Asset utilization – you’ve heard it discussed a lot, touted as a big benefit of telematics software, but what exactly is it, what does it mean for your mobile workforce and how, in practical terms, can it be put to use?
First of all, it’s important to clarify that asset utilization as discussed here is not the same term used by accountants to define asset value in relation to revenue.
Having said that, the principle is similar in that it’s all about making more efficient use of the money a company invests in its assets, generating more revenue from the same amount (or less) of assets. Improve one, and you’re likely to improve the other.
Asset Utilization – Is it really an issue?
It might seem like the phrase ‘asset utilization’ was coined simply to sell telematics, jargon invented by software providers to describe fixing an imaginary problem.
If you’re thinking that, you might want to consider what a Fleetowner article said on the subject, stating that the industry average for asset utilization is currently about 50%.
Now, even if you have a relatively small fleet, you probably know that represents a massive investment, one that could be better spent elsewhere.
Let’s say you run a fleet of five medium-duty trucks at an average price of $50,000 each, and let’s make two of them refrigerated trucks for an additional $10,000 each. So that’s a total cost of $270,000. If your asset utilization is around the industry average of 50% then that’s approximately $135,000 of capital locked up for the lifetime of your fleet with very little return.
The larger your fleet, the bigger the dollar figure of capital not being put to good use, and any business owner knows it’s all about maximizing your investment, or ROI (Return on Investment).
Improving your fleet’s asset utilization can help improve ROI significantly. Here’s how.
How can you use telematics software to improve asset utilization?
The process of improving asset utilization is relatively simple. Identify underutilized assets and then look for ways to improve the asset’s usage.
Step 1: Identify current asset utilization
This is the measuring part of managing your asset utilization. Before you can measure, you need to install the hardware that will do the measuring. For many trucks, vehicles and equipment, the GPS tracking devices are already installed; for everything else you can contact us to discuss aftermarket installation.
Installing these tracking devices on all your high-value assets is akin to doing a stocktake of your fleet. Now you’re in a position to get some very comprehensive data on what your current utilization rates are.
This data feeds into our fleet management software, which comes complete with standard reports that you can use right away to get a clear picture of where things are at.
So, what are some common metrics used to measure utilization?
The most typical asset utilization metrics are:
- Engine on/off (idling metrics can filter out non-productive idling*)
- Vehicle moving
- Total miles driven (this can be shown for individual vehicles to compare against total fleet miles)
- Engine hours (for assets that measure usage in hour instead of miles)
*Idling that serves a valid use – such as powering a PTO or bucket – is considered productive idling.
Below is what a typical asset utilization report may look like.
For the above chart, the vehicles had an average potential use of 25 hours each week. In most cases, they were unused for around 20 of those 25 hours, giving a utilization rate of approximately 20%.
Other metrics to record, which can help identify areas for improvement, include:
- Delivery trucks leaving the depot half full (or at least under capacity)
- Deadhead miles (empty return trip)
- Number of stops/deliveries completed per day
- Using an oversized vehicle (when a smaller, more economical vehicle would have been adequate)
Our professional services team can help you to develop a set of reports that is customized to the needs of your fleet, accounting for how your assets are used on a daily basis.
Should I set utilization goals?
After taking stock of your current utilization rates, you could be tempted to dive right in to fix-it mode and set company-wide goals to bump up your percentages. But there are a couple of things you need to think about before you do.
Firstly, you need to think about what’s realistic and sadly, for the overachievers among us, 100% asset utilization is just not possible. A lot of fleets will aim for something around 70 or 80%. Secondly, it’s difficult to accurately predict what can be achieved. Utilization improvements can be achieved in a lot of different ways, and will vary according to asset type and industry. Even factors such as how flexible your customers (or service agreements) are can impact on what’s possible.
So it might be worth making your overall goal more of a soft target, at least until you have a better idea of your actual utilization potential.
Step 2: Making changes to achieve better asset utilization
Now that you have a clear picture of what your current utilization rates are, it’s time to look at what changes you can make to improve your score.
The three most likely actions to improve utilization are:
- Reduce – Sell or redeploy assets no longer required
- Increase productivity – Use existing assets more effectively
- Add customers – Take on more business to tighten up the slack
Which course of action is best for your business depends on your overall goals and setup of your organization, but what you do can help improve ROI.
How do I use my assets more effectively?
As covered in Step 1 earlier, there are some utilization metrics that are not simply about the asset being used, but related more to how the asset is being used, primarily its capacity. This can apply to box trucks doing deliveries or dump trucks moving dirt.
Asset utilization can be improved when inefficient routing is identified. Delivery drivers or mobile technicians can get more done when their routes and scheduled stops dynamically adapt to changes, reducing the number of miles, and time, between jobs.
“We’ve physically added about 9,000 gallons of daily capacity … but increased business by more than 11,000 gallons each day.”
Alan Falik, President, Poolsure – Watch the case study
Our route optimization software is designed to not only uncover better routes and scheduling – but also to adapt to last minute changes, matching jobs to the capacity of the vehicle.
When you consider your fixed costs stay the same – insurance, depreciation, wages – it makes sense to be more productive during those working hours, tapping into any underutilization, and making sure vehicles are being worked to their potential.
Asset utilization needs your ongoing attention
The bad news is that once you’ve been through this process of identifying and remedying underutilization in your mobile workforce – and feeling pretty good about it – it’s about time for you to go back to step one and start over again.
Improving asset utilization is an ongoing process, it’s a methodical, iterative system that involves constantly fine-tuning your fleet’s efficiency. These tiny steps of identifying an issue, correcting and then repeating it over again, are the building blocks of a well-run, and well-utilized, fleet.
You’ll be impressed with how much you can achieve with the resources you have, and your CFO will be impressed with how those asset utilization percentages – the ones in the financial reports – are moving in the right direction.
Contact us to talk about how we can help you grow your mobile business through better asset utilization.