Hennecke Fleet Consulting

FLEET TCO and COST SAVINGS

How to measure fleet cost (TCO) and achieve cost savings?

 

Many activities in fleet management aim at the goal of cost savings

Below learn more about how about cost savings in fleet management: How to define and measure cost savings and how to achieve them by applying a structured approach.

 

Learn also about Fleet TCO = Total Cost of Ownership: a concept in order to measure fleet cost by a comprehensive view on all cost elements.

Alternatively read directly what Hennecke Fleet Consulting can offer to you regarding fleet TCO and cost savings: Our Consulting Services.

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Vehicle fleet costs (TCO)

Costs for fleet & mobility are one of the biggest cost factors of a company. They can make up to 30% of the overall costs of a company, depending on the industry. 

 

In order to manage fleet costs properlyand achieve cost savings, you need a precise definition of fleet costs. We suggest to apply the concept of Total Cost of Ownership (TCO).

 

Definition of vehicle fleet costs (TCO)

Total cost of ownership (TCO) summarizes all costs related to a vehicle over its lifetime, according to the general formula:  TCO = Acquisition costs + operating costs + cost of downtime - residual value

The most important cost categories to be included into a fleet TCO calculation are:

Acquisition costs / costs of funding:

  • For purchased vehicles: Depreciation of the purchase costs (= purchase price + delivery costs, etc.) 

  • For leased vehicles: Financial leasing rate  

  • For purchased vehicles additionally: internal costs of capital (= interest rate)

Direct operating costs:

  • Costs for fuel and/or charging

  • Costs for service and maintenance (planned + unforseen)   

  • Costs for tyres (regular + damages)

  • Costs of accidents (repair costs at workshops + plus insurance fees)

  • Costs of taxes (vehicle tax) - eventually minus subsidies (per car, or charging infrastructure)

  • Costs for parking, tolls, cleaning etc.

Indirect operating costs

  • General fleet management costs (FM-software, process costs for ordering, in-life-administration, reporting, de-fleeting,...)

  • Costs of downtime: Opportunity costs of not utilizing the vehicle (loss of revenues, costs of alternative mobility)

Residual value:

  • For purchased vehicles: Selling price (incl. costs for vehicle assessment, refurbishment etc.)

  • For leased vehicles: Vehicle-return-charges (costs for damages beyond wear and tear)   

 

Average cost of vehicle fleet

Costs-of-vehicle-fleet-TCO

The chart shows the average cost of a vehicle fleet, based on a TCO calculation of German/European fleets:

  • 45 % of fleet cost is funding (depreciation and funding)
     

  • 25 % of fleet cost is fuel/charging
     

  • The remaining costs are: maintenance costs, tyre costs, accident costs, administration costs and others

Costs for corporate mobility

Besides costs of the vehicle fleet, companies spend money on corporate mobility: Cost for corporate mobility means costs for business travel and HR-benefits by plane, train, taxi, car sharing, other mobility providers.

Most companies are not able to report the relation of fleet costs vs. travel. Individual interviews reveal that costs for travel/ costs of mobility make up to additional 100% on top of the costs for fleet!

Do you know how much you spend in total cost (TCO) on your fleet, and in addition for corporate mobility in your company?

CONTACT US to start getting a comprehensive overview of your fleet cost.

Fleet cost savings

In order to achieve Cost Savings on Fleet & Mobility you should follow a structured approach that includes the following steps:

Fleet-cost-savings-framework

Cost savings definition:

First you should define precisely what kind of savings you want to achieve. Why? Because looking closer at savings, you will notice that there is not one savings-definition, but many different aspects to be considered.

You have to answer at least the following questions:

  • Level: Measure savings on company level, per entity, per vehicle,... ?

  • Time Scale: Achieve savings soon as possible, or long term?

  • Cost Type: Measure savings in terms of CAPEX, OPEX, consider effects below EBIT, count cost avoidance,...?

A precise definition of cost savings is necessary, in order to define subsequent strategies. Especially because different savings definitions will lead to completely different savings strategies.

Cost savings strategy

In the next step you should define how to achieve Cost Savings.

There are multiple alternatives to achieve cost savings. Generally  you can achieve savings in/on all areas and all levels of Fleet & Mobility Management. A non-comprehensive list of initatives is the following...: 

  • Negotiating better consitions from suppliers

  • Optimizing the financing of the vehicles (lease vs buy decisions)

  • Implementing a multiple-supplier (multi-bidding) sourcing setup

  • Rightsizing of the vehicles in use

  • Implementation a system of driver recharges for damages or private utilization of vehicles

  • Implementing efficient invoice-control processes

  • Optimizing fleet processes

  • Introducing more efficient techology and Tools, e.g. modern fleet management software

The evaluation and selection of different savings alternatives should then consider:

  • the potential amount of savings with regards to your defined goals

  • the cost and speed of implementation 

  • the risks or eventual (negative) impact on other goals (driver satisfaction, HSE)

Some additional notes

There is no one-fits-all-strategy! The appropriate savings strategy depends on your savings definition, your current internal setup of the fleet & mobility and the external conditions of the markets you operate in. 

Have a broader view on savings! Most savings initiatives focus on either reducing the direct costs per vehicle or the fleet administration processes. We recommend to also consider savings by alternative ways of travel, and by reducing the amount of travel in total. See more here: New Forms of Mobility.

Don't forget your employees! Many savings projects fail because of under-estimation of the need to convince stakeholders. Consider this in your strategy definition, as well as in execution (change management).

We help you to identify the right areas of fleet & mobility and to define the respective activities, in order to achieve Cost Savings. 

CONTACT US to reduce costs of fleet (TCO) substantially.

Quiz:

Focus on the right things! Guess what has the biggest impact on a company's fleet&mobility cost?

Correct Solution:

  • The biggest impact on TCO in this example has the reduction of the leasing rate, closedly followed by the reduction of mileage driven.

  • Least impact has the reduction in software cost, and fuel pricing.

Get the detailed results of this excecise and the calculations/ assumptions behind it. Learn more about the impact of different cost savings activities.
Contact Us.

Measurement of fleet cost savings

"You cannot manage what you cannot measure"​

An integral part of an effective cost management is the measurement of cost savings.

 

This requires:

  • Clear definition of savings (see above)
     

  • Cost reporting systems: Invoice handling, payment services, fleet cost database, reporting rules + the respective technology/ IT systems
     

  •  Alignment of all envolved parties external and internal: Making sure that everybody agrees to the savings definition and ways to achive the cost savings (change management)

We help you to measure your cost savings, in order to control the success of your savings strategy.

CONTACT US to start getting a comprehensive overview of your fleet cost.

Generate cost savings on fleet & mobility?