Think smart, not big, to drive down costs

Cost reduction, streamlining and efficiency improvements are paramount in the minds of transport managers. James Tillyer, project manager for the Freight Transport Association’s specialist consultancy team, explains how the leading trade body has helped companies do just that, and saved them millions of pounds along the way

If there is one thing that all businesses have in common it is pressure to save money. For over 15 years, FTA has been working with companies across the UK to improve the way they run, maintain and test their vehicle fleets, and has helped them achieve some convincing results, with one operation alone making a saving of £150,000 a year, as well as maintaining its in-house transport workshop function without making a proposed multi-million pound investment.
    
It pays to be circumspect when receiving advice from a third party. A district audit had recommended to a local authority that as its current transport workshop was no longer fit for purpose, the only viable option was to build a new one. The problem was that this would come with a £4 million price tag. To exacerbate matters, council management had also been misled by the results of another review. This time, the external best value audit had recommended that the workshop function should in fact be outsourced, and that all future vehicles would need to be procured through contract hire. So, after discovering that a shiny, new workshop would be beyond its reach, the local authority was resigned to the belief that outsourcing its existing workshop requirements, which can quickly become a significant drain on annual budgets, was the only option available. Both audits provided large-scale and expensive solutions. And both were wrong.


Only structural repairs needed
There is a propensity among private and public organisations to look at outsourcing as the panacea for all ills, and this ‘if in doubt, outsource’ mentality is a dangerously popular trend. This is no surprise as outsourcing can be a very attractive proposition for workshop managers who see what looks, on paper at least, to be the best price. However, having taken a rigorous look at previous reviews commissioned by the council in question, FTA quickly came to the conclusion that in this instance neither outsourcing nor investing in a new workshop was necessary. Instead, FTA found a far more palatable solution – an investment of a mere £25,000 in structural repairs to the existing premises. To make this investment work, the council needed to focus on just three main areas for improvement.
    
FTA consultants explained that structural repairs to the roof would remove the problem of leaks that posed a risk to both the equipment, through water contamination, and the safety of the workshop staff who were often working in slippery conditions. The flooding that was causing a problem outside the building and hindering engineering work, which often occurred when the workshop was full, could be remedied by repairing the poorly maintained guttering. Finally, the well-worn and severely pitted concrete floors that not only limited the area available for engineering work and made the testing of fluid levels, such as those for oil and hydraulics, nigh on impossible, but also posed a significant health and safety risk to workshop staff could be quickly and satisfactorily fixed with resurfacing work. All these measures were proven to be an efficient and cost effective way to improve the workshop’s functionality and safety dramatically, thus negating the need for a new workshop or large-scale outsourcing. 

Clearly, the application of a few common sense measures can make a big difference. As well as saving the council millions of pounds it didn’t have on a superfluous workshop, it also became apparent to FTA’s Consultancy team that the substantial budget deficit at which the council was running could also be massively reduced (and, as it turned out, eventually reversed), with a few intelligent management tweaks.
    
Outsiders have the ability to take a step back and look at the big picture. Thankfully, FTA was able to do just that when it identified the various reasons why the council was facing its mountainous £150,000 budget deficit. It seemed that what had been eluding the council was the disparity between the department that controlled the budget, in this case the council’s fleet services division, and the operations departments themselves, effectively, the users. Quite simply, the budget was not monitored closely enough by fleet services, and the transport team in charge of vehicle procurement and maintenance was not allocating the funding in a way that would achieve maximum benefit. 

There were a range of factors contributing to this hemorrhaging of cash. Staffing costs were running far higher than the equivalent national average because vehicles were subject to more repairs and maintenance as a result of misuse and abuse; an ageing vehicle fleet, which had developed a high rate of breakdown; and a lack responsibility within the ‘user’ group i.e. the operations departments.
    
A plan of action was devised to plug the holes in this rapidly sinking ship. FTA’s advice tackled these problems head on, by recommending:

• reductions in the numbers of managerial and administrative staff, and a reorganisation of responsibilities
• negotiation and implementation of a pay structure reflecting the industry average
• the reallocation of budgets to ensure responsibility for non-routine maintenance rested with the user departments
• improvements to the fleet’s age profile
• more efficient use of the existing fleet, including advice on repositioning loads to improve fuel efficiency and the avoidance of overloading and empty running, and
• a tighter reign on the maintenance procedure coupled with a more focused use of external contractors. 

The FTA returned one year on to measure the influence of these changes, and was pleased to discover that not only had the deficit been overturned but also that the council was now heading for a budget surplus of £264,000. 

Changing attitudes

A change of attitude can also bring about significant cost savings, especially when it has a bearing on improving fuel efficiency, with fuel usage absorbing around 30 per cent of overall transport costs. To ensure that all depot or site managers are made aware of the importance of fuel saving, nominating a ‘fuel champion’ comes highly recommended. Most companies will only require one such individual per transport depot. These individuals must be trustworthy and responsible as it will be up to them to monitor usage and develop a competitive culture between drivers through incentivising them to drive ‘smarter’. For example, league tables showing the best performing driver can create a competitive edge and sharpen drivers’ focus on fuel saving. 

Perhaps the most crucial element to consider when making wholesale operational and structural changes is to get buy-in from the management team. Having a fuel champion will make this process easier and foster closer working relationships between departments. It is therefore essential that the fuel champion understands how important their role is in mitigating rising transport costs. This has been used to great effect in the private sector – indeed, one such FTA client was able to shave £420,000 off its total fuel budget with these simple steps. 

Expertise is not always enough, however, especially when a third party’s opinion carries with it massive cost implications. The importance of impartiality cannot be underestimated, especially when budgets are already being stretched to breaking point in these tough economic conditions, so it pays to monitor any outsourcing venture. For example, if a third party is enlisted to carry out an appraisal, it is important that it can be trusted not to abuse the implied trust granted to them. Indeed, workshop managers will ask FTA how they can be sure they are not simply inviting in unnecessary bills for repairs, so the need for clarity and explanation is crucial. The cost of paying for unnecessary repairs is, sadly, not an unfamiliar concept for many workshop operators. 

There is no one-size-fits-all solution that applies to every business. Some transport operations may well require expensive, large-scale overhauls. For others, less dramatic changes – such as using smaller vehicles for local or infrequent deliveries – may make all the difference. Whatever decisions are arrived at, though, it is absolutely key that all avenues are thoroughly explored before a cash commitment is made, thereby improving safety and efficiency, and saving time and money.

FTA Consultancy team
With escalating fuel duty rates and the extra focus now being applied to the reduction of operating costs, many operators are now seeking ways to improve fuel efficiency levels and use their stocks carefully, right across their fleet. In light of this, the FTA Consultancy team can offer tips on how to minimise costs while maximising fuel efficiency, such as:

• Driver training and awareness
• Vehicle use 
• Vehicle age/spec 
• Outsourcing part or all of the transport requirement 
• Fuel management software programmes 
• Management buy-in and company procedures