Numerous Private Equity (PE) portfolio companies, especially in distribution and services sectors, utilize fleet vehicles as part of their distribution and operations. Typically, these companies use a Fleet Management company to oversee all aspects of their fleet operations. However, Fleet Management companies do not always take a comprehensive approach to helping these companies optimally assess and manage their fleet costs, resulting in a detrimental impact on EBITDA.
Treya recommends a holistic, Total Cost of Ownership (TCO) approach underpinned by detailed pricing, usage and benchmark data, to identity and optimize key cost drivers for fleet ownership and maintenance. This approach typically results in a 8-12% overall cost reduction, improved utilization and improved fleet operating metrics.
A TCO approach is critical to understanding and optimizing the total cost of owning and maintaining a fleet. This involves managing each aspect of the life-cycle cost in detail including costs related to acquisition, fuel costs, maintenance costs, disposal value, and overall utilization. Companies should identify current costs and practices in each of these areas and compare those against best-in-class practices, and cost and operating metrics for similarly sized fleets. A quick benchmarking exercise can reveal key gaps in the existing program and key opportunities for improvement.
In addition to benchmarking of current costs and operating metrics, companies should also assess and evaluate current practices in each of the TCO components and identify gaps. The TCO Table at the bottom of the article depicts key savings levers that should be thoroughly evaluated in each TCO area. For example, when acquiring new vehicles most companies look at comparing only the acquisition price, whereas if they looked at comparing overall TCO costs (looking at fuel and operating costs, and residual value at the end of the useful operating life) it might lead them to acquire a different vehicle.
Frequently, vehicles with a lower acquisition price (or CAP rebate from the manufacturer) are not necessarily the lowest TCO vehicles. Companies should also look at current maintenance practices and institute best-in-class practices for fleet maintenance to help them reduce maintenance costs and improve fleet uptime. Most companies tend to hold on to vehicles well past their optimal hold times as they are fully depreciated. Companies should do a detailed analysis of overall holding cost and comparison against a comparable new vehicle taking into consideration typically greater fuel efficiencies and residual values. Finally, companies should look to periodically assess overall fleet utilization and seek to ensure that it stays above a minimum threshold.
About Treya Partners
Treya Partners is a management consulting firm specializing in procurement value creation, strategic sourcing, and spend management advisory services for Private Equity. Treya was established in 2006 by a seasoned group of supply management professionals and has served hundreds of PE-owned companies across a broad range of industry sectors including manufacturing, distribution, retail, financial services, life sciences, healthcare, and technology. Treya delivers meaningful EBITDA improvements from indirect (SG&A) and COGS categories in addition to implementing transformative procurement projects. For further information, visit Treya Partners online at https://www.treyapartners.com.