Basic Fleet Management for Property Managers

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1 Page 1 of 6 Title: Basic Fleet Management for Property Managers Author: Gary Hatfield Date created: April 10, 2014 Organization: NPMA Purpose: Education Can be publically viewed? Yes This document does not contain any proprietary or copyrighted material. In the Federal government and many other organizations, vehicle management is a subset of property management, so it is important for property managers to appreciate some of the key, unique demands of fleet management to perform their jobs more effectively. This article will review some of the basic but most significant concepts of vehicle fleet management, which, for the most part, can also apply to aircraft and marine vessels. What is the fleet? Let s begin by defining the typical public sector fleet. In general, it covers all motorized mobile equipment such as cars, trucks, and buses, but it also includes off-road equipment such as tractors, forklifts, motor graders, and comparable assets because all follow the same life-cycle, have the same basic maintenance requirements, consume fuel, require an operator, etc. The fleet also typically includes anything that requires a license plate to operate on public roads, such as trailers. As applicable, most fleet programs also incorporate smaller motorized equipment, such as riding lawn mowers, but they do not include small, motorized tools such as chain saws, leaf blowers, push mowers, and the like. In fact, a common fleet practice is to set a minimum dollar acquisition threshold for inclusion in the fleet such as $10,000. Whereas the property manager will track even these small-value assets, responsibility for them will not fall under the fleet manager. Most private, state and local government entities include all the vehicles and equipment described above in their fleets. In contrast, the Federal government often segregates motorized equipment (sometimes known as the yellow fleet ) from cars and trucks because the Federal Automotive Statistical Tool (FAST) only collects information regarding cars and trucks for the annual Federal Fleet Report 1. However, astute property managers will recognize the value of tracking and managing all fleet assets because motorized equipment can often be a costly segment of the fleet. 1 The Federal Government definition of the fleet is described in the Code of Federal Regulations, Excluded are material handling equipment and construction equipment not designed and used primarily for highway operation (e.g., if it must be trailered or towed to be transported). This definition is inconsistent with fleet management best practice.

2 Page 2 of 6 Property Management versus Fleet Management The cradle to grave life cycle of a vehicle, and associated tracking and documentation, is similar to other types of personal property: Plan Acquire Receipt Store Distribute Proper utilization and maintenance of property Property accounting control Disposition of property Planning and Acquisition The planning and acquisition phase can logically be divided into two parts: 1. Whether to buy or lease the vehicle? 2. What type of vehicle to acquire? To decide whether to buy or lease requires the knowledge and ability to perform a thorough financial analysis of all the factors that contribute to the TCO (Total Cost of Ownership) for equal life cycles. However, a simple TCO comparison does not always provide the right answer because the underlying assumptions may not correspond with the realities of the fleet operation or funding ability. Consequently, many fleets that choose to own their vehicles keep them far too long, exceeding their optimal replacement cycle, which means wasted money (and reduced productivity due to vehicle downtime and technological obsolescence), mostly because the organization fails to ensure adequate capital funding to replace the fleet in a timely manner. In situations where appropriated funds are invariably unavailable when needed, except in fits and spurts, it may be better to lease some or most of the fleet, enabling a more appropriate and costeffective fleet renewal program. When an organization decides to lease its fleet, the property manager often will not be involved in the life-cycle processes of the asset because the title is held by the lessor. This demarcation makes even more evident the distinction between property and fleet management. The leased vehicle fleet still demands planning, acquisition, receipt, distribution, etc., but the property manager may not play any role in the tasks. Determining what type of vehicle to acquire requires analysis of the needs of the job the vehicle will perform, followed by development of a specification (spec) that describes how the vehicle must be constructed (a technical spec ) and how it should perform (a performance spec ). Many questions must be asked and answered at this point. How many people does the vehicle normally carry? Does it carry cargo? If so, what is the weight and volume, and does it require secure storage? What type of climate and terrain is encountered? Does it operate at night? Does it pull a trailer? Specifications are critical because a vehicle is a substantial investment and must be retained for several years.

3 Page 3 of 6 Regardless of whether a vehicle is to be purchased or leased, determination of the proper type of vehicle is important so that the user can safely and effectively do his/her job while at the same time avoiding excessively large fuel guzzlers. Receipt, Store, and Distribute From a fleet perspective, the next three phases of vehicle property management, Receipt, Store, and Distribute, are relatively uncomplicated. Of course, proper receipt of the vehicle is critical to ensure that key vehicle data is captured and stored in the property management and/or fleet management information system and the vehicle matches the specifications. New vehicles are rarely stored for more than a few days, and they are easy to distribute. People are always eager to get their hands on a new vehicle! Understanding Fleet Costs An understanding of fleet management requires awareness of basic vehicle costs. Figure 1 shows how a typical fleet dollar is spent. Figure 1: Distribution of Fleet Cost The costs in Figure 1 can logically be divided into two categories, fixed costs and variable (operating) costs. The variable, or operating costs, consist primarily of fuel and maintenance. These types of cost accumulate only when the vehicle is used and can often be measure as cost per mile (or hour). On the other hand, fixed costs consist of Depreciation, Insurance, License and Taxes, and Indirect Costs. These types of cost accrue regardless of whether the vehicle is operated.

4 Page 4 of 6 Property managers usually understand depreciation, but in the fleet world an important distinction must be made between book and market depreciation. Book depreciation is often calculated on a straight line, whereas market depreciation is a curve that shows that relative loss of value is much greater when the vehicle is new. Market depreciation is an important factor in the calculation of TCO. Indirect costs are often misunderstood by both property and fleet people, and depending on how the fleet is managed and maintained, can vary from around 2% of total cost to as much as 10% or more. Examples of things included in indirect costs are: Facilities, including building purchase/lease, utilities, and maintenance; Equipment costs, including office furniture, phones, shop equipment, and tools; Computer systems including hardware, software, and support; Management and administrative staffing costs, including training and staff offices; Staffing overhead costs such as benefits. Utilization, Fueling and Maintenance Proper utilization, fueling, and maintenance are where the heavy lifting of fleet management comes into play. Some fleets choose to outsource much of this effort by using a full service leasing or management company. For Federal fleets, this is handled by GSA s Office of Motor Vehicle Management. However, if the organization chooses to own its vehicles, the challenges of maintaining and fueling vehicles must be addressed, usually by a full-time fleet manager and staff. One of the hot issues in fleet management right now is the problem of fleet right sizing that is, determining the right number of vehicles and the right types of vehicles to meet the organization s mission. This is one of the fundamental ways to reduce fleet cost. The Federal government has mandated that all Agencies and Department of Defense components use a Vehicle Allocation Methodology (VAM) to do this. Details can be found at or by searching for GSA Bulletin FMR B-30, Motor Vehicle Management. Property Accounting and Control A significant difference between property management and fleet management is the software required. Property systems typically lack needed functionality, especially when in-house maintenance and fuel management is part of the program, and many owned public-sector fleets fall into that category. To manage and control, you need accounting and reporting tools and methods, including: Fleet Management Information System (FMIS) Performance standards (metrics) Processes for field reporting Data for fleet management decision-making

5 Page 5 of 6 The FMIS should be used at all levels in the organization and include: Acquisition Details and Costs Upfitting/Modifications Costs Asset Details such as VIN, Year, Make, Model, etc. Financial Records Licensing All fuel used by type, cost, and source, especially alternative fuels All repair/unscheduled maintenance costs All preventive/scheduled maintenance costs Commercial lease costs If a Federal Fleet, GSA Fleet lease costs Utilization miles, hours, trips Motor Pool Reservations/Dispatching/Billing Disposal Details and Funds Received For Federal fleets, the requirement to maintain an FMIS is included in section of the Federal Management Regulation (FMR) (41 Code of Federal Regulations [CFR] ). Recommendations for an FMIS are included in General Services Administration (GSA) FMR Bulletin B-15. Disposition of Property There is a multitude of ways to dispose of vehicles such as public auction, internet marketing, trading in the old vehicle for credit against the purchase of the new replacement vehicle, donating the vehicle, and in some cases, sending it to a salvage yard. Most organizations have already established a way to dispose of vehicles, but property managers should always be on the lookout for more efficient processes and ways to improve the income from disposal. Conclusion Fleet management is often more complex than many other aspects of property management. Large fleets (over 500 units) usually benefit from the employment of a professional fleet manager. Property managers who have fleet responsibilities should seek to educate themselves in the business of fleet management. NPMA is planning to offer several fleet breakout sessions at the 2014 National Education Seminar in Anaheim, California, June Fleet experts will present sessions to help property managers become better acquainted with the business of fleet management, including very basic introductory material, so plan to attend if you are involved with the management of vehicles and equipment! About the author: Gary Hatfield worked as a fleet manager for 25 years and has been a full-time fleet management consultant for 15 years. He has worked recently with the Department of Defense, the U.S. Marine Corps, the U.S. General Services Administration, Department of Homeland Security, the U.S. Department of State and other Federal agencies as well as state and local governments to

6 Page 6 of 6 improve fleet management. Mr. Hatfield holds a degree in Mechanical Engineering from Purdue University and is a member of the Society of Automotive Engineers.