Fleet

Create the Best Vehicle Life Cycle Strategy for Managing Your Fleet

by ManagerPlus on June 30, 2020
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When is maintenance on older fleet vehicles no longer a smart investment? Although there is plenty of discussion about the ideal tipping point in the life cycle for fleet assets, the honest answer is: It depends.

The theory behind the fleet life cycle strategy is to replace a vehicle before maintenance costs and downtime outstrip the benefits of keeping the asset. The cost/benefit analysis will vary from fleet to fleet, but creating an effective plan always requires the right process, the right variables, and the right technology.

With an enterprise asset management (EAM) system, fleet managers can gather data on each asset, analyze the data, then determine an ideal vehicle life cycle strategy, based on a clear and unique value proposition. Without detailed data analysis, you risk overspending on maintenance or running your fleet into the ground before you're ready to invest in replacements.

The key to a realistic life cycle strategy is to build it with your own real-world fleet maintenance data. 

Choose your vehicle replacement approach

When it comes to timing vehicle replacements, you should create an approach that meets your current and future needs. Your approach also must be based on the variables that have the most influence on your business outcomes.

In general, there are three basic vehicle replacement strategies that you can consider.

1. Vehicle age and/or mileage

In this approach to vehicle replacement, organizations set a predetermined age or mileage endpoint for vehicles, such as six years or 250,000 miles. This is a common method used in many public and private fleet operations.

Pros: It’s the simplest measure to implement, and it removes subjectivity from the life cycle decision.

Cons: Looking at years or miles on the road may not result in the most economical course of action because it does not consider other important data points. For example, some fleet vehicles are historically more reliable and can be kept in service longer without reaching the life cycle tipping point.

2. Life cycle cost analysis

In this approach, organizations conduct an analysis of individual assets’ total ownership and operating costs. This life cycle approach can be used to set up guidelines based on vehicle type and to evaluate whether or not individual vehicles should remain in service.

Typical parameters used in life cycle cost analysis are: vehicle purchase cost, maintenance expenses (including reactive and preventive maintenance), amount of miles traveled or hours used per year, downtime costs, fuel expenses, annual depreciation, obsolescence costs, and salvage value.

However, also keep in mind that the more specialized a vehicle is, the more likely you will need to keep it in service for a longer period of time. Replacement costs, in this case, are as much about the sticker price as the time to acquire and onboard the new asset.

Pros: This approach is comprehensive and flexible.

Cons: This analysis requires a number of quantifying parameters, such as downtime and obsolescence, that can vary widely. You probably won’t arrive at a one-size-fits-all rule for determining replacement triggers.

3. Cost threshold analysis

In this approach, organizations replace vehicles when the cost to repair them exceeds an established threshold amount. Determining the point at which repair costs exceed vehicle value includes examining historical trends in repair costs over time. Common thinking is that any vehicle with maintenance costs that are 30% or more of the vehicle’s residual value should be assessed for replacement.

Pros: With good data analysis, you gain the opportunity to optimize both vehicle life and maintenance costs.

Cons: Even if you closely monitor maintenance and repair expenses, there are certainly situations in which expenses may unexpectedly exceed a vehicle’s worth.

Variables to track

Whichever approach your organization takes to arrive at your fleet life cycle strategy, you’ll need robust vehicle data and the ability to analyze it. With the right software platform, fleet managers can evaluate their data in increasingly granular ways to gain actionable insight that leads to better decisions. As a result, you can optimize both the cost of operating a fleet and the long-term value the fleet delivers to the operation.

Some essential metrics to consider include the following:

Mileage – How many miles have your vehicles logged? According to the Federal Highway Administration, the average Class 8 truck travels more than 60,000 miles per year. And if your fleet includes off-the-lot passenger cars, Consumer Reports indicates the average vehicle will last a total of about 150,000 miles.

Vehicle age – How old are your vehicles? Fleet Owner  found that Class 7 and 8 trucks on the road today are at a historically low age — just 7.87 years on average. Overall, the total cost of ownership tends to decline after nine or 10 years when light-duty fleet vehicles travel about 12,000 miles per year.

Cost per mile – How much do you invest in your vehicles for every mile they are driven? Data included in the calculation of vehicle operating costs per mile includes fuel and maintenance costs, along with ownership costs such as insurance, registration, taxes and fees, depreciation, financing, and tax credits. Review cost per mile data often because the inputs — especially fuel costs — can vary from month to month.

Vehicle history – What is the complete history and status of each of your fleet vehicles? A crucial step in maximizing the life of any vehicle is understanding its history. This should include details about mileage, fuel consumption, repair history, inspection history, compliance issues, and more.

Budgets – Tracking vehicle expenses can inform future budget allocations. However, many fleet managers are tasked with the responsibility of building a solid business case for any new budget request. Here, detailed vehicle tracking data can illustrate the financial impact of a reduced or expanded budget and make a case when more funds are needed.

Capital planning – What is your fleet capital replacement plan? When planning your fleet investment, consider whether your budget is used as a planning tool for the allocation of funding or if it’s used as a means to measure profit and loss in the big picture of asset management. The first category is generally used for municipal fleets, while the second is generally used for commercial fleets.

Vehicle compliance regulations – Running an effective fleet requires full compliance with regulations to ensure that your vehicles are safe and roadworthy. Areas to examine include: Driver Vehicle Inspect Reports, safety and risk mitigation, licensing, registration, permitting, and more. Your life cycle strategy must account for investments related to meeting regulatory measures.

Business goals – What is the purpose of your fleet? Every company has a vision and intent for its fleet. For example, you might run a small manufacturing operation, and you just need a few good vehicles that provide transportation between facilities. Or you might manage an extensive fleet of long-haul trucks that are the essential tools that keep your business running.

Support your strategy with a fleet management system

Regardless of your vehicle life cycle strategy, the right fleet maintenance software system will make the task easier, more efficient, and more effective.

Fleet management systems contain information about each vehicle in your fleet and become your single source of truth. An intelligent software system will leverage your real-world data to test the costs and benefits of each life cycle approach, helping you make the best decision on when to replace your fleet vehicles.

An intelligent vehicle maintenance software system for your fleet allows you to fully customize your approach, calculate your unique variables, and generate reports to share across the enterprise. With this flexibility, you can, for example, capture the cost of the parts and materials in your inventory that align with a particular vehicle that’s a candidate for replacement. This flexibility is critical to truly match outcomes to your vehicle needs, budget, and business goals.

An intelligent system also supports the implementation of best practices in fleet management, such as:

  • Collect data from the beginning of vehicle acquisition all the way through until its end-of-life, including resale.
  • Create and sustain a fleet maintenance strategy that aligns with your life cycle parameters.
  • Adjust your fleet management approach according to business intelligence gained from your data.

Using a modern fleet management platform to create a life cycle plan can be a significant undertaking — especially given the logistical complexities of today’s fleet environment — but the results are worth it. Remember that data is the key to defining the ideal moment to retire each of the vehicles in your fleet.

Schedule a free demo with us today, and we’ll show you how ManagerPlus Lightning can help you create the best life cycle strategy for managing your fleet.

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