Written by: Patrick Tunnicliffe
Effective fleet management is about dollar and time utilization. For this article is to show the reader that to make the most money in a fleet-based company you need to appreciate where these often referred to ratios come from in the first place. Further, once the action is taken on measuring things, you've moved as close to owning actual leading indicators of a healthy fleet as you can get. Building or maintaining a fleet based simply on the high-level financials like year-end gain/loss and fleet-wide utilization figures might feel right but by the time those figures are produced you've already missed the boat on identifying issues and making great decisions in real-time. Metrics at this level of analysis are known as lagging indicators. Using financial statements to make fleet decisions is more akin to driving your fleet using only your rearview mirror. The only worse scenario is managing a fleet without metrics or insight into financials at all.
In these examples, I will refer to a classic hierarchy of fleet.
Fleet-wide based metrics can come from high-level financial statements.
Asset Category: e.g. Earthmoving Equipment, or Reefer Vehicle
Asset Class: 10-ton Excavator 4x2 Refrigerated Van
Asset: Excavator 10t-701 Reefvan-005
On one end of the spectrum it's all brand new, on the other it's all scrap. Everything in between defines where the fleet lies in its useful life generally across all categories.
Better decision opportunity number one. Knowing the average age of a fleet is important, but more importantly the respective average age of an asset class against the average age of the entire fleet. Why? The age of an asset class within the fleet can give an indication of where to look closer for opportunities. A better decision may come from recognizing a profitable asset class has an average age beyond a certain marker (getting old) and equipment financing happens to be historically low for that asset class. Here a metric has pointed to an opportunity for a decision to be made without depending on a gut feeling.
Money-in to money-out. Purchase costs and maintenance costs against the revenue and the ultimate sale of an asset leave a measure of profitability. Clearly, we want money-in to win here.
Better decision opportunity number two. The comparison of established wash-out ratio metrics from former assets gives the fleet manager a washout ratio trend to examine. That trend allows for a profitability optimization of an asset class and also a line in the sand to respect for selling older assets. A better decision can be made here based on the statistical proof that at some point assets in this asset class begin to profitless every day. Also, look for ways of improving a poor washout-ratio.
$1M in fleet that earns $450k in annual revenue has a 45% dollar utilization. Where it can get interesting is where a single asset gets dollar utilization far greater -- or far less - than the other units within the asset class. Time to look closer for why.
Better decision opportunity number three. Look at the dollar utilization of a single asset against that of its asset class, then look at the average dollar utilization for the fleet as a whole. A better decision could come from identifying asset classes that have high dollar utilization and large demand in the local market.
But why stop there? Looking even closer, a savvy fleet manager may approach the leadership team and convince the company to take advantage of this new insight by adding only a few more of this particular high-performing asset class to create new cash flow to justify the acquisition of a known loss-leader asset class. Only a few assets though so that the company can reserve capital budget to purchase the loss-leader assets. Such a strategy could help differentiate the company from a specialist competitor and increase the overall market share of the company.
52 weeks in the year and 6 months of work is 50% time utilization. Simple but powerful.
Better decision opportunity number four. Knowing that time utilization for any asset class has reached a certain marker like 80% you know there is little chance in the equipment rental industry that an asset would be available to work when the demand comes up. Customers being turned away because there is nothing available is troublesome.
In closing, I hope you are poised to better appreciate how looking a little closer at asset classes and assets themselves leads to more intelligent, and near real-time decision-making opportunities. Time to look into the future and plan on spending some of that new metric earned cash.