At the heart of the most successful businesses is an efficient and orderly system of operations. A business is a well-oiled machine, with different parts fulfilling different functions at the right time, at the right frequency.
For small enterprises, a smoothly running model is a must to drive growth and future expansion. To create an effective system, one must consider which people to hire, what skillsets are needed, the logistics and the supply chain necessary to sustain the business, and most importantly, the capital outlay and running costs of the whole venture. Essentially, one should first have all the right parts.
Finding a vehicle appropriate to one’s business is one of the biggest challenges to this. The benefits of commercial vehicles are self-evident: they serve as the backbone of a company’s supply chain, delivering products and people where they need to be.
But before they can serve this purpose, there is a long list of factors to consider. Should you buy? Should you rent? For years, small and medium enterprise (SME) owners have argued over whether buying a fleet of commercial vehicles outright or simply leasing them makes the most business sense.
On one hand, traditionalists argue that ownership over your commercial vehicles could grant you the flexibility that committing to paying a lease will not. The vehicles would become an asset, could be used as collateral when applying for loans, and would be available for use in case of a personal emergency.
On the other hand, leasing your vehicles will free up significant capital that you can reinvest in other areas of your business, and it will be less of a hurdle to overcome for businesses that are starting out.
“Cash is the lifeblood of a business, and buying a vehicle ties up capital in a depreciating asset when it could be invested elsewhere in the business. Many business owners prefer the idea of paying for their transport needs in smaller, fixed, regular installments rather than one large, upfront sum,” British Vehicle Rental and Leasing Association chief executive Gerry Keaney wrote for The Telegraph.
Whichever side a business owner agrees with, what remains is the need for a considerably large chunk of capital to acquire a commercial vehicle. If not careful, an enterprise can run itself dry simply from the inefficient use of them.
“A poorly performing delivery fleet is a challenge for any company. But to a small business, it can cause a devastating trickle-down effect,” RAM Commercial, subsidiary of the Italian-American corporation Fiat Chrysler Automobiles, wrote for Forbes.
“Poor vehicle maintenance, erratic fuel costs and frustrated drivers leaving for other companies only scratch the surface of what could become a long run of escalating costs and other problems. But there are plenty of ways small businesses can rein in costs and improve fleet management systems.”
For commercial vehicles to become effective tools to grow a business, SMEs should learn how they can minimize such risks. RAM Commercial suggested to get a feel of the total operating costs, and closely analyze data such as maintenance cost figures, insurance expenses, driver wage figures and fuel costs.
For those starting out, such costs include vehicle registration and licensing, commercial automotive insurance, vehicle maintenance and repair, mileage, toll fees, as well as parking fees or garage rent.
“Managers should look closely at all expenses, and then break them down to a per-mile cost. This practice will allow a company to compare its costs to carriers-for-hire in the area. Some business owners quickly learn it can be more cost effective to hire out for some deliveries,” the company wrote.
Once all the operating costs are on the table, SMEs can then make optimal decisions that can improve their operations, and ditch redundant or ineffective methods.
Then, one can learn the best, most efficient routes for one’s delivery fleet. This can be trial-and-error, but experience and familiarity with relevant data can help identify the profit-making routes from the profit-breaking ones.
Citing Phoenix Zhang, a senior analyst with Forrester Research, RAM Commercial wrote that it’s important to find a “sweet spot” of efficient routes — ones that are multi-pickup, multi-drop, nonstop and highly repeatable. Such desirable routes tend to be short hauls.
“Avoid the long-distance, one-way, multi-day trips,” Ms. Zhang had said. “Those are going to lose you money and not be cost effective.”
There’s also the consideration of matching the appropriate vehicle with each delivery. Whether it’s a fuel-efficient cargo van, a car, or a truck, the type and size of the vehicle should be determined by the details of the delivery being made.
Lastly, technology can greatly aid in managing logistics for businesses. Optimization software can identify efficient routes, and even create “continuous move opportunities” for vehicles so they don’t sit idle for long periods or otherwise decrease the amount of time they run without cargo.
“Better-run fleets see only between 20 and 30% of their total fleet miles driven as empty miles. A lot of fleets will run 40 to 50%; those are way too many empty miles,” Ms. Zhang was quoted.
Fleet management software can also track fuel-efficiency concerns such as inefficient driver behavior, traffic data, and other variables that can drain resources. Such tools are available for SMEs looking to make the most out of their logistics, helping them in the pursuit of creating the perfect efficient system for their business. — Bjorn Biel M. Beltran