Challenges in Public Fleet Management

 

Challenges in Public Fleet Management

These past couple of years have been extremely challenging when it comes to effectively managing a fleet of government vehicles. These challenges include the following:

Failure to:
-Fund timely vehicle replacement
-Manage vehicles like depreciating assets
-Operate a centralized fleet program
-Operate a single cost center
-Recognize total costs
-Use outsourcing opportunities
-Understand indirect costs

Fund timely vehicle replacement
As the pressure mounts to balance budgets, politicians develop a severe case of fleet amnesia. The stark reality and scarcity of budgeted dollars forces law-makers to divert funds earmarked for vehicle management toward more important government programs. Unfortunately, these decisions will almost certainly exacerbate an organization’s overall financial woes as fleet costs rise out of control. For example, forgoing timely vehicle replacement is only temporary budget solution at best providing gains in the near term only to negatively impact future fleet budgets.

Why?

Simple, Original Equipment Manufacturers (OEM) build vehicles with planned obsolesce in mind (i.e., so they can sell vehicles) making optimal vehicle life about 100,000 miles of service. If you think about it, this logic is undeniable since few car makers warranty their vehicles over 100,000 miles. OEMs understand vehicle costs rise sharply as wear items age, need replacement and repair frequency increases. Hence the OEM’s unwillingness to cover these costs under a standard warranty conditions.

Increasing the age of the fleet - by failing to replace vehicles at the most economic optimal point - will undeniably create several unintended consequences. The first consequence that manifests itself as is the propensity toward increased mechanical failure. Increase vehicle failure affects reliability and decreased reliability creates an increase in vehicle downtime. As downtime increases more vehicles become necessary to carry out an organization’s mission. So the side effect that often follows is the fleet begins to grow and as the fleet grows costs increase. Increased costs come in the form of repair costs and indirect costs (e.g., idle vehicles, liability and safety, downtime, etc.).

The indirect costs become the biggest concern since they are the most overlooked when it comes to managing a fleet of vehicles. Indirect costs show up in the form of safety concerns as vehicles become less reliable and prone to mechanical failure. Other indirect costs are those that occur as hoarding vehicles as spares increase to support unreliable front-line units. These indirect costs include:
-Increased space required stow idle vehicles.
-Increase space and inventory costs to store parts.
-Continued costs to insure unused assets.
-Mental energy expended to track idle units in fleet system.
-Unremitting licensing and regulatory costs.
-Degradation from by idleness (e.g., vandalism, sun damage, etc.)

Manage vehicles like depreciating assets
Failure to recognize vehicle as depreciating assets is a common problem in government organizations. This may be due to the fact that most Americans own and operate a vehicle and hence they take management of these assets for granted. As an example, most government operations would not think twice to lease copiers or computers, but balk at the opportunity to lease vehicles.

Why? After all, the same financial principles are in play for all of these depreciating assets. Additionally, a common mistake for most public fleets is the failure to recognize the total costs of the operation. For example, it is not uncommon for a vehicle to sit idle under the guise the vehicle will be needed in the future. When asked why anyone would allow a depreciable asset to sit idle government employees rationalize that there are no costs because the vehicle owned. The failure to understand that depreciable assets are always worth more today often goes unnoticed.

Failure to recognize that depreciable assets are always worth more today manifests itself in the form of allowing vehicles to sit idle. Unfortunately when you examine costs associated with idle assets you find most vehicles are still tracked in a database, insured against damage, and parked on real estate. All of the activities that are associated with idle vehicles cost money and consume budget dollars. Unused vehicles degrade over time and require constant use and maintenance to remain is good repair. In addition, idle vehicles become easy prey for vandals who dislike government organizations.

Bottom line is vehicles always cost something!

Operate a centralized fleet program
Many government organizations operate independently and autonomous under the pretense they can better manage and control vehicle costs. Unfortunately this is a short-sided and myopic view of efficient vehicle management. A decentralized operation forgoes discounts derived from greater economies of scale and increased synergies from performing repetitive and highly specialized tasks. Organizations operating in a decentralized environment create generalists (versus specialists) because these employees wear various hats like; fleet, property and risk management, purchasing, mail distribution, and other miscellaneous tasks. This inhibits their ability to focus on fleet and the agency forgoes any advantages associated with synergies that occur when employees specialize in fleet specific activities. Generalizing also prevents employees from acquiring necessary on-the-job training opportunities. Untrained and unknowledgeable employees don’t usually make decisions in the organization’s best interest.

As an example, several agencies operate specialized pieces of equipment like backhoes, Loaders, and Digger Derricks that do not get used very often. Changing to a centralized management operation allows an opportunity to share these specialized assets, which increases utilization and reduces costs.

Decentralized organizations also have a proclivity to create an environment of mistrust especially if an administrative agency focuses on centralizing fleet tasks. This distrust is usually due to self preservation since the administrative agency’s focus is to reduce costs through increased efficiencies. Increased efficiencies can only occur with the elimination of duplication and redundancy which often translates into reductions in force. This only worsens the situation because decentralized employees – who lack fleet focus – become more entrenched to protect their positions. Self preservation leads to myopia when it comes to making decisions in the organization’s best interest. For example, it may be more cost-effective to outsource maintenance repair activities to a third-party vendor who specializes in these tasks. Unfortunately someone engaging in self preservation mode cannot recognize the benefits of outsourcing, because all they envision is the unemployment line.

Where there is a lack of focus the opportunity for increase costs through vehicle mismanagement occurs more readily. For example an employee may overlook an opportunity for fleet specific training because their immediate supervisor has a purchasing background that purchasing takes priority. It’s just common sense that an organization that specializes in a singular activity, like fleet management harnesses all the benefits needed to increase synergies, economies and ultimately increase productivity and reduce costs.

Another side affect of silo management is their inability to recognize total costs. This occurs as these agencies are appropriated the capital costs to purchase vehicles outright under a capital budget line item. Then once the vehicle becomes operational then the vehicle ownership (i.e., capital) is forgotten and the current expense budget or operational line items become the focus.

Alternatively, a best practice would be for a single government agency to manage vehicles in a centralized cost center where all capital and operating costs can be tracked simultaneously. This single strategy enables an organization to constantly recognize the total cost of vehicles improving consumptive behavior. Simply put, when costs are recognized people’s behavior changes and each of us as consumers make better more cost-effective decisions.

The major advantages from operating a single cost center become:
-Total vehicle cost recognition where expenses are quantified and business case decisions are more probable.
-Increased employee productivity from specializing in repetitive tasks (i.e., data entry, licensing, titling, etc,)
-Decreased employees required to manage a fleet of vehicles. Specialization leads to greater synergies and economies of scale.
-Greater shop management allowing facilities to operate at full capacity when employee productivity is better understood.
-Increased vehicle safety due to better vehicle maintenance programs where outsourcing vendors can be used as specialists to perform repetitive tasks.
-More time to audit routine fleet activities to discover trends and find additional areas for continuous improvement.
-Right-sized (or optimally sized) fleets from increased vehicle sharing programs (i.e., pool common and specialty equipment) as activities are centralized.
-Decreased vehicle spending as fleets are replaced timely and assets are optimally shared between agencies.
-Increase customer service provided to agencies from specialization.
-Increased technician and fleet employee training opportunities from pooling costs in a single cost center.
-Understanding costs enables a fleet organization to be more competitive with outside organizations.
-Single cost centers increase data quality and quantity for metric tracking and greater benchmarking of common fleet activities.

Summary
Some may disagree that a single centralized fleet operation provides advantages to operation. But, I would submit they consider those fleet operations operated in the private sector (for profit) and they would readily discover these are operations are centralized. Private or commercial operations allow actual costs, synergies and economies of scale to dictate their decision-making versus positions or personalities.

Because they look at cost as the primary driver, they understand that a lean operation always makes the most sense. Hence, these organizations constantly engage in streamlining fleet related activities to remove duplication and redundancy where possible. The bottom line is centralization, reduces fleet size, increases employee productivity, stimulates synergies, increases competition, and saves budget dollars. As the challenges to find tax dollars grow, it is even more important to seek alternative opportunities to reduce costs and increase productivity. This can only happen as these operations look toward centralization and sharing of fleet vehicles and activities.

Ask yourself the following question:
If centralization works for profit-making organizations, isn’t it time this model is used as a standard in government organizations?

Anonymous (not verified)
Anonymous's picture

This is great information. We are looking into a centeralized fleet program. Does anyone have an estimated percent savings per vehicle by centralizing fleet? Can someone contact me to discuss further.