Higher fleet performance from understanding cost drivers
Dec 1, 2008 12:00 PM
In Today's Tough economy, transportation managers experience more pressure to manage budgets and operate as efficiently as possible. Higher performance can be achieved by identifying the most important aspects of transportation that should be measured, and then using this information to evaluate fleet performance.
In his presentation, Reducing Costs by Examining Key Transportation Metrics, Tony Vercillo, president of IFMC, a fleet management and distribution consulting company, said the key transportation cost drivers are:
Fixed costs (depreciation, resale).
Miles (route structure, miles driven, out-of-route miles).
Capacity (cube, configuration).
Utilization (percentage, hours per day).
Time (order cycle time, delivery frequency).
With regard to equipment, Vercillo observed that too frequently, foodservice distribution companies don't think about the resale value of their equipment. They hold onto trucks and trailers for a very long time figuring they are saving money by not replacing equipment so often.
“If you're buying a piece of equipment that has a good resale value in three or four years, it's a smarter decision from a cash-flow point of view to sell it in year three or four, get a good value for it, and replace it.”
He proposed that fleets with a “mixed bag” of trailers look at standardizing, where appropriate, on larger trailers, allowing for maximizing weight and cube maximize, and thus reducing requirements. “Cube and capability is a critical measure that should be looked at every month.”
In addition, Vercillo said “equipment has to be used for a second or third route. Trucks need to run more than just six to eight hours per day.
While most fleets staff their equipment for peak loads of the week, he suggested it might be better to staff for 80% of demand and augment with seasonal or consignment rentals at peak times.
Some of the key questions fleet managers need to be addressed, Vercillo said, are:
What is the average age of the fleet?
What is the lifecycle replacement policy?
Has each route been tested for shortest distance?
Is an engine idle-time policy in place?
Is fuel being purchased as smartly and cheaply as possible?
Are the vehicles optimally spec'd for light weight and fuel economy?
Are drivers incentivized for improving miles per gallon?
Is a weight/cube maximization program in place?
Has trailer configuration been optimized to maximize cube?
Is cube-out versus weight-out tracked by load?
Is onboard technology being used to track driver productivity?
Is the exact percentage of utilization for each vehicle in hours known?
Is on-time delivery to customers tracked.
Has delivery frequency and minimum order size been researched?
Once this data is know, he said a fleet will have an understanding of its baseline costs so it can then start to attack these costs. “This is critical because there are many separate and distinct processes involved in managing a transportation fleet.”
In order to help drive transportation costs down, a fleet should create a balanced scoreboard of key transportation metrics, Vercillo said. This scorecard needs to include, at a minimum:
Financial indicators, such as cost per unit, cost as a percent of sales, etc.
Customer-service related indicators, such as on-time delivery, errors or damage, etc.
Productivity related indicators, such as cases per hour per driver, order cycle time, delay time, etc.
Future value indicators, such as return on investment, return on capital, return on assets, etc.
“To be successful, metrics must follow the SMART principle. Each objective (metric) needs to be specific, measurable, achievable, reasonable, and time-phased (period of time the goal will be tracked).”
By way of simple example, he said cost per mile (cpm) by itself is not a good transportation measure, because the more miles driven the lower the cpm. To be a metric, cpm has to be compared to an objective or previous performance.
Vercillo provided the critical transportation metrics he uses to evaluate the cost-effectiveness of a fleet:
Cost as a percent of sales (helps determine how a company spends to the business).
Inbound freight as a percent of cost of goods.
Cost per unit.
Cost per cube.
Cost per mile, as a relative measure of trucking efficiency and effectiveness year-to-year.
Fuel as a percent of total transportation expenses.
Depreciation as a percent of total transportation expenses.
On-time delivery +/- 30 minutes.
Total order cycle time.
“The key transportation metrics scorecard needs to be reviewed and evaluated on a regular basis,” instructed Vercillo. With this information, managers “are armed to make changes to drive costs out of their fleets.”
© 2013 Penton Media Inc.