10 Metrics to Optimize Fleet Efficiency

Sometimes, “metrics” sounds like one of those business seminar buzzwords that people toss around, without really knowing what it means. But, metrics are most definitely real, and they are part of any successful organization.

OPTIMIZING FLEET EFFICIENCY

YOU CAN’T MANAGE WHAT YOU DON’T MEASURE: 

At a Glance

Metrics fleet managers should use to help optimize fleet efficiency include:

  • Customer service.
  • Departmental cost per vehicle.
  • Accident rates and costs.
  • Depreciation.
  • Lifecycle cost.

Sometimes, “metrics” sounds like one of those business seminar buzzwords that people toss around, without really knowing what it means. But, metrics are most definitely real, and they are part of any successful organization.

What Are Metrics?

Fleet managers use metrics, whether they know it or not, every day. Metrics help managers know where they stand. They measure performance, provide benchmarks, and offer goals and targets at which the day-to-day and strategic activities of the fleet function can aim.

Consider the following questions:

  • What are you doing?
  • How well are you doing it?
  • How do you know how well you are doing it?
  • How can you demonstrate to others how well you are doing it?

In a sense, the answers to these questions provide a pretty good definition of metrics. Metrics are measurements which provide these answers; they define what you do, they tell you how well you’re doing it, they provide easily understood data to evaluate progress, and they do this for others who need to know. Among some technical definitions, Merriam Webster defines a metric as “a unit of measurement,” which works quite well.

Just about any activity can be measured using metrics. A batting average in baseball is a metric. Miles per hour is a metric measuring speed. Units of weight, size, and distance are metrics. Time itself is a metric. Some metrics are more useful than others.

For example, a fleet manager can measure and track the use of power steering fluid — the simple fact that it could be done doesn’t make it a useful metric. In business, answering the four questions mentioned above is an excellent starting point when devising metrics, and judging whether they are useful in measuring and achieving optimal efficiency.

Being S.M.A.R.T

As mentioned before, just because nearly anything could be measured, doesn’t mean it should measure it. One method of determining the quality and usefulness of a metric is known as the S.M.A.R.T test:

S – Specific. A metric should be clear, unambiguous, and easily understood.

M – Measurable. Good metrics can be quantified and measured against other data. Avoid “yes/no” metrics.

A – Attainable. Setting goals based on unrealistic metrics aren’t helpful. Metrics should be reasonable and credible under normal conditions.

R – Realistic. They should fit within the company and department’s constraints.

T – Timely. Metrics should be achievable within the time frame given.

Simply “measuring for the sake of measuring” accomplishes little. Fleet managers should decide what is important, and what might be interesting, but not useful in targeting efficiency. Not all such metrics are related to vehicle costs, either.

In a process (fleet management) that throws off a remarkable volume of data, identifying and establishing metrics that point toward maximum efficiency is important. Here are 10 of those useful metrics:

Fleet Efficiency Metrics

1 – Customer Service

Tracking the service of internal customers, which include not only drivers, but peers, superiors, and anyone else with whom your department interacts, is not only a good business practice, but will increase efficiency.

Some metrics for tracking customer service levels are:

  • Phone answer times. How long does it take for the average incoming call to be answered?
  • Dropped calls. How many dropped calls are there before they’re answered?
  • Resolution. How long does it take, from first contact to final resolution, for problems and/or requests to be answered?
  • Metrics for tracking customer service include phone answer times, dropped calls, and resolution.

Send a follow-up e-mail after any contact, asking the customer to rate service on a simple scale of one to five, for example. In this case, measures are helpful in setting internal standards, however only the customer can measure your service levels.

2 – Organizational Performance

How much, if anything, do you know about how well your department is performing? Whether or not you have staff, is the fleet function operating at peak efficiency? What metric(s) can be used to measure it?

For fleet managers, the bottom line is the provision and operation of a fleet of vehicles at the lowest cost possible (within such constraints as safety, legal, and regulatory requirements, etc.); however, doing so with an inefficient organization has added costs.

Determine what activities you and your staff conduct on a daily basis, and develop a performance ratio to track them, such as tasks per hour. No need to differentiate — there will be phone calls made and answered, e-mails received and sent, administrative and clerical tasks completed — but stay on a strategic level.

The more tasks per hour of work you and your staff can complete, the more efficient and productive the department will be.

3 – Departmental Cost per Vehicle

Vehicle costs are most effectively expressed and tracked in a ratio to use. A similar metric can be developed to measure departmental productivity. The fleet function has a budget. It has all costs associated with the operation, administration, and management of fleet vehicles, such as salaries, administrative costs (phone, space, supplies, etc.), benefits, etc.

Measure what the ratio of these costs are per fleet vehicle.

For example, let’s assume a fleet department consists of a fleet manager and one clerk. Total annual salaries and benefits are $150,000. Other costs, including a corporate allocation for office space, telephones, office supplies, systems support, debt service, and miscellaneous expenses total another $50,000, for a total of $200,000. If the fleet is around 500 units, the annual departmental cost per unit would be $400.

Benchmarking this cost internally is a simple metric for tracking departmental efficiency.

4 – Idea to Implementation

Vehicle manufacturers track the length of time it takes them to produce a new model very closely, the so-called “design-to-build” timeline. With both events and technology changing at breakneck speed, it is critically important for them to be nimble, not only in reacting but in planning as well.

A fleet manager must also be nimble, as many of the same events and technology impact a fleet’s function. Tracking the timeline from the “idea” stage on to implementation is a metric that measures how efficiently a fleet manager can react, and how effectively he or she can expect changes in the industry.

The metric is simple: record the date you submit an idea or proposal and when it is implemented  Several days between the two is the measurement. It reflects a number of factors, including some that are not within the fleet manager’s control, such as approval chains, staffing levels, and available resources.

What is important is the internal benchmarking that ensues. If the first result is around 30 days, the goal is to cut it, a sure sign of increased efficiency.

Keep in mind that some changes are more or less perfunctory, such as a minor change in policy, while others are more strategic, i.e., a change in replacement cycling or implementing a GPS program. Sometimes called “process efficiency,” this metric is a key efficiency measure.

5 – Focus on Paper

With the electronic communication tools available in the 21st century, the enemy of efficiency is paper. As little as 20 years ago, operating a fleet of vehicles generated reams and reams of paper, necessitating banks of filing cabinets, hanging files, and other accoutrements of paper record keeping.

In 2012, however, there is no reason that any fleet function needs such paper records. There are, of course, certain documents that need to be retained as originals (e.g. titles), but, for most other paperwork, a scanned copy is both preferable and legal. That said, tracking how much paper and how many paper records are eliminated will show the level of efficiency the department has achieved — not only in efficiency, but hard-cost savings in materials and postage as well.

Certainly, you won’t be counting documents or sheets of paper that is replaced with electronic copies. Simply deal with categories: memos, invoices, forms, and contracts. All can be scanned and kept in a computer folder, and not a manila folder in a file cabinet drawer.

One can make reasonable estimates the volume of paper a process change can cut. This is the metric that can be used.

The first five metrics focus on how the fleet organization can itself, in what it does and how to do it, optimize efficiency. The next five will likely be more familiar, metrics that are tied directly to the operation of the vehicles themselves, with a focus on the “80-20” rule: 80 percent of costs are contained in 20 percent of categories.

6 – Depreciation

Depreciation isn’t sexy. It isn’t “cutting edge.” It sounds far too “20th century.” But, the fact remains that depreciation is still the single largest fixed cost in every fleet. Focusing on where the money is, fleet managers should be compelled to track a depreciation metric when looking to optimize efficiency.

The question is, what metric should you use? Gross dollars per month? Cents per mile? Percentage of retained value? Percentage of depreciation? There is no single right answer.

The key is to set up a benchmark, then track performance going forward. The benchmark can be from the current point forward or it can be used to prove historical metrics and track trends. However, a case can be made that the cost/use ratio of cents per mile (or even dollars per month) relates the accrual of costs to the use of the vehicle those costs enable. Cents per mile will enable comparisons to other fixed costs thus expressed.

Also important is that real depreciation — not the reserve for depreciation that a typical open-end TRAC fleet lease contains — is used, which means that the expense cannot be enumerated until the vehicle has been sold.

However it’s done, for those metrics related to the fleet itself, depreciation is one of the two most important, and no fleet manager can optimize efficiency without tracking it.

7 – Fuel

Fuel, a variable cost, is equivalent to depreciation, a fixed cost. By far the largest variable cost, fuel has been of particular interest in recent years. Unlike depreciation, however, fuel costs can (and should) be tracked from the first day of service.

There is little discussion as to the form a fleet fuel metric should be expressed. It should be the cost/use ratio of cents per mile, supplemented by the fuel-efficiency measure miles per gallon. Both clearly measure consumption (either cost or volume) in relation to the use that consumption enables.

Miles per gallon is a measure most useful in measuring the relative fuel efficiency of various models. It does not involve cost, since the pump price of fuel (as we’ve certainly seen in the past few years) can vary dramatically in a relatively short period of time. Cents per mile is a direct measure of fleet efficiency, since it relates direct cost to use. Along with depreciation, the fuel cost metric is the most important fleet efficiency measure there is.

8 – Accident Frequency

Beyond the standard fixed- and variable-cost categories, tracking accidents and their related costs is very important.

On a strategic level, a metric that measures just how many accidents the fleet experiences is the simplest and most logical. The more accidents the company has, the greater the expense.

An accident-related metric, in order to measure efficiency, should have some relation to use. This is where the accidents-per-million-miles metric will come from.

In an unmanaged fleet, it is reasonable to assume that there will be a number of accidents equal to about 20 percent of the number of vehicles in the fleet, i.e., in a 1,000-vehicle fleet, there will be 200 accidents. Assuming the vehicles travel 24,000 miles per year, this would equal an accident metric of 8.3 per million miles driven. This is the benchmark against which future performance can be measured.

Why accidents? Why not just the costs related to them? This isn’t to say the latter should be ignored. There are costs related to accidents that go far beyond just the cost of repair or the net loss when a car is totaled. But, using this metric is simple, and provides a big picture view of how efficient, for example, a fleet safety program is.

Metrics must measure factors a fleet manager can actually do something about, and total accident costs are no exception.

9 – Total Cost per Accident

Two fleets can have the same, or similar, accidents-per-million-mile metrics, but have very different per-accident costs. A stringent driver screening process, coupled with strong safe driving policy/training can actually reduce the severity of accidents when they do occur.

This metric doesn’t really relate to use; it should be coupled with the above accident frequency metric to give a good picture of fleet operating efficiency. As previously noted, the total costs related to an accident include more than just the cost of fixing the
vehicle:

  • Repair costs.
  • Subrogation recovery.
  • Property damage.
  • Personal injury.
  • Liability costs.
  • Replacement rentals.
  • Downtime.

Once the event is over, these costs can easily exceed $10,000, or even $20,000 or more. And, if there is serious liability involved (a third-party injured or killed) a seven-figure settlement isn’t out of the realm of possibility.

Certainly, metrics must measure factors that a fleet manager can actually do something about, and total accident costs are no exception.

Instituting an accident management program, for instance, can reduce downtime, administrative costs, and repair costs. Safe driver training, along with a reward/penalty policy can help reduce severity (as drivers learn how to react more quickly), as well as cut down on liability, as chargeable accidents are reduced. Overall, this metric, under the right circumstances (liability), can help avoid some substantial costs.

10 – Lifecycle Cost

Any experienced fleet manager will tell you that the single most important cost metric is lifecycle cost. This encompasses the entire spectrum of both fixed and variable costs, and is expressed in the classic cost/use ratio of cents per mile.

Although lifecycle costs cannot ultimately be determined until after a vehicle is sold, the same metric should be tracked throughout the vehicle’s life in service. The only variable is depreciation — the actual cost of which is not determined until after the sale — which, during the vehicle’s service life, can be calculated using either accounting depreciation or the lease depreciation reserve.

When the sale is completed, any “gain/loss” from the sale versus remaining book value is simply deducted from the total cost, and the final lifecycle cost established.

Indeed, the lifecycle cost metric can be combined with the departmental cost per vehicle, resulting is a full picture of what it cost to acquire, operate, and manage a fleet vehicle, which can be a very interesting metric.