Practical tips for controlling fleet TCO
Managing a fleet comes with multi-faceted challenges from budgetary control and legislative adherence to technical developments and staff training.
But in these times of austerity and uncertainty, exacerbated by Brexit and COVID-19, cost management, and even cost cutting, is high on the boardroom agenda. Fluctuating costs or missing data can mean important trends and deficiencies across your fleet can go unnoticed – and unresolved.
That’s why an effective fleet management plan must trace, track and analyse the variables that contribute to your total cost of ownership (TCO). Flaws and discrepancies can be detected and rectified swiftly. New suppliers and support systems can be sourced quickly.
But first you need to understand and define best practice in efficient fleet TCO management.
One of the most challenging aspects in fleet cost management is accurately calculating your fleet’s TCO, which combines fixed and variable costs. Fixed costs that don’t change regardless of usage including loan and lease payments, salaries, taxes, licenses, permits and depreciation are easy to calculate and monitor.
Forecasting and controlling variable costs is a more testing task. They will fluctuate depending on the fleet size, sector and usage and are therefore more difficult to predetermine – from fuel and training to repairs, parts and maintenance.
Managing and reducing fixed and variable costs calls for a holistic approach to business fleet efficiency. Positive financial outcomes for your organisation and the health and safety of your workforce should be so much more than a reactive and drastic cost-cutting exercise.
Optimising TCO requires a thorough and ongoing review of suppliers, financing of your vehicles and vehicle selection, size of fleet, driver management, and whether fleet management is more effective when outsourced to single or multiple suppliers, or carried out in-house.
Here are six practical considerations to prioritise on your TCO check list.
- In-house or outsourced
The first big decision is whether you manage your fleet yourself or appoint a specialist fleet management company. The business case for outsourcing fleet services can be particularly compelling for larger businesses as complexity grows as well as cost, or those lacking in specialist expertise.
Businesses do not need to use external suppliers for the entire fleet operation to realise the strategic and cost benefits of an outsourced service. All areas of fleet, from vehicle sourcing and driver support to risk management, finance and health and safety, can be a managed using a combination of in-house and third-party resources.
Outsourcing fully to a fleet management company gives you continuous access to professional fleet handling, without the burden of internal resource costs and downtime to cover sickness and holidays.
An experienced fleet partner should be able to provide a ‘best in class’ and proactive service for every area of the fleet management process, while taking ownership of all resource-intensive administration. A cost-benefit analysis should weigh the outsourced management fees against the potential savings that may be realised across all areas impacting fleet TCO.
- Fleet funding and vehicle ownership
Factors to consider when deciding if you should lease or buy fleet vehicles include asset and capital management, compliancy, mileage per year, average journey durations, and whether or not employees need permanent vehicle access. If vehicles are under-utilised, the most obvious cost cutting exercise could simply mean reducing the size of your fleet.
The nature of the vehicles that employees need should also be a consideration – type, segment, engine size, electric or hybrid and high spec additional features will all have an impact on overall fleet TCO.
Company cars, owned or leased by a business on behalf of an individual employee, can be an appealing option for employee recruitment and retention and offer a level of control over fleet structure.
Although acquisition cost and depreciation can signpost alternative mobility options, such as pool car schemes, transport flexibility and the value added benefit for the employee can then be lost.
Cash allowances can enable businesses to offer employees greater flexibility of vehicle choice, while capping expenditure and avoiding the fixed overheads and long-term commitment of a traditional fleet. Corporate risk controls diminish however, with employees in receipt of cash allowances often increasing their use of public transport, the costs of which are claimed through expenses.
The reality is that a combination of these ownership strategies may offer the most appropriate, cost-effective solution.
- The long-term benefits of tech adoption
Companies adopting fleet technologies may incur considerable upfront costs, but the long-term savings they realise may result in significant financial returns.
Communicating with your workforce, briefing jobs, invoicing and billing, routing and scheduling, mileage, fuel and expense management, service and maintenance reminders, vehicle checks, along with other daily tasks, can be automated with a fleet management solution – saving you time and money.
Telematics systems, for example, can have a pivotal role in optimising fleet efficiency and reducing operational costs. They offer real-time visibility over fleet performance, generating actionable data insights to reduce fuel and maintenance spend and to streamline workflow.
Routing and scheduling software can also help cut fleet mileage, while analytics software tools that generate cost forecasts can help optimised fleet TCO through improved, data-driven decision-making.
A lack of time to delve into this type of intelligence, and to effectively act upon the insights, however, can leave its potential unrealised.
A company’s resource capacity should be assessed and addressed before an investment is made. An outsourced fleet management partner can help in this regard by acting as a central repository to help manage the data, and maximise its value on your behalf.
- Fleet size and preventative maintenance matters
Thorough TCO analysis will help you to ‘right size’ your fleet – a vital ingredient to fleet cost optimisation.
The two main factors involved in right-sizing are asset utilisation and vehicle replacement.
The business case of each individual vehicle should be evaluated, with clear criteria determining if vehicles are mission-critical or could be reassigned, replaced, or sold. If you have vehicles that are rarely on the road, consideration should be given to relinquishing these underused assets and consolidating or reducing your fleet at contract renewal.
A proactive approach to preventative maintenance, including regular servicing, oil changes and parts replacement, is also integral to keeping a lid on costs, while helping keep vehicles on the road longer.
- Save on fuel costs
Fuel is one of the biggest expenses of running a fleet, and one of the most volatile.
Thankfully, there are a number of ways to cut fuel costs and improve efficiency, from appropriate vehicle fuel strategies, effective mobility management and fleet maintenance to fuel card usage, improved driver behaviour and route optimisation.
As our journey to electrification continues, the viability of EVs (electric vehicles) for fleets becomes ever stronger – with improvements in batteries and charging infrastructure, greater vehicle choice and lower costs.
All the while, the most obvious way to save on fuel is to simply reduce business mileage, and with fleet managers increasingly adopting mobility management responsibilities, we are seeing increasing utilisation of wider transport options, aided by new tech mobility solutions.
The impact of fuel cards should not be underestimated. They can offer fixed and preferential fuel rates, with none of the interest or transaction charges typically applied with credit cards. In addition, they can provide access to online reporting tools that allow you to track expenditure and reduce incidents of fuel fraud.
Robust vehicle maintenance, including effective tyre management, remains vital but fleet drivers themselves should also be factored into the fuel cost equation. Industry experts suggest savings of 15% can be achieved by simply improving driving habits. Driver improvement programmes, underpinned by tech monitoring and coaching solutions, can result in significant fuel consumption reductions.
- Multi vs sole-supplier
Vehicle acquisitions undertaken through a sole-supply agreements will invariably see core services, from maintenance and fuel management to accident and risk management, bundled together.
This wrapping up of costs can result in a lack of transparency, with all supplier contracts combined in one single fee from the leasing provider.
Although this can mean less admin and less complexity than dealing with multiple suppliers, it can make it more difficult to identify and optimise cost savings. A sole supplier arrangement will rarely offer market price comparisons to deliver the best price on every vehicle or fleet service.
By breaking away from the constraints of sole supplier arrangements when adding to fleet, vehicle specifications, including lease term and mileage parameters, can be put to the market to obtain the most competitive prices for all required vehicles, on a like-for-like basis.
By benchmarking and choosing to search for the lowest price on every vehicle and item of spend from a number of different suppliers, considerable TCO savings can be generated.
Where the process is outsourced to an independent fleet management company whose interests are not compromised, businesses can benefit from the same minimal resource demands they get with a sole supplier – and benefit from substantial returns on investment.
Bolster your fleet performance – and bottom line
Reducing operating costs and making the fleet function more efficiently is an ever-present business challenge. From the big, significant outlays, such as vehicle purchase and maintenance to smaller, hidden costs such as driver behaviour and expenses, all need to be equally monitored in order to achieve TCO efficiencies.
For international fleets, this means having access to globally consolidated data so they can benefit from an overview of total costs across all countries within which they operate.
With this fleet intelligence at their finger tips, cost efficiencies can be more easily identified and implemented. The harmonising of policies, for example, may simplify fleet administrative requirements while economies of scale may be achieved by agreeing volume discounts with leasing providers or manufacturers.
Such effective and intuitive fleet management, whether in-house or outsourced, is fundamental to achieving sustainable reductions in overall fleet TCO – and ultimately protecting the business bottom line.