Achieving the optimal total cost of ownership means weighing the benefits of every spec on a truck. HDT File Image
Designing a Truck for Total Cost of Ownership
Spec’ing and maintaining trucks for the best total cost of ownership is a tricky balancing act to master. There can be so many contradictory elements to every spec’ing decision.
Should you, for example, spec a truck with three batteries or four? Three would cost less up front and shave off a little weight, but that decision might cost you dearly down the road in no-starts, service calls, and driver dissatisfaction.
As the name implies, total cost of ownership — or lifecycle cost, as many fleet managers refer to it — is a cradle-to-grave measurement that should include all the money you spend on a truck less what you eventually sell it for.
If you buy a truck for $150,000 and sell it four years later for $75,000, the price of the truck nets at $75,000. If you spend $25,000 maintaining and repairing the truck over four years, the cost of the truck is now $100,000. Maybe maintenance and repairs were closer to $50,000 over the life of the truck. TCO is now $125,000. Or maybe the bottom fell out of the used truck market a week before you put it up for sale and you took a $10,000 hit on it. Now you’re at $135,000.
That said, the absolute lowest TCO is probably not what you want to shoot for. The best-managed TCO, on the other hand, will keep you more profitable. Figuring out which specs provide the best return on investment — whether by providing longer life, lower breakdowns, or reducing costs elsewhere in the company — is the more sensible way to approach it.
Spec for the job
“The industry has too many generic-spec vehicles in applications that can benefit from matching individual components to the truck’s use,” says Joe Puff, vice president of truck technology and maintenance at NationaLease. “There’s a lot of easy places to start. For example, choosing high-capacity air dryers for heavy air usage or city applications with lots of stop-and-go driving. Or heavy-duty fifth wheels for high drop-and-hook applications, and disc brakes for extreme grades or severe duty.”
Many fleets could benefit from a careful evaluation of electrical needs to more closely match batteries and alternators to electrical demand, Puff also suggests. Pay special attention to trucks that encounter extreme cold (high-cranking amp batteries), have high-use liftgates (high reserve capacity batteries), and consider driving charge-times to power-draw requirements.
By the same token, you want to avoid a boutique spec. Many specialty parts carry a premium price or a high OE upcharge, and parts may be harder to come by on the road in the event of a breakdown.
And be careful about being the first kid on the block with the new toy. Consider that in the early days of the current trend toward downsped powertrains, many fleets reported driveline failures due to torque overloading. It wasn’t that the components weren’t up to the challenge, it’s that fleets over-estimated the time they spent operating in ideal downspeeding conditions. We saw, for example, trucks spec’d for linehaul service that were doing double-duty as P&D tractors. All that start-and-stop driving tore up the drivelines because of the high torque multiplication in low gears.
Sure, downspeeding is a great way to improve fuel efficiency and it shows up fast on the bottom line, but the failures started showing up a year or so into vehicle life. The lesson is that today’s highway truck belongs on the highway. Believing they could get two trucks for the price of one, figuratively speaking, proved a costly mistake for some fleets. Yet it wasn’t necessarily a bad spec’ing decision. In some cases, the operations people were not aware of the new drivelines and figured they could improve utilization on the trucks by using them in the city. That might have been the right thing to do in years past, but not with downspeeding.
While it may seem so at times, the maintenance department doesn’t work in isolation. Money it spends or doesn’t spend affects other parts of the operation. While achieving the lowest total cost of ownership is a laudable objective, getting there can squeeze other departments and increase the overall cost of doing business for the company.
Any time you can get the finance, operations, and procurement people around the same table, good things can come of it. “Those three silos will loosely interact with each other, but they never have that one specific common goal, which should be, how do we manage the total cost of the fleet,” says Patrick Gaskins, senior vice president of sales and operations for capital equipment at Corcentric (formerly AmeriQuest Business Services).
“Finance is looking for the lowest interest rate — the cheapest dollar — but that doesn’t mean it’s the most cost-effective dollar,” he continues. “That would be like procurement buying the absolute cheapest truck. That doesn’t mean it’s the best truck for the job or the most cost-effective truck. And if operations wants to hang onto a truck for a million miles, that’s not a very effective use of the asset, either. Those three areas of the business have to talk.”
Decisions made by procurement or operations can affect maintenance, too, with some long-term implications. Gaskins cites an example of a fleet that lets it trucks age beyond five years or so. “As the fleet ages, you’ll incur more shop time, and that will put stress on technician availability and shop costs,” he says. “You might need more full-time people in there, but if that fleet were to suddenly bring in a high number of new trucks, it would soon have a bunch of techs with nothing to do. They make pretty expensive floor sweepers.”
Who pays for what?
Along the same lines, how do you address the TCO question when a spec benefits one part of the company, but costs more in another area?
For instance, nobody will argue about how the scarcity of drivers has prompted changes in truck spec’ing. Offering drivers more appealing trucks has driven up costs, but from which silo does that money come? The procurement office would take the initial hit, but the recruiting department might be the ultimate beneficiary. Should procurement have to defend its decision to spend more for a comfortable truck? No, says limited-time executive and truck spec’ing specialist Greg Hart.
“I have never gone wrong giving the driver a truck he or she wants to drive,” Hart says. “I tend to spec premium seating, more comfortable interiors, and the features they need to keep them safe, like predictive cruise, collision mitigation and all the rest.”
Hart says those sorts of options add to the cost, but they pay back big-time over the life of the truck and at trade-in. “There’s very little maintenance associated with driver amenities or safety systems,” he says. “The cost will usually net out over the life of the truck, so it’s not really a matter of who is paying for it. It all contributes to a healthier bottom line.”
Another example: Fuel economy specs can be seen to add cost to the truck, and thus the total cost of ownership — unless you factor the fuel savings into that math. In addition to the up-front investment, they add weight (potentially reducing payload), and can make routine maintenance more complicated. They sometimes create maintenance issues of their own, such as with collision damage.
“Aerodynamic devices will pay for themselves, but sometimes the payback isn’t as healthy as you might have expected,” says Darry Stuart, DWS Fleet Management, who acts as a limited-time executive to help fleets with spec’ing and maintenance issues. “Data collection helps here, tracking the performance of the devices along with the fuel savings and the direct maintenance costs. If after a year, the payback isn’t there, don’t buy another one.”
It’s been proven that some devices perform well in certain applications, but not in others. Again, document the changes by doing some fleet testing and make your next purchasing decision armed with that information.
It’s also possible that being armed with data might help you in dealing with what Hart calls the “activist president.” “It’s a new trend that I’ve seen more and more over the past four or five years, where the president, not the company owner, but a hired gun, will start pretending he’s the VP of maintenance,” he says. “The owner of the company knows the VP of maintenance knows best, but the executive orders a change based on some outside opinion. It can wind up costing the company millions.”
Good old-fashioned maintenance
Maintenance is a variable cost and rarely 100% predictable, but it plays a part in TCO.
One thing you can predict is that trucks will cost more as they get older. Adjusting the preventive maintenance schedules to the trucks’ actual condition can reduce the costs of unscheduled maintenance and improve uptime.
“Today’s trucks tell us a lot about their condition, and all that data is readily available through the OBD [on-board diagnostics] port,” says independent maintenance specialist Lew Flowers.
It’s the difference between scheduled and predictive maintenance. Predictive is the ability to respond to fault codes that are showing so they can be addressed at the earliest opportunity. It’s usually less expensive to replace a part before it fails and lets you down, or instead of relying on an approach Stuart describes as “load up on warranty and hope for the best.”
Kidding aside, warranty can help keep TCO down without sacrificing quality for cost. In the trucking business, managing cost is key. In fact, the only thing more important than managing cost is knowing your costs.
Ultimately, calculating and spec’ing for total cost of ownership provides the big-picture view fleets need to make critical spec’ing decisions.
by Jim Park
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Graph 1: fleet management activities
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José Miguel Fernández Gómez
I´m a Fleet Management expert, and the manager of Advanced Fleet Management Consulting, that provides Fleet Management Consultancy Services.