Knowing how much a truck costs and how much it costs to fix are not the same thing as knowing what the total cost of ownership (TCO) is for that vehicle.
That’s the message Marc Thibeau, senior vice-president of fleet management solutions for Ryder System Inc. drove home during a recent webinar. According to Thibeau, many fleets “had understated their equipment maintenance and financing cost forecasts by and average of 15%. That type of shortfall, if not reconciled can be problematic to many businesses competing in the marketplace today.”
Ryder uses a program created for it by Ernst and Young to assist fleets in performing total cost of ownership evaluations, and after conducting over 6,000 overviews, Ryder has come to some general conclusions about how fleets account for themselves and the numbers they tend to overlook.
“What we found was that several companies understood many of their specific departmental expenses but that most companies did not have an effective methodology for pulling all their best-known departmental costs, and their less known interdepartmental costs and their even more evasive and less-understood administrative support costs together, thus creating an opportunity for shortfalls and understanding one’s true total cost of ownership,” said Thibeau. For example, he said that administrative costs tend to get buried and ignored.
“One has to think about the indirect costs—the time, energy and resources extended to contract and facilitate repair work, and to pay the bills. My personal experience has been that companies often times at first blush in a cost analysis, overlook many of the indirect costs impacting their total cost of owning and maintaining a piece of transportation equipment, as these costs are typically difficult to carve out of the overall business expenses.”
Not having a full and complete understanding of how well and how long the equipment lasts is another typical stumbling block to achieving a true TCO analysis.
“We’ve found that maintenance is the third most expensive aspect of operating a fleet after fuel and acquisition costs. Driver wages, while significant, are often captured in the HR side of the business, versus being captured as an operating expense. In a recent study conducted by Ernst & Young, maintenance costs associated with operating a fleet can be upwards of 5.3% of revenue. The major contributors to fleet operating costs as a percent of total costs are financing, maintenance, administration and licensing,” said Thibeau.
He added that many fleets haven’t figured out the ideal holding period for each make and model, and because of this, they tend to lose money making too many repairs too far into the truck’s lifecycle. They also make some poor assumptions when purchasing new trucks.
“Something that has made the traditional, predictive maintenance cost analysis process obsolete and somewhat risky to use today, is that most companies have historically forecasted future costs of newly acquired equipment by looking at the historical cost of the equipment being replaced. This backwards-looking approach may have been a sufficient way of estimating go-forward costs of maintenance in the past but it is not a good way to forecast go-forward maintenance expenses on equipment with new engine technology componentry today—specifically equipment spec’d with 2007 model year or newer engine year technology. The costs associated with maintaining the newly designed equipment with engines manufactured to meet the government mandated emissions standards, along with the DPF exhaust componentry that comes along with this new design, have proven to be costly maintenance additions, driving historical cost run rates upwards by as much as 25% depending on the equipment type or application.”
Of course it’s not enough just to know what is being spent, the key is having the systems in place to manage that spending appropriately, said Michael Riemer, vice-president of products and channel marketing for Decisiv Inc. the service relationship management company that sponsored the webinar.
“What’s important is for each organization to measure and manage and report on what is important to you and to be able to take action on things in an meaningful way. Don’t just look at cost per mile or cost per hour. Really look at the impact across your organization and most importantly, recognize getting access to the organization that you need requires an open and connected ecosystem to make sure that the data flows into the system so you can use it measure, monitor, report and take action on those benchmarks.