Fleet management: Road to cost savings
Get more from lift truck dollars and better usage of vehicles when pros run the forklift "business" in your company.
By Tom Feare -- Modern Materials Handling, 4/1/1999
| INDUSTRIAL TRUCK REPORT |
| Part 1: Outsourcing fleet supervision |
| Part 2: Controlling forklift exhaust emissions |
| Part 3: Equipment guide |
| Part 4: Operator training |
| Part 5: Suppliers source selection chart |
A still small but growing number of lift truck usersprobably only 5% of the totalin the U.S. are trying fleet management. Some find cost savings of up to 40% and greater operating efficiencies compared to owning/ managing their fleets in-house.
Even so, heading down this road is not for every user. In fact, internal resistance to change within your company may be the toughest issue to resolve before outsourcing supervision of forklift assets. And using non-union labor to maintain forklifts in unionized plants or warehouses hardly will fly either, say fleet management execs.
Hyster New England vice president Gerard Boyle lists some warning signals that help you determine when an existing forklift fleet isn't managed as well as it should be (see below).
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Typical profile of a poorly managed fleet
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One signal is a fleet of older trucks that break down too frequently. If you own multiple brands of trucks and stock parts for each brand you create cost inefficiencies.
Range of services
Fleet management, says Hyster's Boyle, really involves a spectrum or range of degrees in which there's a progressively closer involvement with the service provider (see graphic below).
Benefits increasingly accrue to the user of fleet management services as one moves toward leasing with full maintenance. Crown Equipment's Ron Brewer, parts manager, North America, spells out some gains: "Performing a good job of maintenance lengthens the time a truck can be productively used, of course, and helps determine its economic life.
"Leasing with full maintenance takes you out of the forklift business, however."
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Where forklift spending goes |
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Operator wages are the biggest expense, some 80% of the total, along with another 15% spent on operating costs of fuel, maintenance, and support, to run a lift truck for one year. Ownership costs add up to only 5% of the total. |
"Leases with full maintenance are what you should benchmark against," Brewer suggests.
Should an end user's operation, process, or load size change, there's also more flexibility to alter the mix of trucks in a fleet with leased vehicles rather than purchased units.
Truck owners with a mix of brands and with their own stocks of spare parts have inventory that's very difficult to manage, Brewer suggests. There are inventory carrying costs. Moreover, owners are rapidly adding obsolete parts. "Every year 5-17% of these parts will become dead inventory," the Crown exec declares.
What's new, what's not
Fleet management of lift trucks isn't altogether new. What's changed in recent years is the emergence of several factors that favor outsourcing:
- Increased computer software capabilities to manage all the hard and soft cost and maintenance data necessary to track each forklift in a fleet.
- An intensified focus by many users of lift trucks to do what they do bestemphasize a core competencyand outsource support activities, especially those with high service components, to specialists.
- Heightened interest by lift truck manufacturers and many dealers in providing users with a mix of services and managerial support.
More than buy, lease, or rent
Fleet management goes far beyond just acquiring lift trucks and a buy, lease, or rent decision. Consult our feature, "How to decide when lift truck leasing is the right way to go,"(April 1998, pp. 50-52) if your interests focus more on cash flow and tax status matters.
Indeed, acquisition and ownership costs are only a small fraction of total costs of operating and maintaining a lift truck over its useful working or economic life. The pie chart above shows the major savings to be found in operator wages and fuel/maintenance costs.
Yale Materials Handling's Donna Baxter suggests that typical acquisition costs, per vehicle per year, will be about 4% of the total. Possibly this expense may go as high as 7% for a higher-priced, more specialized type of truck, the Yale vice president, fleet management and national accounts, points out.
Add in another 6% for yearly service costs. Thus, it's Baxter's job to help users look at the remaining 87-90% of annual spending for potential, major cost savings.
Hyster's Boyle also observes that lift truck acquisition costs have risen only 6-8% in the past five years. Meanwhile, costs for parts and labor to repair trucks are up 18-22%. Along with operator wages, these more rapidly inflating expenses are prime targets for cost reduction and savings.
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When does a trade-in pay off? |
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A typical forklift reaches its optimum economic life, or break-even point, roughly speaking, after an accumulated 10,000 operating hours or longer. Declining ownership cost and rising maintenance cost combine to create a total cost value that climbs from its lowest point. At the break-even point the user should think about trading in or retiring the truck from service. |
Putting a pro on site
Most manufacturers of lift trucks and dealers have long offered some form of fleet management, explains Mike MacPhail, manager, fleet management services, Mitsubishi Caterpillar Forklift America (MCFA). Preventative maintenance (PM) agreements, full maintenance contracts, and long term rentals "have for years helped reduce maintenance costs by putting trained dealer mechanics in charge of equipment maintenance," he says.
Today's more comprehensive fleet program includes using the expertise of a trained manager. This expert is dedicated to minimizing overall fleet costsboth ownership and operating expenses.
Typical goals are to reduce fleet size, improve forklift utilization, and lower maintenance costs. The pro may work for a dealer or manufacturer. He or she will know when to move a truck to another type of application. Or to retire it. And adjust fleet size to an optimumowner-run fleets often have up to twice the units needed.
When fleets are large enough, a pro may be on the user's site full time. Fleets with over 100 vehicles are good candidates for putting an on-site manager into place, says MacPhail.
Here's another yardstick to determine when on-site expertise is necessary. It comes from Larry LoMonico, national fleet manager, Toyota Industrial Equipment.
When a user fleet numbers 35-50 vehicles, trucks are new, and it's a single shift operation, a dealer's field technician can manage this fleet, LoMonico says. Above 50 trucksor as the average age of vehicles rises and/or the user has a multi-shift operationthen on-site management should be considered.
The Toyota exec also offers advice to small fleet users. "They shouldn't think of performing their own maintenance." High cost economics of in-house maintenance weigh against this practice for even the user with 5-10 forklifts, he suggests.
LoMonico believes the payback to users who try fleet management will be a minimum of a 15% reduction in ownership and operating expenses to as high as a 30-40% savings for those fleets inefficiently run now.
Savings also relate to the degree that a fleet management firm takes control of truck operations.
Hard and soft costs
Tracking all the costs, hard and soft, that relate to lift truck usage, and quantifying them is where many forklift users show shortcomings. And this is where they in turn fail to understand what they might save through taking advantage of fleet management.
Third-party cost tracking services and a handful of software systems can help with the number crunching and analysis. The third-party services can provide users with an unbiased opinion, says MCFA's MacPhail.
But, he adds, "we are hearing many major users say that the (lift truck manufacturer) should really provide the data management service since we already are on-site doing the maintenance and already have the numbers. Why should (users) pay a third party?"
Yale's Baxter suggests that "unless the user has ABC accounting (activity-based-costing) in place, one won't pick up all the pieces of the cost picture." Adds Toyota's LoMonico: "The biggest issue of all is identifying and quantifying on the soft costs." There are soft costs in spare parts inventory. Soft costs in cutting a purchase order. Soft costs in supervision and training of mechanics. And so on.
Turn over cost data management along with fleet supervision and maintenance to the experts, say these proponents. But they also advocate not selecting your new fleet manager based on price alonethe lowest cost proposal among several bids. Baxter likens this decision-making step to a new hire process, with all the human resource issues of quality, experience, and the like to consider besides cost.
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