September 1, 2007
strategic insight | Lift Truck Fleet Management

Power by the hour

power by the hour

Pay-as-you-go pricing for forklifts? Technology-based fleet management services can handle that, and a whole lot more.

By John R. Johnson

Zipcar has made a name for itself by renting cars to drivers who need wheels on demand—a couple of hours one day, maybe a full day the next. By tapping into a wireless network, Zipcar members can locate vehicles on a moment's notice and be on the road within minutes.

Company executives say that many of its customers have achieved transportation nirvana—more than 30 percent have either sold their cars or have decided not to buy one. The concept allows customers to pay for only the amount of time they drive the car, without having to worry about nuisances like insurance and maintenance.

A similar model is attracting the interest of distribution managers who want to cut down on the cost of maintaining a fleet of forklifts. Some companies that lease their lift trucks are asking their fleet management providers for a "power by the hour" option, as some truck makers refer to the concept.

That's just one of several developments that are leading more companies to outsource management of their forklift fleets to truck manufacturers and third parties. They're not only saving plenty—in terms of time, money, and maintenance. They're also getting access to technologies and support services that can help them improve the safety and efficiency of their operations.

Pay as you go
It's only recently that the technology that makes pay-by-the-hour fleet leasing possible became commercially available. RFID and sensor technologies, aided by improved, lower-cost telemetry, allow fleet managers to monitor exactly when a lift truck is activated and when it is shut down. Drivers activate the monitoring system by entering a unique identification number for each truck.

The practice of paying for the amount of time when vehicles are actually in use is expected to become a major trend, especially as companies continue to outsource fleet management and concentrate on their core competencies. Right now, though, it's just getting started.

"We quote a ton of business each week, and very few are asking for a per-hour cost structure," says Van Clarkson, director of fleet management at Hyster, a lift-truck manufacturer that also offers fleet management services. "But it's something we expect to see become more common going forward. And we have customers who are actually using the technology today."

The most likely users of "pay as you go" forklifts are companies whose operations don't require the equipment to run at all times. The hourly system is ideal for the logistics sector, especially third-party logistics service providers that experience peaks and valleys in their work flow and may use some equipment for limited periods.

"They've got their core fleet and units that they use every day, but they may take on a new client and need a few extra pieces to support their core fleet," explains Will van Ness, fleet finance manager for Yale Materials Handling. "A unit could sit on the sidelines and only be put into use on demand. It might sit idle 75 percent of the time, but once the hour meter starts, we collect the data and we can invoice the customer monthly, quarterly, or however the customer chooses."

What's your hot button?
Automated fleet management systems offer a host of benefits, such as tracking and reporting, automated preventivemaintenance schedules, consolidated billing, and management of asset utilization. They can also simplify Occupational Safety and Health Administration (OSHA) compliance through automating the safety check procedure that each driver must go through prior to starting a vehicle.

A recent poll conducted by DC VELOCITY found that customers' opinions varied widely when it came to which of these capabilities they considered most useful. For example, while 47 percent of the respondents said that OSHA compliance was a major benefit of fleet management systems, 27 percent said they did not use their systems for that purpose. Preventive maintenance and asset utilization were rated among the more useful capabilities of fleet management systems.

Those results, no doubt, reflect differences in priorities. "Every customer has its own 'hot button'," says Matt Ranly, senior marketing product manager for Crown Equipment Corp., which offers a wireless fleet management system called InfoLink. "One customer might be interested in monitoring impacts or impact reporting, and the next customer may be all about OSHA compliance and making sure that only authorized people are driving trucks. The next guy might be most concerned with maximizing fleet utilization," he observes.

Sean Bennett's hot button is making sure his forklift operators adhere to the safety rules in place at his distribution center. After installing Crown's InfoLink system to monitor forklift impacts, though, he realized that the drivers weren't being as careful as he had thought.

Bennett is senior financial operations support manager at MBM Corp., a customized-food distributor with 32 distribution centers around the country. The company has installed InfoLink on 48 pieces of forklift equipment at its 170,000-square-foot DC in Rancho Cucamonga, which is located in Southern California's Inland Empire.

When InfoLink was first installed, Bennett simulated impacts, such as those that would result from driving into a pole or racking, so management would understand the metrics that would be used for evaluating the seriousness of those events. Soon after the monitoring program was rolled out to drivers, it became clear that some operators were experiencing impact events at a much higher rate than management had expected.

So much was going on, in fact, that Bennett's team initially was collecting an unmanageable amount of data. After tweaking the system, MBM is now able to monitor and analyze the data it receives. As a result of those enhanced reporting capabilities, managers today are able to address impact events with individual drivers.

The fleet management system turned out to be a good investment. "Now that we have started to monitor the equipment's activity and seize opportunities to improve training for individual operators, we expect to see a reduction in repair and maintenance expense on our equipment and racks," Bennett says.

But for MBM, calculating payback from the fleet management system is more than just a financial matter. The company takes great pride in its safety record, and it expects that InfoLink will help it enhance its performance. For example, MBM plans to use the data to determine how many forklift impacts are caused by drivers with less than a year of experience, and how many involve veteran drivers. The company will also use the information to evaluate its safety and training program and to make necessary adjustments.

"We always want safety to be our primary concern," Bennett says. "Because InfoLink is on our equipment, we think it creates awareness, and this awareness will help our operators to be careful how they drive the unit and to be safety-conscious."

More room for growth
It appears that there is plenty of opportunity for providers of fleet management services to expand their customer base down the road. In the DC VELOCITY poll, only 38 percent of the respondents reported that they were already using a fleet management system. That percentage seems likely to grow: Of the 80 percent who said that they planned to purchase new lift trucks in the next 12 months, half indicated that they planned to attach a request for proposal (RFP) for fleet management services to their purchase orders.

Those numbers aren't surprising, given that fleet management services offer so many potential benefits and new technology-based capabilities like by-the-hour leasing are coming online all the time. But there may be something more fundamental behind the fleet outsourcing trend: The need to focus on the right business priorities.

"One of the reasons why more and more of our customers are getting into outsourcing fleet management is that they want to concentrate on their core business," says Hugh Quinnell, national manager, major accounts, parts, and service operations at Toyota Material Handling, which unveiled a new fleet management program in June. "Customers are able to focus on the nuts and bolts of their business and let the experts handle the things that are not part of their core business."

About the Author

John R. Johnson
John Johnson joined the DC Velocity team in March 2004. A veteran business journalist, John has over a dozen years of experience covering the supply chain field, including time as chief editor of Warehousing Management. In addition, he has covered the venture capital community and previously was a sports reporter covering professional and collegiate sports in the Boston area. John served as senior editor and chief editor of DC Velocity until April 2008.

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