If you’re looking for some tips to lower fleet costs, then you’ve come to the right place!
There are many strategies that a business can use to ensure the smooth running of daily operations. In the fleet industry, it’s essential to keep an eye on all sorts of everyday operational costs. This is because there are various shifting trends and critical changes that are affecting the fleet industry and boosting the cost of operating a fleet. So, you must know where you are spending your money and make all of your costs transparent to run a smooth-functioning organization and eventually, lower your fleet costs.
In fact, Mercury Associates, Government Fleet, and MEMA presented a webinar titled, “How to Improve Cost Visibility and Accountability to Reduce Operating Costs” on July 14. It was sponsored by Long Beach Clean Cities and focused on the critical need of staying aware of your costs.
The fleet management director for San Bernardino County, Calif., Ron Lindsey acted as the moderator. He guided a presentation by Scott Conlon, managing director of Mercury Associates, and Paul Lauria, president of Mercury Associates, who highlighted everything that fleet managers need to learn to lead successfully.
Let’s take a detailed look at the important factors that can help you manage and reduce your fleet costs:
Understanding the Significance of Managing Fleet Costs
There are various factors that you need to consider when managing costs:
Fleet Ownership Costs:
- Purchasing vehicles
- Fees of vendors
- Title and registration costs
Fleet Operation Costs:
- Salaries of fleet management employees and fleet drivers
- Costs of parts
- Maintenance facility costs
- Vendors and contractors
- Fueling facilities
- Charging stations
- Allocated costs
The costs of running and operating a fleet are increasing thanks to changes in the workforce and the automotive and information technology. Today, there are improved advancements and changes in vehicles, which means that there’s increased expenditure on understanding how to run them suitably and safely.
During the current recession, it’s likely that the policymakers will put forth directives that might affect fleet operating costs. The fleets might have to downsize, the fleet management program budgets might be reduced, and the use of take-home vehicles might be curtailed.
Similarly, fleets might not use too many personally owned vehicles and might even outsource some jobs. They might look into reducing surplus fleet replacement reserves and explore financing options that leverage cash such as leasing. Lauria explained that it’s quite tricky to manage and curtail fleet costs when you don’t have an understanding of what they are and how much control you have over them.
Managing Your Budget and Costs
Your budget is your spending plan, which is a roadmap that you put together each year to know how you will provide your services to your customers while keeping an eye on your expenses and the costs incurred along the way. You might stay within your budget throughout the year but still have high costs.
How to Make Your Costs Observable
A good way to make your costs visible is to use a cost charge-back system. This system is used to facilitate the allotment of general government costs to non-governmental fund entities. If it weren’t for this system, these entities might have to pay their fair share of such costs.
It’s also used to build up reserves over numerous fiscal years to pay for the substitution of capital assets. With that said, Lauria believes that the most important use of this system is to enhance the management of resources by making their costs more visible.
This is based on the premise that if you need the consumers of your services and goods to budget and pay for their consumption, then they will manage their consumption more effectively.
So, how can this cost charge-back system improve the cost management for fleet operation? The simple distribution of costs won’t work. The magic lies in the manner in which these costs will be distributed. For the system to work, the costs of fleet resources need to be visible and intelligible.
Cost visibility is what enables you to decide whether a cost is reasonable or not. It is an essential element in creating cost accountability, which then leads to successful cost management. After all, no organization can successfully manage costs that it can’t see, understand, or hold the parties that are responsible for it accountable. For this system to become effective, the providers and consumers of the resources need to manage their costs.
Outsourcing while Using the Cost Charge-Back System
Budgetary cuts might prompt fleet users to outsource the repair and maintenance of their vehicles in a bid to save money. This results from the belief that in-house repair and maintenance charges will exceed the ones that the organization will incur during outsourcing. Even though this might be true in certain cases, cost charge-back rates might not be the best gauges of cost-saving opportunities as such rates typically recover certain unavoidable costs.
Outsourcing might save some money for companies such as a solid waste department. However, it could result in fleet customers “abandoning ship” to manage decentralized programs due to the increase in rates to account for the shrinking rate base. According to Conlon, there are various other ways to complete outsourcing. The first and foremost method is to address the staffing surplus and low productivity within the organization.
The Bottom Line
All in all, an organization can only hope to manage and eventually reduce its fleet costs if it has a clear view of its costs, to begin with. This is because the visibility of the costs helps the company decide whether it is reasonable or not and devise a suitable plan of action accordingly. The best way to make your costs visible is by using the cost charge-back system, which will help you figure out the factors affecting your costs and budget accordingly.