Outsourcing repairs, when does it make sense?

I see a lot of fleet organizations failing by trying to do everything by becoming an expert in everything. This is an impossible task in today’s world of specialization! Rather organizations should determine what they do best and stick to those core tasks.

Ask yourself, would you hire an expert electrician to sit in a cubicle waiting for an electrical breakdown to occur? The answer to this question is no. You would not waste money and time training this person, providing them with a cubicle, salary, phone, and other office accouterments in the event an electrical problem happens. You would simply outsource these repairs to a qualified and certified company that specializes in performing these services. The same applies to an outsource company who specializes in managing fleet and automotive repairs.
When do I outsource?
I have always been amazed how many non fleet experts feel they can continue to handle their vehicle repairs in-house without training or abilities to make complex decisions about vehicle repairs. The rationale for their insistence is usually very noble and stems from their insistence that the outsource company either charges too much or they will rip us off.

My question has always been this. How do you know when you don't keep up to date with the latest mechanical knowledge and expertise? Most administrators that I speak to about whether they should outsource their fleet repairs or not feel that can make these complex decisions when called upon to do so, even though they generally have no recent formal training. I have been in the fleet management business for over 30 years with experience at every level of the business starting as a journey mechanic and now an administrator. This being said, I have not had any formal mechanical trainings for many years and with all my combined experience in the automotive industry, I'm no longer certified or qualified to make any complex fleet management decisions about the repair of a vehicle. Yet, I would place my knowledge and experience up against most of the folks I see avoiding the use of outsourced repair vendors.

Why do people resist using outsourced vendors?
I think the answer to this questions stems primarily from self preservation. Most administrators faced with this question are usually the person who is involved in making the call about who repairs the vehicle. Which means, their primal instinct of whether I will still have a job or not many times plays into the decision. In addition another motivation that affects someone from outsourcing repairs is the way the organization budgets its repair dollars. For example, if the organization does not consider the total costs of the vehicle operation which a life cycle perspective in mind, it may be tempted to make myopic or shortsighted decisions when it comes to vehicle repairs. Time and time again I have watched organizations say their budget cannot afford to pay the costs for an outsourced vendor to manage their vehicles. These statements usually are unfounded when you look at the complete picture.

Ask yourself these questions:
Do I have the expertise to pit myself up against a vendor asking me complex mechanical questions and can I make the right call when asked what repair needs to be done? Most often unless you are certified technician you cannot answer this questions with any degree of certainly, which means you probably are not doing your organization any service by authorizing and approving repairs.

Do I know if the vendor is up selling or trying to rip us off?
If the answer is no, then you probably don't have any business making any repair decision on behalf of your company. Automotive vendors have made a killing over the years by over recommending unneeded repairs to consumers. Each of us has had experience with this very scenario.

Ask yourself. When I took my car into the quick lube to get my oil changed and they asked me whether I should approve them to replace the wiper blades or air filter, did I know the answer to the question or did I just tell them to do it, or not? Either answer may not have been the most cost-effective decision if you did not know the right answer. The right answer must take into consideration a historical perspective about when these components were last replaced. If you don’t know then you are gambling your company’s precious budget dollars on the vendor’s word. This is not looking out for the best interests of you company!

Not to embarrass anyone, but this is one of the simplest questions you will be asked when it comes to an auto repair.

This is why I believe these complex auto decisions need to be left up to the experts who act on your best interest as an advocate to make these decisions. This is exactly what an outsource company does! Outsource companies specialize in the science and up to date vehicle repair knowledge and ensure their technicians receive the latest training and automotive certifications. These companies are qualified to make these complex decisions and will same your organization repairs dollars.

What are the advantages of outsourcing your fleet?
First and foremost you receive the services of an industry expert working for your organization on retainer looking out for your best interests to ensure repair shops don’t take advantage of your lack of expertise. Secondly, you will receive the added benefit and peace of mind that your best interests are served by competent technicians make complex repairs decisions on your behalf.

Other benefits realized may be as follows:
1. Reduced administrative costs processing a multitude of repair invoices for vehicles. Each vehicle generally has at least 4 repair invoices a year if it is new and many more if it is aged. The cost to process a single invoice ranges from $50 to $150 dollars each from the time it is received until a check is cut and mailed to the vendor. This is synonymous to the Procurement Card (PCard) rationale that many companies turn to in order to process multiple transactions effectively. Think of your outsource vendor as a PCard processor and you have little grief justifying the costs of their services.
2. Expert trained technicians making complex decisions on your behalf using each vehicle’s repair history to ensure a vendor is not trying to make an unnecessary repair.
3. An advocate that ensures prices are negotiated at the lowest industry rates to make sure your company is not paying too much for repairs.
4. Someone who ensures if you are tax exempt (i.e. non profit or government) that you do not spend money trying to recover these costs at later date with your resources.
5. An advocate that ensures vehicle warranties are recouped and claimed during the repair process. A lot of money may be available by watching warranties on vehicles, parts and even post warranty opportunities when the general warranty is no longer in force. These third party outsource companies specialize in negotiating with vendors to ensure your company’s interests are looked after. They have a great deal of clout working with manufactures to get good will adjustments on your behalf. Ask yourself, when was the last time you had a car manufacture offer you a good will adjustment?
6. Firms that track your repair history and offers an array of online tools for your organization to better manage your fleet.
7. Reduce parts inventories, eliminate garage facilities, fleet information systems, and all costs associated with these systems.
8. Expensive tools and electronic trouble shooting devices needed to operate a shop in today's complex fleet world.
9. Training needed to keep up with government programs like EPA, OSHA, Workman's Comp etc.
10. Labor relation issues with employees in a world where technicians are becoming in short supply.
The list goes on…

What are you waiting for? It's time you outsource your repairs to those qualified to save your organization the precious budget dollars it deserves?

Finally don’t wait until you fail to accomplish everything to consider outsourcing repairs that should have happened a long time before now. If you wait until it’s too late you may find yourself completely out of a job when your entire fleet is outsourced by management because they finally get tired of the costs and lack of customer focus to core mission tasks, which brings you right back to the primary reason most fleet managers fail to embrace outsourcing in the first place, job preservation.

Tip: I found out a long time ago that when an outsource company is your partner its hard for them to be your adversary trying to get all the repair business.

Do what you do best and leave the rest to others to do what they do best. This is a winning combination.

Start using outsourcing as a tool and don’t be afraid of the control issues. Just develop tools to evaluate the outsourcing company effectively to ensure they do what you contract them to and this relationship can be a symbiotic partnership that makes everyone a hero!

How do you know if a vehicle is needed?

How do I know if a vehicle is really needed in my organization?
This is a question often asked to fleet management professionals by using agencies. So what do you tell people who are not fleet management minded about the ills of hanging onto a vehicle sitting idle and why they shouldn't hoard them any longer. Below are several questions you can ask to help determine if the vehicle is really necessary to the operation:*

1. When the vehicle is out of service, do we miss it or does it affect our ability to perform our mission?
2. Is the vehicle being used on a daily basis consuming fuel and accumulating miles?
3. When the vehicle is down does my organization pay an employee mileage reimbursement to use their personal owned vehicle (POV)?
4. When the vehicle is down does my organization lease or rent a substitute vehicle from a commercial leasing company?
5. When the vehicle is down does my organization borrow a vehicle from another source (i.e. motor pool, sister agency, etc) to fulfill its mission?
6. When the vehicle is down does my organization expend any funds to acquire a substitute vehicle?
7. Is our vehicle equipped with special or unique equipment where a substitute vehicle cannot be easily rented at a moment's notice? (e.g. Firetrucks, police cars, refuse trucks, waste collectors, command posts, etc.)
8. When the vehicle sits idle and is not used does my organization incur an interruption in the core services it performs?
9. Is my vehicle new, safe, and reliable and do employees avoid using the vehicle in favor of other modes of transportation?
10. When you removed the tree growing up through the cab of the vehicle could it be savaged and placed back in service?
11. When you removed your vehicles out of storage and paid the fees did they still run?
12. After your vehicle sat idle for several months because it was damaged or in need of repair did you miss it?

If the answers are "NO" to any of these questions then it should be a hint that the vehicle is no longer needed in your organization and you as the fleet manager can recommend disposing the vehicle. Disposing vehicles quickly helps your organization recoup precious funds that can be used elsewhere to fund other important programs.

Some of these situations are real but names have been withheld to protect the guilty. :)

Fleet Management 101 - Fleet Management Purpose

Fleet Management 101

What is the object of Fleet Management?
Those of us in fleet are often asked; “What is the purpose of fleet management and why this is important to my organization?” The answer is not a simple one but those of us dedicating our careers to fleet management know it is more than simply owning and operating a vehicle. In fact, a full understanding of fleet management is generally a very difficult proposition because true fleet management is knowledge of a complex set of principles used to manage a fleet of vehicles efficiently and effectively. A fleet manager knows the difference between lease versus purchase decisions, asset utilization principles, cost versus benefit analyses, opportunity cost principles, present value of money, life cycle modeling and other complex financial theories.

Nonetheless, in its simplest terms the real purpose of fleet management is to provide low cost transportation solutions which may or may not involve an organization owning vehicles. Below are alternative transportation solutions used by effective fleet’s to transport people and materials while minimizing expenses:
· Public transportation
· Personally-owned vehicle mileage reimbursement
· Commercial rental vehicles
· Pooled and shared vehicles
· Leased vehicles
· Owned vehicles

Myth: “Vehicles don’t cost anything!”

Most of us understand that vehicles always cost money to operate whether we choose to recognize it or not. Even vehicles sitting idle incur costs related to; personnel expenses, administration, personnel, management, auditing, parking and storage space, security, repair facility operation, insurance and liability costs, preventative maintenance, costs related to sitting (i.e. leaky seals, tire degradation, fading paint, sun damaged upholstery, vandalism, technical obsolescence, etc.) and finally the loss of residual value as a vehicle continues to age.

Fleet Principle: “Vehicles are always worth more today than tomorrow!”

Simply put, if a vehicle is not being used, it is always the best decision (and right thing to do) to rotate the vehicle elsewhere to maximize utilization and/ or cut future losses by disposing the vehicle immediately recouping its maximum residual value. In the current state of the national economy few of us would operate an unused vehicle with a $450 car payment while struggling to balance our household budget and make ends meet. Most of us would quickly make a decision to sell the vehicle - when we see it sitting idle in the driveway - and we would use the $450 a month elsewhere. This same rationale applies an organization’s vehicles.

What is the lowest cost solution?
The answer to this question is, “it depends”. Notice in the list of alternative transportation solutions above that “owned vehicles” is the last solution on the list. Why? Because all fleet decisions must be based on two key factors, specific function to be performed and frequency of use. Keep in mind owning a vehicle is not always the best and most cost-effective transportation solution. Many other alternatives may be less costly to your budget. Without due consideration upfront as to whether to own a vehicle or not organizations fall prey once they purchase a vehicle that it may become a sunk cost. Once a vehicle is regarded as a sunk cost then perception changes and there is little motivation to rid the organization of the asset, even if it costs more to retain it. The perception of those unfamiliar with fleet management principles is the vehicle does not cost us anything – this is a risky and often expensive preposition as an organization attempts to dispose the vehicle. Unfortunately the mindset of users is, they view vehicles as entitlements and clamor at the mention of selling the vehicle they perceive as needed. It is best if an organization avoids this pitfall by making good business case vehicle decisions before a vehicle is purchased.

How do I know which transportation alternative to select?
Fleet management in its most simplistic terms is “Asset Management”. It matters little whether the asset is a vehicle or a laptop computer, the primary goal still boils down to effective utilization of the asset. Few people would purchase a new computer and let it sit idle out of sight and out of mind, because this would be a waste of money. The same principle applies to vehicles because it is simply not cost-effective to allow vehicles to sit idle going unused. To fully understand maximum value of a vehicle each organization needs to recognize total opportunity costs related to having a vehicle available.

What are opportunity costs?
Basically, opportunity costs represent what else you could do with the money if it was not tied up in vehicles. This applies whether it directly impacts the current expense budget or not and sometimes it boils down to just doing the right thing. Organizations must discipline themselves and their employees to consider every transportation alternative before they invest in purchasing a vehicle.

What is the cost of vehicle?
Vehicle expenses consist of fixed or standing costs (e.g. principle, interest, depreciation, administration, licensing, taxes, insurance, etc.) and variable or running costs (e.g. maintenance, labor, parts, fuel, parking, tolls, washing, permits, fluids, etc.). A recent industry publication called Automotive Fleet magazine released a study by leasing expert PHH Arval which shows a single vehicle costs over $9,200 annually, when total costs are considered. (Figure 2)

If you really think about it this makes sense since most of us recognize the average car payment nationally now exceeds $450/month. Of course every organization must determine its own cost of operating a vehicle so it can determine the actual “break-even” point and/or “return on investment”. However, as a rule most organizations can gauge vehicle costs as $5,000 bill because this is generally equal to the costs of operating a sedan even, if it sits idle. Thinking in these terms, few people would allow a $5,000 bill to sit idle wasting away without a return on investment or using these opportunity costs elsewhere in the organization.

Why is recognition of total cost of a vehicle important?
Basically the answer to this question relates to Adam Smith’s (Father of capitalism) original concept of the invisible hand in economics. All of our financial decisions and behaviors are motivated by the bottom line costs of consumables we purchase and the same applies to a vehicle. When we understand the true costs of a vehicle and we are paying these costs - our behavior changes when we see vehicles sitting idle and not being used. We look for other ways to use these wasted funds to balance of budgets. When we pay, we act!

What happens if we don’t recognize total vehicle costs?
In a nutshell we don’t make good decisions when we don’t possess the entire picture relating to costs. The same applies to vehicle operations. Below are few examples of decisions fleet managers see when total vehicle costs are not part of the decision-making equation.

• Broken and damaged vehicles end up in stowed or being stored (incurring storage and parking expenses) waiting for repair dollars (that may or may not be available), as vehicle continue to depreciate - when they could be sold and the proceeds be applied to fund other important programs.
• Broken and disabled vehicles being stowed awaiting funds to repair force agencies to seek backup transportation solutions (e.g. purchase, lease, POV payments, rentals, etc.) increasing costs in other areas. Basically agencies end up paying for two or more vehicles instead of one!
• Broken or damaged vehicles sit idle in fields where they continue to degrade and weeds and trees grow up through the vehicles as they wait to be repaired.
• Vehicles sit idle waiting – continuing to depreciate –await undefined errands when other solutions may be more viable like mileage reimbursement and daily rental would be less expensive.
• Fleets grow indiscriminately and indirect costs soar when idle vehicles are hoarded by users thinking they might be useful in the future.
• As fleets grow frontline vehicles become over utilized - depreciating faster – as broken vehicles sit idle and organizations incur higher operating costs and aged fleets.
• Frustrated politicians, leaders and decision-makers find they are forced to render decisions to reduce capital spending allocations and to implement fleet size restraints to prohibit the tide of future growth.

As you can see failure to recognize total costs forces organizations to make poor fleet management decisions. Whereas when organizations recognize total costs the decision-making process becomes much easier because total cost recognition influences personal behavior empowering agencies to make good vehicle decisions.

What now?
Now that you understand the real cost of operating a vehicle, simply determine your organizational needs upfront (before buying a vehicle) and choose the lowest cost transportation solution. There are many online tools that can assist with making good transportation decisions.

Final Thoughts:
Total cost recognition of a vehicle always modifies decision-making behaviors of consumers as to whether it is cost-effective to own a vehicle and allows organizations to seek other alternatives to owning vehicles!

Consider first:
· Using public transportation options when feasible
· Paying employees mileage reimbursement for personal vehicles
· Sharing motor pool vehicles or car pooling
· Renting commercial vehicles on a daily or short-term basis

Once you determine that none of the solutions above present the most cost-effective transportation decision then look at the total cost of owning a vehicle as the solution.

Let me know if you feel otherwise?

Lack of Total Cost Recognition

What motivates an organization to sell unused vehicles when they fail to recognize the total costs associated with a vehicle asset? This is a question I have been searching to answer the past several months. Most of us recognize when we don't value something any longer that the time has come to to dispose of this item. For example, when we have two vehicles in our family and one is no longer being used, most of us will reassess whether this vehicle is still of value. This especially becomes the case when we are paying a monthly car payment or we are looking to sell the vehicle to receive a monetary gain on the sale.

What if these cost motivators are not present? Then what motivates someone to sell a vehicle other than it may simply be the right thing to do. This is the struggle of many fleet organizations that fail to aggregate the total costs of owning and operating vehicles. A lot of organizations then become complacent and view unused vehicles as "sunk costs" to the organization. This is a dangerous assumption!

There are ALWAYS costs associated with vehicles whether they are used or not or whether someone chooses to recognize the costs or not. Even if a vehicle is NOT being used it often incurs costs associated with management and administration (e.g. Computer tracking programs, insurance premiums, staff salary and benefits, facility space, parking space, etc.)

It is simply NEVER true that a vehicle is not costing an organization something!

Costs are most often categorized in two cost centers which are direct and indirect costs. The latter being the most ignored from my experience working with fleet management. Most people understand the direct costs of operating vehicles like vehicle purchase price, maintenance and repair, and fuel costs. Of course the largest single cost of operating vehicle is depreciation, which is estimated between 55-70% of the total costs. Next comes fuel, maintenance and so on....

However, some of the most expensive and often overlooked vehicle costs are the indirect costs. Costs like computer tracking systems, loss of employee productivity associated with vehicle downtime, safety and liability costs from failure to renew vehicles timely, costs associated with storing and parking vehicles, routine preventative maintenance, monthly insurance costs, and most commonly overlooked, the residual value from the sale of the vehicle. The vehicle disposal proceeds are ALWAYS worth more today than tomorrow which should motivate any organization to sell the vehicle the moment it is no longer being used.

But what if the sell proceeds are not retained by the organization viewing the vehicles as sunk costs? Then of course there is little motivation to sell these underused units. In addition, without true cost recognition an organization can't evaluate other transportation alternatives that offer lowest cost, like paying employee mileage reimbursements, using rental vehicles, or pooling and sharing vehicles to maximize asset utilization.

Bottom line is organizational leaders need to educate non fleet personnel about the all the true costs associated with managing and operating vehicles. Without proper cost recognition, agencies cannot operate effectively and efficiently.

Regardless how any organization chooses to view vehicle its costs, without complete and total cost recognition an organization can never truly become efficient. It is a simple fact that without total costs you can't make good fleet decisions.

All effective organizations must start recognizing the costs of vehicles to be effective and deficient! I have witnessed users of fleet vehicles allow vehicles to sit idle over and over due to the failure to properly see the total cost picture. Their rationale has been simply, this vehicle costs no more than a tank of gas should I chose to operate it. Failing completely to consider all the other direct and indirect costs associated with effective vehicle operation does not allow for good decsion-making and usually ends up costing an organization much more in the end.

If you have another opinion or how to motivate sound decision-making without total cost recognition, I would like to hear from you!