Analyzing Your Cost
Competiveness
Steve Riley
Automotive Director
City of Coral Gables
Analyzing Your Cost Competiveness
No need to take notes!
You will be provided a detailed checklist online.
Analyzing Your Cost Competiveness
1. There is no easy method to compare costs.
2. There are many variables that come into play.
3. This class is designed to highlight the vast differences that may exist
between public fleet operations.
4. You must conduct the mathematical analysis to determine your actual cost
differential.
5. I would be interested to hear of any variables that have not been discussed
in this session.
Private Sector Comparisons: There are too many variables to discuss within
the time limitations of this session. I will be available during the remainder of
GFX should you have any analysis requirements.
Analyzing Your Cost Competiveness
FLEET MYTHS
1. All Internal Service Fund departments charge-back for
their services.
2. All Fully Burdened Labor Rates (FBLR) are calculated
the same way.
3. All city fleet departments have the same customer
base.
4. All routine maintenance tasks (i.e. PMs) are performed
the same way.
5. Most public fleet are standardized by using the same
performance metrics.
Analyzing Your Cost Competiveness
- QUESTION What is the one word that determines your ability to
accurately assess your cost competiveness against
another fleet operation?
STANDARDIZATION
You cannot accurately compare your cost competiveness if
significant variables exist in your operational & cost
structure.
Class Project
Purpose:
• To test for a basic level of standardization.
• Determine how many of us are standardized with each
other.
• To demonstrate to you how many variables exist, even
in this small group.
Class Project
Define two basic maintenance tasks:
1)
2)
Police sedan PM (A) service.
Tandem axel dump truck PM (A) service.
Define the four variables:
1)
2)
3)
Parts – What parts are installed within the scope of the PM? List all
potential parts that could be installed.
Time – How much time do you allocate to complete the PM?
Process – What maintenance tasks are performed during the PM?
Example: Oil, Lube, Filter, Brakes, Tires, Lighting, Safety Inspection.
4)
Frequency – When is it performed? Mileage, Time
Define how you measure the following:
– Technician Productivity/Efficiency
Organizational Variables
Staffing
Facilities
Budgeting
Fleet Mix, Age & Condition
Lifecycle Profile
Customer & Geographical Variables
Ancillary Services
Benchmarks/Key Performance Indicators
Chargeback Rate Structure
Staffing Variables
(Salaries & Benefits)
All salary variables are subject to the organizations
prevailing wage & benefit rates.
Fleet operations who are under a collective bargaining
agreement (union) will generally have higher compensation
and benefits costs.
Salary rates vary greatly from state to state and individual
locations.
Staffing Variables
(Overhead Labor)
Do they have unique staff requirements?
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Human Resources
Information Technology (IT)
Accounting
Risk Management/Subrogation Services
Safety & Training
Fleet Analyst
Facilities Maintenance
Dedicated Fueling Staff
Security
Staffing Variables
(Direct Labor)
Who do they consider as direct labor (charge time to WO)?
Unique direct labor requirements
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Welding & fabrication
Auto body repair
Hydraulics shop
Electrical shop
Shift work – What percentage of staff is receiving shift differential pay
Staffing Variables
(Vehicle Equivalency Units)
VEU staffing method
– VEU assessed points vary greatly (even on common vehicles)
• Police sedan 1.5 to 2.5
• Garbage packer 5.0 to 8.0
– VEUs generally don’t take the fleet condition into consideration
– Fleets with a lot of specialized equipment will have VEU counts that are
not defined by industry standards (NAFA or APWA)
– VEU to technician ratios also vary greatly
• 110 to 330
Facilities Variables
(Maintenance Facilities)
How many separate facilities do they manage?
– Requirement for additional administrative/supervisory staff
– Additional parts locations & increased inventory costs (parts duplication)
– Highly decentralized/dispersed fleet organizations generally have more
technician staff.
Condition:
– High maintenance costs
– High utilities costs
– Dedicated facilities maintenance staff
Facility Equipment
– Lack of adequate shop equipment increases cost & labor hour
requirements.
• Lifts, diagnostic equipment
Facilities Variables
(Fueling Facilities)
How many separate fuel sites do they manage?
– Above ground (AST) or underground (UST) storage tanks
– USTs are much more expensive to manage than ASTs
• Annual tank and line tightness tests
• UST tank monitoring systems
• Registration requirements
– Stage 2 vapor recovery requirements
– Fuel island and dispenser maintenance/repairs
– Fuel management systems maintenance
Budgeting Variables
What is contained in their budget?
– Do they have the same line item or cost center accounts?
– Labor costs?
Is part of their operational expenses managed by another
department i.e. Finance or Risk Management?
– Accident repair
– Capital replacement costs
– Fuel budget (Use of departmental fuel cards)
Budgeting Variables
(Capital and Other Funding)
Unique capital and other funding requirements
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Capital costs for new buildings
Capital costs for fueling infrastructure improvements
Monthly or yearly facility lease payments
Equipment/vehicle lease payments
EPA remediation funding
Facilities maintenance
Aviation (aircraft) capital costs
Fleet Mix, Age & Condition Variables
Fleet Size
Fleet Mix
– Fleets with a large amount of heavy equipment are more expensive to
operate and maintain.
Fleet Age
– Obviously the older they are, the more maintenance intensive they
become.
Fleet Condition
– Generally associated with fleet age.
Extended Warranties
– Extended warranties increase initial capital outlay but decrease
historical maintenance costs.
Lifecycle Profile Variables
Not everyone lifecycles their equipment at the same
interval.
– Yearly usage – mileage & availability requirements
– Location conditions (salt on roads, high vs. low density areas)
There are various methods employed to determine lifecycle
replacement status.
– Point system – age, mileage, type of service, reliability, condition
– Optimum economic replacement point
• Decreasing capitalization costs vs. increasing maintenance costs
– Mileage/age intervals
– Cumulative maintenance & repair costs
– Resale value
– Whatever the budget will allow (worst of the worst)
Customer & Geographical Variables
(Customers Served)
Do they serve the same type of user departments?
– Unique Customers
• Airport Operations (very unique and expensive equipment)
• Shuttle or transit operations
– Lack of traditionally costly departments:
• Police = less accident funding requirements
• Fire
• Public Works
– Partial outsourcing of services: Sanitation, Sewer, Streets
Customer & Geographical Variables
(Geographical Location)
Large geographical area served may require:
– Additional maintenance and parts facilities
– Additional fueling sites
– Faster mileage accumulation and decreased replacement intervals
High density areas vs. rural countryside
– Increased tire wear (scrubbing of tires)
– Increased brake wear
– Start & stop increases fuel usage
• EPA city vs. highway mileage
Ancillary Services Variables
What services do they provide that are not normally found
in a fleet operation?
– Commercial Drivers License (CDL) training & testing
– City or County wide Defensive Drivers Course (DDC)
– Risk Management & Safety
Do they outsource a large amount of their work?
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PM services
Tire mounting & repair
Auto body
Alignment
Up-fitting
Ancillary Services Variables
Do the insource work from other government agencies?
– Revenue
• Considered part of their budget
• Profit may reduce their actual maintenance expenses and
chargeback rates
• Possible increase in technician staff without a corresponding
increase in salary requirements
• Do they include the vehicles/equipment from the insourced agency
as part of their fleet
– Fuel
• Sharing of fuel services with other local governments
• Revenue may supplement fueling infrastructure and operational
expenses
Ancillary Services Variables
Are they a hybrid (combined) maintenance department?
Fleet, Facilities, Radio Repair, School Bus Maintenance
– Can they segregate their costs based upon each activity?
• Overhead personnel may serve dual functions
• Expenses used by facilities staff embedded in fleet budget.
– Fuel, maintenance, uniforms, training, supplies & equipment.
– Do they use the facilities staff to supplement automotive technicians?
– Some fleet departments are also responsible for all fixed and mobile
communications systems.
– If they repair school buses:
• Separate revenue source (school board vs. city or county)
• Separate budget and account codes
Benchmark/KPI Variables
Fleet availability
FMIS setup
Average cost of repairs
Turnaround time
Rework percentage
– How is it measured?
– What do they consider a rework?
– What is the rework warranty period?
Parts availability (at time of repair)
– How is it measured?
Chargeback Rate Variables
Fully Burdened Labor Rates (not all the same)
– Simply because a fleet cites a rate does not mean that they actually
applied a industry method of calculation.
How do they calculate their rate?
– Required yearly billable hours
– Percentage of total possible available hours 70-80%
– Variable rates
• By type of work performed (heavy/light duty repair, PM)
• By technician pay classification
Who do they allow to bill time on the work order?
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Supervisors
Parts personnel
Fleet Analysts
Safety & subrogation staff
Chargeback Rate Variables
Application of administrative fees (artificially reduces the
FBLR):
– Flat monthly equipment fee (regardless of equip classification)
– Variable equipment fee (varies by vehicle size & type)
– Other fees
• Work order fee
• Acquisition & disposal fee
• Up-fitting and outsourcing (sublet) fee
• Environmental fee
Activity Based Costing (ABC)
– Allocates costs based upon a specific activity (fuel, parts, etc)
– One of the most convoluted methods of cost allocation for overhead
labor. No standardized formula (dependent on personal requirements)
– You must ask for their cost allocation percentages.
Chargeback Rate Variables
Fuel Markup – calculated per gallon, not price per gallon.
How is it calculated & what is included in the markup
– Staff
• Dedicated fueling personnel & Activity Based Costing Allocation
– Fueling infrastructure repair
• Dispensers, fuel island, UST & AST, fuel management system
– Capital replacement/improvement
• New facilities, future upgrades
– Operational costs
• Vehicles, tools, EPA compliance inspections
– EPA remediation
• If your had a UST release and have to clean it up
– Some have different markups for various fuels (gas, CNG, propane)
Chargeback Rate Variables
Parts Markup
How is it calculated & what is included in the markup
– Staff
• Dedicated parts personnel
• Activity Based Costing Allocation
– Equipment usage & upgrades
• Vehicles (depreciation, maintenance & fuel)
• Inventory system
– Possibly portion of utilities and facilities expenses (ABC)
– Variable parts markups
THANK YOU
QUESTIONS?