How to make the right budget cut decisions in your fleet

In uncertain times, fleet managers should consider making budget cuts for their fleet. But, how should they decide where they can cut and what is essential to running a fleet?

We live in uncertain times right now. From the COVID-19 pandemic to rising fuel costs and a looming recession, it’s now more important than ever for fleet managers to make the right budget cut decisions.

According to Wesbank, as reported by Engineering News, “The average projected total cost of vehicle ownership in South Africa in 2022 is set to surge to R9 356.80 a month, which amounts to a 21.27% increase on last year, and a staggering 39.41% jump on 2017 numbers.” With these rising costs, fleet managers must think of cost-effective strategies to budget correctly and plan for years to come. 

 1. How and where can fleet managers cut costs?

Since fleet management is a massive expense for a business, fleet managers should assess all aspects of their fleet and cut costs wherever possible to boost fleet ROI. Effective fleet management requires vehicles to keep running and fleet managers to consider operational, labour, maintenance, fuel, and administration costs. However, when money is tight, it’s important to remember that simple adjustments can go a long way. Fleet managers should break down all the critical elements that should be managed and put report mechanisms or controls in place to proactively action each aspect.

• Consider a Total Cost of Ownership (TCO) model

Fleet managers should use a total cost of ownership (TCO) model to decide on the most cost-effective vehicles to purchase for the required application. An accurate total cost of ownership must include all costs, including fuel. Achieving full budget optimisation, means the right purchase decisions are made on a “sweet-spot” analysis; the optimal point in time to replace with a new vehicle. This allows you to decide on the best fleet management solution for your business. TCO includes all elements, insurance, the fuel cost that will be consumed for the kilometres the fleet vehicle is required to travel, over and above the normal finance and running costs to maintain the fleet vehicles in an optimal condition.

Fleetio,  a fleet management software, believes, “By calculating the TCO for each of your assets, you can get an accurate measure of the entire cost of operating your fleet and identify which assets are cost burdens. Without understanding that number, you won’t be able to determine what your set point is for your fleet as it stands, which makes it nearly impossible to come up with strategies to actually reduce your spending.”

• Improve driver behaviour and training

Driver behaviour and training are essential to any fleet. Luckily for fleet managers, telematics can highlight specific driving styles like harsh braking, excess idling, and excessive speeding that result in higher fuel, maintenance, and tyre costs. Fleet managers can pull reports to track driver license expiries to ensure all drivers working for a company have valid driver's licenses because an insurance claim might be rejected, ending up costing a business more. Fleet managers should identify poor driver behaviour and provide the feedback to drivers to make them aware of the impact on unnecessary cost and allow them the opportunity to improve. Fleet managers should also incentivise good driving behaviour at all times to promote driver safety and cost-saving. 

• Ongoing preventative maintenance

Reports or notifications will prompt when a service is near or due based on the specific vehicle’s required original equipment manufacturer (OEM) service interval. Well-maintained vehicles will reduce the risk of downtime and keep a fleet in good running condition.

• Annual vehicle license renewals

Keep track of vehicle license renewal and expiry dates.

• Effective fuel management

Fleet managers should understand that vehicle application, vehicle age,poor service record and poor driver behaviour greatly impact fuel consumption. To manage fuel cost-effectively, a fleet manager needs to understand vehicle application consumption norms versus anomalies resulting from potential fraud, theft, or abuse.

• Fleet disposal 

Know when the optimal point is to dispose of old vehicles and replace them with new ones. The biggest mistake fleet managers make is to purchase cheaper vehicles to cut costs. However, this will cost your business more money in the long run as you’ll need to constantly budget for and spend money on maintaining these vehicles. Implement a fleet policy that will dictate at what age or kilometres vehicles must be replaced.

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2.How can fleet managers build a successful fleet management budget?

Building a successful and cost-effective fleet means fully understanding a fleet vehicle lifecycle and the various financial elements and costs associated with managing a fleet optimally. Know when it is the right time to dispose of and replace vehicles. Most fleet managers struggle with this and have their budget in an Excel spreadsheet. The most considerable risk is that the accuracy depends on human intervention to input monthly expenses for maintenance, service and repairs, fuel slips, and ad-hoc costs.

Outsourcing fleet management to experts in their field will add value to your business by freeing up valuable time that can be spent on your core business. Outsourcing to the correct fleet partner will provide you with all the required reporting at the click of a button to know what exceptions must be managed. 

Outsourcing all fleet management elements to one supplier will assist with consolidating fleet costs and reporting. With a fleet partner with a strong BBBEE Level and black ownership, the annual procurement spend on the fleet can be claimed against their credentials to improve your business BEE Level.

Fleet management is a specialised, intricate service. The success of outsourcing lies not only with the technical expertise and systems capability but also in the human element and infrastructure support that will accompany your business in every aspect of managing your fleet’s lifecycle.

Managing a fleet can be tedious, but following these tips can help you reduce costs and run an optimised fleet.

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