Without a doubt, the No. 1 challenge facing today's fleets is cost containment, according to a survey of commercial fleet managers conducted by AF.
"There is always pressure to perform well financially, but there seems to be more pressure recently," said David Meisel, senior director – transportation & aviation services for Pacific Gas & Electric Co. (PG&E) in San Francisco.
The pressure is emanating from senior management instructing fleet managers to reduce costs.
"Our challenge is keeping the fleet consumption of capital to a minimal level, which is the same challenge we have every year," said Gregg Hodgdon, CAFM, director of fleet operations for E.A. Sween Company/Deli Express in Eden Prairie, Minn.
The pressure for spend reductions is occurring at all levels within organizations, and fleet operations is simply another department requested to cut costs.
"Continuing to identify significant cost savings is a challenge when most of the big ticket items have been done. We continue to look for vehicles with lower cost and greater fuel economy," said Charles Szymanski, manager, global property casualty insurance and auto fleet for PPG Industries in Pittsburgh.
Reducing fleet costs is a constant, never-ending struggle for all fleet managers. For well-run fleets, it is increasingly difficult to squeeze out additional cost savings.
"We've exhausted most of our cost-saving opportunities," said Steven Anderson, CAFM, fleet manager for Sentry Insurance in Stevens Point, Wis. "Our average cost per mile has increased for the first time in five years, primarily driven by acquisition cost."
This sentiment was echoed by many other fleet managers, as typified by the observation made by Jim McCarthy, director, vehicle management service for Siemens Global Shared Services. "There are limited opportunities for savings. There is no low-hanging fruit left, and new technologies are driving acquisition, collision repair, and maintenance costs higher, while offering only minimal fuel and ancillary savings," he said.
Many fleet managers report they are given a specific percentage-reduction goal in annual fleet costs and it is up to them to figure out how they are going to achieve it. As a result, fleets are adopting a multipronged approach to cost containment. Industry-wide, there is ever-increasing pressure to find creative ways to cut costs without impacting productivity and employee morale. One example is Novo Nordisk.
"There is a new push at my company to contain costs, while still providing employees with the vehicles they want," said Donna Bibbo, CAFM, fleet manager for Novo Nordisk in Princeton, N.J.
A key factor driving fleet cost increases is higher vehicle acquisition costs, while capital budgets remain static, or, in some cases, have decreased. In recent years, high resale values have helped mitigate some fleet costs, in particular depreciation. However, with resale values forecast to stabilize, there is concern about the future. "I'm worried about increased budget pressures with a leveling resale market," said Shawn Dusosky, manager – fleet financial services for General Mills Inc. in Minneapolis.
"One complication deals with making TCO calculations and the uncertainty of resale market projections," said Don Trestrail, fleet manager for Intel Corp. in Santa Clara, Calif.
"The pressure is always to do more with less. We have more initiatives, but a smaller budget," said Brett Switzky, fleet, trucking, and record retention manager for American Family Mutual Insurance Co. in Madison, Wis.
The mantra directing many commercial fleets is to increase value and decrease costs while still maintaining services and customer satisfaction.
"We are looking at reducing costs wherever we can and including technology to offset head count deficiencies," said Dusosky of General Mills Inc. "This year brings specific challenges. Coming off back-to-back record cost savings years, we are now facing an upward trend in our budgets. We have been able to add driver-based benefits, such as increased vehicle choice, selector diversification, and a tolling program, but, now, I foresee having to tackle the driver eligibility issue head on for fiscal-year 2015."
Key Focus is Driver Management
Driver behavior has come to the forefront as being one of the top challenges currently facing commercial fleet managers.
"The key issue is driver compliance," said Carl Nelson, fleet manager for AM-Liner East, Inc. in Berryville, Va.
Other fleet managers cited additional concerns. "Our top priority is managing driver risk assessment as part of the hiring process," said Sue Miller, CAFS, director, fleet management services for McDonald's Corp. in Oak Brook, Ill. "This also includes managing driver behavior — particularly DUI/DWI and reckless driving. Other aspects include preventing driver fraud of gasoline purchases, having drivers respect the company vehicle — particularly at turn-in time — and managing compliance with policy."
One manifestation of driver management revolves around driver communications. This is especially the case with new drivers. "My challenge is educating drivers new to the program and working with our fleet management company to communicate this," said Michelle Thur, fleet manager for American Greetings in Cleveland, Ohio.
Companies are also implementing programs to train employees to drive their vehicles more fuel efficiently. This involves eliminating fast starts and hard stops and avoiding excessive idling. Studies have shown that fuel efficiency can be improved by as much as 19 percent simply by reducing a vehicle's idling time. Encouraging drivers to drive within the posted speed limit, especially on highways, can also help with fuel efficiency.
One solution involves technology; however, some question the efficacy of this approach, especially in terms of modifying driver behavior. "Is technology always the answer to changing driver behavior?" asked Butch Christian, fleet manager for Quanta Services in Houston.[PAGEBREAK]
Another challenge is employee engagement. "Everyone I talk to, both in and out of the company is super busy. It's tough to keep everyone engaged when there are lots of fires to be put out," said Meisel of PG&E. "This also includes employee development and technical training. It's always a challenge to keep up with changing technology, cost effectively, when you have a large field operation."
Many of the issues involving driver management are administrative in nature.
"Maintaining accurate fleet and driver information is a challenge. When operating a fleet of several thousand, it is difficult to collect every driver and fleet change. It involves HR feeds for some of the data and cooperation with business leaders to keep you up-to-date on field level changes," said Szymanski of PPG Industries.
In addition, some fleet managers are also reporting that driver morale is a concern. Fleet managers are being tasked with keeping drivers satisfied while making cost-effective decisions for the company.
Senior Management Support
The perception of many fleet managers is that fleet management is not being taken seriously by senior management, who view it as a huge cash vacuum.
"Operating as a 'commodity,' where TCO is not a primary decision lever, is still a very challenging position for us — as for most procurement-based operations," said one fleet manager, who asked not to be identified.
This challenge was cited by many other fleet managers. "My key challenge is communicating to senior management the value of fleet management," said another fleet manager who asked not to be identified.
Besides communication, ensuring senior management is aware of fleet value also involves educating management about fleet. "This avoids secondary approval requests by the driver and a re-do, especially in the replacement process," said Szymanski of PPG Industries.
This sentiment was echoed by Anthony Foster, fleet manager, corporate procurement for Pioneer Natural Resources USA, Inc. in Irving, Texas. "My challenge is educating management about the fleet department function and what responsibilities it should have."
This is especially the case with new senior managers who have never had fleet as one of their management responsibilities.
Some fleet managers bemoan the lack of vision senior management has about fleet. "We are very decentralized with most fleet-related items, other than vehicle ordering. For example, the managers of safety, risk management, HR, and fleet all handle different parts of fleet — all with different ideas of what they want to accomplish. There is a lack of vision with no constructive debate on principles or how the industry has changed and is evolving," said one anonymous fleet manager.
Vehicle Acquisition Trends
Many fleets are still playing catch-up with vehicle ordering after dramatically decreasing acquisitions in the wake of the economic downturn that started in 2008.
"We are continuing to catch-up on vehicle replacement from our drastically reduced purchases in 2009–2011 and should be where we want to be in two more model-years," said Ginny Liddle, CAFM, buyer II for Terracon in Olathe, Kan.
Another key acquisition challenge revolves around higher prices. "Rising cap cost impacts on our budget is a key issue," said Anderson of Sentry Insurance.
Another challenge is fleet incentive reductions, said Mike Butsch, director, global fleet operations for Joy Global in Milwaukee. Lower incentives have prompted some fleets to expand their selectors and look at non-traditional fleet vehicles. Lower OEM incentives have also increased lifecycle costs making some models no longer competitive.
Sourcing from multiple manufacturers provides more opportunities for savings and a larger selector for drivers.
"Understanding the relationship between manufacturers, dealers, and distributers helps us find the most value for our fleet," said Chris Tinajero, global category manager, strategic sourcing for Ericsson Inc. in Plano, Texas.
A common strategy to reduce fleet cost is to downsize to smaller vehicles, but the line between downsizing and driver disatisfaction is a fine one. Other cost-control strategies include a shift to different vehicle classes.
There is an ongoing trend to downsize fleet vehicle sizes; however, there continues to be resistance at some fleets. "I would like to introduce four-cylinder vehicles to the fleet, but management appears to be apprehensive," said Don Woloszynek, manager, fleet services for National Gypsum in Charlotte, N.C.
Another concern cited by the surveyed fleet managers dealt with the bundling of options. "The bundling of upgraded features in vehicles is an issue. For example, I want hands-free capability, which forces ordering of back-up cameras and remote vehicle start," said one fleet manager, who wished to remain anonymous.
Most fleets are reporting that CY-2014 will be a status-quo year in terms of vehicle replacement volumes.
"Overall, 2014 should be a relatively stable year. All our long-term contracts are in place and we have no RFPs or any other bidding events. This is after two years in a row of negotiations with different partners on new contracts," said Phil Schreiber, fleet manager North America for Otis Service Center in Bloomfield, Conn.
One future concern is the uncertainty of interest rates. "Interest rates are somewhat of a concern, especially with vehicles on floating interest rates," said Anderson of Sentry Insurance.
The eventual elimination of models, such as the Ford Econoline, is a key concern as voiced by Julie Bromley, manager, credit and administrative services for Reedy Industries in Glenview, Ill.
However, the biggest issue revolves around staggered production schedules from the manufacturers in the light-duty pickup segment. This includes early cut-off dates and downtime between models.
"Trying to deal with manufacturers changing their build out and start out dates — everyone is different now — makes choosing selectors difficult," said Woloszynek of National Gypsum.
Also, as OEMs streamline product lineups, it is making it difficult for some global fleets to source from a single OEM.[PAGEBREAK]
Fleet complexity is another issue. The vast difference in vehicle assets utilized by different business units creates a complex fleet at many multi-divisional conglomerates. Complexity also occurs when drivers have greater vehicle selection choices.
"My company now allows customization of ordering, which is quite difficult when ordering pickups because there are numerous combinations available that then cause other changes, such as tire sizes and axles," said one fleet manager, who asked not be identified.
Vehicle upfitting packages are becoming more complicated based on electrical constraints with the vehicles. "With the amount of additional electronics drivers are using in the vehicles, the standard electrical systems are not enough so we have to install aftermarket equipment to manage the electrical load," said Brandon Morris, director, fleet services for DirecTV in Englewood, Colo.
One complaint deals with vehicle pools. "The lack of pooled inventory to pull from the body companies when you need a vehicle in a pinch can cause headaches," said Tom Armstrong, director of fleet for Thyssenkrupp Elevator in Fort Lauderdale, Fla.
Vehicle Replacement Schedules
A top challenge is long-term forecasting to maintain timely vehicle replacements to avoid the increased expense of operating an aging fleet.
"We are a small company, with expensive specialty vehicles. Replacing these vehicles on a regular cycle is not an option, not the least due to a tremendous lead time, since these are built to order, and very few suppliers build them. Therefore, maintenance, parts, and downtime are a major consideration when dealing with older vehicles. Lack of an adequate budget, an adequate staff, and increasing taxes, paperwork, and regulations push a small company to the limit on a daily basis," said Nelson of AM-Liner East, Inc.
Vehicle Maintenance Trends
The good news for maintenance costs is that they have been flat. Overall, the quality of vehicles from all OEMs continues to steadily improve, and extended powertrain warranties have covered some expensive repairs at high mileage.
However, not all fleets share this assessment. Joy Global Inc., a worldwide manufacturer and marketer of original equipment and aftermarket parts and services for the mining industries, reports an increase in maintenance costs for its fleet of trucks. This is especially exacerbated when there is a decrease in fleet maintenance budgets.
One ongoing fleet maintenance issue has been the increased cost of replacement parts. In many cases, the parts price increase is due to raw material cost increases, especially those built of materials that are oil-based, such as plastic parts. Also, OEM proprietary systems require national account vendors to source parts from the OEMs rather than the aftermarket.
However, one maintenance expense that has been on the rise is the cost for replacement tires. A key factor to higher tire prices is commodity price increases for raw materials, in particular the higher cost of oil, which is a key ingredient in tire manufacturing. While the industry forecast is for passenger tire costs to remain stable for 2013, unpredictable raw material costs will continue to be a wild card in determining future costs.
Unpredictability of Fuel Prices
To the pleasant surprise of most fleet managers, fuel prices remained relatively stable in CY-2013. "Fuel prices have been a very good surprise in 2013, let's hope this will continue," said Schreiber of Otis Service Center.
Regardless, fleet managers are relentlessly examining ways to reduce their fuel spend. As the largest cost component of operating expenses, fleet managers are focusing on a multitude of fuel-reduction strategies, which often morph into corporate sustainability initiatives. In many ways, fuel-efficiency initiatives and sustainability initiatives are very much intertwined.
The key issue is the unpredictability of fuel costs and how long they will remain stable. "The ever-changing fuel situation is a major challenge. How do you budget sales rep expenses if you have no idea what the cost of fuel will be?" asked Woloszynek of National Gypsum.
For businesses that rely on their fleets to move products to market, higher fuel prices not only impact fleet operations, but also business in general. Margins are further squeezed by the additional cost of mandated diesel emissions technology, which has increased truck acquisition prices. At companies relying on truck fleets to move products, higher fuel prices are a concern because the price margins are already tight, forcing companies to explore less costly ways to distribute products.
One silver lining to high fuel prices is that it has prompted many companies to reinvigorate fuel-efficiency initiatives. All aspects of fuel management are being examined, including route efficiency, vehicle payload, territory coverage to reduce miles driven, and fraud management processes.
Another way to mitigate fuel costs is to revise vehicle specifications. "To decrease fuel usage, we are evaluating new vans with increased mpg and cargo capacity," said Morris of DirecTV.
Another strategy is idle reduction initiatives as being pursued by David Hayward, fleet operations manager for AmeriGas Propane in Valley Forge, Pa.
Safety Gains Increase Urgency
Driver safety and reducing liability exposure is a major challenge cited by commercial fleet managers. In particular, the challenge is to reduce preventable accident rates and associated repair costs, downtime, and liability risk. Some fleets are focusing on driver training to reduce the incident of preventable accidents.
In an era of higher expenses, the cost to repair accident damages is often an eye-opener for many fleet managers. Often, what appears to be minor to moderate damage can turn into a substantial expense.[PAGEBREAK]
In addition, fleets are also focusing on ways to minimize driver distraction. Fleets view driver distraction as a major challenge affecting their operations. One challenge is ensuring drivers comply with company distracted driving policies.
Although having high visibility on the fleet manager's radar screen, driver distraction promises to take center stage as senior management becomes increasingly concerned about the consequences of potential liability exposure. Universally, senior management views driver distraction as a significant liability risk, especially as drivers ignore corporate restrictions and surreptitiously use their own mobile devices in company-provided vehicles.
As more drivers use their personal hand-held wireless devices, it is becoming a greater fleet issue. "How do you effectively control the use of all the technical equipment, such as laptop, cell phone, GPS, and iPads, and still feel like your drivers are safe in their vehicles?" asked Woloszynek of National Gypsum.
Most fleets have a documented fleet safety policy that is distributed to all drivers who are required to acknowledge receipt and sign that they have read the document. "The challenge with driver safety is not only putting items in a fleet policy, but making sure the drivers are adhering to the policies," said Switzky of American Family Mutual Insurance Company.
The bigger issue is how to create a corporate-wide safety culture. A key issue is getting buy-in from senior management, as well as drivers, on the importance of a robust safety program. "You need to get the right people involved in making hard decisions," said Thur of American Greetings.
Sometimes this is difficult to do. "Conveying the importance of safety and driver distraction to executive management at a time when productivity seems to be the primary success lever in most business units can be a tough sell," said one fleet manager who wished to be anonymous.
Some companies are adopting technology as a way to reduce accident expenses. "We are looking to reduce physical damage through the use of new in-vehicle technology, such as sensors, alarms, etc.," said Morris of DirecTV.
However, some fleet managers remain wary about technological solutions. "There is too much smoke and mirrors in this area. It would be great if there could be a Consumers Report for fleet that would test a product versus its competitors and then report the results," said Meisel of PG&E.
Other fleet managers say their primary safety challenge is identifying the problem drivers. "Risk assessment of my drivers and procedures for dealing with problem drivers is a challenge," said Debbie Struna, fleet manager for Rite-Aid in Camp Hill, Pa., adding that personal use is compounding this issue. "How can I promote safety and vehicle policies with drivers who are using their personal vehicles for company business?"
More companies are now adopting driver scorecards to identify high-risk drivers and taking the appropriate action, getting support from management to terminate if necessary.
Implementing productivity strategies in large corporations is very difficult, since fleet touches many stakeholders within an organization, ranging from finance to human resources to sales to risk management.
Many fleets are looking at technological solutions, such as GPS and telematics systems, to increase driver productivity. A primary application for GPS and telematics systems is to enhance route and operational efficiency. Other fleets are using GPS to modify driver behavior, identify fraud, improve service delivery times, reduce miles driven, and enhance fleet safety.
However, for some fleets, cost constraints continue to delay implementation of these technological solutions.
Fleets are looking at telematics as a way to control its spend on fuel. With fuel prices varying by as much as 10 to 15 cents per gallon in a five-mile radius, fleets are starting to use tools to better control where drivers purchase fuel.
However, for fleet managers, there is a bewildering array of products in the market. "There are too many offerings in the market with so many different variations in services provided. What should I be considering when making a choice for my fleet?" asked one fleet manager, who did not want to be identified.
Trends in Sustainability
Sustainability continues to gain importance as a top job focus for many fleet managers. The degree of sustainability pressures from management is often commensurate with fleet size. Corporations, especially multinationals, have publicized their corporate mission statements to shareholders and customers, committing to reducing their corporate greenhouse gas (GHG) footprint. Since vehicle fleets are key contributors to corporate GHG emissions, a quick way to meet emissions reduction goals is to modify the fleet program.
Since most companies replace approximately one-third of their fleet vehicles each year, they can tailor selectors to favor the selection of more fuel-efficient vehicles. For most fleets, anything that increases fuel economy and allows them to be green at the same time is viewed as a positive.
One of the biggest obstacles to fulfilling green fleet initiatives is the lack of capital spending and shrinking fleet replacement budgets. Most commercial fleets agreed that, before any green initiative is implemented, it will need to provide an acceptable return on investment.
This sentiment is shared by other fleet managers. "I don't see much more focus being placed on 'greening' the fleet in my company. Improved fuel economy will always be a focus and something we can easily affect as manufacturers are required to improve mpg to CAFE standards," said one anonymous fleet manager.
In addition, as internal combustion engines become more fuel efficient, in the minds of some companies, it reduces the need to examine alternative fuels. The challenge is finding a balance. "We are working on our sustainability efforts, while still providing our drivers the best possible tool that allows them to do their jobs," said Switzky of American Family Mutual Insurance Co.
This was echoed by Bibbo of Novo Nordisk. "We are continuing to improve our CO2 reduction metrics, while still providing employees with vehicles they want."
More fleets are using eco-driving training as a way to reduce emissions. "We are working on ways to improve sustainability through driver behavior," said Switzky.
Although many fleets are looking at alternative fuels, there continues to be gaps in available models that can fulfill fleet applications.
Others question the viability of hybrids as fleet vehicles. "Are hybrids really an answer for a fleet that has drivers traveling 4,000 miles per month?" asked Woloszynek of National Gypsum.
The cost of alternative-fuel vehicles continues to be a challenge. "The problem is going 'green' in truly sustainable ways. Most of the propaganda that ends up on the news is not truly sustainable if the lifecycle costs are higher," said Hodgdon of E.A. Sween Co.
However, the choices require complex deliberations. "Managing alternative-fuel technology in the workplace is a challenge. There are so many versions of technologies out there and more coming. Sorting through them and building a long-term strategy is tough with a moving target," said Meisel of PG&E.
Originally posted on Automotive Fleet