Introduction - Reducing operating costs is the first order of business during what is sure to be a deep and potentially long recession. Cuts are painful and managers look for easy and low impact ways to trim a little fat and tighten the belt a notch or two. But sustaining the necessary cost reductions to weather this economic storm will take a fundamental overhaul of business processes. 

It requires companies to go beyond compulsory workforce and inventory initiatives to take a hard look at other significant cost centers. For some companies, managing mobile assets can be one of those major costs. This report takes a look at 5 hidden areas related to managing vehicle fleets and other mobile assets that can have a significant impact on costs and profitability. 

Measure What Matters

Better management begins with better measurement. There are dozens, if not hundreds of metrics that can provide insight into operational performance. The trick is discovering the right set of Key Performance Indicators (K.P.I.) that can give managers the critical feedback on whether cost cutting initiatives are achieving the desired objective. Without an effective set of indicators attempts at operational improvement are futile because both too much and too little information can hinder success. In addition, this information needs to be timely and easily disseminated with an emphasis on timeliness of measurement as a critical factor. Companies where operator and fleet related metrics are captured in real-time and systematically shared with value chain counterparts report 9.6% lower fleet operating costs than companies which aggregate such information and periodically share it with their counterparts.

Before attacking the hidden costs detailed in this report, an evaluation of your company's Key Performance Indicators is an appropriate first step to realize improved performance. 

Table 1: Do's and Don'ts of effective K.P.I. design 

Hidden Cost #1: Operator Behavior Implementing real-time fleet monitoring technology is imperative to managing operator behavior. Many solutions offer immediate driver feedback such as audible or visual signals to help instantly modify behavior like speeding or vehicle abuse. Operator behavior can have an impact on fleet costs in subtle but significant ways:

Speeding

A recent U.S. Department of Energy study shows that fuel consumption increases almost 2% for every mile per hour of speed over 50 MPH. The increased fuel cost associated with driving at 60 miles per hour is significant at 14%.

Idle Time

Also according to the Department of Energy, 60 minutes of idle time is equivalent to 80 to 120 minutes of driving time. Excessive idling can add up to 800 gallons of fuel use per vehicle annually. 

Vehicle Abuse

Hard braking, acceleration and steering can impact vehicle wear and accident risk. In addition, regular vehicle maintenance based on timing instead of vehicle use can often exacerbate the situation by providing inadequate or ill-timed maintenance on vehicles.

Payroll Accuracy

Estimates from the National Association of Fleet Administrators suggest that inaccurate time reporting contributes to approximately 7% of overtime paid to operators. In most cases, inaccurate and irreconcilable time logs are the root cause. A 7% reduction in overtime pay from accurate reporting can result in labor savings of 12%-14% annually.

Small adjustments to behavior can add up to large savings for field operations. According to a recent Aberdeen study, 57% of best-in-class companies that addressed these performance areas reduced their operating costs per vehicle by an average of 10.4%, saving an average of ~$1,100 per vehicle. ROI on fleet monitoring systems used to improve operator behavior is usually seen within a year. Fuel Savings From Reduced Speed And Idle Time* * Assumes 10,000 miles driven @ a fuel cost of $3.00/gal.

Hidden Cost #2: Asset Downtime

For most fleet managers, striving to improve utilization is nothing new. In fact it may be the key metric by which their success is currently measured. However, K.P.I for fleet utilization should not only include intraday dispatching and routing metrics, but also turnaround time for maintenance and repair. Shortening the turnaround time for vehicles in the shop can make the difference between an oversized fleet and a right-sized fleet. In addition, conducting routine maintenance based on utilization instead of elapsed time can keep more assets in operation. Companies adopting fleet management technology to help manage maintenance schedules reported an improvement of 15.4% in vehicle downtime. If maintenance and repair is like a "pit stop" for your fleet vehicles then accurately communicating vehicle status prior to removing it from operation can shorten diagnosis time and the overall repair cycle. Less downtime translates into greater potential for a more efficient deployment of mobile assets. And keeping more vehicles in operation can also have a serendipitous effect on improving customer satisfaction.

Hidden Cost #3: Billing and Costing Accuracy

For some companies, fleets function as either a profit center or as a break-even cost center. In both cases improved billing accuracy and cost reporting can make money for the company.

Accurately billing the customer or minimizing nonbillable hours puts money in the company coffers. In the case of a profit driven fleet, an average 60 minute service call can translate into $2 - $4 of lost revenue for each minute "off-the-clock". For breakeven cost centers, inaccurately projecting operating costs can send a budget into the red, forcing managers to take cost saving measures that can negatively impact customer satisfaction and ultimately revenue. Under both circumstances accurate time tracking provides the foundation for improved performance by helping companies to not leave any "money on the table". This degree of reporting accuracy again benefits from the use of fleet management technology to provide real-time insight into current status of field personnel and assets. 

Hidden Cost #4: Warranty Recovery

It takes pennies to make dollars. In the case of warranty and repair cost recovery, even the small things add up. Since most vendors offer some kind of warranty, tracking both vehicle use and time can aid in supporting warranty claims. Even in cases where parts maybe out of warranty, many manufactures will offer assistance to offset replacement costs in the name of customer loyalty. Accurate and detailed usage information strengthens your case and reduces your in- and out-of-warranty parts costs. Best-in-class companies use fleet management technology to aid in tracking maintenance, warranty and repair realizing an average of 23% higher warranty cost recovery.

Hidden Cost #5: Reporting and Regulatory Overhead

Earlier in this special report, we promoted the importance of metrics as the key management tool for reducing hidden costs within an operation. Each cost containment recommendation given requires better data, record keeping and of course reporting. The impact of more rigorous controls will undoubtedly increase overhead and create the potential for losing all of the cost cutting gains to "management overhead" costs. As important as it is to gather data, it is equally important to look at how information is being gathered. How many times is it being touched and manipulated by human hands? Each touch adds to the cost of reporting since assembling the necessary metrics and reporting them accurately is much like a manufacturing assembly line. The more automated the process the more efficient it is. Moving data from disparate systems or manipulating data by hand can not only erode the gains of cost saving measures; it can also slow down the change management process.

When adopting fleet management technology, data integration and automation needs to be an important consideration. Technology that embraces open standards for data exchange and provides well documented application interfaces should be a top priority in order to hold onto hard fought operational gains.

Recommendations for Action

1. Align fleet management initiatives with company goals and needs before technology adoption. Develop meaningful Key Performance Indicators (K.P.I.'s).
2. Implement real-time fleet management technology that is flexible enough to support the type of data collection needed to support K.P.I.s.
3. Do not underestimate the financial impact of operator behavior on profitability.
4. Base preventative maintenance program on fleet utilization, not time elapsed. Don't let warranty cost recovery be an after-thought.
5. Prioritize data integration with other departments and value-chain stakeholders to maximize ROI.

About Blue Sky Network

Blue Sky Network is a leading global provider of reliable fleet tracking and communication solutions for aviation, marine and vehicle applications serving the aviation, energy, security, forestry, mining, and transportation markets. For more information about our company and the solutions we offer for your business, visit the Blue Sky Network website at www.blueskynetwork.com or email us at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it