Right-size your fleet to boost your cash flow

One thing that often gets overlooked in small business trying to rationalise and downsize is determining the most cost-effective commercial fleet size, making sure that every vehicle in your business is actually necessary and that those surplus to requirements are either reassigned, replaced, or eliminated. A fleet of business vehicles can of course comprise anything from 3-500+ vehicles, and you don’t have to have a large number for them to start draining your resources.

Many cars will often sit idle as part of the motor pool and whilst too few vehicles can cause a problem, equally too many will prove counter-productive and costly in terms of purchasing, fleet insurance and maintenance costs. Often, over time a fleet inventory will grow to include a set of vehicles that have become under-utilised or unsuitable for evolving uses.

You can’t take a ‘finger in the air’ approach

Simply estimating the right number of business vehicles is not a good enough approach to right-sizing your fleet. It is important to know just how often each vehicle is utilised daily to have a sound understanding of exactly how many and which type of vehicle you need. Having true sight on demand and utilisation is the key to understanding the right amount of vehicles to maintain within your fleet. Online fleet management tools can help to track your fleet utilisation, allocating and routing vehicles as well as in many cases keeping track of fleet insurance, service and maintenance information. However, with smaller vehicle numbers you can also attempt to manage this yourself and allocate responsibility for this task internally.

Often decisions to either cut or expand on vehicle numbers can be made naively without a true measurement of this and based more on a gut feeling. On one side management will be pushing to reduce numbers of vehicles and cut costs, whilst on the other customers and employees will be wanting to retain them. Hence right-sizing methods must be fact-based and defendable by statistics.

Utilisation versus criticality

You can’t simply look at all vehicles meeting an overall utilisation threshold across the board, such as 3,000 miles per year, as this fails to recognise valid business needs. Perhaps a light van which is mission-critical and required for certain jobs, but used less than a business car, would then be seen as under-utilised and falsely up for possible removal although it is business-critical. For a true considered view you need to review utilisation, criticality, vehicle type and allocation across personnel. To evaluate a continued need for a vehicle an overall utilisation and criticality score can be the best approach.

Whilst a true measurement of utilisation versus perceived need offers important understanding of what is required, it is also important to undertake some qualitative research and actually ask your customers for their views. Your customer may of course be an end customer or indeed the employee. Are they happy with the vehicles used within your fleet? Are the vehicles meeting their needs or would something else more appropriate for the type of journey they undertake be worth considering?

Smaller can be better

With this in mind, in addition to evaluating the size of your fleet, it is also important to right-size in terms of vehicle type and engine size. It may be cost-effective to transition to smaller, more efficient engines for fuel savings and reduced carbon emissions for sustainability which can ultimately even have a positive effect on reducing your fleet insurance premiums. Every slightest bit of extra weight requires the engine to work harder and decreases the fuel economy. Often a newer, smaller, more efficient engine will retain almost as much horse power as an older, larger engine. Evaluating alternative fuels and the possibility of electric vehicles or hybrids can also bring significant cost savings depending on your vehicle usage and it is important to assess all avenues.

When choosing the right vehicle schedule for your business it is important to consider how many passengers the vehicle will carry, what loads they will transport on a regular basis and any additional features that are needed. Don’t over-specify on an ‘every-so-often’ basis, such as the odd need for a six-seater vehicle, and look to cater for your most common needs. If something extra is required on odd occasions then such transport could be outsourced and hired on a rental basis rather than purchasing something bigger and less cost-efficient that will simply sit in the car pool.