By Mike Eaton | Principal, Transportation | Chainalytics
Monday, November 16, 2009
Few of my clients are without some degree of private or dedicated fleet operations. Despite this fact, I’m often asked, “When should fleets be utilized?” The answer requires a look back to the genesis of fleet operations.
Most fleets did not begin as cost savings initiatives. Rather, they began as a real, or perceived, need for service, capacity, or operational flexibility. Indeed, many dedicated fleets expanded significantly as a result of the carrier capacity crisis of 2004-2005. Once created, they rapidly became institutionalized and part of a company’s culture. Nowhere is this truer than in private fleets where the drivers, dispatchers, mechanics, and management team become employees. As such, this nepotism hinders companies from reviewing these operations with the same degree of rigor and impartiality as their contract carriers.
You can’t let your prejudices determine the effectiveness of your operations. As you review existing fleet operations or even consider new ones, you must ask if your fleet is cost effective and right sized. Generally, I’d suggest the following questions at a minimum:
- Are contract carriers readily available for the lanes I need to cover?
- Do I need to provide services not readily available in the contract carrier market?
- Back of store delivery services
- “Key Drop” or unique security requirements
- Driver assembly services
- High per load drop count/small drop size
- Does short length of haul and high repeatability yield high potential utilization?
- Do I place value on highly visible “branded” equipment on the roads? A single catastrophic accident can negatively affect brand image.
- And most importantly: Is the fleet option reasonably cost effective compared to available alternatives?
Assuming you answer a resounding “yes” to these questions, and fleet operations are already in place, what are some of the early warning signs that your fleet may be growing without appropriate impartial review? Ask yourself:
- Is the average length of haul increasing?
- When new lanes appear, is my standard practice to give them to the fleet?
- Has the frequency of short term rentals been increasing?
- Am I routinely validating the availability of cost effective contract carriers for these moves?
- Do I have the ability to effectively model these continuous move fleet operations in the context of available one way carrier rates?
Private and dedicated fleets are important for many operations. But routinely asking questions and conducting impartial reviews of needs and capabilities will help insure that a fleet is correctly sized and cost effective. Benchmarking yourself against contract carriers will also help protect against the inevitable questions that arise from senior management. “Is our fleet the right size and cost effective?” I hope you can answer a resounding, “Yes.”
Mike Eaton is a Principal, in the Transportation Practice, at Chainalytics where he focuses on transportation management improvement initiatives and the application of transportation technology.