The vehicles in your fleet are a critical part of your business. Whether you’re using them to deliver goods, repair infrastructure, or service customers, they’re more than just cars and trucks. They’re tools required to do a job. But the way you conduct business is changing. You need to remain agile and do all that you can to stay ahead of your competition.
As a growing number of organizations employ leaner operations in an effort to do more with less, fleet vehicles often remain in service well beyond their effective lifecycle. As a result of this extended use, vehicles begin to break down, operating costs escalate, and productivity grinds to a halt, ultimately leading to disgruntled customers and lost revenue.
Change can be challenging but often, complacency is worse.
What if you could replace vehicles on a consistent basis to help improve reliability and better control operating costs, all while staying within your annual operating budget? And what if you could deploy a proactive cost containment strategy based on your fleet’s operating trends to help the drive behavioral changes necessary to optimize the effective service life of your vehicles and better controls operating expenses. To accomplish this, you need to view fleet the same as you do any other strategic asset.
Inconsistent Replacement Cycling Creates Complex Challenges
That’s the approach one of our transit clients embraced in their search for a solution to their replacement cycling challenges. Operating costs were climbing, and extended downtime was hampering their ability to service customers. The root cause of these issues stemmed from the average age of the company’s predominately light-duty fleet.
The average age of the fleet was eight years, with approximately 25 percent of the fleet exceeding 10 years in service. With more than 800 vehicles in service, the customer knew the anticipated wave of replacements would far exceed their fixed annual budget of $1.4M for vehicle purchases.
An Unconventional Solution to an All-Too-Common Problem
With a long-term goal of improving reliability, avoiding downtime, and sticking to the annual replacement budget, the client engaged our Business Intelligence & Analytics (BI&A) team to help develop an innovative solution that would maximize the impact of the resources available.
The customer and our BI&A team conducted a comprehensive analysis of numerous factors such as budget allocation, fleet funding requirements, replacement needs, vehicle criticality, and potential impact on the business. Based on the results of this analysis, the group began exploring possible methods to effectively replace the company’s aging fleet vehicles.
Together, they determined that neither leasing (insufficient budget) nor purchasing (too few vehicles replaced annually) exclusively would achieve the desired result. Instead, a hybrid methodology comprised of both purchasing and leasing units was the solution to this challenge while remaining within budget.
Ultimately, together we identified a multi-faceted acquisition strategy which alternates leasing and purchasing vehicles on an annual basis. Additionally, the team developed a holistic solution to help minimize the cost impact and operational challenges associated with the aging units as they await replacement.
The Better Way
Armed with valuable insight about their business and supported by comprehensive analytics, our customer’s management team could accurately forecast the outcome of virtually any acquisition scenario. They were able to determine the precise number of vehicles they could replace within budget limits, and flag the units most in need of replacement. The ultimate outcome was creating a cost-effective and reliable fleet that helps the business generate revenue.
For additional advice on replacement cycling and capital funding, download ARI’s whitepaper, “Achieving Greater Certainty in Capital Forecasting.”