Management

The conventional wisdom for most utility companies is to purchase their fleet assets outright.

And there are some advantages to that approach: potentially lower vehicle acquisition costs, no debt added to the balance sheet, and greater control over resale timing and pricing.

But as utilities see their profit margins getting squeezed, their fleet departments are becoming bigger targets for budget cuts.

So, when you’re under mounting pressure to do more with the same money as last year – or even less – how do you manage? How can you work within tighter financial constraints without sacrificing your fleet’s performance and reliability?

One option is leasing at least a portion of your fleet. But how do you decide which assets to lease? When does leasing make financial sense? And when doesn’t it?

UFP recently spoke with Charlie Guthro, vice president of global strategic services at ARI (www.arifleet.com), a fleet management company that works with several utility companies in North America, to get his perspective. Here is an edited version of our conversation.

Workplace ergonomics have been on employers’ radar for 20 years, but even now, ergonomic-related injuries remain a costly expense – one that’s growing due to an aging workforce, current worker shortages and inexperienced industry newcomers.

“As the age composition of the workforce changes, that does affect industry,” said Eric Bauman, principal technical leader and program manager for the Occupational Health and Safety Program at the Electric Power Research Institute (www.epri.com). “Now that early Baby Boomers have retired and the middle Boomers are retiring, the industry has been hiring new workers who tend to be less experienced. We’ve seen an increase in injuries in this younger age group.”

The primary causes of employee accidents haven’t changed much in the past two decades. “It’s the slips, the falls, the trips,” said Mark Stumne, director of truck and upfit at Element Fleet Management (www.elementfleet.com).

Bauman agreed. “Sprains and strains showed up in the first year or two in our industry injury database as the largest single category of injuries,” he said. “It’s continued since 1999. Sprains and strains are something we can do something about, and this industry has supported ergonomic research since then.”

Despite the seeming intractability of these types of injuries, there are myriad products available in today’s marketplace designed to help alleviate them. Where is a fleet to start?

Dale Collins, CAFM, fleet services supervisor for Fairfax Water in Virginia, faces an increasingly disturbing and familiar scenario in the next handful of years: Five of the eight people working in his two repair facilities will retire.

The good news is that his organization is “pretty attuned” to the so-called Silver Tsunami of aging baby boomers; a quarter of the organization will retire within the same time frame.

“So, we’ve been challenged to create some kind of succession plan,” Collins said, “to figure out the best way to approach this, so we can capture and transfer our institutional knowledge and technical expertise. Then have a good recruitment plan and hire top-notch technicians.”

Ask anyone in literally any industry today, and the story is the same: There simply aren’t enough willing and able workers to handle the roles currently filled by the older set. It’s particularly tough in skilled labor; there can be misconceptions about salaries, opportunities and advancement possibilities. There also can be lack of awareness about the need to attract and train students long before they graduate high school. Due to the dearth of candidates, companies are having to take on employees at ground level – and bump up salaries and benefits.

“There’s been a complete shift,” said Lucas A. White, interim associate dean at Madison Area Technical College School of Applied Science, Engineering & Technology. “Organizations are desperate and can’t be as selective now. The industry has had to increase wages, knowing that they aren’t going to find somebody for $10 to $12 an hour. The students know they can get that in fast food, without a skill.”

For organizations contemplating a fleet rightsizing effort that won’t anger end users, here’s some advice: use solid data, convey information clearly and seek understanding.

“At the end of the day, it’s ultimately about communication,” said Charlie Guthro, vice president of global strategic services for fleet management company ARI (www.arifleet.com). Prior to a rightsizing initiative, operators won’t necessarily be saying that the fleet has extraneous equipment, while others in the company may be focused on budget. But when fleet professionals get to know their internal customers and their needs, Guthro said, greater collaboration is possible.

“When you rightsize a fleet, it gives organizations more opportunity to hold on to their most critical resource: their people,” he said. “You have to approach it from, ‘We’re not here to do things to you, but for you, and we want you to be involved.’”

That’s easy enough to say, but it can be challenging to deliver, especially with new management – those who want to make a definitive mark through changes without perhaps fully surveying the landscape or considering long-term impact. This can affect productivity and diminish employee buy-in.

Imagine, for example, a utility fleet that cuts back on lesser-used equipment, believing it will be available as needed from external rental providers.

As drivers and fleet professionals explore the possibilities and realities of vehicle subscription models, they’re in good company. Fleet management organizations also are kicking the tires of the concept – including how it might eventually apply to utility fleets.

Under the subscription model, subscribers have access to vehicles on demand, often with insurance and maintenance included, and can switch out vehicle models, too.

Eric Schell, product manager for driver tools at Element Fleet Management (www.elementfleet.com), and Jayme Schnedeker, Element’s director of fleet products, said they are in discovery phase with the idea and looking to Element’s experience with car sharing for cues.

“For companies like us, as well as for manufacturers, the question is, where do we fit into all of this?” Schnedeker said. “How can we provide services for our core customers that make financial sense for them?” The subscription model provides flexibility in areas where there hasn’t traditionally been any, he added, and with individual consumers increasingly using services such as Uber and Lyft, those expectations of convenience are being transferred to work life.

Traditional fleet pools and micro car-sharing markets give fleets a taste of multiple drivers using one vehicle fractionally, Schell said. Even so, he believes, adoption of the subscription model in a broader sense would require “a fairly significant cultural change of how our customers are looking to do business today.”

The potential for lower acquisition costs, greater control over resale pricing, no debt added to the balance sheet – these are a few advantages of purchasing vehicles outright, which traditionally has been the prominent fleet acquisition strategy for many utility companies.

But according to Paul Lauria, president of Mercury Associates (www.mercury-assoc.com), a fleet management consulting firm based in Rockville, Maryland, there’s also a big downside to cash: It can lead to “suboptimal decision-making” that undermines your fleet’s performance, especially in an era of low interest rates. Lauria contends that paying for equipment over time – whether with a loan or lease – or as needed with short-term rentals creates a more flexible structure where fleet departments can improve the age, condition and performance of their vehicles at a significantly lower total cost of ownership.

“Any organization that wants to optimize the total cost of ownership of its fleet has to figure out the right balance of capital and operating expenditures,” Lauria said. “A lot of organizations don’t do this; they underspend on fleet replacement costs, with the result that they overspend on fleet operating costs.”  

So, why has the utility industry traditionally resisted financing equipment purchases? In what ways does cash purchase impact fleet decision-making? And how can fleets strike a more optimal balance between capital and operating expenditures? During UFP’s recent conversation with Lauria, who has advised hundreds of government and utility fleets since 1985, we dug deeper into these questions. Here are edited highlights.

When he’s off the clock, John Doyle, senior health and safety adviser at Florida Power & Light, drives a Ford Explorer as his personal vehicle. The SUV is equipped with a backup camera that audibly alerts him when he gets too close to an object.

When Doyle sometimes drives his wife’s car – which has a backup camera but no audible alerts – he still finds himself “waiting for the backup camera to tell me to slow down.”

Doyle’s experience provides a good example of an issue utility fleet drivers across the country are facing these days. They may have all sorts of tools and options on their personal vehicles that aren’t available on their work vehicles, which can potentially lead to a habit of relying on the tools and options – even when they’re not there. 

“People are gravitating towards using the technology to support the way they drive,” said Art Liggio, president and CEO of driver training company Driving Dynamics (www.drivingdynamics.com). “We see people come into our training programs who are looking at the backup camera monitor instead of the mirrors. If the monitor hesitates, they freeze. They don’t know what to do.”

Recent statistics back up the idea that the wealth of technology and safety features in today’s newer vehicles isn’t lowering accident rates. In 2016, 37,461 people died on U.S. highways, while 2015 saw the biggest jump in accident deaths in 50 years, according to the National Highway Traffic Safety Administration (www.nhtsa.gov).

It’s no secret that today’s utility fleets have encountered difficulty finding job candidates with the appropriate training, experience and technical skills. And not only that – once qualified candidates are hired, those workers can be wooed by other companies offering greater salary and benefits packages.

So, how can you find and keep the right candidates for your fleet job openings?

Those in the know recommend partnering with area technical schools and colleges to ensure the right skills are being taught – and the right candidates are being snapped up early. On the other end of the spectrum, they recommend providing current employees with training and career development opportunities to keep them engaged.

“There’s a lot of poaching going on, especially on the utility side,” said Jason Ball, who worked as both a heavy-duty mechanic and fleet manager before taking the helm of Utility Training Group (www.utilitytraininggroup.com) less than two years ago. Specialized on-the-job training – delivered by someone like Ball or an OEM representative – sweetens the pot by helping workers learn new skills, gain confidence and stay up to date on the latest technologies.

But it’s important, Ball said, to make sure those conducting the training have the right experience, in addition to good references.

It’s a common occurrence for utilities and contractors: A piece of heavy equipment is needed, but it’s not immediately available in the fleet, so the project manager rents what’s required. But that may not always be the right strategy – especially when the rental is done outside the fleet manager’s purview.

“I have seen cases where equipment was rented for lengths up to 27 months and turned back in to the rental store,” said Daniel Fitzpatrick, fleet manager for NorthWestern Energy, which provides electricity and natural gas to more than 700,000 customers in Montana, South Dakota and Nebraska. “When this happens, you lose any rental credit and the equipment.”

Paul Lauria, president of fleet management consulting firm Mercury Associates (http://mercury-assoc.com/), has seen it too. “One of the problems we see, particularly in utility companies, is they allow business units to rent equipment to fill a temporary need,” he said. “Two years later, the rental unit is still in the fleet and no one has been paying attention. It would have been cheaper to purchase and then dispose of it.”

Granted, haggling over a purchase or evaluating the merits of rental versus ownership may not make sense when thousands of customers are without service. So, while there likely are no hard and fast rules that utilities can develop to address this issue, following some broad principles can help.

“It makes financial sense to own your equipment,” Fitzpatrick said. He tries to purchase any rental equipment at a reduced price when the rental ends, or when money has become available. “Where a buyout is not an option, focus on the interest rate and controlling costs in the short term.”

Several years ago, when gas prices were higher and an industry need arose to reduce costs and seek alternative solutions, conversations about harnessing the sun intensified. Combined with advances in electric vehicle technology, the possibilities of what manufacturers and fleets could do in this realm began to grow.

Solar power began to be used to extend the range of some electric and plug-in hybrid electric vehicles. And a full-size electric pickup truck using solar to extend its range was introduced at the 2014 North American International Auto Show.

Given the evolution of solar power use in vehicles over the years, where are we today?

As it turns out, on a slightly different course than one may have assumed. Rather than focus on the use of solar to add range to electric vehicles, utility fleets are, for example, adding panels as components of larger energy management systems. Solar power may be used to recharge vehicle starting and auxiliary batteries. It also can supplement battery charging while a vehicle is being driven or while it’s stopped – a valuable feature where legislation may prohibit idling. Additionally, solar power paired with an inverter system converts DC battery power to AC household power to charge cordless tools, laptops, test equipment and other work truck loads that require AC power without draining the battery.

Developing an effective approach when it comes to a strategic replacement cycle is a challenge that every fleet manager faces, regardless of the kinds of vehicles or equipment they may manage. The ability to gather and analyze data about your fleet and understand exactly how your fleet is performing has made the run-a-vehicle-into-the-ground approach not only woefully out of date, but it also has revealed just how expensive it is when compared to a well-designed replacement cycle.

The goal for every fleet should be to replace a vehicle before maintenance costs and downtime begin to rise, and at a time in the vehicle’s life when resale values remain meaningful. Determining how to reach that goal can vary from fleet to fleet, but by implementing an optimal replacement cycle for each vehicle or segment of vehicles in a fleet, a fleet manager can realize tremendous benefits and advantages, ranging from minimizing downtime and lowering operating costs, to keeping up with the fast-changing safety and technology features in more recent models, ensuring the safety and comfort of the fleet’s drivers in the process.

So, what considerations and best practices should you adopt in order to get the most from your replacement cycle strategy and experience the benefits of lower operating costs and optimal total cost of ownership?

When the time comes to add new vehicles to your fleet, the question of whether to lease or buy can seem daunting. The challenge of determining the best financial fit for your organization may feel overwhelming, but historically low interest rates have made leases increasingly attractive. Low interest rates are really just one consideration, however; cash flow and budget considerations, tax advantages, warranty coverage, cycling considerations and even concerns over a company’s image can factor into the overall decision. While utility fleets – especially regulated ones – traditionally have opted to purchase, more and more are successfully venturing into the world of leasing, allowing them to redirect capital expenditures in support of other revenue generating activities. So, how can you decide if leasing is right for your fleet? And if it is, what factors and strategies do you need to consider when deciding whether to lease or buy?

Before you make any decisions, it is important to understand your options, the benefits and limitations of leasing or purchasing, and the effect each will have on how you budget and plan. In the most general terms, when you are making the choice, the question comes down to how much money you will need to finance. When you purchase, you are choosing to finance the entire cost of the vehicle. With a lease, you are only paying for use of the vehicle, which is determined by the difference between the purchase price and the projected value of the vehicle at lease-end. This typically means that if you purchase, the monthly payments will be higher because the amount you are financing will be larger. If you want cash flow flexibility, leasing may be a better option for your fleet. It may also give you potential tax advantages and allow for cash preservation. Unlike a purchase, however, you will not own the asset at the end of the lease term.

Maintaining strong working relationships with vendors is critical to running a smooth fleet operation.

To find out what makes and breaks these relationships, UFP recently spoke with Ron Henne, transportation supervisor for Eversource in Connecticut and Western Massachusetts; Matt Gilliland, director of transportation and facilities for Nebraska Public Power District; and Mel Holloway, product manager for global fleet management company ARI.

For all three men, customer service stands out as a major factor in determining if a vendor is going to be a short- or long-term partner.

Nebraska Public Power District has been working with several suppliers for 10 to 20 years because they continue to meet the fleet’s customer service expectations, according to Gilliland.

“We look for a vendor who will fix or supply it right the first time, on time, and at a fair price,” he said.

In addition to great customer service, vendors that provide total support – including post-sales support such as training – help seal the deal for Henne.

But what prevents fleet managers and vendors from establishing effective relationships? Be cautious of these three pitfalls.

In our increasingly shared economy, even some utility fleets are moving from “mine” to “ours.”

This certainly makes sense. In addition to the fact that utility equipment and vehicles often are costly, they’re also unlikely to be in constant use. Pooling and sharing resources, then, can help cut down on surplus, reduce expenses and streamline operations.

The even better news? As the sharing economy has matured – think of Airbnb, Uber and Lyft – so have the technology offerings that help make it possible. There’s online forum MuniRent (www.munirent.co), for example, which allows municipalities to share surplus goods and equipment. AssetWorks (www.assetworks.com) offers fleet management software along with an automated motor pool solution, and allows reservations through smartphones and tablets. And then there’s Agile FleetCommander (www.agilefleet.com), web-based fleet and motor pool software that has been used by fleets in virtually all categories.

Naturally, the argument can be – and often is – made that there’s a segment of a utility fleet that can’t be downsized because it’s used during emergencies and peak demand. It’s also true that some vehicles have specialized tools onboard that are assigned to a particular individual.

The key is in recognizing that “no vehicle sharing initiative should try to apply the same rules for all types of vehicles and equipment,” said Ed Smith, co-founder, president and CEO of Agile Access Control Inc., developer of the Agile FleetCommander software. Fleet managers must acknowledge that real obstacles are present, he said, but also that some constructed barriers to sharing “simply aren’t fact-based.” Technology can help fleet managers know who has custody of a vehicle – and its keys – as well as assist in reporting and chargebacks.

The mere presence of some cars can inspire creative journeys and wishful thinking. But a life-size Shelby Cobra, made with a 3-D printer? That takes even visionaries down a whole different road.

Cincinnati Inc. (www.e-ci.com) – an innovative machine tool manufacturer for more than 100 years – has been behind the printing of two such cars through its Big Area Additive Manufacturing (BAAM) technology; the first was in conjunction with Oak Ridge National Laboratory (www.ornl.gov), the largest U.S. Department of Energy science and energy lab, located in Oak Ridge, Tenn. Over the past couple of years, the cars have been used as marketing tools, a clear demonstration of potential.

Even though the Cobras have been transported to events in enclosed trailers rather than driven, they’re still enough to make many stop and wonder: If a 3-D printer can make a car or other vehicle, wouldn’t it follow that it would soon be in use to supply equipment parts as well? Will we soon see maintenance shops creating their own replacement parts for utility and other vehicles, rather than having to store them, purchase them elsewhere or wait for delivery?

Time to tap the brakes. Three-dimensional printing is indeed showing promise in a variety of industries. But in terms of creating parts that can withstand heat, water, chemicals and other challenges facing current automotive materials, we’re not there yet. First, there’s a fundamental point of physics to be overcome, said Duncan Stewart, director of technology, media and telecommunications research for Deloitte Canada (www.deloitte.com/ca). Even if printers and processes become significantly faster – silencing those who believe no one will want to wait the hours it takes to create parts – there’s still the matter of allowing each printed layer to cool completely before the next one is applied. Eventually, the rate of progress will reach a saturation point.

Today’s utility fleets have a powerful tool at their disposal, and it’s one that nearly everybody already carries with them: mobile apps that run on cellphones and tablets.

By tying new apps into existing fleet and work order management systems, fleet managers can help employees improve their execution of day-to-day tasks through use of their mobile devices. This article will take a look at exactly how today’s utility fleets can use gamification to coach and improve worker performance in real time, and why utility fleet managers should consider engaging with gamification to drive a more satisfied, efficient and safe workforce.

What is Gamification?
Gamification is the use of game mechanics in a context that is typically not game-oriented. It is used by software companies to build business applications that increase engagement and participation while accelerating learning. Gamification leverages our human nature to compete with ourselves and others, with the objective of encouraging teams to achieve company-wide goals and – in the fleet world – deliver greater safety, productivity and compliance. To accomplish this, the apps provide real-time data to users so they can track and eventually improve their performance.

So, how can you integrate gamification into your organization? There are three phases you must complete: establishing your mission, aligning objectives with your mission and deployment.

It’s one thing to winterize your fleet, but what about the drivers who are expected to operate vehicles in harsh winter conditions to repair downed power lines or a broken water main? Are they winterized as well?

This is an important question because snow, sleet and ice impact how a vehicle accelerates, handles and stops. And if your crews aren’t prepared with the driving skills and mindset they need to safely navigate hazardous winter roads, they’re putting their health, the public and your utility’s reputation at risk.

So, how can your organization effectively winterize your drivers? UFP spoke with Art Liggio, president of Driving Dynamics Inc. (www.drivingdynamics.com), a Newark, Del.-based firm that provides companies with advanced performance driver safety training and fleet risk management expertise. He offered these three tips.

1. Reduce speed as conditions deteriorate.
“While you can actually move quite fast in a straight line on ice and snow, once you have to stop or turn, the laws of physics start to catch up with you,” Liggio said. “Drive responsibly by slowing down and staying vigilant in maintaining a sufficient safety zone.”

Liggio recommends that drivers avoid using the brake whenever possible in deteriorating weather conditions. “Slow down early enough, so you can roll up to a traffic light change without having to brake completely,” he said. “When coasting to slow down, it’s still important to engage your brake lights by lightly pressing the brake pedal so those behind you understand that you are in the process of slowing. But when you do need to stop or slow down, start braking early and gently to keep yourself and others behind you in control.”

Own or lease – which vehicle acquisition strategy makes the most sense for utility fleets?

There’s no clear-cut answer, said Marcin Michno, project manager, strategic consulting for Element Fleet Management (www.elementfleet.com). “It’s impossible to define an ideal, uniform leasing scenario for an entire utility industry because there are too many variables, and every company has a different situation. Are they looking to preserve cash? What’s their tax strategy? Are interest rates favorable? What is the company’s risk tolerance? And not all vehicle applications should be treated the same. You have to look at the individual company’s situation and design a financial strategy around that.”

Bill Doman, department head, sales support at ARI (www.arifleet.com), agrees. “Conventional wisdom is that a regulated [public] utility is going to purchase everything, and an investor-owned utility is more open to leasing. But in reality, we know a few regulated utilities that lease 100 percent of their vehicles. And the vast majority of our utility clients – whether regulated or investor-owned – have a mix of owned and leased vehicles. They’re finding the right applications where they can take advantage of leasing and create a situation where they get the benefits of cash preservation, improved cash flow and potential tax advantages.”

Policies that prohibit employees from using cellphones or being otherwise distracted while driving are so common today that it would be hard to find a utility company without one.

In fact, in 2011 the Federal Motor Carrier Safety Administration banned the use of all hand-held mobile devices by commercial vehicle drivers. This includes anyone driving a vehicle heavier than 10,000 pounds during interstate business, not just heavy-duty truck drivers with commercial driver’s licenses. Penalties can range from driver disqualification to fines for both the driver and the carrier. Additionally, as of press time, 14 states, Washington, D.C., Puerto Rico, Guam and the U.S. Virgin Islands prohibit all drivers from using hand-held cellphones while driving.

The real issue for utility fleets, and for any company with vehicles for that matter, is how to measure a policy’s effectiveness. How do companies know if their policy is working?

Despite the ubiquity of technology in almost everyone’s world today, drivers may resent the introduction of a GPS or telematics system by company management if they feel the technology is going to be used to spy on them. But explaining that these systems can improve safety, enhance driving skills and even reduce paperwork can go a long way to getting driver buy-in, said several fleet managers and industry executives.

Pacific Gas and Electric already had a fleet management system in place, but the company decided to look to technology as a way of improving driver safety and performance. In particular, they wanted to test telematics systems that fed performance data back to operations. Before doing that, however, fleet representatives first met with the union drivers and explained that the systems were being designed to improve their driving, not to discipline them.