The Fuel Factor - Operations
Construction Equipment Distribution magazine is published by the Associated Equipment Distributors, a nonprofit trade association founded in 1919, whose membership is primarily comprised of the leading equipment dealerships and rental companies in the U.S. and Canada. AED membership also includes equipment manufacturers and industry-service firms. CED magazine has been published continuously since 1920. Associated Equipment Distributors
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The Fuel Factor

By Mary Sedor

Article Date: 07-01-2008
Copyright(C) 2008 Associated Equipment Distributors. All Rights Reserved.


Dealers are finding simple solutions to take some of the pain out of the pump.

Increasing the gas mileage of a fleet of 25 field service trucks by one mile per gallon - just 1 mpg per truck - is going to save one Pennsylvania equipment dealer roughly $25,000 per year on fuel costs.To put it in perspective - that equals a savings of 5,700 gallons of diesel.That's the goal for Dale Heiner, vice president of service operations at Stephenson Equipment Inc. in Harrisburg, Pa. His $25,000 figure is based on the field trucks traveling an average of 25,000 miles per year."If you can increase your average mile per gallon by a half or one mile per gallon it's huge savings over a year's time, company-wide," he said.Since last April, Stephenson Equipment, a multiline dealer for brands such as JCB, Terex, Manitowoc and Grove, has seen a 45 percent increase in fuel costs - a number that Heiner says he never could have predicted. Stephenson Equipment is not alone - dealers across the country are reporting anywhere from a 25 to 50 percent increase in costs.With oil reaching $138 a barrel and rising, diesel prices nearing $5 a gallon and regular unleaded prices averaging at $4 (all as of mid-June), fuel prices have been wreaking havoc on the bottom lines of dealers across the country. The key for dealers is to find a way to reduce their fuel costs - and fast - if they want to stay competitive in the marketplace.For Heiner, many small changes will add up to his big $25,000 savings. His department is recommending that the field service techs make minor changes to reach their goal of increased fuel efficiency."It's amazing that cutting back just a little bit on speed, not accelerating fast when you pull out and less idle time can really add up to a big difference," said Heiner.Getting Creative
Stephenson Equipment recently started a competition for its field service techs to determine which vehicle was the most fuel efficient over the previous month. Heiner uses reports from Wright Express, the charge card company Stephenson uses for all its vehicle fuel purchases. Whenever technicians or other employees refuel using individual company credit cards the transactions are documented and translated into end-of-month reports sent to Heiner, by vehicle, and include the amount of gallons they purchased, the date, fuel station, type of fuel, cost per gallon, average mile per gallon and much more.
After generating the report, Heiner shares it with all employees who have a company vehicle or service truck, allowing them to see where they fall on the list of fuel consumption."We've started to see some improvements," he said. "They do not want to be on the bottom of the list. I had in my shop a few trucks that were not performing so well and in just two months they started climbing up the list. By sharing the information with employees, it makes them aware of what the costs are, and then they start to see that the little changes they do start to have a big effect."The ultimate prize for field techs is yet to be determined; however, Heiner says by the end of the summer or into early fall he should have a good idea of which trucks have seen the biggest improvement."We'll at least acknowledge them for trying to save fuel and money, not only for us but for the customer," he said.Heiner says what has had the biggest impact is just making employees conscious of their actions."Awareness has made a huge difference, even on my part," said Heiner. "I guess you start taking things for granted and you get to the point where you aren't paying for fuel yourself in a way, but really you are. Being aware of how we're driving has made all the difference."Keeping a Finger on the Pulse
Diesel prices have been so volatile that Roger Rivet, operations manager for Bejac Corp., a Link-Belt, Doosan, Kawasaki, Atlas Copco and Dynapac dealer in Placentia, Calif. gets a daily report on diesel prices.
Because of the cost of diesel fuel, Bejac Corp. maintains its own fuel tanks, a 10,000 gallon tank for diesel fuel and a 2,000 gallon tank of red diesel for rental equipment.
"I have no choice but to keep an eye on it," said Rivet, who is responsible for materials planning at the dealership. "We can't flat rate fuel anymore because it's so volatile."
Another side effect of the changing fuel costs is trying to plan for it.
"The problem I'm having is that what used to be an easy configuration of costing $20,000 every three weeks to have our tanks replenished is now going on upwards of $34,000 every three weeks," he said. "And this is all in a matter of four months."To make matters worse, in the past the fuel distribution companies always required payment in net 30 days, but because of the increases they now want net 10 days.
"It's just sheer cash expense going out," he said.
To drive efficiency Bejac has started accounting for every drop of fuel being used and keeping track of the employees who use it. Bejac uses the AFS fuel management system, which, like any fuel management program, details fuel use by department, truck, employee, fuel type, the time of day it was withdrawn from the tank, and so on."We now have control over 100 percent of every drop of fuel, where it's going, who's taking it and why," said Rivet.A big part of the equation is keeping an eye on employees. Bejac has about 22 field service trucks plus salesmen on the gas program, not including rental equipment."You have to trust your employees of course, but we have drivers of low beds here, field service guys, lube techs, and over the course of the year people become comfortable in their jobs and may stop for a donut here and there, which is personal fatigue and delay time (PF&D)," he said.The PF&D adds up. For instance, in a very large corporation of 20,000 employees, PF&D accounts for about 15 percent of their total daily hours. If that suddenly increases by 1 to 2 percent, it can add up to hundreds of thousands, even millions of dollars in lost revenue.
"It does take its effect on smaller companies that don't have all the necessary policies and procedures," he said.
Essentially, PF&D that occurs while employees are on the road now costs the company in terms of fuel consumption - and waste. So Bejac Corp. addressed the PF&D time through phone-based GPS."It tells you everywhere that vehicle goes from the moment the employee starts his day," said Rivet. "For instance, field drivers take their trucks home at night. If the mechanic clocks in, the GPS tells the company whether he's moved his truck or not. If the employee stops at the donut shop or goes back into the house, this all adds up to personal fatigue and delay time that is not scheduled into regular work time."Rivet says the field service employees know their jobs are to go from Point A to Point B, and while lunches and breaks are factored in, any deviation is not acceptable. Bejac Corp. started using GPS about eight months ago, and so far it's been very successful. Not only are billable hours where they should be, but it has helped reduce idle times."It seems harsh but it's not," he said. "They are being monitored because of the economy. Those employees who were lax before are now realizing that it was them causing the issue, and they don't do it anymore. This method has worked for us and there hasn't been any anarchy from it. It really helped pinpoint the problem areas in wasted time for us, and it corrected it. Now the efficiencies are way up, PF&D is down and our billable hours are where they should be. It's worked out beautifully for us." Rethinking Employee Vehicle Usage
Most sales departments are just as guilty of guzzling gas as the service department. At Pettit Machinery, a John Deere and JCB dealer in Ardmore, Okla., that's about to change.
In the past, Pettit Machinery gave its sales force a fuel card to pay for gas. Now the company plans to switch to a fuel reimbursement program, explains Chuck Fuller, CFO. And, by the way, no more company cars.
As of July 1, Pettit's sales people will receive $1,200 a month in the fuel reimbursement program to cover the cost of the car, fuel and maintenance. After Jan. 1, 2009, the reimbursement will be tied directly to their productivity. Based on sales levels, the amount of reimbursement the sales person receives will vary. For instance, the top tier producers would receive the full $1,200, but the second tier might only receive $800, while the third tier receives $600.As of press time, Pettit's employees were not aware of the upcoming change."It's definitely a tough time to figure out the vehicle reimbursement and how it will affect our employees' perception," said Fuller. "We didn't want to cause them to not go out on sales calls, but that's why we are going to give them more money if they are a top producer. If they aren't producing, then maybe they'll start thinking that they should be doing more sales calls. That's been our struggle - how to reduce costs but not affect employee morale."Fuller says he's hoping the new policy will cause the sales force to be more aware of how much they are spending on fuel."Maybe they will be smarter about grouping calls together," he said.Grouping calls together has worked for Stephenson Equipment, and is a method many dealers use to save on fuel costs.Heiner, of Stephenson Equipment, says they've changed how they dispatch field service techs and that, too, has made a difference for them. Their techs are dispatched from home, and parts runners sometimes run parts out to them instead of having tech return back to the shop."Instead of running 30 miles south to go 60 miles north, we're working smarter and dispatching them from home," said Heiner.Stephenson Equipment, like many dealers, increased the mileage charge for field work, but won't add a fuel surcharge."If we can do things to better manage our vehicles and improve efficiency, we don't have to pass on the increase to our customers," he said. "That's our goal. We don't want to pass it on; instead we want to work smarter."A dealer in Tennessee who did not want to be named said his company has also decided not to increase surcharges. The company is starting a Six Sigma project to reduce nonchargeable mileage in order to keep the number of service truck miles on the revenue side."With all service vehicles, most of that mileage should be charged. Some of the mileage is going to be to and from the jobsite - that's not charged to the customer. We're looking at where that mileage is charged now and how we can go about reducing it," he said.
Ultimately, not passing the cost of fuel on to customers can mean being more competitive in the market.
"We've tried to stay away from increasing surcharges because our industry and our area have been hit hard because of the downturn in housing," he said. "The pressure is on our customers. We're trying to reduce the increases in customer charges because it makes us uncompetitive - and it's harder for the customer to choose us for parts and service if their costs keep going up."
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