The client is a provider of transportation services. They have an extensive fleet of vehicles (approximately 100), and the sub-fleet ranges from Black Sedans, SUVs, Vans, and Motor Coaches. Approximately 35% of their business is on-demand shuttle service, and the balance of their business is from advance reservation.
The focus was directed at improving the profitability of the company. The company has two major expenses: Labor and Equipment. For example, maintaining the fleet is the second largest cost to the company after direct payroll. The fleet comprises 95% of their annual capital expenditures.
Controlling the costs of both areas would improve profitability; however, not being able to serve the customer due to lack of drivers or equipment would hurt the company’s reputation and, ultimately, their revenue. This analysis will focus on equipment utilization, so that the company can maximize profits while maintaining good customer service.
Currently, the company does not have a formal plan for fleet size. They will add to the fleet only when they feel there is need for a vehicle according to the demand of that model. They also ‘try’ new vehicle type(s) to determine if there is any demand in their market place. The company does not just go out on a whim to add vehicles, but it is more of a gut feeling as opposed to an analytical decision. In fact, they do have a plan in place for replacement of vehicles, and this plan is based off the expected life of the vehicle, mileage and repair costs. The owners currently feel they may have one too many motor coaches in their fleet, but at the same time they are afraid they won’t have enough coaches during peak demand.
Analysis of the utilization of vehicle by type:
Fortunately, the company had good records of their ‘trips’ and this data can be utilized to determine the usage. We were also able to determine if a vehicle was out of service due to repairs or determine routine maintenance from the maintenance logs.
Because the data was based on daily sales, some assumptions were made:
- If a vehicle is used for only one trip during the day, then that vehicle was considered utilized for the day.
- If a vehicle was out of service for routine maintenance, it was considered 50% available for that day. Most of the time the routine maintenance does not take a full day, and the maintenance department works three shifts throughout the day. The most popular time for vehicle usage was on the first shift.
- An SUV could replace a Sedan if required, and a larger van or motor coach could be utilized if the smaller vehicle sun fleet was fully utilized.
Data from the daily sales report was entered into a spreadsheet for the year-to-date usage, and for the previous two years. The data was arranged so that we could look at the utilization daily for each month and look at the utilization of the equipment daily for an entire year. This data is being entered daily for the current year and will continue to be entered for further analysis. This analysis will be reviewed monthly in the future.
Conclusions from analyzing the data:
There were a few surprises concerning the utilization of equipment to the owners:
- The utilization of the coaches on Sunday was less than they had thought. Initially, the owners believed Sunday was one of their busier days.
- There was never a single day throughout the entire year that all the Motor Coaches were utilized, and there were only five days in which almost every coach was utilized.
- Growth in usage of their sole Luxury Mini Coach was less than they initially thought, but it is trending upwards.
- Corporate demand for Sedan service slowed down sooner in the month of December than they had initially thought. Other holiday period slowdowns were about what the owners had expected.
After the data was analyzed and placed into graphs, it was decided that additional fields would be required moving forward to deduct better conclusions from the analysis. The fields to be added include tracking when other equipment is substituted to meet customer demand.
The changes to their current business practices fall into two areas: Capital Expenditures and driving sales during less than peak times.
Upon review of the data from equipment utilization analysis and internal discussions, the owners made changes to their equipment purchases for the next 15 months.
- They will sell the oldest Motor Coach in the fleet and will not purchase a replacement coach. This will reduce the fleet size by one Motor Coach and save approximately $550,000.00 in capital expenditure for the year. The company will cut some of their overhead expenses by having one less Motor Coach in the fleet. The capital gain on the sale of a motor coach is minimal.
- They will delay the purchase of an additional Luxury Mini Coach until they can gather more data on the actual utilization. It is felt, and could not be quantified, that the utilization is not as good as the data shows because it is frequently substituted for other pieces of equipment. They also have a gut feeling that they need to have two of these Luxury Coaches for customer demand.
- Moving forward, the company will purchase more SUVs and reduce the number of Sedans purchased by the same number of units. This will not affect the capital expenditures since the vehicles are about the same cost. There appears to be a trend regarding the amount of people wanting an SUV over a Sedan, but they will not know this for sure until there is enough data collected on how often a SUV is substituted for a Sedan. This was agreed upon before General Motors announced that they were no longer going to produce the Cadillac they use. Currently the owners are considering waiting a year to reduce the number of Sedans in the fleet due to GM’s decision to stop producing that model of Cadillac. Data will be collected for six more months on the substitution rate before a final decision will be made. Currently, the fleet of Sedans will be reduced by two vehicles based upon the analysis of the maximum number of vehicles required to meet demand. This will save approximately $90,000.00 in capital expenditures.
- The fleet replacement of shuttle vans will be reduced by three units for the seven passenger sub-fleet. No change will occur for the 14 passenger sub-fleet. They will keep the three lowest mileage seven passenger vans. This sub-fleet utilization was harder to predict than the other vehicles, due to the fact that most of the business is not from an advanced reservation. Therefore, ownership scaled back on the replacement plan but kept the fleet the same size. If required during the next 15 months, changes can be quickly made to this sub-fleet.
Another way to improve the fleet utilization is to improve usage during off-peak times.
With the company operating above break-even, any additional revenue generated would have a big impact on the bottom line since all the overhead expenses have been paid for from the current revenue. However, any discounting must not erode the current pricing structure or alienate their corporate customers.
- With Monday utilization of the Motor Coaches being less than 50% annually, it was decided to offer a discount on any trip booked for a Monday to drive sales. A marketing plan was developed to expose Monday sales to a segment that management felt would use the service without any dependence upon a specific day. Most Motor Coach trips were for a specific event and, therefore, were not flexible.
- A discount coupon was developed for the period between December 15th to January 8th for Sedan/SUV service to the airport from a residential address. This was targeted to people who may choose to go away for the holidays. We also looked at offering a discount for Saturday trips because this is the slowest day for this fleet. Currently there is not enough drivers to cover more on Saturday because of driver duty regulations.
At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information: