Analyzing Your Cost Competiveness

2. Automotive Director Steve Riley City of Coral Gables Analyzing Your Cost Competiveness

3. Analyzing Your Cost Competiveness No need to take notes! You will be provided a detailed checklist online.

4. Analyzing Your Cost Competiveness • There is no easy method to compare costs. • There are many variables that come into play. • This class is designed to highlight the vast differences that may exist between public fleet operations. • You must conduct the mathematical analysis to determine your actual cost differential. • 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.

5. Analyzing Your Cost Competiveness FLEET MYTHS • All Internal Service Fund departments charge-back for their services. • All Fully Burdened Labor Rates (FBLR) are calculated the same way. • All city fleet departments have the same customer base. • All routine maintenance tasks (i.e. PMs) are performed the same way. • Most public fleet are standardized by using the same performance metrics.

6. Analyzing Your Cost Competiveness What is the one word that determines your ability to accurately assess your cost competiveness against another fleet operation? - QUESTION - STANDARDIZATION You cannot accurately compare your cost competiveness if significant variables exist in your operational & cost structure.

7. 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.

8. Class Project Define two basic maintenance tasks: • Police sedan PM (A) service. • Tandem axel dump truck PM (A) service. Define the four variables: • 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

9. Organizational Variables Staffing Facilities Budgeting Fleet Mix, Age & Condition Lifecycle Profile Customer & Geographical Variables Ancillary Services Benchmarks/Key Performance Indicators Chargeback Rate Structure

10. 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.

11. Staffing Variables(Overhead Labor) Do they have unique staff requirements? • Human Resources • Information Technology (IT) • Accounting • Risk Management/Subrogation Services • Safety & Training • Fleet Analyst • Facilities Maintenance • Dedicated Fueling Staff • Security

12. Staffing Variables(Direct Labor) Who do they consider as direct labor (charge time to WO)? Unique direct labor requirements • Welding & fabrication • Auto body repair • Hydraulics shop • Electrical shop • Shift work – What percentage of staff is receiving shift differential pay

13. 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

14. 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

15. 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

16. 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)

17. Budgeting Variables(Capital and Other Funding) Unique capital and other funding requirements • 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

18. 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.

19. 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)

20. 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

21. 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

22. 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? • PM services • Tire mounting & repair • Auto body • Alignment • Up-fitting

23. 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

24. 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

25. 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?

26. 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? • Supervisors • Parts personnel • Fleet Analysts • Safety & subrogation staff

27. 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.

28. 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)

29. 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

30. THANK YOUQUESTIONS?