If you're a DC manager feeling the heat to hold down lift-truck costs, you've probably tried the usual routes: installing fleet management software, cutting parts inventories or deferring maintenance or new truck purchases. But you may have overlooked one of the most effective avenues to reducing fleet costs: hiring an outside fleet management firm. It may not sound like the last word in cost cutting, but unless fleet management is one of your core competencies, calling in the experts could save you a lot of money. "We can guarantee a 15-percent savings over [our customers'] current lift truck costs. And in most cases customers can save more than that," says Warren Eck, vice president of Yale Fleet and Financial Services.
Take the case of the Kellogg Co. It's been a little over a year and a half since Kellogg launched its lift truck fleet management program, and the cereal maker is already seeing results. For one thing, Kellogg reports that its costs have dropped by more than 15 percent. For another, it has a much better handle on its rolling stock, which includes anything with wheels and a motor that is used inside a facility. When the program began, the company had documents on only 150 units in its extensive fleet. That sounds like a pretty good record until you realize that Kellogg's fleet consists of more than 800 lift trucks, reach trucks, turret trucks and motorized pallet jacks, which left about 650 vehicles "undocumented."
Understanding what you have and what it costs you is really the first step in establishing a good fleet management program. "Many customers do not know what they spend on their equipment," says Stan Garrison, fleet account manager for Hyster Co. "Until they do an in-depth study of their fleet, they cannot understand what savings can be achieved."
Not only are there substantial financial rewards to good fleet management, but there are other kinds of benefits as well. These include using the right equipment for the task, better use of labor and improved traffic flow. Furthermore, equipment used in fleet management programs is normally newer and better maintained than other equipment, which means higher reliability, less down time and improved employee morale.
Most major vendors of lift trucks provide fleet management services that include consulting, leasing programs and vehicle maintenance. Crown Equipment Corp.'s FleetSTATS, for example, is an acronym for what if offers: service, tracking, accounting and tactical support. The programs are almost always custom-designed to fit the client's specific needs. "We help the customer understand his own spend," says Steve Meyers II, fleet services support manager for Crown Equipment Corp. Says Greg Lao, fleet management business manager for Toyota Material Handling USA, "Fleet management is not done with a cookie cutter. Every customer is different." In Kellogg's case, for example, Toyota provides its client with a dedicated fleet management person who assists with new lift truck acquisitions. His role is to work with Kellogg management and logistics personnel to determine the best vehicle for each application.
Off to a good start
A good fleet management program begins with an analysis of current fleet operations. In establishing a management program for their customers, the major lift truck suppliers typically conduct an examination of each client's facility operations. This includes rack layout, product flow and traffic patterns.
"We also analyze how the trucks are used in the warehouse," says Edgar Warriner, director of national and major accounts for Raymond Corp. "Is each truck being utilized to its full potential and is it the right truck for the job?"
That preliminary evaluation will also consider the average weights of loads and whether the vehicles can lift to the needed height. The assessment team will also weigh such matters as whether the forks are long enough for the product being handled, when product damage is most likely to occur and whether replacing certain vehicles with others might eliminate double handling. Meyers explains that a national program can help customers see their spend on a national and local level, right down to the cost of operating a specific vehicle.
For Kellogg, at least, the effort has paid off. Since launching its fleet management program, Kellogg has reduced its overall fleet by eliminating older vehicles that were chewing up maintenance dollars.
It has also added more than 250 new leased vehicles that are more efficient and better suited to their tasks. Why lease? "We prefer to lease instead of owning vehicles because it forces a rotation of equipment," says David Fry, Kellogg's operations procurement manager. "Leasing allows you to calculate the cost of ownership over a defined period of time and know what to expect. Our goal is to pick the correct lease for the life cycle of the unit, based on historical data."
Kellogg is not alone. Most companies that contract out their lift truck fleet management lease some, if not all, of their equipment. There are significant advantages to leasing. Often, it's easier to convince the financial people to approve a five- to seven-year lease than authorize a capital expenditure. Leases normally can be written off as expenses instead of having to be depreciated over longer periods. If needs change, a user is not stuck with a vehicle no longer suited to the task. Leasing also allows users to update their fleets easily, taking advantage of advances in lift truck design. Following the preliminary evaluation of facility processes and applications, trucks are assigned to the various tasks at hand. At this stage, aging vehicles are oftentimes replaced with newer, more efficient and economical units.
An ongoing process
The evaluation process does not stop there, however. Monitoring software allows ongoing analysis of operations, tracking factors such as miles driven by each truck, the number of lifts performed, the cost of operating per hour, driving patterns within the facility and repairs done on trucks.
"The software can also help managers see what is being damaged to evaluate if there are changes needed in the processes, such as if a lot of mirrors are being broken or there is damage caused from running into racks," says Toyota's Lao.
As for what happens if, say, a mirror is knocked off, most fleet management programs include a maintenance contract that covers needed repairs and preventive maintenance. While most repair work is billed per incident, a growing trend sees users paying a flat fee that includes all needed repairs and places greater emphasis on preventative maintenance.
"Customers are looking to squeeze everything they can out of their fleets. There are no spare vehicles. Good preventive maintenance is critical," notes Raymond's Warriner.
Yale's Eck agrees, adding that by scheduling regular preventative maintenance, you can take advantage of slower periods to perform service—maintaining vehicles when it is convenient and not simply when something breaks.
Hiring a third party to oversee maintenance can reduce headaches substantially, as Kellogg will attest. Kellogg's fleet is spread out among several factories, seven large distribution centers and 49 direct-to-store facilities. To coordinate its maintenance program, the company hired a third party, Power Products of Kansas City, which arranges for needed repairs and preventative maintenance. Toyota dealers located near Kellogg's facilities perform most of the maintenance tasks. "Our repair costs have gone down since we began using a third party to manage our maintenance," notes Kellogg's Fry.
Like Kellogg, the majority of today's lift truck owners outsource their maintenance. This allows them to focus on their core functions while reducing internal maintenance staffs and eliminating the need for most on-site parts storage.
Since hiring Toyota to manage its fleet, Fry says, Kellogg has exceeded its cost-saving targets of nearly 15 percent. And, as in all good management programs, the savings should continue from year to year. "Good fleet management is not just about what can be saved today," says Eck, "but how you can deliver continuous improvement."
Gartner, Inc.
