchmark is, say, 20 mpg, and the vehicle is achieving only 16 or greater than 24 mpg) will suffice.
Once exceptions are reported, it is usually relatively simple to weed out the most egregious. Major exceptions (a vehicle showing 5 or 50 mpg) are usually caused by reporting problems, such as wrong mileage. These exceptions can be corrected. MPGs dramatically lower than the benchmark can be caused by any number of reasons, some of which are actionable:
Preventive maintenance may not be up-to-date. Improperly maintained vehicles will not achieve the acceptable level of fuel efficiency.
Driving habits, such as quick starts and stops, can significantly affect mileage.
Urban territories, which entail more idling in traffic with attendant starts and stops, can hurt fuel efficiency. In addition, higher fuel costs combined with lower mileage will result in higher cpm figures.
It is important to note that with the volatility in fuel prices, cpm can be a deceiving statistic, especially if you are benchmarking internally (against prior years’ performance). A useful method of tracking overall fuel consumption that eliminates the effect of per-gallon price changes, is “gallons per card, ” - tracking gross gallons purchased by each issued card. Drivers who operate the same or similar vehicles, and drive similar mileages, should be purchasing roughly the same number of gallons each period examined. When using this method, adjust for (or at least consider) that different regions of the country can have wide swings in pricing.
Exception reports are a fast and effective method for tracking underperforming drivers and vehicles.
Monitor Purchasing Habits
A fuel management program will also provide data on the purchasing habits of your drivers, i.e., what they buy, when, and how. Here are some suggestions on which of these habits can increase your fuel expense.
Type of Fuel. Fuel is usually available in three grades: regular, mid-range, and premium. Unless you operate luxury or sport vehicles, your fleet can no doubt be operated using regular unleaded fuel. The difference in price can be as much as 10 cents per gallon between grades, and the math shows that significant savings can result in eliminating higher-grade purchases. For example, a 1,000-vehicle fleet, driving an average of 24,000 miles per year per unit, will accumulate 24 million miles each year. At an average of 20 mpg, this translates to 1.2 million gallons of fuel. If the price difference is a mere 20 cents per gallon, and the fleet uses premium fuel at a 10-percent rate, eliminating such usage can save $24,000 per year.
Full vs. Self Service. Except for a state such as New Jersey or Oregon, where self-serving fuel is not permitted, your drivers may be using full-service fuel. With numbers similar to the preceding example, another $24,000 may be available for savings.
Unauthorized Fuel Purchases. Although difficult to quantify, you are no doubt paying for at least some fuel purchased in violation of company fleet policy, or that is outright fraudulent. Fueling non-fleet vehicles (spouses’ or other family members’ cars), or buying fuel for equipment, such as boats and lawnmowers, can add additional thousands to your fuel expense. Some companies have policies that do not reimburse drivers for fuel purchased for personal use. Again, thousands of dollars can be saved.
Non-Fuel Purchases. The dreaded “beer and Twinkie” factor can waste precious company dollars. A significant percentage of fuel is purchased at convenience store/gas station locations, where drivers are often tempted to buy non-fuel items (ranging from food to lottery tickets). Your fuel management vendor no doubt provides data showing such spending, which can be tracked via exception. Additionally, this practice can also be controlled by placing a “fuel only” control on fuel cards. Looking for “inside purchases” can also help pinpoint violations (the large majority of fuel merchants permit “pay at the pump,” card-swipe transactions. But drivers can circumvent this by simply choosing the “pay inside/credit” option, provided the clerk is willing to ring the entire transaction up as fuel).
Track Usage Carefully
Fuel reports are a critical factor in controlling overall fleet fuel expense. Exception reports can be a starting point in the search for cost savings, beginning with the exceptions themselves. Further research and analysis will lead to the source of the discrepancy.