How Fleet Management Software Can Reduce Costs For Private Fleet Operators
by: Ajesh Kapoor
Private fleet operators today are under pressure like never before to control costs. A nationwide shortage of drivers has made it difficult to find experienced personnel. While at the same time, economic growth has increased the need. As a result, companies are frequently understaffed. This combination of factors means managers are being forced to pay more for qualified drivers. Add rising fuel prices, and it’s easy to see why costs are on the rise.
Executives understand that something must be done to control transportation spend, but most have already pulled the reins in tight. They’re now looking for new ways to address the problem. For companies that operate in high volume local pickup and delivery environments, the answer might be fleet management. More specifically, these companies should consider investing in an integrated fleet management system.
Good investments always pay for themselves, and with fleet management software, payback can come quickly. Consider a typical scenario for a distributor with 30 trucks. On most days, all vehicles are in use, each making about 18 stops per day, and traveling 100 miles. Average fuel consumption is seven miles per gallon. Drivers are paid $15 per hour, plus time and a half for overtime. On any given day, about one-third of the trips run over eight hours.
With diesel at $2.90 a gallon, this distributor is spending over $6,200 a week on fuel. An easily attainable reduction in mileage of as little as ten percent results in a savings of $610 per week. This works out to over $30,000 per year. Eliminating one and a half hours of overtime for ten drivers results in a saving of nearly $1,690 per week. That’s another $87,500 per year.
A savings of $117,000 is substantial, and should be enough to warrant investigating fleet management software. But the most advanced fleet management systems go one step farther, taking vehicles off the road. In most cases, a fully optimized plan requires fewer trucks, if not on all days, at least on some. Simply reducing fleet requirements by one vehicle twice per week produces a savings of $322 (not to mention reducing risk). That’s another $16,700 dollars a year, for a total of over $133,500. These are conservative numbers. Savings for a 30 vehicle fleet could be well over $150,000.
The scenario above focuses on only one component of a fleet management system: route planning. There are other applications, however, that, when combined with dispatch and planning software, extend the savings. GPS fleet tracking is one example. There is certainly value in knowing the location of each vehicle in the fleet. The real value, though, comes from knowing where each vehicle should be and how it is being operated.
If drivers leave engines idling to stay comfortable in summer and winter months, the fleet operator is paying the bill. Diesel engines burn approximately one gallon of fuel per hour during idling. Once they begin monitoring, companies find that drivers allow engines to idle needlessly for up to two hours per day. In our distributor scenario, this behavior would cost the company almost $175 - another $41,750 per year. Additional benefits of GPS fleet monitoring solutions can include reports that show incidents of speeding or harsh breaking. This information can help fleet operators reduce risk and lower insurance rates.
The opportunity to reduce costs by $175,000 is attractive to any fleet operator. With these savings, payback can occur in as little as six months. Nevertheless, the upfront capital required to implement fleet management software often makes it cost prohibitive. Innovative fleet management providers are responding to this challenge by offering flexible payment options. Plans can include subscription-based pricing, where customers are billed a fixed amount each month, or application hosting. Hosting further reduces costs because it does not require customers to maintain additional hardware to run the application.
For some organizations, however, software delivered as a service is the best option. In this scenario, vendors manage business processes like vehicle routing and scheduling for the customer. This enables companies to eliminate the need for hardware and potentially reduce personnel costs. For instance, personnel previously responsible for these tasks can be reassigned to other functions or eliminated.
The primary benefit of these pricing options is that they allow customers to accrue savings at a faster rate than they accrue costs. In the example above, the fleet operator would see savings beginning the first month the system is in place. Compare this to a typical wait of twelve months or more to achieve payback with other enterprise applications. This means that investing in a fleet management application would generate positive cash flow almost immediately.
Given the pressure they’re under, for many fleet operators, implementing an integrated fleet management system simply makes good financial sense. These applications open up opportunities to significantly reduce transportation and personnel costs. They also have the potential to improve an organization’s risk profile. Payback often occurs within six months. And with the right payment options, fleet management software can help organizations improve cash flow from day one.
About the Author
Ajesh Kapoor is a technology industry veteran with over 15 years of experience and an advanced understanding of transportation and logistics business processes. He is responsible for guiding GEOCOMtms‘ product and technology strateg. GEOCOMtms provides integrated fleet management software for local and short-haul pickup and delivery operations