Managing 4 Hidden Costs in a Decentralized Fleet

In essence, fleet vehicles are tools designed to help employees complete a specific task. Whether this task is to simply get someone from point A to point B, or to complete sophisticated tasks like utility or rail work, vehicles are revenue generating, not revenue depleting.

Some companies choose to operate in a centralized fashion with policies, procedures and best practices aligned across the entire fleet, and management developing the appropriate specifications and rules. Many utility fleets, however, are decentralized, operating in a hub and spoke model with the corporate office outlining policies and procedures, but with each location implementing their own budget and operating conditions independently.

Centralized fleets provide consistency and transparency throughout the fleet to drive down costs and improve operations. The difficulty for decentralized fleets is achieving the same results and ensuring the following four hidden costs do not derail operations and contribute to additional costs to fleet operations:

Hidden Cost #1: Not Following Recommended Preventive Maintenance Schedules

Once a corporate fleet policy has been established with the recommended preventive maintenance (PM) schedules, it is imperative that measures are in place to ensure they are followed. According to research by ARI’s Strategic Consulting group, units with late preventive maintenance services incurred monthly costs that were 47 percent higher than units with on-time preventive maintenance services.

Once a PM schedule has been established for a specific vehicle type and segment, regardless of operations being centrally located or dispersed across multiple locations, keeping drivers accountable in following PM services is key to driving down costs.

Hidden Cost #2: Poor, or No Management of Fuel

Fuel usage can amount to as much as 80 percent of a fleet’s variable costs and as much as 60 percent of a fleet’s operating budget. A sound written fuel policy from the corporate headquarters that each location must follow will improve fuel efficiency of the fleet to drive down costs.

In addition, driver behavior should be managed on a local level to reduce fuel consumption. According to the U.S. Department of Energy, speeding, rapid acceleration and harsh braking can lower gas mileage by 15-30 percent at highway speeds and up to 40 percent in stop-and-go traffic. For each 5 mph increase a driver goes over 50 mph, the cost to a company is an additional $0.17 per gallon of gas.

Training drivers on proper driving behavior together with using telematics to track this data and make improvements will significantly reduce fleet fuel expenses.

Hidden Cost #3: Manage Engine Idling

Engine idling creates unforeseen expenses in two main categories: increased fuel and maintenance costs. Idling wastes more than half a gallon of fuel per hour, resulting in thousands of dollars needlessly spent on fuel. Idling for one hour also equates to approximately 30 mi/48 km of engine wear. Maintenance issues such as contaminated engine oil/sludge, accelerated engine wear, premature spark plug replacement, higher levels of carbon monoxide and hydrocarbon emissions, and damage to exhaust system components like catalytic converters (gasoline) and diesel particulate filters (DPF) can occur.

Depending on a vehicle’s use, streamlining engine idling decreases these fuel and maintenance costs in the long run. Having a company-wide policy that is carried out and followed through at each location will result in decreased fleet costs.

Hidden Cost #4: Not Maximizing ROI

The vehicle lifecycle is made up of three main phases: acquisition, operation and remarketing. Decentralized operations may look at this as a day to day function depending on when a vehicle needs to be retired or a new vehicle needs to be ordered. Centralized operations look at this process holistically to ensure the process meets the needs of the business and is efficient and cost effective. Often, at a local level, decisions are made that are good for today, tomorrow or next week; these decisions are not always optimized to meet the business’ broader long-term goals and may add to total cost of operations.

When these decisions are standardized throughout the fleet, value is added to the business. Knowing the specific operational needs of each business unit and reviewing the existing specs to make sure the fleet aligns with the business requirements of the organization helps create a foundation from which to fully maximize ROI.

Conclusion

While a corporate fleet team develops policies and procedures to be carried out by the local field offices, it can be difficult to know what policies are creating real impact. Using real-time data and analytics to see what’s happening across the fleet today and what’s likely to happen tomorrow allows organizations to proactively manage the potential impact before costs add up.

Field managers can use data to track the lifecycle parameters established by the corporate fleet team to maximize ROI and ultimately drive down expenses so any hidden costs that do come to light can be effectively managed.

 

To learn more about hidden costs contributing to a fleet, click here to read our white paper, Cost Certainty, Cost Escalation & Cost Reduction.