Five Rules For Controlling Fleet Costs Through Better Component Purchasing
Fleet managers are under constant pressure to control costs and manage expenses. A critical step in this process is to properly spec the fleet’s work trucks. Specifications should be written to include as many components as possible, such as frames, suspensions, engines, transmissions, brakes, lights, PTOs, tires and specialty equipment.
“Far too often, fleets purchase on a hunch,” says Robert Johnson, lead consultant, Fleet Consulting and Design Services (Jefferson, MD). “In today’s cost-conscious, competitive environment, it’s more important than ever that fleet managers take the time to understand their vehicle needs and evaluate components for the lowest overall life cycle costs.”
Johnson, a former fleet manager himself, educates others about component specifying and life cycle costing for vocational vehicles and equipment. He recommends following five rules for specifying commercial vehicles to maximize the fleet’s return on investment.
- Develop written specifications for complete vehicle applications (including upfits). Written specifications ensure that the components painstakingly chosen by the fleet manager are the ones installed on all of the company’s vehicles. Without written specifications, fleets may receive different components depending on which upfitter assembled a particular vehicle. Putting specifications in writing also protects against ordering errors and makes it easier to order the next round of vehicles.
- Standardize components. Standardizing components ensures continuity in vehicles from dealer to dealer and upfitter to upfitter. Most upfitters have their own preferred brands, so if the fleet manager does not specify which brand to install, the brand used will vary depending on who is doing the work. When components are standardized in a fleet, it minimizes the number of parts the maintenance department has to keep in stock and reduces the amount of training required for maintenance personnel. If a variety of lines are used, maintenance personnel have to learn how to work on all of them.
- Don’t automatically under-spec’ — or over-spec’. Fleet managers who want to save every penny upfront tend to spec’ for the lowest possible upfront cost. As a result, these vehicles often perform poorly and have more down time and higher maintenance costs. Then there are the fleet managers who avoid the “cheap” trap by buying the most heavy-duty components available, whether the application requires them or not. These over-designed vehicles generally cost more upfront and usually require the use of more expensive maintenance and repair components. Plus, the increased weight of these vehicles may reduce the payload they can carry, leading to a loss in productivity or the need to purchase a bigger vehicle.
- Identify vehicle requirements upfront based on job requirements. The most important guideline to follow when spec’ing a vehicle is to optimize the components for the required application. Start by identifying the vehicle’s basic functional requirements for the intended use. Then consider additional features intended to increase productivity, reduce maintenance costs and improve operator comfort. Some of the parameters to consider include:
- Net payload requirements
- Operating environment
- Operating conditions
- Operating cycle
- Loading cycle
- Starting gradability
- Reserve gradability
- Minimum desired road speed
- Towing requirements
- Special vocational requirements
- Maintenance environment
- Operator proficiency
- Regulatory and contractual requirements
The requirements should be reviewed before each vehicle purchase, to make sure they have not changed.
- Consider life cycle costs. A vehicle that has been optimized for its intended application will provide the lowest overall cost of ownership over its lifetime when all factors are taken into consideration. The primary factors impacting life cycle costs are initial purchase price, long-term operating and maintenance costs, vehicle productivity and resale or salvage value. When evaluating the cost-to-benefit value for any component, a for-profit business should consider the time value of money and the impact of taxes on cash flow. This can be accomplished by using a basic after-tax net present value analysis.
“It’s very important that fleet managers learn as much as they can about the various components that go into their work trucks, so they can make informed purchasing decisions,” Johnson says. “One easy way to learn more is to attend The Work Truck Show. Many trade shows display finished vehicles and vocation-specific equipment, but exhibitors at The Work Truck Show also exhibit all of the pieces and parts that go into and on the vehicles. This single show gives fleet managers and others a perfect opportunity to look at all of the parts and to talk directly to component suppliers.”
Johnson will lead a technical session titled “Component Spec’ing for Optimum Vehicle Life-Cycle Costing” on March 3, 2005, at The Work Truck Show 2005 in Indianapolis, IN. The Work Truck Show 2005 is held in conjunction with the National Truck Equipment Association (NTEA) 41st Annual Convention. Educational sessions start March 1, with the show floor opening on March 2. To register or learn more, visit www.NTEA.com or call 1-800-441-NTEA.
There is also extensive information about specifying work trucks available on the “Fleet Manager” section of www.NTEA.com. The Web site content includes a detailed eight-step vehicle specifying process.
The costs are too high to spec’ vehicles based on gut instincts or to accept components that are not optimized for the vehicle’s application. By following these five specifying rules, fleet managers can keep expenses under control long-term.
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