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Determining ROI to Lower TCO

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“Fleet managers have only so much time,” notes Kirk Altrichter, vice president, maintenance at Crete Carrier Corp. “We need to prioritize when we are spending time making return on investment [ROI] determinations for new equipment. There may be an ROI that will help lower our total cost of ownership [TCO], but as technology changes, products advance and new ideas come on the market, suppliers have to step up with information and we need to be looking for it, not be averse to change and be willing to measure the effectiveness of our decisions by tracking performance.”

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ROI determinations have a large impact on TCO at Lincoln, Neb.-based Crete Carrier Corp., along with its Shaffer Trucking operating division and its sister company Hunt Transportation Inc. Offering a full range of transportation capabilities, Crete provides dry van service, Shaffer offers temperature-sensitive service and Hunt covers flatbed and specialized transportation needs. Collectively, the companies operate more than 5,000 power units and over 13,000 trailers.

“In general, to determine ROI you need to conduct an evaluation using a control group and a statistically significant sample of your fleet over a defined period of time,” Altrichter explains. “That’s the only way to compare the impact of a specification change on TCO.”

He goes on to cite several examples. “For steer tires,” Altrichter relates, “we need almost a year to evaluate how well new products will wear, and determining TCO for the entire package, including new tires, casings and retreads can take as long as seven years. By continually running major brands head to head, however, the ongoing ROI analysis can be effective in making decisions that impact TCO.”

Other items have been easier to evaluate. “We’ve made maintenance more effective, for example, by employing best practices such as training technicians to look at items like wipers, and clutch and brake feel while they’re moving trucks into the shop,” , Altrichter adds. “We also started using a device that primes newly installed engine fuel filters in about one minute instead of the 15 minutes it can take a technician with a hand-operated pump. Those are the kinds of things that are fairly simple to measure for ROI and have an immediate and direct effect on TCO.”

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Prioritizing spending based on evaluations

John Flynn, chief executive officer at Fleet Advantage, says lowering TCO is about addressing two main issues. “One is how you manage the asset you have and not overspend, and the other is managing the lifecycle of the vehicle,” he relates. “To accomplish those things, you need analytics software that can take large amounts of unstructured data and quickly turn it into actionable information.”

DecisivFleet Advantage provides a unique brand of truck fleet business analytics, equipment financing and life cycle management tools, working with leading private fleets to design new equipment for maximum fuel efficiency, the lowest maintenance cost and the highest resale value. Recently, the company added technology personnel and a new 4,000-sq.-ft. Technology Centre to enhance its ability to provide data analytics to further analyze TCO and manage truck lifecycle costs.

One example, Flynn relates, involves effectively analyzing fuel economy. “For the past four to five years, we have seen an average 2 to 3 percent per year improvement in the fuel efficiency of new Class 8 trucks,” he explains further. “It is now fairly easy for an over-the-road truck to average 6.5 MPG, which means three years later, the new model will get 7 MPG. While the cost of the new model is higher, the increase can be more than offset in fuel savings.

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“Our analytics indicate that fleets should consider replacing equipment before warranties expires and maintenance costs go up,” Flynn continues. “If you are tracking the data, these calculations are fairly easy. If you have a fleet of 100 vehicles and you replace 20 per year, you already have data on 20 units of each model year to use to compare MPG and maintenance cost per mile.”

Fleet Advantage’s new lifecycle management software, Flynn notes, does this automatically by accumulating data on any fleet’s fuel, maintenance, depreciation and interest costs, and then combining it with current resale values and new truck costs to generate an analysis of the impact of replacing vehicles at their “Tipping Point”.

“This methodology,” he states, “leads to customized data driven decisions based on actual costs and real time market conditions that point to an exact ROI and a substantially lower TCO.”

TCO assessment

John Gleason, senior vice president of sales and marketing for fleet management solutions at Ryder, says the lessor offers an assessment tool that can help fleets better understand TCO. “It aids fleets by accurately determining the bottom line for both overlooked costs and three major asset components: Acquisition; maintenance; and disposal,” he states. “The key is having good data and analytics that can stand up to scrutiny.”

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One of the first considerations, Gleason notes, is fleet size. “We typically find that some companies have excess capacity, so we ask them about route optimization, and seasonal business and peak demands, to look for opportunities to lower ownership costs,” he says. “Second is to determine if a fleet is operating the right kind of equipment for its application. Specifications can get fairly complex with new vehicles and there are lots of savings opportunities if technology is optimized for each fleet’s needs.”

Areas to consider to better understand TCO by analyzing factors properly, according to Gleason, include acquisition, fuel, maintenance depreciation and disposal costs, among others. “Understanding the continuum of cost is the issue,” he states. “There’s a sweet spot for residual value and the impact of new technology is a factor as well. ROI analysis has a lot of complexities.”

Fleet Advantage (Customer Trucks)

Broader perspective

Real cost of ownership (RCO) is a way of looking at the truck as a critical part of doing business and not just a cost center, says Mike McHorse, on highway product marketing manager at Freightliner Trucks. ”Focusing on fuel mileage, scheduled maintenance costs and resale value are important parts of TCO, but RCO brings a broader perspective to the discussion,” he says. “By using five pillars— fuel efficiency, connectivity, safety, quality and uptime— trucking companies can get a better picture of how the trucks they buy influence a full range of critical factors in their businesses.”

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Maximizing RCO is different for each company depending on requirements and influences, McHorse relates, so its important to take into account the situations that drivers, trucks and businesses face daily. To get a clear picture of the real cost of ownership, consider the hard and soft costs over the lifetime of a vehicle in the on-highway segment and recognize those five main contributing factors that impact profitability. “It’s a formula that involves all these factors,” he adds, “and it takes a willingness to look at all the options and choose the best specs available.”

Less downtime

Maintenance is a key component in any ROI determination and TCO analysis. “Every fleet has an approach in making specific calculations about assets,” says David Pardue, vice president of aftermarket business development at Mack Trucks. “One big thing we see when we’re talking to fleets about this subject is the impact of unplanned service events and the potential savings from pushing the repair through the system faster. Effective maintenance management leads to less downtime, which can add from $500 to thousands of dollars per day.”

A key tool in reducing downtime, Pardue notes, is telematics. Earlier this year, Mack Trucks added its GuardDog Connect telematics solution to its GuardDog maintenance monitoring system. GuardDog Connect is standard and free for two years on 2015 Mack Pinnacle, Titan and Granite models. “It enables speedy diagnosis of issues,” Pardue says. “If there’s a minor problem, it sends the driver a message via an in-dash display. For more serious problems, it sends an automated alert to Mack OneCall 24/7 customer support center to proactively schedule repairs and confirm that needed parts are in stock. Telematics reduce downtime by moving things aster, and taking the guesswork out of diagnostics.”

Timing and effectiveness

MackThe process of integrating GuardDog Connect functions into the maintenance process by monitoring critical fault codes and delivering detailed information about the severity of the issue takes place in Mack ASIST, which is based on the Decisiv Service Relationship Management platform. “TCO is impacted by addressing issues more effectively,” states Michael Riemer, vice president products and channel marketing at Decisiv. “With telematics, our SRM solution can get information faster and impact the timing and effectiveness of diagnosis and repair processes by driving down management time.”

Mack ASIST reduces downtime by improving communication between the fleet and the service provider. All communications, authorizations and approvals are electronically tracked and the system also allows access to vehicle history, pending maintenance operations, recalls, service bulletins and warranty.

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Data-driven intelligence

Overall, says Patrick Gaskins, vice president of financial services with AmeriQuest Transportation Services, commercial truck operating costs can be lowered when buy-use-sell phases are viewed as an opportunity to increase profitability. Sometimes it benefits a fleet most to find a new way to evaluate life cycle costs. Using data-driven intelligence, you can determine how to most cost-effectively buy, use, and sell a commercial truck before choosing options that will work best.

“There are a lot of moving parts in determining the total cost of commercial truck ownership,” Gaskins also writes. “Each step in the commercial truck life cycle process is equally important to the bottom line and each plays an integral part in determining TCO.”

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