With the current uncertainty about the overall direction of the national economy and the vitality of future market conditions in the latter half of this year and into calendar-year 2024, cost containment is the issue of the day.
Fleet managers are increasingly willing to recount the rising pressure they feel from management to examine how to contain or reduce fleet costs.
Fleet costs are necessary, but they’re substantial. Although varying by company, fleet costs typically fall in the top 10 corporate expenses; for some companies, fleet is one of the top five expense categories. As a result, fleet is often an initial places to which management looks to identify areas to control costs.
Costs Proportional to Size
When you think about it, total fleet costs are proportional to total fleet size. Expanding on this supposition, a fleet's total costs are directly proportional to the total number of vehicles in operation, which, in turn, drives all fixed and operating costs, such as fuel, tire expenses, maintenance, depreciation, accident repair costs, etc.
If overall fleet size can be reduced, all other cost categories will decrease correspondingly.
In today’s environment of constrained sourcing and restricted OEM allocation of replacement vehicles, opportunities do exist to reduce fleet costs by right-sizing a fleet. Several factors support the viability of this cost reduction strategy:
- The restricted volume of replacement vehicles availability from OEMs brings to question the merit of assigning a company vehicle to employees who only marginally meet the eligibility threshold of annual business miles driven. Would an employee reimbursement program be a better alternative for these marginal drivers?
- A widespread acceptance of the work-from-home business model provides rightsizing opportunities.According to IRS tax rules, the first trip and last trip of the day from an employee’s home are viewed as personal miles even if the home is used as a home office. This is just the rule. Consequently, this rule reduces the number of business miles driven annually, often the criteria for being assigned a company-provided vehicle. Would a driver shifted to a monthly allowance or cents-per-mile reimbursement program be a viable alternative for some work-from-home employees who have lower than average annual business miles?
- The widespread use of virtual meetings has likewise reduced annual business miles driven, especially since fewer meetings are occurring at customers’ offices.
Might some of these situations be considered rightsizing opportunities by shifting drivers to reimbursement program?
‘Fleet Creep’ Grows Over Time
One fact of life in fleet management is that fleet inventories often grow over time. It’s called fleet creep. What’s driving fleet creep today are vehicles kept in surplus “just in case.” Indeed, when replacing vehicles, some companies have been known to transport the out-of-service vehicles to storage “just in case.”
Even though securing all the new vehicles needed is difficult, it is more than plausible that many fleets have more vehicles in their possession than the company requires.
Certainly today, surplus vehicles are sometimes needed because allocation ordering limits companies to replace only a portion of what they really need to replace. Additionally, catastrophic failures or accident damage require quick replacement vehicles, and pulling one from surplus is a quick solution versus buying out-of-dealer stock.
However, these exceptions do not mean best practices for vehicle utilization should be ignored.
According to historical fleet data, on average, about 5-10% of fleet assets are underutilized due to operational inefficiencies. This number is still valid today, even in an era of allocation ordering.
Resistance to Possible Solutions
At times, identical make/model of vehicles in the same fleet may have vastly different rates of utilization.
For example, a light-duty pickup in one department may see usage averaging 18,000 miles per year, while an identical unit in another department is used only 5,000 miles per year. If the vehicles are geographically near one another, does it make sense to “rotate” or exchange the assignments at some point to balance out usage?
The answer is: sometimes.
Fleet operations are never that easy, and rightsizing is a sensitive issue within a corporate fleet. What looks great on paper in terms of potential cost reductions may not seem a great idea to company drivers or the user-group managers operating those units.
As any long-time fleet managers will attest, achieving the proper equilibrium between vehicle inventory and required service levels is easier said than done.
Identifying Low Utilization
Fleet size fluctuation is a fact of life in fleet management. Fleet size reductions often result from decisions made at management levels much higher than the fleet manager. For instance:
- Sales departments experience cutbacks, requiring defleeting of vehicles.
- Business units or product lines are sold or shut down.
- Installation and service operations are outsourced.
As a result, managing a fleet is a juggling act that requires balancing the differing needs of senior management, vehicle user groups management, drivers, and vehicle requirements in an era of availability constraints.
The traditional approach to fleet rightsizing has been to conduct utilization analyses measuring each unit in operation by miles driven or engine hours operated, thereby identifying vehicles that fall below a predetermined usage threshold.
However, the devil is in the details. A vehicle may be underutilized for a variety of justifiable reasons. In addition, it is important to recognize that a vehicle should not be judged solely on its utilization history. Some low-utilization units are mission critical to the fleet application regardless of how few miles they travel.
When underutilized vehicles are identified, fleet managers often discover business units are keeping “spare” vehicles just in case another vehicle breaks down. It’s called “vehicle hoarding” and is especially an issue at decentralized fleet operations with vehicles at nationally dispersed branch locations.
In the final analysis, fleet managers should run regular exception reports analyzing monthly business mileage to determine if drivers continue to qualify for a company-provided vehicle.
If a driver consistently drives less than the break-even mileage, rightsizing demands the vehicle be reassigned and the driver shifted to a monthly allowance or cents-per-mile reimbursement program. This scenario often occurs when field territories are restructured, and territory size changes reduce annual business mileage driven.
It’s important to realize that fleet inventory management is an ongoing process. The fleet manager is responsible not only for identifying and acting upon opportunities to maximize fleet utilization inventory management, but also for participating as an integral part of any cost containment fleet strategy.
Originally posted on Automotive Fleet