In with the new

From the June 2021 print edition

Fleet professionals understand optimum replacement and how to work towards the lowest total cost of ownership (TCO). It is intuitive that capital costs (depreciation) decrease when they are spread out over longer periods and operating costs increase as a vehicle gets older, is less fuel efficient and requires more maintenance.

When possible, vehicles should be replaced when the TCO is at its lowest, usually just before a spike in operating (maintenance) costs.

Many organizations use technology to calculate optimum replacement points for various equipment classes and the yearly budget. Optimal replacement can only happen if an organization can dedicate sufficient budget for fleet. Best-laid replacement plans fail the first year that funding is not forthcoming. In a perfect world, fleet professionals would adhere to optimum lifecycles and minimize TCO over multi-year plans.

The pandemic means a far from perfect world. Budgets have been redirected to purchase of PPE, increased cleaning, workplace modifications, enhanced technology to allow work from home and other changes. These funds must come from somewhere and the fleet replacement budget is an attractive target. Decision-makers often see delaying fleet replacement as an “easy out,” as the impacts may not be known for years. Diverting fleet replacement funds to a higher operational priority may be inevitable.

Although delayed replacement is not new, it is exacerbated by the COVID-19 crisis. I recently spoke with a fleet manager who is living this reality. After a devastating fire, followed by floods, his fleet replacement funding was zero in two of the past five years. He is now facing another year of no funding. The organization may not have other viable options. But they are digging a hole by delaying fleet replacement without a workable plan for longer-term fleet renewal. There’s no ideal solution. Fleet professions must act counter to best practice to meet priority goals. When delayed replacement is inevitable, fleet managers should take these steps:

Understand the budget reduction. In large organizations, it can take time to communicate information. Budget cuts rumours may hit the fleet office before official announcements. Fleet managers must understand the decision and reduction to capital and/or operating funds. They should be ready to perform “what if” analysis and offer alternatives. Ideally, the fleet manager is involved in the budget process and can ensure the impacts of any reductions are known.

Evaluate short- and long-term costs and impacts. Cutting replacement funding has immediate and longer-term consequences. The fleet manager should evaluate the immediate impact on operating costs and service delivery. Keeping vehicles longer means that fuel and maintenance costs will rise. Maintenance needs may exceed shop capacity and outsourcing may increase. More operating funds may be needed to the fuel or outsourced maintenance cost centres.

If funds are not available for these increased requirements, downtime will increase. This can compromise key services delivery – it may take longer to plough roads, collect garbage or repair bridges. Downtime can mean lost productivity as crews wait for a vehicle. This operational degradation is difficult to quantify but should factor into the delayed replacement decision.

Educate decision-makers on these impacts. Fleet professionals must quantify these impacts and educate decision-makers. They must paint a picture that short-term impacts grow exponentially over time. Every year that replacement funding is insufficient, the hole gets deeper and more difficult to make up. Decision-makers need to be reminded that withholding $2 million in funding may result
in an increase to total fleet spend of twice that over 15 years. Fleet managers should use models
to demonstrate these impacts.

Explore less costly alternatives. Knowing that delays to fleet replacement postpone these expenditures, organizations should ask tough questions about whether a program or service can be discontinued to achieve savings. Can garbage service be every two weeks, instead of weekly, or can recreational facility hours be reduced? Either would mean reduced services but translate into savings.

Before suggesting service level reductions, fleet professionals must be certain their house is in order. A fleet utilization review may reveal units that are lightly used and can be remarketed or pooled. The use of rentals, employee-owned vehicles and public transit may help alleviate fleet replacement costs.

Implement wisely. Even after explaining the economics of fleet and exploring alternatives, some organizations will reduce replacement funding. Fleet managers must then plan and execute, making the best decisions under the circumstances. Using a points system that accounts for vehicle age, mileage or hours, maintenance spend and condition can help to minimize long-term impact. Abandoning the multi-year replacement plan is not the answer. Changes are needed to plan to reflect the new reality. Once adjustments are made to the multi-year replacement plan, decision-makers should be told of cost impacts and the risks associated with further reductions.

Fleet managers will be asked to delay fleet replacement in tough times. They must ensure decisionmakers understand the impacts and have alternatives to delayed replacement. After the final decision to reduce fleet budgets, they must make informed decisions that minimize impacts.