Piecing Together A Purchasing Program

Bob Deierlein

It's inevitable - a vehicle's future maintenance and operating costs are determined at purchasing time. Fleet managers beware: Under-specing a truck brings one set of problems, over-specing yet another.

Some fleet managers practice zero-based specing. Rather than revising last year's specifications, they start with a clean slate, reviewing their ex-pectations for the truck and focusing on the components and systems necessary to meet those expectations - safely, produc- tively and cost effectively.

In six out of 10 cases, im-proper specifications re-portedly are the culprit for premature truck failures. To avoid this mistake, work closely with the truck chassis, body and trailer original equipment manufacturers (OEM), and re-view the equipment's performance records.

Life-Cycle Costing Buying based on the lowest price is always a mistake. Although some fleet managers still try to negotiate the lowest purchase price, ultimately the total cost per mile, or life-cycle cost, is the deciding factor. Life-cycle costs include the initial purchase and the resale prices, as well as fuel and maintenance costs.

Life-cycle costing also applies to replacement parts. Because a fleet manager's goal is to avoid excessive downtime and to repair correctly the first time around, the highest-quality parts - not cheapest - are essential.

In addition, the purchasing procedure must be a year-round process. Compile a specifications file with bits of pertinent information gathered during the year: warranty claims, reimbursement history, driver and mechanic comments and changes in a vehicle's use or operations.

Magazine articles on new products and other fleets' purchasing decisions also are helpful. In addition, most truck OEMs, engine manufacturers and some component suppliers provide simulated "what if" computer programs to test their equipment.

The final decision, however, is always fleet-specific. With the refuse and recycling industries changing so quickly and new state and local regulations to meet, only the fleet manager can set the correct specs to meet company needs.

Buy Or Lease? After setting the specs, managers must evaluate fu-ture fleet-maintenance capabilities. Naturally, this de-pends upon whether you already operate a shop. Also, determine whether you can fi-nance the increased maintenance requirements as the vehicles age. Finally, ask yourself if you have the expertise and experience to keep up with vehicle and maintenance technology. In a recent survey, more than half of fleet managers said that staying current on technological advances is their biggest challenge.

The costs of owning a fleet include:

* Overhead. These include office and administrative expenses, clerical salaries, office supplies and machinery, postage and the time required to handle insurance or to investigate accidents and to interview and hire personnel.

* Fixed. These include the purchase price, sales tax, painting and lettering, depreciation, interest charges or lost return-on-investment, license and inspection fees, federal highway tax, personal property tax, fuel permits, tax reporting and insurance.

* Operating. These include fuel, preventive maintenance (PM), breakdown repairs, component repairs, parts rebuilding, towing, tires, washing and rentals.

* Garage. These include rent or ownership expenses, insurance, taxes, building maintenance and depreciation, tools and equipment purchase or rental, equipment de-preciation, consumable supplies, light/heat/water, telephone, supervisors' salaries and benefits, workers' compensation and Social Se-curity payments.

For a true comparison, also dig out the hidden expenses: the cost of tying up money in trucks and re-stricting long-term budgeting; ex-penses for extra or replacement vehicles; driver overtime due to break- downs; and intangibles such as customer dissatisfaction caused by breakdowns.

If a manager opts to out-source vehicle maintenance and repairs, several alternatives are available.

In a full-service lease for speced vehicles, the lessor handles financing, purchasing, maintenance, fuel, records, licenses, permits and all regulations for trucks and maintenance records.

This option's high cost can be offset by the lessor's negotiating status and expertise in purchasing, maintenance and fuel. Although leases for refuse and recycling trucks are available, the practice is not widespread. Leases for tractors, meanwhile, are becoming more popular.

On the other hand, if a company wants to own its equipment, a contract maintenance agreement with a leasing company or truck dealer could be the answer. Here, a dealership will service the vehicles for a prescribed time period and/or set number of miles. Services usually include mechanical maintenance and repair, tire maintenance and replacement, lubrication and washing. It also might include licensing, fuel permitting, fuel tax reporting, insurance and substitute vehicles.

Some firms also are providing customized information services. These include driver performance reports, vehicle operating information and even scheduling and routing information.

Potential Pitfalls If you decide to lease vehicles, beware of potential mishaps in:

* Rates. Long-term leases generally have rate escalators, but all rate escalators are not equal. Be sure you understand what the escalator is based on, what it applies to and how often it can be applied.

* Under-engineered equipment. Make certain the specs meet your operational requirements and aren't set mainly to get your business.

* Fuel. Be aware that some lessors may set the estimated cost of fuel at a level to win the bid and then later may add adjustment charges. Before purchasing a fixed percentage of fuel from a lessor's outlets, compare your routes against their location.

* Maintenance. Although regular maintenance is necessary, some lease clauses could cause you to pay more for maintenance than the quote suggested. The lease should include all tire work, oils, lubes, painting, lettering, licenses and taxes, plus reports and paperwork.

* Depreciation. It's critical to understand this concept. Will the vehicle depreciate over its real economic life?

* References. Dig deeper than the customers provided by the lessor.

* Substitute Vehicles. Is it perfectly clear if and when substitutes will be provided?

Of course, a fleet manager who leases equipment still must manage. For instance, the manager must be certain that the lessor's per-vehicle maintenance cost report lists warranty reimbursements.

Finally, be certain that charges for component repairs due to abuse or excessive wear exclude repeat re-pairs or premature failures. Ask the lessor to provide records showing you're not paying overhead, fixed or variable costs during downtime - unless a spare vehicle is provided.

Some managers believe in-house fleet maintenance is the most economical way to provide cost-efficient waste pickup and/or recycling service. However, this option may re-quire more attention than expected.

You must manage:

* Labor. This is the toughest cost to control. Be certain each shift is assigned the correct number of em-ployees. Also, look for product suppliers who provide on-going training. Match personnel according to skills and function and evaluate whether the proper number of tools and shop equipment are available.

* Parts. A proper stock of parts is crucial. Suppliers should provide the best parts at the lowest prices and should hold stock for your future needs. Also, determine your parts-to-labor ratio.

* Outside Repairs. Be a stickler for quality if outside suppliers will provide emergency road-side repairs and scheduled maintenance.

* Tires. Generally, tires represent the highest maintenance cost. Stay current on "smart" tires, computerized tire record systems, special positioning and specific-use tires.

* Warranties. Most product warranties are being extended, with better coverage and quicker reimbursements. Make sure you're current and receive what you deserve.

Remember, too, that manufacturers generally won't respond until they receive the failed parts. Recover the failed parts quickly without causing additional damage during removal, storage or shipping.

* Environmental Regulations. Keep up to date on regs governing vehicle maintenance and repair. Items regulated include used oil, emissions, tire disposal, above-ground tanks, coolant, refrigerants, vehicle wash water, stormwater runoff and underground storage tanks.

* PM Inspections. PM inspections are the foundation of a successful maintenance program. Mileage and time intervals must be continually adjusted to meet equipment or operational changes. More important, a PM program must be diligently po-liced.

* Employee Training. The latest technologies in vehicle upgrading are essential. Equally important, me-chanics never should stop learning. Provide staff with the latest service bulletins and training manuals for vehicles and components, fuel-efficient driving, computerized routing and electronic diagnostic equipment.

Finally, the three most important components of any truck purchase or lease program are records, re-cords and records. Whether you purchase or lease, opt for a standard or extended warranty, repair in-house or outsource, the more background information you can piece together, the easier your decision will be.