The renowned business guru, Peter Drucker, is famous for saying that if you can’t measure it, you can’t improve it. It’s one of those simple statements that instantly makes sense. If you want something to improve, you must be able to quantify the current situation and then track the impact of any changes made.
For fleets looking to save money and increase efficiency, the basic principle is to pay less for what you get and do more with what you’ve got. When it comes to business fleets, neither of these are as simple as they sound. Headline savings made in one area can often increase hidden costs in another and doing more with each vehicle isn’t necessarily the same as getting more value from it as an asset.
Cost, Utilisation and Value
Over recent years there has been an increased understanding of how to calculate the whole life cost of operating vehicles. Models which factor in key components such as:
Can produce accurate, and often surprising, results. Knowing the true cost of operating individual cars and vans is an important first step because it leads to better decisions about how vehicles are sourced, which funding options are used, and the level of support services required.
The trouble is, even when you have made sound decisions designed to minimise expenditure in each of the above areas, any savings realised can be wiped out by operating more vehicles than you really need. The only way to know whether this true for your fleet is to understand the current and potential value that can be derived from each vehicle.
At this point, we need to be clear that simply utilising each vehicle for more hours each day may well increase its value to the business, but it could also adversely affect the cost and frequency of servicing. It is also only part of the picture, with how and when a vehicle is used playing as equal, if not greater part, in optimising its value to the business and decreasing the true cost of mobility.
Key things to measure
To understand the current and potential value of each fleet asset there are some key metrics to consider. Measuring them accurately is almost impossible without the right telematics system in place but it should be noted that whatever technical solution you decide to operate, the real results come when you combine this asset utilisation data with insights from across the business.
As highlighted in our article on asset utilisation as the key to optimising your fleet, typical elements to measure at an individual vehicle level include:
Particularly for businesses where each journey directly corresponds to income earned, you will also want to examine the revenue (or revenue generating action, such as a package delivery) per vehicle and per mile and then compare this with a pro rata assessment of the whole life cost incurred.
In doing so, you could use calculations such as:
- Total revenue or actions / number of vehicles
- Total revenue or actions / number of miles driven
This can then be compared with:
- Whole life cost (pro rata) / number of vehicles
- Whole life cost (pro rata) / number of miles driven
It’s also important to factor in any seasonal variations, or out of the ordinary events, to these calculations to get a fully rounded picture.
The importance of context
This will give you some interesting facts and figures, but don’t forget that this means little without context. An analysis of the data may show that a vehicle was inactive for 40% of the time. This would seem to indicate that you are getting far from the maximum value from the asset whereas, in reality, this may or may not be true. It all depends on whether you could reasonably put the vehicle to an alternative use during downtime periods or whether any operational or behavioural changes could influence the value derived from the vehicle during this time.
For example, could leaving at a different time enable more deliveries or appointments to take place in any given day? Could a change of route be more efficient, or could better planning mean that separate journeys can be combined into a single multi-stop trip?
Of course, the answer will depend upon a whole range of circumstances, some of which will be unique to your business, but the key is to understand current utilisation rates and then use comparative models to explore potential changes that could influence the value generated.
In reality, you will never reach 100%, as all vehicles have some level of downtime. This means that whilst the utilisation rate of a specific vehicle is 75%, the value derived from the asset could be 100% of its realistic potential.
Learning from others
The very fact that you start measuring rates of utilisation will bring much needed focus to the true cost of business mobility. It will also start the process of identifying any adjustments that are likely to increase the value of each asset to the business.
One final piece of the jigsaw is to put the results you achieve into context by comparing your data with that of other fleets operating in similar circumstances and learn from the steps they have taken to increase rates of utilisation and value. This might not be easy, especially considering commercial sensitivities, so talking to someone with extensive experience of fleets operating in your sector can make a real difference.
Corporate Business Development Manager
Novuna Vehicle Solutions
With nearly 20 years fleet management and flexible finance experience, Liam works across the private and public sectors, helping them to understand the true cost of mobile operations and how to improve asset utilisation across their entire fleet.