By Steve Saltzgiver, Fleet Success Ambassador
In Parts 1 and 2 of our “Fleet Management Best Practices” series, we discussed best practices centered around VEHICLE ACQUISITION AND DISPOSAL and VEHICLE OPERATION MANAGEMENT. In this piece, we’ll discuss Vehicle Utilization Management. This is a set of key activities necessary to manage “depreciation” efficiently and effectively – which is undisputedly the largest expense in fleet management. The matrix below is a high-level summary of the key best practices related to vehicle utilization management.
A clear best practice is to establish vehicle utilization guidelines that asset users can easily reference as they perform their missions. Utilization guidelines (see example) are generally based on the “break-even” costs (Exception: Unique assets for emergency operations like SWAT, etc.) of operating an owned asset. By understanding the break-even point of assets, users better understand how these internal asset costs compare to low-cost alternative transportation options (See right-size section below).
The least desirable option to providing a transportation solution is the actual purchase of a physical asset. This may seem counter-intuitive to most people, but once an organization purchases a vehicle then it becomes a sunk cost and limits all other transportation options.
Think about this, there are basically two ways to pay for the use of assets — either “pay-as-you-go” or “pay-before-you-go”. When you purchase an asset outright, you are essentially paying for the asset in its entirety before you drive it a single mile. But if you use a “pay-as-you-go” approach you only pay for assets when it’s necessary. Purchasing assets represent the “pay-before-you-go” model, whereas all other options like motorpool, renting, leasing, personal mileage reimbursement, and public transportation represent a “pay-as-you-go” model. If you’re looking to maximize fleet expenditures, which model works best?
The ownership of a vehicle also increases the likelihood of an entitlement situation by the user which can negatively impact any future right-size initiatives to reduce low-use units when a fleet tries to remove an assigned asset. The more transparent a fleet manager can be with the establishment of utilization guidelines the better users understand the use expectations.
Lastly, each fleet should memorialize its established guidelines in a policy and procedure document that can be easily referenced by asset-using entities (See example below [1]). Moreover, documenting policies effectively facilitates the generational transition from Boomers to Gen-Z workers. Many policies regarding vehicle and equipment use can be found on the internet.
[1] https://www.usu.edu/policies/514/
This may seem obvious, but to establish utilization guidelines and enforcement – fleet management must accurately capture asset usage data. Asset usage data comes in many forms such as miles, hours, days used, the number of trips operated, total fuel used, load factoring, unavailability rate, lost revenue miles, the number of deadhead miles, minimal preventive maintenance events, tire/brake wear, age, and other repair history events indicating low use.
The data capture best happens with the efficient use of a Fleet Management Information System (FMIS).
Most FMIS applications allow fleets to set up their vehicle-use parameters, create standard reports, and run routine reports at prescribed intervals (i.e., monthly, quarterly, annually).
The typical data fields that aid in capturing the data necessary to effectively manage asset utilization may be as follows:
The primary purpose for capturing accurate data is to spot unusual anomalies or trends in the way assets are being utilized. These anomalies may be extremely low use (i.e., underutilization) or excessively used (i.e., overutilization). By quickly using data to better understand these anomalies, fleet management can proactively impact the fleet’s right-size and ultimately the total cost of ownership/operation (TCO) of its fleet assets.
By the very definition of fleet management, ‘right-sizing” is an essential exercise every fleet manager must perform routinely. With depreciation as the single biggest cost in the TCO model, having an optimal number of assets is vital to mitigating and managing finite fleet expenses. The fleet costs can be tied directly to the cost of the organization’s fleet[1]. As one conducts a right-sizing exercise, the primary objective is to review asset utilization anomaly trends and segregate the data into tranches based on use. A good place to start is to review assets utilized less than 50 percent of the fleet average use. As an example, if the average utilization for a class of assets is 1,000 miles per month, then your charge is to look at those assets less than 500 miles per month.
Once separated, those assets over 1,000 miles per month can be placed in a bucket called, “retain” in which these assets are essential to the operation. Those assets with less than 500 miles can then be reviewed with department users to deem their “criticality” to the organizational mission.
The term criticality is defined as other vehicle usage attributes essential to an operation outside the normal metrics (i.e., miles, hours, days, trips, etc.) traditionally applied to justify its use. These criticality measures might be items such as when the asset:
Although a bit subjective, “criticality” can be measured using a scoring criterion with 3 as essential, 2 as very important and 1 as important. This simple criticality scale allows utilization data to be further segmented into analysis buckets to review with user departments with the options that must be considered prior to justifying a purchase (or retention) of an underutilized asset:
Lastly, employing an asset leasing strategy – with a carefully negotiated exit strategy – is the best alternative to purchasing assets. This is due to the flexibility of eliminating underused assets discovered during any right-size study. Moreover, the allies of any right-size study which includes vehicle “right-typing”[2] and “right-fueling”[3] should be part of the overall analysis to ensure the most optimal asset is deployed for its intended mission.
The table to the right is an example of a spreadsheet depicting the overall utilization anomalies that must be investigated by the fleet management group.
These analyses can be created using the data captured in the FMIS in a routine report that is run at specific intervals.
Once the data anomalies are prepared and the “retention” assets are removed, then the fleet can separate the remaining units into two buckets for analysis which include, “question” or “eliminate”. The graph to the right demonstrates visually how these anomalies may appear.
Once this information is prepared the next step is to include the vehicle-using department in the right-size conversation which can be in the form of a user survey or data discussion.
The purpose of including the users is to gather their feedback pertaining to the actual use of the assets before any permanent action is taken. A terrific maxim to remember in any right-sizing study is, “Farming looks mighty easy when your plow is a pencil and you’re a thousand miles from the cornfield[1].”
Once both the fleet organization and user department reach a consensus, then the assets in question should either be retained, transferred, or eliminated from the fleet.
Finally, a well-run fleet operation also includes utilization metrics in its dashboard to provide visibility to these anomalies to investigate and initiate action. With the introduction of telematic technology, vehicle utilization data has become much easier to access for these utilization and right-size analyses.
Part of a well-orchestrated right-sizing program is the implementation of a vehicle reassignment and disposal policy. The reassignment policy should cover various scenarios where underused assets can be transferred between user departments. Care should be taken to ensure asset transfers make sense and inappropriate or unsuitable assets are not used (e.g., Transfer of ¾- ton pickup when the sedan is suitable).
Further, every fleet organization must have a disposal mechanism in place to systematically eliminate vehicles quickly to minimize unnecessary expenses. These disposal mechanisms might include a well-crafted service-level agreement or formal contract with either a third-party government agency (e.g., Surplus property), a remarketing vendor, or an auction company.
Fleet management professionals must always keep in mind – every second a vehicle sits idle, it incurs unnecessary depreciation expenses. The quicker an unused asset is removed, the sell proceeds are returned to the replacement fund, and the less likely these units will be redeployed in an unsuitable and costly application.
Lastly, a well-managed utilization and right-sizing program have a symbiotic relationship with a well-managed asset replacement and user charge-back program. Without a timely replacement cadence and a user charge-back mechanism, a hoarding and entitlement phenomenon often occur within the organization. If users know they can’t get vehicles timely, then they tend to hold on to inefficient assets under their charge. The bottom line is, good utilization and right-sizing best practices save money and maximize TCO.
Let me know your thoughts. I welcome your comments and feedback. ssaltzgiver@rtafleet.com
[1] President Dwight D. Eisenhour. https://www.brainyquote.com/quotes/dwight_d_eisenhower_112033?src=t_farming
[1] https://mercury-assoc.com/insights/
[2] Definition: Deploying the exact right-type vehicle for the application. Not transferring an unsuitable asset to replace a low use unit.
[3] Definition: Employing the most suitable energy propulsion or fuel option to propel the asset to complete its intended vocational mission (e.g., electricity, natural gas, propane, gasoline, diesel, hydrogen, etc.)
To learn more about how RTA’s solution can help you with your fleet’s vehicle utilization management, schedule a demo with our Sales team!