FEATURE FLEET MANAGEMENT
IF YOU CANNOT MEASURE IT you cannot manage it
Theo Rennenberg, global fleet asset manager at DLL provides tips for lowering the TCO of your materials handling equipment
J
ust about every company that finances its materials handling equipment has, at
one time or another, been charged overtime at the end of a lease or forced to keep equipment with escalating maintenance costs due to improperly structured finance contracts. Why is this such a common occurrence?
Often it’s because the operations and finance teams are not working together to effectively manage their fleet. It is no secret that these departments have different perspectives and priorities but the Total Cost of Operation (TCO) of your fleet depends on a continuous dialogue. They need to communicate regularly regarding the ‘health’ of the fleet which can only be determined by combining financial information with usage data and maintenance records. By analysing this information together, organisations are better equipped to maximise their TCO.
ELIMINATE GUESSWORK The foundation of TCO/fleet management is the structuring of a lease by estimating the expected annual usage of the asset. Unfortunately, this process has always been a guessing game. At DLL our independent analysis of meter reads at end of term revealed that usage estimations are wrong 89% of the time. That means that nine times out of 10
materials handling equipment is either over- or underutilised compared to the lease allowances. When underutilised the monthly payment is higher than it needs to be. When overutilised it means hefty overtime charges at the end of the contract. It’s easy to understand how this happens when you consider the conflicting motivations of the stakeholders involved in structuring a lease contract. Operations teams typically dislike overtime and request more contract hours than they need in order to avoid surprises at the end of term. Finance teams are often focused on negotiating the lowest monthly payment and later shielded from the mid- and end-of-term results of their choices (ie little or no in-term flexibility, restrictive and costly return conditions, high overtime fees, little or no end-of- term flexibility for extensions). What does this mean for your business
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as a whole? Ultimately, a more expensive fleet to operate when you consider the TCO. In order to guard your organisation against the pitfalls of this guessing game,
ask yourself the following questions: Do I pull quarterly/annual meter reads
to monitor the utilisation of our fleet? Do I regularly compare actual utilisation
data with lease contract allowances? Do I base decisions to return equipment on the condition of the asset rather than the expiration date of the lease? If you responded ‘no’ to any of these questions your organisation may have lost sight of one of the most important and impactful aspects of fleet management: leveraging data to maximise utilisation.
LEVERAGE DATA TO MAKE SMARTER DECISIONS A collaborative relationship between operations and finance is important upfront when lease contracts are being structured and throughout the entire lifecycle of the assets. By monitoring actual usage data and regularly comparing it to the lease contract data organisations are able to make critical decisions that can help lower the TCO of their fleet. Take, for example, a fleet of forklifts
leased for five years based on an estimated usage of 2,000 hours per year (10,000 contract hours). Halfway through the contract data analysis reveals that some of the forklifts have been used 4,000 hours per year while others have only been used 1,000 hours. Armed with this knowledge you can now work with your financing partner to shorten the term of the overutilised assets in order to avoid overtime charges and escalating maintenance costs. You might decide to extend the term of the underutilised equipment at a lower monthly payment that matches your actual usage. If taken on a regular basis steps like these can save organisations hundreds of thousands of dollars in overtime, maintenance and overpayment costs. One common challenge is that it can be extremely difficult to gather meter reads on a regular basis and the larger the fleet, the more complex this task can be. If your fleet professionals have access to the data the task is fairly simple. Surprisingly, many large organisations resort to having
S1 JANUARY/FEBRUARY 2017 | MATERIALS HANDLING & LOGISTICS
someone manually pull meter reads on a quarterly or annual basis. Others never do it at all. Unfortunately, that means finance teams never have access to the data they need in order to restructure out-of-balance contracts or effectively structure new ones. If you are concerned that your finance and operations teams are not on the same page with regard to your fleet here are a
few tips that can help bridge the gap: Host an offsite workshop with your operations, finance and fleet groups to dig into the TCO model and schedule quarterly health checks to discuss the status of your fleet. Invite your finance partner and maintenance suppliers to the meetings so
they can share best practices. If your organisation does not have a web application or platform to house all TCO information create a spreadsheet that includes the operational, finance and maintenance data related to each asset in the fleet. Update the data at your quarterly meetings in order to identify issues and manage through them as soon
as they become evident. If you do not have access to this data or your fleet is too large for excel to effectively handle look for Software as a Service (SaaS) solutions that can house this information or find a fleet-centric financing partner that provides these tools as a value-add for your entire fleet (not just the equipment you are leasing).
CONTINUOUS COMMUNICATION Effective fleet management is an ongoing process that relies on regular analysis of data including usage, maintenance costs, contract allowed hours, contract terms and conditions. Far too many companies have eyes wide open at the beginning of the contract only to ignore their assets until the time of return. As we wait for innovations such as usage-based leasing and fleet-centric leasing methodologies to become more accepted and prevalent, the importance and ability of your finance and operations executives to speak the same language when it comes to fleet management cannot be emphasised enough. Continuous communication between departments and the data-driven decisions it drives will afford your organisation years of successful TCO management.
DLL T: +1 6103865465
www.dllgroup.com
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