As a fleet manager or director, one of the most critical decisions to make is selecting the right assets. A successful fleet is comprised of healthy vehicles, but in order for a fleet to expand it needs to be backed by reliable metrics. As important as the price of a unit is, the history of the vehicle can be far more telling of the overall value.
For this reason, properly calculating your fleet’s total cost of ownership (TCO) is a vital business decision. Considering a fleet’s units are high-cost assets, maximizing their value is key to improving a logistics company’s bottom line. To get the most out of your trucks, you need accurate, customized TCO data.
In today’s trucking industry, wise fleet management means marshaling resources to build and protect value.
What is TCO?
The total cost of ownership (TCO) involves the cost of acquiring, maintaining, and operating a vehicle. This metric enables fleet owners to maximize fleet performance and profitability.
Customizing your fleet’s TCO calculation
It’s no secret that the industry’s largest fleets utilize massive data sets to maximize their efficiency. As for small and mid-sized fleets, investing the time and resources that it takes to get precise TCO data can seem like a paradox. However, new technology is making it possible to reap all the benefits without devoting critical resources to more administrative staff and high-dollar equipment.
While industry-standard data is extremely valuable, it’s not customized to your fleet. It calculates the cost per mile for the entire industry by analyzing fleet size, industry segment, and other factors that are important to consider. The best way to leverage TCO is to calculate the real figures for your fleet. With that information, you can benchmark your fleet’s performance against similar fleets.
TCO may be calculated by combining the initial price of each unit with its maintenance costs over its lifetime. By subtracting the value you receive from the sale of that unit, you can obtain more accurate estimates than industry-standard data. Even so, there are many ways you can make your TCO calculation more valuable.
Graco, a leader in the industrial, manufacturing, and processing sector offers a detailed approach to TCO calculation: TCO = I + (O + M + D + P) – R. They argue that the actual cost of ownership for a piece of equipment is the result of initial cost combined with operating costs, maintenance costs, downtime, and production costs, minus the remaining value at the end of that equipment’s term of service.
Drilling down: Understanding TCO factors
Here at Fleetpal, we believe that comprehensive data should be accessible to all fleets, not just reserved for large fleet owners. When small and mid-sized fleets are able to take advantage of the most precise TCO data, they can measure up with competitors of all sizes.
We’ll explore how fleet managers can maximize the value of their fleet investments using the Graco formula.
Initial Cost
While it might seem like the most important factor, initial cost accounts for less than 10% of the TCO. Keeping this in mind will encourage you to consider more expensive options if the ROI is higher.
Operation
This category would factor in the measure of fuel expenses, installation costs, licensing, taxes, and administrative overhead. Modern units may be more expensive, but it’s important to consider how ease of use can boost productivity and streamline training.
Maintenance
This department covers all standard upkeep such as inspections and cleanings as well as reactive maintenance when faced with unforeseen issues.
Fleetpal specializes in calculating maintenance and repair costs. Having quick access to these calculations helps clarify the value of investing in preventive and routine maintenance programs. It also helps minimize downtime and maximize productivity without sacrificing resale value.
Downtime
When a unit breaks down or requires unscheduled maintenance, it can disrupt fleet operations and lead to significant secondary costs. Downtime includes labor costs across all departments devoted to unexpected occurrences. Delays can also result in lost clients, which falls under downtime.
Production
For most fleets in the logistics industry, the cost of production and cost of operation are going to be the same. If your fleet is comprised of a variety of units with different capacities, separating certain factors into these two categories may be beneficial.
Remaining value
Anytime you purchase a new unit, it begins to depreciate the moment it leaves the lot. Managing the remaining value for your fleet requires a constant balance between two questions:
- How much is it worth on the open market?
- Can we make more profit from it before it costs more to operate than it makes?
What will TCO do for you?
By relying on industry standards or solely intuition, you are actively ignoring business blind spots. Small and mid-sized fleets need to take advantage of the insights that quality TCO calculations can provide. Only then can you assure yourself that you aren’t leaving money on the table.
When you use the data from your own fleet to calculate an accurate TCO and benchmark your fleet’s performance with comparable fleets in the industry, you’ll know exactly how you’re doing and the steps to improve.
Fleetpal can help you get a better measure of your fleet’s TCO. Our software solutions make fleet management and maintenance more efficient for end users. The data that you generate using Fleetpal can easily be integrated into your TCO monitoring program. Contact us to find out how we can improve your bottom line, as we have done for countless other fleets and service providers.
