Is Now the Time to Rightsize Your Fleet?
The task of cutting fleet costs while remaining productive and providing quality service to customers can be challenging. Over time, rightsizing has become a go-to strategy to accomplish just such a task. To gain greater insight on the topic, UFP recently spoke with three fleet professionals about their take on rightsizing and the strategies that have worked for their organizations.
Dan Remmert, senior manager of fleet services for Ameren Illinois, said that rightsizing usually is driven by a need to reduce costs, but it’s important that fleet managers know exactly what they’re trying to achieve before they begin.
“Having the right number of vehicles or equipment is one aspect,” he said. “A second main driver is having the right type or size of vehicles. Before you start on a rightsizing effort, understand what you are trying to fix.”
A fleet also will want to consider what their business will look like in both the short and long term, advised Ed Powell, assistant manager of business intelligence and analytics for fleet management provider ARI (www.arifleet.com). For example, will more units be needed, or will shifts in your operating dynamic present opportunities to streamline your fleet?
“Determine what ‘optimal’ looks like, then adjust your fleet replacement strategy accordingly to help achieve that vision,” Powell said.
Matt Gilliland, director of operations support for Nebraska Public Power District (NPPD), recommended gathering data at arm’s length.
“Any data about utilization and destination is important,” he said. “If multiple assets are consistently attending the same location, maybe sharing should be considered. If utilization is low, asset retirement, reassignment and replacement with more applicable assets should all be examined.”
Remmert suggested setting up metrics with a balanced approach in mind, beyond just fleet assets. Utilize other points of data that may be easily accessible, such as employee-to-asset ratio, asset to widgets completed or fuel data, he noted. At the same time, don’t just dump data on customers.
“Understand the nuances,” Remmert said. “What defines utilization? Is it vehicle movement or, in the case of an aerial, how many times the boom is activated? What defines a trip?”
At Ameren Illinois, fleet models its data to establish the lowest cost of ownership for each group class. “This is the basis for our capital funding request during our five-year allocation meeting,” Remmert said. “Each year, we strive to keep each group class within the 70% life cycle. We make sure not to focus replacements on only a few group classes; our replacement plan levels spend across all group classes to minimize inconsistent purchase quantities in any given year.”
NPPD, which operates more than 1,000 units, uses an asset management tool that fleet engineered within SAP, its corporate enterprise management system. The system monitors factors – age, consumption (hours and/or miles), and reliability (cost and breakdown time) – and forecasts a score with a corresponding replacement year forecast.
The results drive NPPD’s capital replacement budget. Upon arrival of the new assets, the majority of old units are retired at auction. There are some instances in which a retired asset will be reassigned. For example, in situations where the fleet needs to grow, some young vehicles with high mileage might be assigned to lower-use areas to drive any remaining value from the assets. Only 2% to 5% of NPPD’s retiring assets are reassigned, according to Gilliland, but this is a resource for fleet growth if needed.
Utility fleets should take the time to identify when a new asset is less costly than a currently owned, older asset.
ARI has seen a growing number of utility fleets focus on the economic service life of each individual asset to help optimize their replacement strategies. Economic service life is the ideal length of time a vehicle should be kept based on capital and operating expenses, with the goal of achieving the lowest average annual cost.
“From there, you can begin to look at assets critically and determine the vehicles most important to maintaining operations,” Powell said. “This insight also helps identify old assets that can be eliminated as well as those units which may be underutilized and can potentially be reassigned or relocated to an area/division in need.”
Rightsizing may be the right choice for an organization’s fleet, but it’s important to keep in mind that rightsizing isn’t just a fleet project; it will require buy-in from other stakeholders throughout the organization, such as procurement, operations and management.
“Collaboration is key,” Powell said. “Try to be as hands-on as possible and involve all your fleet stakeholders – especially frontline employees – to avoid a disconnect of what looks good on paper and how it is actually being used in the field.”
Remmert agreed, noting that the biggest impact a fleet manager has is knowing their customer and keeping a seat at the table with senior leadership.
“Utilization may seem like a logical approach to rightsizing, but it needs to start at a higher level,” Remmert said. “What does your customer need to perform their job? What do the equipment needs of the crew really look like? Has your company set standards for this, or do you have disparities across work locations? Once you know this, determining the right size and quantity of assets is easier. Fleet services then becomes a partner rather than ‘the repo man.’”
About the Author: Grace Suizo has been covering the automotive fleet industry since 2007. She spent six years as an editor for five fleet publications and has written more than 100 articles geared toward both commercial and public sector fleets.
Keeping the Fleet Fresh
Most organizations today are optimizing the life cycle of each of their fleet assets to ensure they don’t let vehicles and equipment linger well beyond their useful life.
Fleet management services provider ARI has been transitioning a growing number of customers to a consistent annual replacement methodology in an effort to help them better control operating costs and smooth capital forecasts.
“This methodology examines several factors to help you avoid replacing too many – or too few – vehicles during a particular cycle,” said Ed Powell, assistant manager of business intelligence and analytics for ARI. “By replacing a consistent number of vehicles on an annual basis, you’re able to avoid peaks and valleys often associated with replacing a large number of units simultaneously to better control and forecast operating costs. This consistency also increases reliability and, in turn, eases operational struggles.”
In addition, outsourcing may be an option for unique units that serve as a niche need. “For those job functions that aren’t core to your business, explore whether or not you can outsource for those ultraspecialized units for the few times when they’re necessary,” he said.