Own your own assets?  Out-source?  Lease a dedicated fleet?  Truth is, when it comes to running land transportation, getting goods from Point A to Point B is just the starting point. In a very tough business climate, with scarce little margin for investments that don’t pay their way (and then some), transportation managers have taken on a much higher profile. While getting the goods to their destination on time remains as important as ever, the corporate conversation is likely to be more concerned with minimizing the expenses associated with transportation—and even transforming it from a cost center to a possible revenue generator.

Any way you cut it, there’s no one-size-fits-all philosophy for determining the best way to run a fleet.

Enter consultants like Brooks Bentz, partner at Accenture in charge of supply chain transportation.

“Do the right thing,” is how Bentz defines his general philosophy about transportation managing. Which translates into ”looking at the business value of everything you do.” That means, in simple terms, a “profit and loss model: as the metric with which to gauge decisions. Implementing this standard requires developing a holistic approach that analyzes the cost and benefit of every element involved in transportation. Looking at the total cost of ownership, he insists, “…is a common sense approach…a sound, pragmatic approach,” that focuses on the fundamentals.

And, as he advises his clients, such an approach can drive substantial cost savings and service improvements.

Total cost of ownership

The big talk for the last 18 months has, of course, been fuel prices. Soaring upwards, crashing back to the ground—leaving transportation managers caught in the uncertainty of no-man’s land. But Bentz insists that the care and feeding of the transportation budget line goes beyond just monitoring prices at the pump.

Switching the fleet to alternative fuels or to hybrid vehicles, for example, may have made economic sense when fuel cost more than $4 per gallon. When fuel costs dropped to under $2 per gallon, alternative options became less attractive. “As we reach World Peak Oil (the point at which maximum extraction is reached, currently predicted to begin sometime between the years 2010 and 2030) and the resulting inexorable decline in production in the face of continually rising demand, fuel costs will go up again,” Bentz predicts.

But that isn’t the main point.

The decision of whether to switch to alternatives involves more than simple fuel calculations. It includes the total cost of ownership: maintenance costs, availability of fuel, costs of the vehicles, resale potential, insurance rates and even tax and regulatory concerns. Are there, for example, state or local incentives to use alternative fuels or hybrid vehicles? Even goodwill may need to be factored into the decision.

It’s not a one-calculation fuel price no-brainer. “Each situation creates opportunities,” he points out, and fleet managers need to be able to identify them and leverage them to their benefit.

Likewise, for transportation departments that operate like those of common carriers, one of the pressing questions may be whether to maintain an in-house fleet or to outsource. In making that decision, fleet managers need to understand the true costs of maintaining and managing their own fleets before they can know whether outsourcing makes business sense.

Many, observes Bentz, tend to look only at direct costs and fail to include such indirect costs as insurance, information technology, fleet facilities, human resources, taxes, vehicle reliability, etc. Consequently “they end up with false economy,” he explains. Instead, managers also need to include the risks attached to owning and managing a fleet and the flexibility issues in which surge capacity is pitted against the inflexibility of always having certain assets, regardless of their frequency of use.

Bentz frequently participates in workshops for transportation managers, with his central theme the need to focus upon finding transportation’s hidden costs. “Costs are only hidden if you allow them to be hidden. Finding them depends on how good you are at it.” Typically, he says, “the most overlooked costs are the less direct, allocated costs, like property taxes or maintenance of yards or facilities.”

 Insurance is a good example. He says clients often say they have no costs for insurance because they are self-insured. “But,” he counters, “do you have claims? Nobody can run an operation of any size without having claims filed,” and they sometimes lead to litigation. Consequently, even self-insured companies must account, at some level, for costs associated with insurance, regardless who provides it.

To help discover the true cost of ownership, Bentz advises looking at operations on an avoidable expense basis. “If a company outsourced an operation, would it still need the real estate, equipment, maintenance, personnel, etc.?” he asks. If not, could that expense be eliminated? If the expense involves capital assets or real estate, would they be sold? The answer impacts the total cost of ownership and affects the profitability of the enterprise.

Economics and technology

As a transportation manager, “It’s your job to come up with solutions that are practical and economical viable,” Bentz emphasizes. In the long run, the current economic recession is of little consequence to managers with the skills and insights to run lean operations. “Economics continually evolve,” he continues, and transportation managers need to take those changes into account. “If not, it’s irresponsible.”

In that context, Bentz continues, today’s business climate isn’t so different from those of previous years. “In the old days, you ran with experienced operators and maximized the value of assets. Operators knew how to find the back-hauls and the best routes. The fixed costs were for assets and drivers.” That approach relied on individual knowledge, which often wasn’t passed along as old hands retired and new staff came on board. “Today, we have global positioning satellites (GPS) in vehicles and smart technologies that track idle time, engine temperature and other parameters, design routes and schedules, and even tell you how to load the trailer to maximize space to manage rolling assets better,” he notes. That increases information and, sometimes, knowledge, diffusing responsibility more broadly and, under the best circumstances, producing faster problem solving. But it also increases fixed costs.

For sure, technology used correctly can make a profound contribution to an effective, cost-conscious transportation environment. “Correctly,” however, is the operative word. Are modern fleet management technologies used correctly? “That’s a leap I wouldn’t want to make,” Bentz laughs.

One of Bentz’ clients found idling time unduly long in its fleet, and so installed devices to shut off the engine after a specified period of idling. Others installed electric generators that provided the power auxiliary equipment needed more efficiently than the trucks’ engines. That said, collecting such data actually could be counterproductive unless that data is properly analyzed and acted upon. If not, it’s clutter.  

He’s quick to note, though, that forward-thinking companies are leveraging predictive monitoring technology to manage fleet maintenance more effectively. By comparing their vehicles’ operations with those of well-running systems, they can ensure that vehicles receive maintenance at the right interval. The alternative option relies on general guidelines to perform specific maintenance tasks whether needed or not. Or else they wait for something to malfunction, thereby risking delays and potentially increasing the costs of repairs. 

A predictive maintenance program also may give companies a competitive advantage for products that include service contracts, and when to replace fleet vehicles. In fully calculating the holistic metrics, it’s worthwhile to amortize these expenses from the perspective of customer value—a well-managed fleet means well-serviced customers. While that alone won’t attract customers, a poorly run fleet may lose them.

 It’s also worth including how a predictive maintenance schedule may increase the residual value of vehicles. When they are rotated out of the fleet by persuading potential buyers that these vehicles have been cared for better than have similar vehicles on the market.

Opportunities for productivity improvements, admittedly, are shrinking. When technology was first applied to fleet management, “the productivity gains were gigantic. Now, they’re much smaller,” he says. That’s normal, though. “We’re at the skinny end of the wedge, where improvements can only be incremental,” unless there are paradigm-shifting changes in the industry.

“Technology deserves attention,” Bentz notes, but it isn’t a panacea. 

Use common sense

The information technology industry has several decision-making frameworks that can be used to help managers make better, more objective choices that support their companies’ strategic goals. The transportation industry, unfortunately, has no such decision-making framework. Instead, Bentz says, managers must ask themselves, “What am I trying to do?”

Then, he continues, they must ask themselves, “What am I good at?” Optimizing a fleet and the practices that manage it comes down to doing something better and faster. So, what are you doing and how can it be done better? Are you using what you have effectively? Can it do more? 

Bentz doesn’t like to discuss industry best practices in generalities. “At Accenture, we conducted an extensive, year-long supply chain study entitled, ‘Supply Chain Mastery,’ that looked at a broad spectrum of organizations and how they manage their supply chains.” The goal: to identify leading edge practices. “There are no general answers,” he concedes. “There is no one entity that is best-in-class all the time.” 

“Look at retail operations,” Bentz advises. “Goods move inbound on common carriers and outbound in private fleets.” Reasons for that difference may include the greater need for control, to better manage schedules or to maintain an image. Ensuring white glove deliveries, for instance, may be important enough for some firms to justify the expenses of owning fleet vehicles that sometimes are idle.  For others, such service is irrelevant.

For some companies, the goal is to use their fleets to generate additional revenue, delivering goods to other companies within their own supply chain, or even to non-affiliated companies. That’s not always a worthwhile use of empty trailers, though. “It works better in theory than in practice,” Bentz cautions. “It can increase backhaul, but it often means that companies find themselves waiting extra hours for those clients to load cargo or having to send another truck back for the pickup. Likewise, they find that dropping a trailer for later pickup requires the transportation manager to now manage a drop program. “That requires a lot of focus and management. It’s not easy,” Bentz stresses. “You have to be really careful doing it.”

He recounts the story of one case where the client endured a 700-mile deadhead to get a backhaul, because they were being measured on attaining a certain percentage of backhaul. “That’s crazy!” Bentz exclaims. “People do what they’re measured on, so making sure the performance metrics are right is critical to operational success.”

Fleet re-engineering

The mainstay of taking a common sense, total cost of ownership approach to fleet management is re-engineering. Once managers have determined what’s in their fleets and what they do particularly well, the next step is to identify areas that need improvement, determine what constitutes improvement and make the needed changes.

In terms of fleet re-engineering, Bentz recommends incremental optimization, focusing on projects with the greatest and fastest returns. The goal, he explains, is to develop a coordinated, well-defined program that delivers significant returns within the parameters of available time, resources and budgets. That approach allows continual progress and builds momentum within the organization to support subsequent improvements.

Bentz recounts one utility client’s fleet reorganization, which began with re-engineering fleet standards and specifications in tandem with a review of its sourcing options. The outcome was a single-sourcing contract that cut the cost of acquiring vehicles by 20 percent, reduced vehicle classes from 450 to 32 in the main fleet, standardized vehicle life cycles, and improved maintenance and repair practices. A good early step for any fleet is to ensure that the fleet has the right number and types of vehicles to perform their jobs at the lowest total cost of ownership. That cost, he reminds, includes disposition and replacement. That process should be ongoing, because vehicles are phased out of the fleet and because needs change.

Any fleet optimization program also must be integrated into the overall supply chain and managed across functions. One of the challenges, Bentz points out, is that transportation is Balkanized. Decisions are made by many different departments or divisions. The result is that the transportation director may have little or no input into the types of vehicles in the fleet, yet is responsible for them. While wresting control away from those managers may not be feasible, transportation managers may increase their ability to influence decisions by developing business relationships with those managers. The long terms benefits of such a common sense, balance sheet approach to transportation management is decreased operating expenses and improved service, as well as freeing scarce capital and containing costs. Indirect benefits will vary, but may include reduced insurance premiums or maintenance expenses, the need for less real estate, reduced regulatory exposure and the goodwill that may be associated with any green initiatives. 

The bottom line, Bentz says, is simple. “Be smart.  “If you use common sense, you’ll be in good shape.” wt



Contributing Editor Gail Dutton will be producing an on-going series of articles on “Supply Chain and the Enterprise.”

Sidebar: 6 Strategies to Optimize the Fleet

Strategies to maximize fleet effectiveness vary according to company and type of fleet, but there are some core principles that Accenture has identified to help fleets improve their quality, reliability and cost-effectiveness.

1.    Look at fleet management as an integrated, holistic business proposition that focuses on minimizing the total cost of ownership (TCO).

2.    Integrate demand and supply planning. That’s as true for fleets as it is for manufacturing. Everything needed to keep the fleet running smoothly and on time must be in balance to minimize downtime and to minimize excess inventory.

3.    Develop a parts management strategy. Stock vehicle parts much like the manufacturing facilities stock their own necessary ingredients. Analyze what is routinely needed and the quantities and develop an inventory order system that ensures those needs are met without overstocking.

4.    Pursue condition-based monitoring. This works for parts as well as predictive monitoring works for vehicle maintenance. Let specified conditions trigger the maintenance or the ordering of certain parts.

5.    Optimize the service network. Design a transparent system that integrates parts, maintenance and fleet management. The system should eliminate any confusion about who’s doing what, and when, regardless of whether fleets are managed in-house, outsourced, or blended to contain elements of in-house and outside expertise.

6.    Emphasize field force excellence. Quality of service for staff in the field can be enhanced by making activities tightly integrated, less reactive and more technology-enabled. Adding GPS to service vans and linking that to the dispatch center is one example of how technology can be integrated into day-to-day operations to save time and increase productivity.