by Johan van Niekerk, Fleet Solutions Consultant, Fleet Domain, a member of the Argility Technology Group.
Fleet operating costs remain one of the top three expense items on any company’s balance sheet. This is not expected to change in the future. Over the past three years fleet expenses increased by 12%+ per annum. To manage or even reduce fleet expenses, companies must implement policies covering all aspects of fleet management.
Finance: Financing vehicle assets can be done in several ways e.g., cash, hire purchase, financial lease - with or without a balloon payment - or an operating rental. Each of these methods have distinct advantages and disadvantages.
Where a third party takes risk for the final settlement or payment applicable - as in the case of a lease with a balloon payment or operating a rental with a residual value - excess kilometres and make reasonable costs (this is what we refer to in the fleet industry for penalty charges at the end of a contract for excess kilometres and vehicle damages).
These are influenced, by selecting a market related value on future terminations, at inception.
Maintenance and Tyres: Various options are available in the market all with benefits and risk attached.
Companies can elect to pay for maintenance/tyres as and when needed - allowing for future inflation trends and price increases on maintenance items.
Alternatively, one can elect to make use of a third-party service provider which has the requisite products as follows:
- Maintenance card supplied by one of the financial institutions. At the end of the month, costs are recorded and approved for the company's account. The company bears the expense risk.
- Maintenance Management cards are supplied by the finance institution. In this model, maintenance/tyre expenses are approved and authorised by the service provider. Approval limits must be agreed upon. Maintenance risk remains with the company, and vendors expect the provision of detailed monthly expense reports.
- Managed Maintenance as supplied by one of the fleet management service providers. Period and Kilometre usage are selected upfront as per model covering maintenance and tyres(optional). The company pays an agreed amount per month. In this model, the service provider takes care of maintenance risk, including future inflation. Restructures of the original contract can be done, allowing for changes in usage. If this is not done or managed effectively, excess mileage or abuse can apply, a cost not normally allowed by the company.
- Maintenance Plans or Extended Warranty plans can be purchased upfront that will cover maintenance costs based on period and kilometres. This is not normally available for tyres. The pricing of maintenance plans allows for future inflation and rising costs, with an allowance for a management fee. If these plans are financed as an accessory at the finance rate applicable to the contract, the cents per kilometre will increase versus any other form of financing a vehicle.
- Fuel Cards can be supplied by most financial institutions and record fuel usage linked to kilometres and litres per month. Reports flag excessive fuel usage, which is important as it can point to maintenance issues or possible fuel theft.
- GPS/Tracking devices are immensely valuable in assisting fleet management costs. These units are not a fleet management tool; however, good fleet management is impossible without them. By recording speeding, harsh braking, excessive idling, driver fines, no-go zones, and more, increased maintenance, tyre, fuel, insurance, and HR costs can be managed and reduced.
- AARTO may be on its way back into the fleet world, with negative point accumulation against drivers who offend. Companies must always know their driver’s licence status. Service providers can assist with this.
As noted above, companies and fleet managers find it very difficult to manage and control these expenses, as they receive multiple reports from different service providers.
The FleetDomain Fleet Management Information System (FMIS) enables businesses to receive all necessary reports and measurement tools on one consolidated platform. This system produces reports that flag bad driving behaviour, which in turn negatively influences maintenance, tyre, fuel, fines, and insurance costs, with great savings to the company.
Fleet expenses are currently 9% to 15% out of line due to companies not using available fleet management tools.
Organisations managing and operating fleets should have an FMIS tool that can manage driver behaviour and control expenses under thumb at all times.
It is a known fact in the fleet industry – “Without managing driver behaviour savings in fleet expenses will not be achieved”.
This brings us to the last point of a cost-saving influencer: driver training. On average, driver training costs 0.340% to 0.95% of a vehicle's total cost of ownership (TCO). This is calculated on averages for small passenger/light commercial vehicles to heavy commercial vehicles.
Significant savings can be achieved by using a Fleet Management Information System (FMIS) and Driver training. These savings will far exceed the cost of having these valuable tools and services on hand.
Want more information as to how FleetDomain can help you – Contact our Business Consultants on 011 712 1300, email info@fleetdomain.net or visit our website, www.fleetdomain.co.za
