Work Truck Show: Avoid ‘fleet creep,’ manage fuel costs with these strategies

Having a formal business plan, providing adequate training for fleet employees and taking advantage of cooperative purchasing agreements were just a few of the common-sense best practices advocated by fleet management consultant Steve Saltzgiver at the National Truck Equipment Association’s (NTEA) 2008 Work Truck Show in Atlanta. Saltzgiver’s presentation, “Best Practices and Emerging Trends in State and Municipal Fleet Management,” drew a large audience.

Saltzgiver, who is the manager of Gaithersburg, Md.-based Mercury Associates Inc., talked about the importance of preparing a formal business plan that identifies resource priorities, challenges, risks, key performance indicators and competitive issues. He also urged fleet managers to develop goals and action plans to address problem areas.

“There’s a lot of money to be saved if you just take the time to plan your operation,” Saltzgiver said.

Noting that the fleet management industry is changing at a rapid clip, Saltzgiver asserted that state and municipal fleet managers need to develop a formal skills assessment and training plan to keep their employees current with such changes—particularly when it comes to technology.

“You have to keep your people current on technology,” he said.

Saltzgiver listed a number of other characteristics of well-run fleet operations. Among them:

• The fleet organization is administratively centralized to capture economies of scale.
• Policies and procedures are well-documented.
• Staffing levels are consistent with the size and type of vehicles in the fleet.
• An internal service fund (ISF) is in place for the fleet program.
• Operating and capital costs are segregated and accounted for separately within the ISF.
• A replacement reserve or sinking fund is used to ensure the timely replacement of fleet assets and a cost charge-back system is in place.
• Vehicle replacement cycles are reasonable and are consistent with standard industry practice.
• Policies ensure that replaced vehicles are removed from service and not kept by users.
• Sales are conducted frequently, at least on a semiannual basis.
• The focus of the organization is on preventative maintenance services.
• Work orders are used to record all maintenance activities.
• Formal service-level agreements have been negotiated with primary customer groups.
• A state-of-the-art fleet management information system is in place.

Saltzgiver also encouraged fleet managers to investigate cooperative purchasing agreements, which can reduce the legwork involved in purchasing vehicles and can reduce costs through volume pricing discounts. Options include “piggybacking” on existing governmental bids—state contracts and GSA schedules, for example—or buying through organizations such as U.S. Communities and the Western States Contracting Alliance.

“The danger is they might not have apples for apples what you need,” Saltzgiver explained. “But if you can find a refuse truck with the exact specs that you’re looking for, don’t reinvent the wheel. Piggyback off contracts that are already out there.”

Avoiding ‘fleet creep’

Saltzgiver urged fleet managers to have a comprehensive and well-designed fleet-size management program in place to avoid a phenomenon known as “fleet creep.” According to Saltzgiver, fleet creep describes a scenario in which the overall size of the fleet—and the size and expense of the units within the fleet—slowly grow over time.

“Managing the size of your fleet should be one of your biggest concerns, because that’s where your biggest cost savings are going to come from,” he said.

Intrinsically linked to managing fleet size is managing vehicle utilization. As an example of a simple yet effective way of managing underutilized vehicles and equipment, Saltzgiver pointed to the Colorado Department of Transportation, which calculates the average utilization of each vehicle class to determine the average percent of use based on their asset life cycle. Any vehicle achieving less than 50 percent of the class average is subject to removal from the fleet.

Saltzgiver also cited fleet utilization polices from Utah, Oregon and California.

In general, Saltzgiver encouraged state and municipal fleet managers to produce a monthly report for their customers on vehicles that are not being utilized. When vehicles and equipment are underutilized, fleet managers should advise customers to consider other options, such as leasing or mileage reimbursement for use of personal vehicles.

According to Saltzgiver, an effective fleet-size management program “starts with the recognition that an organization does not have to own all of the units necessary to conduct its business.” Fleet managers should look for other cost-saving “out-of-the-box opportunities” such as motor pools, renting on an as-needed basis and shifting assets between agencies.

Finally, to avoid becoming known as the “utilization police,” fleet managers should form a fleet advisory committee to involve customers in the management of the fleet business.

“Have them become the bad person,” Saltzgiver said. “You don’t want to become the ‘car czar.’ That can become very untenable.”

Strategies for managing fuel costs

According to Saltzgiver, approximately 60 percent of a fleet’s operating costs are spent on fuel. The recent volatility in the prices of gasoline, diesel fuel and products tied to petroleum costs (such as tires) make fuel management one of the biggest challenges facing today’s fleet manager.

“Wild swings in price make it difficult to stay within budget or predict future budgets,” he said.

To reduce fuel costs, Saltzgiver offered these strategies:

• Reduce unnecessary or underutilized fleet assets.
• Purchase newer, fuel-efficient vehicles. “You’re wasting an incredible amount of money if you’re not updating your fleet on a regular basis,” he said.
• Downsize fleet size where practicable. (For example, replace SUVs with compacts.)
• Review fuel types used by vehicles. “Do your police cars need to use premium?” Saltzgiver asked. “ … You’d be surprised by how many [customers] out there are using the wrong fuel.”
• Implement a fuel-hedging program.
• Reduce idling.

Anthony Bizjak, a vehicle specifications engineer with the Fairfax, Va., County Department of Vehicle Services, added that fleet managers should be vigilant about tire inflation—a simple but effective way to ensure that vehicles are achieving optimal fuel efficiency.

In reaction to the recent spikes in fuel prices, state and municipal fleet managers have taken a number of actions, such as encouraging drivers to refuel at the most economical stations and keeping a closer tab on personal mileage use to avoid paying for nonbusiness-related fuel expenditures. Saltzgiver cited one example in which a public agency installed GPS on a number of take-home vehicles.

Some fleet operations have passed increased fuel costs on to customers by adding fuel surcharges to products and services.

“It’s amazing to me if you start charging people for their fuel use, they’ll start watching it more closely,” Saltzgiver said. “They’re just like any other consumers—they have budgets.”

This is the second article in a two-part series. To read Part 1, “Work Truck Show: State and municipal fleet managers under a microscope,” click here.