Most of us have heard the lyrics of the old country song “you gotta know when to hold ‘em, and know when to fold ‘em”? Well, that phrase is absolutely spot on when it comes to fleet asset management!
Lifecycle Analysis (LCA) is a game-changer and essential to fleet optimization. LCA offers will save thousands of dollars on premature vehicle replacements or replacing units too late. LCA uses historical cost data for each vehicle category in your fleet to calculate with great precision, the point in time where operating costs (including reactive repairs, breakdowns, and downtime) exceed ownership costs, and when the unit(s) should be disposed of. LCA taps into your historical operating cost data by model years to calculate exactly when units should be considered for replacement. Sounds ideal, right? Well, here’s the caveat: since LCA is based on averages and no two vehicles are exactly identical in that some vehicles have had more severe usage and some have had later use. Therefore, LCA should only be used as a guide to decision-making. LCA should be used in tandem with vehicle condition assessment ratings. This way, we can make sure that the units that need to be replaced each year are the ones that are actually in need.
As shown in the illustration below, ideally, optimal replacement occurs before the rollup of fixed and recurring costs rise and reliability/safety is reduced, and before major capital expenditure or refurbishment is necessary.
Why is Lifecycle Cost Analysis Important?
While it is true that the longer you own an asset and the more you use it, the lower its lifecycle total cost of ownership will be. However, there is a caveat to that assumption. When an asset gets too old and exceeds its optimal economic lifecycle, reactive repair costs will increase, downtime costs will accrue, and safety may be reduced.
NextGen Fleet Advisors emphasizes that the main job of fleet management is to ensure vehicles are available, and “uptime”is optimized. Vehicle reliability decreases the longer one keeps them, which raises operational costs. This issue becomes even bigger with many vehicles in a fleet, making it a significant problem if they’re kept beyond their optimal economic lifecycles. It’s essential to ensure that safe and reliable fleet vehicles of the right type, size, and capacity are available daily for drivers to perform their tasks every day.
For a fleet manager, this can be a delicate balancing act – preventing budget overruns despite inflation, rising costs for vehicles, parts and fuel and unseen factors while ensuring that the fleet is modern, safe and reliable, and that vehicles are suited to user’s needs.
LCA assists fleet managers in analyzing their operations and prioritizing those strategies that optimize vehicle life and return on investment. Some vehicles in poor or unsafe condition may require replacement before the criteria is met. Conversely, some vehicles may be in good condition and exceed the criteria and not warrant replacement, therefore recommended replacement criteria should be used as a guide.
Optimizing vehicle retention rates is a data intensive practice and a proper vehicle LCA will return significantly higher end-of-life return on investment. This can then be cycled back into fleet purchasing budgets, or utilized to offset other capital expenses.
A basic LCA tool is provided for download, free of charge in the Free Tools! page of this website.