Each business line has its own key figures showing effective or ineffective management. An experienced manager identifies anomalies, both positive and negative reviewing these indicators regularly. The total operation cost is a key performance indicator (KPI) for the transport department. In most companies it is mile cost. How these costs can be calculated correctly and what do we recommend our clients based on these figures?
Why it is important to calculate ownership cost?
The renowned EY audit company studied the dependence of ownership cost on vehicle age in the USA. The company approached the calculation globally by including the following cost items:
Cost of financing (primarily leasing and lending);
Administration (remuneration of mechanics, dispatchers, etc.);
Maintenance (repair, spare parts, scheduled and unscheduled maintenance);
Licensing and insurance.
Two main conclusions have been made based on the research results:
1. In the third year, maintenance cost rises up to four times. 2. The first and the seventh years are the most expensive in terms of operation cost.
Now the popularity of operating leasing in the USA is understandable. It is beneficial because:
Absolutely clear monthly payment;
Full outsourcing of fleet management;
Focus on key processes, the technology is just a tool for performing tasks.
For many countries operational leasing is something fantastic. According to leasing market participants, this service is used by no more than 1% of clients. It is stipulated by restriction of business size, lack of understanding of the product by customers, currency and political risks. Fleet management software could be an alternative, but many use Excel and a notebook up to now. It is difficult to deal with spare parts, tires and other elements that have a resource.
We have been working in the field of transport automation since 2011 and survey of current clients was one of the key factors that influenced launching Zavgar Online. The result shocked us. Nine of ten companies having GPS equipment and all the data neither keep any records, nor display the cost per km (mile).
So how do you calculate ownership cost?
In fact, this is the sum of all maintenance costs. Therefore, the formula is as follows:
Cost per KM = (fuel) + (financing) + (maintenance)+ (spare parts + tyres) + (licensing + insurance) / Mileage or Driving Hours
The final indicator is called 'cost per kilometer (mile). The lower this indicator, the more profitable the company can be. This indicator should be one of the key KPIs for transport manager (sale of a vehicle, choosing a vehicle model upon purchase, etc.)
What modern technologies do allow you to keep track of costs and automatically to calculate operation costeffectively?
It is Zavgar Online. Calculation of all operation costs for each vehicle, as well as in the context of vehicle groups and the company in general is one of its key modules. What bonuses will you get thanks to this product:
A complete history of all costs, indicating suppliers, articles and other necessary parameters;
Automatic calculation of cost per KM (mile);
'Transparency' of the transport department, understanding the profitability of each vehicle;
Reminders about all routine maintenances, a notification system in case of delay;
Understanding of warehouse balances, incl. the amount of frozen funds;
Integration with fuel card services, automatic loading receipts when buying fuel on a fuel card;
Dashboard with key indicators for the manager (a mobile application and a web interface).
More about Zavgar Online functionality
What conclusion can be drawn?
Order in the transport department can be achieved only by introducing modern technologies. Only real numbers, complete transparency will bring the company to a new level where all the routine work of mechanics is taken over by the program, the equipment either makes a profit or is sold, the manager can get all the information about his fleet in two clicks at any time. Take it to the next level!
Try the Zavgar Online for any fleet. Cost per KM will decrease by 10-50%.