Do You Take Good Care of Your Fleet Orchard?

In today’s cost-conscience fleet industry poor performing fleet managers don’t last long. It’s a job-health exercise for each of us to regularly stop and check the fleet orchard for low hanging fruit. We should all be in the habit of stepping back every quarter and searching our entire agency for fleet related deficiencies, fix the easy ones first and form strategies to address any others. Ask yourself: If they hired a new fleet manager tomorrow, what would s/he fix first? Wouldn’t it look better for you to be the hero than “the new guy?”

Here’s a great example of low hanging fruit: A Municipal fleet, I’m very familiar with, used to operate eight back hoes in four departments. Each department owned two so they would never without one in case of an emergency (you see, it’s forbidden to ask another department to borrow their extra). Through a utilization analysis you find that the combined use on all eight totaled only 350 hours/year. Unfortunately, this is more the norm than the exception in most government fleets, are you brave enough to challenge this practice? In the private construction industry, if a manager can’t guarantee the utilization of at least 1,000 to 1,400 hours/year on a backhoe, it isn’t cost effective to own that asset, it’s rented or leased. Why own an asset when the capital depreciation and maintenance costs are greater than rental costs.

Before you can pick the low hanging fruit, you first need to meet with a representative of the “pickers union.” If you first go to the rank-and-file with your suggestion to share assets with another department and help balance utilization, you’re liable (no – certain) to be tarred and feathered. You have to start with the picker’s union’s equivalent, a director and/or a manager. Most directors and managers only understand service response levels they provide, seldom do they understand total cost of ownership. If you show the existing costs-of-ownership for eight expensive, underutilized assets and break that down by the 450 combined hours, they should be able to correspond the cost per hour of the services they provide. If you have AVL/GPS on the assets you can prove that 200 of those hours were ‘roading’ the unit to and from the work site. Just to give you some scale:

• (8 back hoes @ $55,000/ea. capital cost) + (8 back hoes @ $3,000/yr./ea. O&M costs X 10 years) / 10 yr. straight line depreciation schedule = $68,000/year cost of ownership / 350 aggregate hours/yr. = $194/hour total cost of ownership for these 8 assets over a 10-year depreciation schedule. This disproves the age-old paradigm; “If it’s parked, it ain’t costing me nothin!” Add operator labor and benefits + manual laborer’s wages and benefits, standing and watching a hole get dug, The real costs of ownership begins to be undeniable. In the private sector, a manager subtracts this cost from the per hour charge for the services s/he’s performing to calculate the company’s profit margin related to time (materials are extra). In the public sector the manager calculates the cost of the service, seldom viewing the time factor as a controllable variable. Thus, seldom understanding the real cost of ownership.
• Now, you show them the 200 hours/yr. of ‘roading’ cost the agency $38,800/year ($194/hr. X 200 hrs.) to joy ride to and from the work sites. That’s 57% of total cost of ownership. OMG! How many private sector managers would still have a job after the CEO learned of that cost…

This type of information sharing should get a director’s attention instantly. Compare that to the rental rates from the local Ho’s-R-Us down the street and the director is ready to start listening to your cost logic. However, always present this type of information to a department head or manager in a humble, helpful and informative way. You’re just trying to help. If you imply they’re doing something wrong, they instantly turn off hearing your suggestions.

You propose managing this equipment need through a shared motor pool and charge by the hour, day or week for actual usage. You stock your motor pool with three backhoes and lease a fourth during peak season. You may rent one for major projects or emergencies a couple of times each year. If utilization is still low, sell another one and only keep two in the pool. If a back hoe is not available when needed, you go rent one and provide it to your customer at your set internal rates. You guarantee availability at the rates you charge internally. Your shared pool absorbs the extra cost and your customer is happy. It’s still cheaper than owning an extra back hoe that sets in the pool unrented 80% of the time. With the std. private sector profit margin of 15%-25% for rental companies, your public sector non-profit rental rates should be a no-brainer for your customers. You just saved your agency $40,000/yr. and didn’t reduce any net service levels to the taxpayer. You’re a hero to upper management. However, you just got de-friended from the rank-and-file’s Face Book page because they now have to plan their day before they start work, just like the private sector.

What do you think; are there some low hanging fruit in your organization?