Don’t understate the role of Fleet Management in Logistics
Fleet management is often lost in the greater activities of transport and logistics but its importance as a foundation element to achieve least cost and efficiency in Logistics cannot be overstated.
The role of Fleet is to make available an efficient and cost effective fleet, and that of Logistics is to use these vehicles for the delivery of a quality revenue generating service that is profitable. This is similar to the 4PL Logistics model where the Logistics operation is described as a non-asset-owning service provider. In our discussion it simply means that in a company which has its own fleet and logistics operations, the Fleet operation is standalone with a different set of responsibilities.
Fleet does not generate revenue and can be seen as a cost to Logistics, but its role in the profitability of Logistics is substantial requiring considerable integration of services and support.
What then are the services, responsibilities and KPIs of the Fleet operation?
- Vehicle and equipment specification – this clearly is a joint Fleet and Logistics role. No point in using an HCV when a MCV will do. Clearly define usage (hours / Kms) and operating requirements (cargo specifications, customer access, driver needs, long haul / short haul / local distribution, etc.)
- Vehicle Section – Fleet will identify an appropriate range of vehicles considering: Total Cost of Ownership (TCO):- new vehicle pricing, expected resale values, maintenance and tyre costs, service & maintenance plans, fuel consumption, spares costs and existing procurement agreements, dealer support, spares availability, and product lifespan. Final selection is a joint agreement.
- Vehicle Procurement – having selected a vehicle Fleet will procure to maximise the company’s buying power (influence) upon the supplier.
- Finance Method - not just a finance decision as Fleet should introduce replacement timing and resale value into the discussion which will identify options that have the potential to reduce monthly costs.
- Replacement Timing and Planning – Part of Fleet policy which should be developed to optimise in service life, minimise risk of major mechanical failure and maximise resale values.
- Service and Maintenance – Fleet must strictly adhere to OEM service specifications as a necessity but it has the responsibility to minimise the cost of its maintenance expenditure and ensure best turnaround times. Out of service vehicles impact negatively on the Logistics operation and service scheduling should cause least disruption. Alternatively make available replacement or rental vehicles.
- Fuel Consumption – when fuel probably represents in excess of 40% of your TCO it requires a lot of attention. Fleet should apply benchmarks and analyse consumption at each fill and liaise with Logistics i.r.o. any variances. Vehicles and drivers should be under close review for excesses, together with the application of corrective action.
- Accident Management – Fleet should have the responsibility to manage the administration of accidents and repair of vehicles. Fleet should achieve least cost, best turnaround times and best quality to minimise any negative impact on resale values.
- Relicensing, CFOs and traffic fines – Fleet has the full burden of these administratively intensive activities
- Vehicle replacement planning and disposal – This is a repeat of the vehicle specification phase but Fleet has the responsibility to maximise the resale price of the vehicle to minimise vehicle TCO. It may include as examples;-refurbishment, trade-ins or use of repurchase agreements.
The above points address the specific issues of vehicle TCO which is a direct input cost to Logistics. They are complex because of the volume of activities, the administrative burdens, legal requirements and the operating pressure to support the revenue / profit generating activities of the business.
When considering the above it is not to suggest that Fleet is a standalone operation. There are a number of services that can be shared between Fleet and Logistics which potentially reduce cost.
- Telematics – the use of telematics will be used for route planning, measuring driver activity and behaviour and importantly vehicle utilisation. Although the TCO model has the potential to reduce costs, a measurement of utilisation will identify underutilised vehicles. Right sizing the fleet in terms of quantity and vehicle mix has the potential to eliminate vehicles. Remember the cheapest vehicle is the one you don’t have.
- Driver Training – There are ethical, safety and regulatory reasons to train drivers but in the context of this article there are significant cost benefits to be gained. Mechanical failure and /or accidents are often associated with ill trained drivers. Drivers training will result in reduced accident rates. Major mechanical failure can potentially be avoided and the cost of higher wear and tear and traffic fines can be reduced through training.
- KPI’s – the application of KPIs, with appropriate incentives, which identify and measure key activities and costs which benefit the shared business operation, play a vital role in reducing cost, improving efficiency and achieving profitability.
Fleet activities shown in this article are demanding but most beneficial. However, it would be difficult for a Logistics team with priorities of customer service, revenue generation and profitability to assign time, effort and focus to fleet which is a cost item. Make that be the focus of a dedicated Fleet team who are motivated and skilled to support Logistics.