The IPWEA’s Plant & Vehicle Management Systems Plus Program is now in its eighth year. With the Plant & Vehicle Management Manual s the cornerstone, Systems Plus incorporates the highly popular Fleet Management Certificate course, training programs, twice yearly professional development workshops, quarterly newsletters and Manual updates.

Despite the depth of the program and the market penetration to industry practitioners around Australia, feedback from fl eet managers continues to highlight the message on best practice fl eet management is not always getting to senior management.

Plant and vehicles play a crucial role in the delivery of works & services and unless the organisation takes a professional approach to managing fl eet assets and their use, the potential for costly ineffi ciencies will be far reaching and will not be limited to the plant and fleet area.

Today, effective fleet management goes well beyond simply fixing vehicles when they break down. Issues such as right-sizing the fleet,replacing equipment, knowing when to hire, when to lease or when to purchase demand more attention than they have in the past. Fleet management is far more complex and has to cover such areas as establishing  programs to preserve the value of equipment investments, minimising the incidence of unscheduled repairs, and collecting, analysing, and reporting necessary data so that  intelligent asset management decisions can be made.

This article focuses on the need for senior management in local government and civil construction companies to be aware of the issues to be addressed when considering plant and vehicle management.

The basics of best practice – the six KPIs

What are the six key performance indicators and what is their role in effectively managing the fleet?

1. Utilisation

Utilisation is the extent of use of a particular item of plant, vehicle or equipment and is usually measured by hours worked, or distance travelled in a nominated time frame  (generally the calendar year). Without knowing the utilisation, an accurate assessment of the following issues cannot be made:

• Is the item needed on a permanent or intermittent basis and should the item be owned or hired as required?
• What are the servicing requirements per annum?
• How much fuel and oil will be required per annum?
• What staff resources are required for servicing and repairs?
• What will the tyre wear be per annum?
• When can major maintenance be programmed?

For cars and trucks the kilometres travelled is a good indicator of utilisation. Whereas for plant such as refuse collection trucks, crane trucks, tractors and mowers, etc. engine hour meter readings are the best indicators.

2. Optimum replacement timing

The optimum replacement timing (point) for a vehicle or an item of plant is calculated to best estimate the optimum timing, in either kilometres or engine hours, and time, to  chieve the lowest average annual cost.
In order to correctly manage optimum replacement timing there is a need to develop a 10 year replacement program. The 10 year plan should be based on the following information:-

• Purchase price of the equipment
• Projected resale values, finance costs and repairs and maintenance costs over the next 10 years
• Current operational downtime costs for plant (these must include displaced operators and other works held up, and standing costs for the plant item concerned)
  Within the replacement program there is a need to ensure that internal hire (charge out) rates include a depreciation component. The aim will be to ensure the depreciation rate will provide suffi cient funds to the plant replacement reserve to finance the 10 year replacement program. By calculating optimum replacement timing a manager is ensuring that plant, vehicles and equipment are being replaced before:
• The item depreciates below the optimum replacement point and
• Anticipated repairs which would increase direct costs and also the indirect costs associated with downtime.

It is surprising how many organisations continue to changeover their plant/vehicles/equipment based on age alone. Using age alone might make it easy for the finance department to depreciate the asset but in cases of high utilisation this will result in high repair and maintenance costs and more importantly – high downtime which has a signifi cant flow on affect to other associated items of plant/vehicles/equipment and operators. Is your organisation replacement policy based on a combination of age and utilisation?

3. Whole of life cost

Whole of Life cost is the total cost of owning and operating an item of fleet over the estimated life of the item. Having established the optimum  point at which to replace the vehicle/equipment, the next management tool is whole of life costs. Whole of life costs include:

• Straight line annual depreciation, to an anticipated residual
• Finance or opportunity costs
• Operating costs, tyres, fuel, repairs and maintenance
• Fixed costs, overhead recovery, insurance, wages, license

Whole of life costs will reflect how much of the equipment’s annual costs will be based on annual utilisation and an optimum replacement point that has already been established. The annual costs calculated will provide a projected (budget) annual cost for the life of the equipment. A simple spreadsheet can be used to develop whole of life costs and provide an estimate of the total annual cost of an item of plant.
Knowing whole of life costs can provide:

• Annual maintenance budget
• Annual replacement provision
• Annual operational costs
• Internal hire rates.

There are still organisations that are not using whole of life costs which can result in under recovery of costs, insufficient funds being held in a plant replacement reserve and not optimising the purchase decision. If only the net purchase price is used in the purchasing decision then important information such as future resale value, fuel economy and repairs & maintenance is being ignored.

Is your organisation using whole of life costs to calculate charge out rates and in purchase decisions?

4. Downtime cost

Downtime cost is all costs associated with an item of the fleet being out of action for repairs or maintenance other than the costs of the work on the item. Downtime needs to be tracked in order to identify how much the downtime is costing for each item of plant/vehicle.

Downtime should be measured from when the machine is reported down in normal working hours until the machine gets back on the road. Downtime should also be recorded in the case where a machine is brought to the workshop for repairs. While the repair itself may only take a few hours there can be substantial delays (downtime) in waiting for parts for unanticipated work.

Provision needs to be made in the service program for recording downtime. Downtime is very much the hidden cost of fleet management. Downtime costs have two major components:

• Hire of a replacement machine
• Fixed costs related to the loss of an operational machine on a specific task.

Knowing downtime costs raises awareness and attention to minimising what can otherwise be hidden costs in plant and vehicle management.

Few organisations record downtime which can result in Management not being aware of the total cost of an item being out of action being unknown. Is your organisation recording downtime?

5. Maintenance failure records

Maintenance failure records provide the historical information for decisions affecting equipment by identifying downtime, failures and repair costs which will be reflected in charge out rates. The accurate recording of failures is a fundamental step in controlling costs in plant and vehicle management. When an item fails in the field, the impact on costs is not restricted to the repairs.

Numerous hidden costs start to compound:

• A mechanic is dispatched to investigate the failure, resulting in the delay of planned maintenance on items scheduled for service
• The operator stands idle while the equipment is assessed for suitability for field repairs
• A cost is involved to recover the item from the field to the workshop
• The team relying on the item is held up until a replacement item is provided
• Additional expenditure in replacement plant hire should the activity be critical.

It is important that the failures of plant and fl eet are recorded and the cost of these failures are allocated to the appropriate category.
Categories include failures due to:

• Lack of daily maintenance, no greasing or daily checks
• The age of the machine
• The incorrect application of the machine
• Design fault – normally appears during the warranty period
• Operator inattention or inexperience while operating on the machine.

Being aware of the cause of the failures is particularly important to operational business unit managers to provide the information to become proactive in their approach to staff training and correct equipment application. Improving these areas will result in reduced costs and optimise plant and vehicle availability.

By recording the reasons and cost of failures, management will be more informed and be in a better position to:

• Action planned maintenance
• Assess the need for operator training
• Develop simple procedures to reduce the impact of these failures on operations
• Make a decision on the need for replacement with a more appropriate item of plant.

As with downtime few organisations are recording reasons for failures and therefore management is unaware of the opportunity of taking corrective action to avoid future repeats of the same problem.

6. Flat Rate Service Times – mechanical workshop

If the organisation owns and operates its own workshop, good recording and monitoring systems need to be in place. This is to ensure that repair and maintenance times are controlled, performance standards are met and that accurate records of each service and repair are kept.

There is a need to adopt fl at rates labour hours for standard services. Flat rate times refer to an adopted industry standard for the expected time for a maintenance task.

Use of fl at rates for maintenance ensures industry benchmark targets are provided to workshop maintenance staff and assists in controlling direct costs.

Again, few organisations are using fl at rates to provide targets and measure performance of their mechanical workshop or that of their external mechanical services provider. With increasingly sophisticated technology in new vehicles and the need for specialist skills and servicing equipment and the worsening skills shortage, the trend is toward outsourcing of servicing to plant & vehicle suppliers. Has your organisation introduced fl at rate service times?

Reporting on the six KPIs

Introducing the six KPI’s is the fi rst step to reducing costs but the process of controlling costs in plant and vehicle management does not end there. The next step is having a reporting system that monitors performance against industry benchmarks. The system itself is not critical – it is the content of the reports that matter. Most importantly the fl eet management reporting system needs to provide information on the six KPIs

Generally, fi nancial management systems do not effectively cater for the key performance indicators required to effectively manage a fl eet. Financial systems are excellent at capturing basic costs. However, without detailed operational reports, fl eet managers will struggle to obtain meaningful information from the financial system. At the March
series of the IPWEA professional development workshops we held a session on fleet management software. The session wasn’t about assessing the merits of the different software packages available in the market, but rather what are the capabilities required by a package to meet industry needs. A checklist has been developed for inclusion in the update of the best practice Plant & Vehicle Management Manual due out early next year.

Conclusion

In my experience the change process is time consuming particularly where support is not forthcoming from areas such as IT and finance and more so when management shows a lack of interest.

Senior management must get involved and ask questions about utilisation, optimum replacement, whole of life costs, downtime, failure management and labour flat rates. Proactive leadership in plant &vehicle management will lead to improved operational availability of plant, vehicles and equipment and reduced fleet and operational costs.

References

Plant & Vehicle Management Manual, Version 1.0, April 2004 – Publisher, Institute of Public Works Engineering Australia

Biography

Ross Moody is the Executive Officer of IPWEA National, a part time role he has held since November 2004. He has 28 years experience in local government, including 15 years in a Director’s role. He holds a Bachelor of Civil Engineering and a Graduate Diploma in Business.

Ross has had a strong interest in plant & vehicle management when working in local government and was the editor of the IPWEA Plant & Vehicle Management Manual. Ross manages the IPWEA’s Systems Plus Plant & Vehicle Management Program and is responsible for organising the twice yearly national seminar series and the quarterly newsletter
“Systems Plus News”. Ross also works part time as a consultant with Uniqco International Vehicle Management.

For information on the IPWEA Systems Plus Plant & Vehicle Management program visit www.ipwea.org.au/fleet or contact Ross Moody on 0417955394 or email rmoody@ipwea.org.au.