Fleets look to extract profits out of maintenance
While many fleets are looking to wash their hands of much of their maintenance operations, a handful of motor carriers are taking the opposite tack. Instead of shuttering their shop they are hanging out a shingle and turning the garage into a profit-making enterprise.
Indeed, these fleets are benefiting from the outsourcing trends. "Logistics is the operative word today," says C. Oren Summer, president of FleetNet America. "The people who come to us don't know much about caring for trucks and they don't have the personnel even if they did. The one thing they can't afford is road failures."
For fleets so inclined, the upside is the ability to spread their maintenance investment over a larger customer base, thus improving their bottom line. It may also allow fleets to update tools and keep mechanics employed.
But the strategy is not without pitfalls: It often requires an investment in support functions, a broader understanding of equipment, and more attention to developing and maintaining the customer base.
One of the earliest fleets to convert maintenance into a profit center began quite by accident. In 1993, Carolina Freight Carriers (now part of Arkansas Best Corp.) wanted to outsource its emergency breakdown service, according to Summer, who was director of maintenance at the time.
"It was a very labor-intensive proposition," he recalls. "We looked and we looked and we looked, and we couldn't find anyone to give us the right kind of service. One thing led to another and we realized that if we handled emergency breakdowns better than what was available on the outside, there might be a way for us to market our service."
The result was Carolina Breakdown Service, an enterprise leveraged right off Carolina's internal breakdown department. "It didn't take us long to cover our overhead," says Summer. When Carolina Freight was acquired by Arkansas Best Corp., the breakdown service (now called FleetNet America) was kept as a separate entity.
The biggest challenge for Summer was to structure a corporation that included all facets of a standalone business -- legal, human resources, marketing, tax structure, accounting, and billing. "These are things you don't have to think about or be responsible for when you're part of a big company," Summer says. "Somebody else worries about those issues."
According to maintenance consultant John Dolce, the for-profit approach resonates with many fleets. "Firms are looking for more innovative strategies to keep mechanics challenged and avoid downsizing," he says. "The challenge comes in devising the right kind of work and the right kind of support structure for that work."
That's what happened just down the road from FleetNet. Factors such as improved productivity, better utilization of resources, and contracting-out of certain functions enabled Duke Energy (formerly Duke Power) to reduce its fleet size to slightly under 6,000 units from roughly 7,500.
As part of the effort to drive costs out of the system, the fleet considered three options, according to fleet manager Mike Allison. Outsourcing maintenance and reducing facilities and manpower in line with fleet reductions were rejected. Instead, the utility decided to go into the business of marketing vehicle and equipment maintenance.
"We decided that the most efficient way for our company to control costs was to spread the investment in capital facilities over a larger customer base," says Allison. "Facilities could be operated at a higher capacity and our manpower could be more fully utilized."
Now in its second full year of service, that decision has definitely proved to be the right one. "While our initial focus was on marketing our expertise in the area of aerial hydraulic equipment and associated heavy trucks," he continues, "our multiple locations, hours of operation, and quality of service have attracted fleets of light trucks and passenger cars as well." Customers include electric cooperatives, municipalities, telephone companies, fire and emergency vehicles, over-the-road trucking, building-materials haulers, and sign contractors.
Today, Duke Energy services a diverse customer base out of 24 garages throughout North and South Carolina. Allison has even expanded the fleet's core practice of providing maintenance and repair to getting involved in the rental and leasing of bucket and line trucks.
Those are some of the same issues that Pan Western Corp., a construction fleet based in Las Vegas, struggled with before opting to open its shop to outside business. Fleet manager Kerry Ross says Pan Western, which has 85 power units and 300 trailers, delivers construction materials using flatbed trailers. Plus, 70 of the units are in linehaul service out of the Port of Los Angeles. About 15 owner-operators are split between the flatbed and linehaul divisions. Pan Western also operates a heavy-haul division comprised of about 7 power units and 15 heavy-haul trailers.
To serve the rapidly growing Las Vegas area, the company just took the wraps off a new warehouse and distribution facility built directly on a rail spur for deliveries of dry bulk cement, reinforcing bars, and lumber.
Ross was brought into the family-owned business about a year ago to convert the shop operation from a necessary evil into a strength. He inherited a situation where the mechanics ordered their own parts and prepared their own work schedules. On top of that, the preventive maintenance schedule was ill defined.
One of the first steps Ross took was to adopt an oil analysis program to determine the best PM schedule to keep the rigs rolling for as long as possible. "We don't believe in trading the trucks," says Ross. "With an average of 100,000 miles in our linehaul applications and 60,000 in the local service, our goal is to keep them forever." As proof, he cites a 1968 Peterbilt 362 with "well over 2-million miles" that is still in daily local service. "I've never seen them trade in equipment."
Pan Western needs all the rolling stock it can muster to support its active expansion. "Our business is growing dramatically," says Ross. "We've added 16 new units over the last three years and we're looking to grow by at least six more units this year based on the success of our rail siding."
To keep the units rolling, he relies on a staff of seven -- three mechanics capable of handling any tractor work, including engine and transmission rebuilds, three full-time trailer mechanics, and one support person. Two more people were dedicated to Laser Line, an outside service that conducts front-end alignments on site.
Mechanics come in every evening and conduct complete A- and B-level service. Tractors are scheduled every 6,000 miles. At that point they receive a complete inspection that entails the entire chassis to identify any problems or potential problems. The mechanic will decide whether to "red tag" the unit or return it to service. The 75 drivers also keep daily inspection reports. The units receive a B-level workup every 24,000 miles, including an oil change.
Little did he realize that the improvements would pave the way toward selling the Pan Western service to outsiders.
Maintenance currently is handled out of the company's existing 2,000-sq.-ft. shop. But not for long. Within a matter of months the service will be shifting into a modern facility five times that size. The new shop features seven drive-through bays, which is four more than the current shop. One of the new bays features a drive-through tire bay, as well as a lube and alignment pit that will enable Ross to do two alignments at one time.
"We expect outside business to offset the cost of the new building," explains Ross. "But we're not dependent upon it." With less than 30 customers, outside service arrangements currently account for 5-10% of Pan Western's business. Ross wants to see that number grow to 50%.
Ross is already cashing in on the outside service bonanza in more ways than at the cash register. Not only has the added income from outside maintenance enabled the fleet to upgrade its equipment, it has made Pan Western a more interesting place to work by diversifying the service jobs. That, in turn, has allowed Ross to recruit more effectively against dealerships and truck stops in an increasingly tight labor market. "We have to pay a little more," he says, "but we get a whole lot more."
Firms that are thinking of converting their in-house shop into profit centers should examine the following issues closely before making a final decision.
A firm foundation. Ensure that your reputation is beyond reproach. "If what you have in-house is truly marketable and you can make money on it, then go with it," says FleetNet America's Oren Summer. "We discovered we had a very good program to sell. You have to be the best service if you're going outside. You can't attempt to sell mediocre service on the outside."
SWOT. Before you jump into the market, understand your strengths, weaknesses, opportunities, and threats. Conduct a competitive analysis that will tell you who your competition is and whether there's a demand for your service. Recognize that some potential customers may not want to do business with you for fear of contributing to the bottom line of a competitor.
Don't try to be all things to all people. Tailor the work to take advantage of the service expertise that exists in your own shop in terms of mechanics' expertise and diagnostic tools and equipment, advises maintenance expert John Dolce. For Pan Western's Kerry Ross that means sticking to his preventive maintenance competency, while for FleetNet's Summer the answer rests in providing emergency breakdown service.
Get the word out. Know how to best sell the service you can deliver. "Most of our work comes through word of mouth," says Ross. "That and the Yellow Pages."
Support. At the beginning, administrative support should not be much of a problem. But as volumes grow, providing the right kind of scheduling, billing, marketing, and support services is crucial.
Who is the customer? Once you open your shop to outside business, some of the biggest challenges come in balancing the needs of in-house service with those of the outside customer. On the one hand, your primary objective is to keep your fleet up and running. But your outside customers expect nothing less.
"If you're providing outside service, you can't put that job off to service your own fleet," says Dolce. "Conversely, pushing your own internal customer out of the way to service an outside customer may not win you many points with the corporate brass."
Duke Energy, ever attentive to both internal and external customers, monitors those concerns through customer satisfaction surveys.
Learning curve. Since servicing outside fleets means your mechanics may have to work on vehicles they're unfamiliar with, some jobs may take longer. Be prepared to absorb some of that investment.
Customer relations. Not only do your mechanics need more diverse skill sets, you have to become more adept at customer relations.