I’m kind of happy to say that the blog I wrote in 2009 outlining when and why companies should choose to deploy private and dedicated fleets remains largely accurate today.
An additional six years of economic, supply chain, and logistical changes have effected how all companies and us at Chainalytics evaluate fleet deployment practices. However, I still see some companies missing the mark in choosing a sub-set of lanes and activities when deciding how their fleet should be deployed.
The challenges I see time and again often fall into three common categories:
1. A true understanding of current fleet operating costs. Almost every firm with a dedicated fleet maintains an operating expense statement and/or captures meaningful performance KPIs and knows at an aggregated level its fleet costs. However, they seldom invest the time and effort to accurately allocate a dedicated fleet’s operating costs at the transaction level detail like most do with their contract carriers’ one-way moves. I see many organizations routinely basing their decisions around where to deploy their fleets utilizing these highly aggregated costing metrics.
Fleets are rarely evaluated with full operational cost loading: Most companies capture direct equipment expenses, fuel, repair, and maintenance costs effectively, but do not fully allocate direct management overhead, G&A, IT or other costs that are certainly a very real part of doing business. In the absence of full and equitable cost loading, organizations often make decisions around fleets without understating the true cost of operation.
A rudimentary step to begin to solve this problem is to develop an average cost/mile or an average cost/load. However, these averages aren’t particularly meaningful at the load level when applied to fleets with wide ranges of length of haul or multi-leg trip activity. A fleet with an average operating cost of $3.25/mile doesn’t REALLY haul a 10 mile load for $32.50.
With a fully loaded operating expense statement distilled into a sensible fixed and variable cost structure, organizations can begin making more fully informed fact-based decisions around where and when to deploy their fleets.
2. A clear understanding of alternatives. Once a lane has become part of standard fleet operations, organizations often lose sight of the alternative one-way contract carriage or spot rates available for those lanes. Many organizations specifically exclude fleet lanes from outside carrier procurement and sourcing events (understandable, since they don’t want to mislead outside carrier partners on what may be available for award; however, they do need insights into alternatives). If a company does not include these lanes in procurement events, it’s imperative to routinely access transportation benchmark resources to determine and monitor industry costs compared to a fully developed fixed and variable fleet cost structure. It always good to know your options!
3. No tools to model alternative fleet scenarios. If you’ve fully and properly developed your cost structure, what’s next? In simple out-and-back operations, the cost structure alone may get you most of the way to making insightful and informed decisions. But in environments with significant or dynamic backhaul and/or multi-leg trips, the problems will quickly overwhelm a team armed with only spreadsheets. Transportation modeling tools allow simulation of complex networks and evaluation of multiple scenarios around operating costs, equipment capacity, facility operating hours, etc. to fully capitalize on your network.
Fleets are an important part of many companies’ transportation portfolio. Routinely revisiting where and how you’re using these valuable assets, backed by fact-based decisions that are fully informed through rigorous costing discipline and application of tools, pays off dividends over the long haul.
Mike Eaton is a Principal in Chainalytics’ Transportation Competency, where he focuses on transportation management improvement initiatives and the application of transportation technology. Mike’s work is supported by his extensive background in inbound and outbound transportation management, private fleet operations, distribution center operations, distribution center budget development, financial analysis, and management of customer pricing protocols. At Chainalytics, Mike has been involved in transportation and network design projects for clients such as Clorox, Coca-Cola, IPC-Subway, PepsiCo, Kroger, Kraft Foods, Clark Logistics, WhiteWave Foods, Apple, YKK Architectural Products, and SC Johnson.
Prior to joining Chainalytics, Mike spent several years with i2 Technologies working with its suite of transportation management, optimization, and modeling tools. Mike also served as the Director of Customer Services and Logistics for Perlman-Rocque, a dedicated provider of customized foodservice distribution to McDonald’s. Additionally, Mike has served at The Martin-Brower Company, Colgate Palmolive, and Nabisco Brands.
Mike holds a Bachelor of Arts in Geography and a Certificate in Cartography from the State University of New York at Buffalo.
