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Primary & Secondary Operational Costs
Written by Kevin Roberts
Long ago and far away in a parallel universe, I had a customer object to the cost of the maintenance services I provided. His words were, to the best of my recollection, “Why are we spending so much money on maintenance? We’re not having any problems with these vehicles!”
I have returned to that statement in my thoughts over these past many years and have often wished that someway, somehow I could address not simply the vehicle, but the disconnect in my customers’ brains that prevents them from distinguishing money well spent from money poorly spent.
A few issues ago, we introduced the idea of primary and secondary operational costs for fleet management. Primary costs are: purchasing, fuel, downtime, and risk. Secondary costs are: maintenance, repair, insurance, and administration. Primary costs are what you spend to get started and operate your fleet (the first two), and fun things that can happen if secondary costs are neglected (the second two). Secondary costs are what you spend (invest) to save on primary costs.
For example, proper maintenance and repair allow vehicles to perform more dependably and last longer, which saves money in the areas of downtime, risk and purchasing. Maintenance is clearly a secondary cost; replacement is clearly a primary cost. Repair can be seen either way. Proper maintenance can minimize repair costs, and proper repair minimizes replacement costs. For the purpose of this article, we are assuming proper maintenance, which would make the repair a secondary (small dollar) cost.
Proper administration provides tracking of costs and training of drivers to save in purchasing, fuel, downtime, and risk. The fleet manager needs to understand the relationship between primary and secondary costs. He must also understand how to generate meaningful information, how to organize and analyze that information, and how to respond to that information.
The information needed to run a fleet efficiently must be complete to be accurate. If all you track is fuel mileage and repairs, you will not be able to make good economic decisions. You need to know all the costs involved with your fleet operation. One way to track them is to institute a cost per mile evaluation, done on a monthly or quarterly basis.
If a breakdown occurs and the driver is waiting for a tow truck, the cost of his time should be included in the reporting period. If the work he was unable to perform leads to other costs, these should also be considered. If a maintenance failure leads to a lawsuit, or safety compliance fine, these costs must also factored into the report. This may seem extreme at first, but it will only be possible to have an accurate total cost if we track all of the costs individually.
If we leave out the hidden costs, we can make happier numbers, but those numbers will be meaningless. If the rig is in the shop for three days getting fixed rather than doing it’s job, not only is its average cost going up, the average mileage is going down and we can actually see more clearly part of the cost of downtime.
Also, the shorter the reporting period, the more dramatic the cost of breakdowns will appear. If your rig spends a week in the shop, with a cost of $1,000 in repairs, and your reporting period is a month, you have an enormous increase in cost coinciding with a decrease in mileage over which to spread to cost. For this reason, reporting should be both short and long term (short term for training and long term for budgeting and purchasing decisions).
Also the reporting should be detailed enough to allow the manager to respond to the area costing more than it should. If you’re wondering about what operational costs “should” be, there is no answer to that question without taking into consideration all the variables mentioned in this series of articles and the variables of climate, geography, vehicle use, and agency requirements. The manager must be able to determine the reason for unexpected costs in order to respond to them.
By tracking these costs on the basis of mileage, we automatically factor in an important component of the report. By distilling the costs to a per mile number, we can compare different vehicles of the same type and see when a lemon comes through the fleet. We can also compare different types of vehicles and determine what actual additional costs are involved by, let’s say, having a Ford CVPI over a Chevy Impala, or vice versa.
We can then come to a rational conclusion about whether the benefits are worth what they cost. Also we can see if a particular driver has a tendency to increase vehicle costs. Best of all, you can show the bean counter on the oversight committee why saving a few pennies, as is their wont, can cost them a lot of dollars.
Let’s take a look at some real-life examples. A fleet owner has a combination of diesel- and gas-powered vehicles. Rather than instituting a driver-training course for the operation of diesel-powered vehicles, the driver is given the truck and told to have a nice day. One morning, it happened to be -20 deg F, the driver went to start his truck and was able to only get a slow crank. He dutifully plugged in the block heater and hooked up the battery charger (after draining it by cranking).
The service tech showed up and was able to determine that with enough time, the heater and charger would do their work, so he left for another service call. But not before he strictly charged the driver to wait until he returned before trying to crank the engine again. An hour later he returned, just after the driver drained the battery again by cranking the engine until the starter just clicked.
Since the driver had received no training about the idiosyncrasies of the diesel engine, he didn’t know that diesels have a cranking rpm threshold, below which they will not start, even if you crank it for a week in warm weather. By continually trying to crank a cold diesel engine with a half-charged battery, he not only missed the cranking rpm threshold, he supplied low voltage to the starter. This low voltage both overheated the windings and caused the starter drive to erratically engage the flywheel teeth, ruining both the starter and the flywheel, leading to further downtime, a tow, and an expensive repair.
It is true that training takes time and money, but the costs incurred by having this “event” occur are much higher. First we have the cost of the driver not available for work because his truck was not plugged in before he tried it the first time. Second we have the cost of repairing the truck. Then we have the cost of him having to operate out of the spare truck the following two days while his is being repaired. By the time you add the lost productivity to the repair, you have a significant and entirely unnecessary cost.
Consider another example. An ambulance service is particular about maintenance. In its written standard of maintenance procedures, officials expect the serpentine belt to be loosened on any rig with over 100K miles on it (at each PMI) so that the idler and tensioner bearings can be checked. At one of these services, the technician found a noisy tensioner bearing. It was replaced at minimal cost with no unexpected downtime. The cost of finding this was in the establishment of a procedure that adds to the time of every service once a rig achieves 100K miles.
What did we get for that investment? Besides saving the towing cost and unscheduled downtime, because the bearing didn’t fail, the belt didn’t fail. Because the belt didn’t fail, the water pump kept turning. Because the water pump kept turning, the engine didn’t overheat. Because the engine didn’t overheat, the rig made it to the hospital with the heart patient, and the ambulance service wasn’t sued for $3.8 million.
Another ambulance service has its rigs serviced at a quick lube. After arriving at the hospital, shutting down the rig and disposing of the patient, the rig would not crank. A jump-start was attempted to no avail. The rig was towed to a real repair shop (one that apparently charged too much for PMIs). The batteries were discovered to be essentially dead. After being fully charged, the rig started, ran normally, and charging voltage was found to be 14.2V.
It appeared that all was well, but after further diagnosis, it was discovered that the alternator amp output was 70 amps while full module load was 175 amps. The starter draw was 850 amps; specs are 300 to 600 amps. The upshot is that enough components were outside design parameters to drain the batteries on the run to the hospital and prevent a jump start while there.
A well-executed PMI would have found these issues long before it lead to a tow (fortunately the failure occurred after the patient was safely delivered to the hospital). Unfortunately the cost of a PMI exceeded what the manager was willing to invest. So rather than invest small dollars in maintenance, large dollars were spent in towing, downtime, and diagnosis after equipment failure. The avoidance of a large liability judgment was due primarily to luck.
Consider one final example. A fleet with a well-established maintenance program has had the good fortune of purchasing a vehicle that happens to be one of those that just never seems to fail. In spite of multiple drivers, cold winters, hot summers, and a daily delivery route of stopping and starting, the rig just runs.
Due to a manufacturer supply problem, the company must make a decision about keeping a rig beyond the 150K-mile projected life span. Since this one has been so trouble free, it is determined that this will be the rig to keep. As it turns out, they keep it for an extra 10K miles. In that period of time, every part that had been performing so well for so long failed. The rig is towed multiple times for water pump failure, starter failure, alternator failure, clutch failure, springs breaking, and kingpins wearing. In that final 10K miles, $10,000 are spent on repairs alone.
Why do I mention this one? First, because sometimes, in spite of our best efforts, reality just reaches out and bites you. Second, because when reality does bite, the human tendency is to find someone to blame, and we would do well to remember that sometimes stuff just happens. But if you are willing to do the work involved in tracking, comparing, and responding to primary and secondary costs, you can fine tune your procedures and gain overall efficiency in your fleet operation.
Kevin Roberts is the president of Roberts Repair in Rhinelander, WI. The company has specialized in emergency vehicle maintenance since 1989. Roberts is an ASE Certified Master Automobile and Master Truck Technician. He can be reached at firstname.lastname@example.org.
Published in Police Fleet Manager, Mar/Apr 2009
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