Episode 151: Your Replacement Backlog Is Impacting Your Fleet Availability

This is the Fleet Success Show dedicated to helping you and your fleet succeed using the experience of fleet professionals and Hall of Fame fleet legends. The show that explores how the pillars of stakeholder satisfaction, intentional culture, resource efficiency, and risk management all combine to lead your fleet to success. We're glad you're here. Now let's get into the show. All right. Welcome back for another episode of the Fleet Success Show with your hosts, Josh Turley, Mark Canton.

Hi, everybody.

Quick intro. I'm Josh Turley, the CEO over at RTA Fleet. Been in this company for 20 years helping fleets succeed through our FMIS and various other technologies and business practices. Self-described leadership guru. I would call it that. Mark, quick intro for our listeners.

Been in the industry almost 30 years. First 20 of those was as a fleet manager and transportation director, and the second half is as a consultant and Software product developer. Yeah.

How many fleets do you think you've seen over your career or interacted with?

Interacted with? Probably thousands. As far as deep dived into their data and kind of understood their operations, probably around 300. Okay. Yeah.

All right. So one of the questions that I usually get centers around availability. As we've said many times on this podcast, availability is the number one metric for any fleet to track.

Amen.

And we should be tracking around 95% availability. That's right. We'll caveat and say availability and downtime are not the same thing.

Right.

So don't conflate the two. We'll do a different podcast episode on that. But let's say you go into a shop as a consultant and you see that availability is not where it's supposed to be, right? We just saw this. Steve was on a project. He and I talked about it. What's one of the first things you're looking at for a low availability shop?

Yeah, the first place I go is replacement, right? So there's basically two avenues. Something— if you have low availability, something's wrong with your replacement planning or your replacement execution.

Okay.

Or you have a serious problem in your maintenance and repair program. Right. But surprisingly, where I go first is actually replacing. And I say surprisingly, because most folks seem to be surprised by that when I tell them that. I don't think you will be. But, you know, like you said, the first thing I do is go there and I try to, you know, analyze and dissect what are the historical replacement practices. Of this organization. And you can do that fairly quickly with some, with some basic, basic stats, right? Like what's the average age of the fleet? And one of the things I really like to do and we really like to do is what is the median age, right? And I won't get too complicated, but long and short, most folks know those are different and you actually want to compare the two. Ideally, they should be very close to each other. Yes. If they're not very close, that means you're not evenly distributing when you're replacing assets and that creates a whole set of issues. Obviously, you want the lower the age in general, the better. I think it's a fairly well-established thing within the industry that as assets age, they generally need more maintenance and repair. And I want to be clear, because I know there'll be folks out there saying that's not true. You do a big repair and now it doesn't need as much repair for a while. When you take a cluster of assets, a cluster of data points, okay, let's say an entire class, and you have a large enough sample size and you, and you look at it over time and you draw the best line, you will get an exponentially growing curve of M&R costs as that asset ages.

It's mathematical or statistical fact, especially because in the first 3 to 5 years of its life, warranty. Correct. Warranty covers a lot of that, which keeps that M&R from spiking or increasing faster than say, on the back half of its life when you're out of warranty. That's the biggest driver.

That's right. Again, individual assets, they'll have their scatter— they'll look like a scatterplot if you only look at a single asset. I'm totally with that. But as you look at them as a whole, as a group, you— there's a no— that's a no-brainer. So it's fairly well accepted in the industry, I would say. So, you know, with that in mind, obviously you want to drive age down. Now, what that means for different fleets and different classes can be very different, right? For sedans, you know, you're talking about average age is probably somewhere in the 3 to 4 year range, right? 2.5, maybe even. For, you know, big heavy pieces of equipment, you know, an average age of 8, 9 years might be fine depending on the nature of that equipment. So, so that's just— these are just kind of quick back-of-the-envelope type stuff you can do to know, hey, do we have a problem here or not? And if there's a little bit of smoke, then you dig a little deeper, right? A big metric that I really like to look at that I very rarely see on anyone's dashboards or anyone's, you know, KPI list is what I would call replacement backlog. All right. So it's really simple. What does it cost to replace your fleet today?

Right.

Right.

The entire thing.

The entire thing. And you should know this. And if you don't know this, pause there, press pause on this video and go do that and then come back. But this is something you should know. You should be tracking this all the time.

This is not your historical CapEx.

No.

This is what it would cost in today's dollars to replace every single asset with a today's vehicle.

Correct.

So don't be looking at historic CapEx to figure this out.

Right.

You should have an idea of, you know, if I've got a 2023 F-150, I know what the replacement's going to cost today. If I had to go buy a 2024 F-150.

Correct.

If I have a 2016 F-150, it's the same number.

It's the same number. Thank you for clarifying that. That's challenging for people to comprehend. And a quick little tangent on that point, which has been coming up a little bit recently, is you can't just apply inflation to vehicles, generally speaking, right? Standard inflation and even new car index inflation will often not work well. And the reason for that— beyond a couple of years, it's fine for a 2 or 3-year-old asset. It's workable at 5 years. You get beyond 5 years, it doesn't work. And the reason it doesn't work is because technology costs continue to go up. And so that base price for the vehicle continues to go up, right? Just think about it. Side passenger and knee protection airbags are in the lowest trim of the cheapest vehicle you can buy today, right? 10, 15, 20 years ago, you're talking luxury models. So anyway, putting that aside, it's important to understand that you can't just take, oh, I bought this asset in 2015, to your point. Let me just inflate it, and that's my replacement price. No, that will not work. This is something you should be updating and recording and tracking in your system, you know, all the time, frankly. So, you know, getting back to this backlog statistic, essentially. So again, you have all the assets, you know what your fleet's going to cost you to replace today if you had to. And you can identify all the assets that are past due for replacement. Now, if you can't identify the assets that are past due, again, press pause, go back, and let's start there. Your assets, you should have clear target lifecycles, intended lifecycles. You should have probably some comprehension of what an accepted interval for that would be. If you're targeting 8 years, 7 years is fine, 9 years is fine, 15 years, not fine, 12 years, not fine. 10 years? On the borderline there, depending on the asset, of course. Right. So, again, what's that target lifecycle? It can be age, it can be utilization. The best lifecycles account for both. Right. So, now you've identified all these assets that are past due for replacement. You take, well, what do they cost in today's replacement dollars? You take one, you divide by the other. Okay. And that's your percentage of backlog. It's pretty simple. You can do it by counts. The reason I don't like to do it by counts Unless you're in a vocational fleet, which many of our listeners are, so that might work fine if you're in a vocational fleet where essentially, the assets are all the same, you maybe have 1 or 2, 3 different types of classes, it's fine. But many fleets are much more diverse than that. And so, counts don't really work. You can have great counts, but you've been putting off, let's say, replacing all your million-dollar assets for some time. You're really putting yourself in the same bind as if you're putting off hundreds of lesser-cost assets.

[Speaker:TREY_LOCKERBIE] You mean I can't run that back truck for a million years?

[Speaker:MIKE GREEN] Bingo. That's exactly it. So I know I'm getting a little technical here, but it's an easy KPI to calculate and it's one we'll go do. And I can pretty much listen, if you're 5% or less, you're golden, man. You're doing a great job. If you're over 25%, you have serious issues.

And you're going to see that in your availability metrics.

Yeah, oh, absolutely. So thank you for bringing that back because it's going to play out directly because of what we said earlier, right? Here's the thing. As those assets age, since they are getting M&R, we know this, right? Well, think about it. If they're in the shop getting M&R, they cannot be available while they're in the shop getting M&R.

Yeah.

And so this is why we look here first, right? Because oftentimes we will come across fleets. And to be honest with you, the overwhelming majority of fleets do not do this well. Okay. And you'll, you'll, you'll find that they just have tons and tons of backlog. Most fleets don't even know how to estimate how much they should be spending on average on an annual basis. right? Which is actually also pretty easy. You take that same replacement value, you take the weighted average age, you do some math, and you— and, you know, obviously you can inflate that. Yeah, divide it, and that's, that's how much you should be spending in a year. So what we will normally find with these folks with this very bad backlog is they're spending half of that or a tenth of that or something like that. And I'll come back around to that a second. I want to acknowledge there are some exceptions of people who tend to do it better. Certainly on the private side, you tend to see, um, When it's a profit center, there's often a little bit of a different attitude about it. Those folks tend to do it better. However, I will tell you, growing businesses often get in trouble because there's nuances to the data in that case, because since you're adding vehicles to the fleet every year as a growing organization, you're sort of artificially, not really, changing that average age.

Right.

Right. And so you're not seeing, so you, If you're a growing company or a growing organization that's got a fairly fast pace, you might want to segregate existing fleet from new fleet when you do some of this, just to kind of make sure you're taking care. So we'll come across companies that are doing great. Maybe we're doing a due diligence for them or we're doing some sort of assessment. And it's like, oh, all those smoke numbers are coming out fine. There's no smoke. And then you dig a little deeper and you find out they got 25-year-old assets that are falling apart in the yard that they're not addressing. So Bringing it all back, why does this matter? Again, if you're replacing these assets on time, that means you're getting rid of them before their availability kind of falls off.

And I think I want to circle back.

Yeah, please.

Because at the beginning, we talked about the M&R cost goes up. And really, this doesn't have anything to do with M&R cost.

It really doesn't.

This is about time in shop.

Yes, correct.

Even if a vehicle goes down in its first 1, 2, 3 years, and it's under warranty, great.

That's right.

It still impacts your availability.

It does. Bingo. That's a great point.

And so just to look at that, what's happening is it's not the cost that's going up. The cost does go up.

Yes.

But the other reason the cost is going up is because the frequency of events is increasing.

Right.

Right. The likelihood of a catastrophic failure or the likelihood of more frequent shop visits increases as the vehicle ages.

Exactly.

It's common sense to say it out loud.

Yes, it is.

But yet—

It gets missed constantly.

Yes. And we constantly kick the can down the road thinking that somehow we're the exception to the rule. Right. We don't need to replace the vehicles because I don't I don't know, we're really awesome at maintenance. But recognizing that the more maintenance we have to do is the less available our fleet becomes because of that.

Well, and this is why, to get back to the main point, is it's developing a strategic replacement plan and executing that plan is the key. Because to your point, it's always going to be cheaper to repair that vehicle than to replace the vehicle.

Incremental cost.

I mean, it just always is. So if you're making the decision constantly based on today, And right now, which I get, you have to do that sometimes. I understand that. But you can't be doing that. You shouldn't be doing that all of the time. If you're doing that, you literally are shooting yourself in the foot. And not only are you ultimately increasing the total costs of that vehicle and of your fleet as a whole, but to your point, even if the M&R costs and the capital, even if you get that to all wash out, that loss of availability, something we've talked about in the past, that creates the need for more fleet.

More fleet, more rentals, something else down the road.

Correct. Which is a lot harder to capture. It's hidden cost essentially, right? So yeah. So we find that this is a big thing. Folks continue to not get it right. And here's the thing. A lot of fleet managers, "I know, help me. You know, how do I tell this story and get leadership to buy in?" Because I want new vehicles. Yeah, exactly. And it's— and the answer is, you know, it's in a straightforward way is you got to do the math, man. Like, you got to sit there. Is it a big giant table? Yes. Is it a complicated table? No. Yeah. You know, it's— most folks can do this at least to enough of a level to make their point. Right. So, so this is the thing. If you do that and you get this strategic plan and you execute on that plan, you'll be replacing vehicles quicker than most of your other problems can kind of rear their head. You can even probably mask some problems. That you have in the rest of your operation. I want a quick pause and caveat. Is there such thing as replacing a vehicle too quickly? Absolutely. Economically.

Yes.

Right. But if you're going to err on the side, too quick is better than too late because—

Yes.

Because the numbers will match. But the too late will be the higher availability and all the hidden costs. Excuse me, the lower availability. And so all the hidden costs.

And that's probably the one thing when we look at like Orca models and lifecycle cost analysis, that's the one thing that's not really captured very well in those models. That's right.

That's right.

And maybe we should add that to our own internal org chart.

Yeah, that's a good point.

What's the cost of availability? Not just the M&R cost and depreciation costs, which are huge. Because I've asked that question before is, well, based on the numbers, it actually would make sense not to replace a vehicle until the M&R cost exceeds the acquisition cost, right? Because then you're just sawtooth-ing it and it blends out nicely. Otherwise, you're missing all those years where the M&R cost is lower than the first year of depreciation. From an economical standpoint. Yeah, but the impact of availability is it's all the hidden costs that's not captured in there. It's the impact of what downtime you have. Let's say that you're a food and beverage distributor and you have downtime with a truck with a load attached to it. Well, now you've got to distribute, you know, you've got to dispatch a second truck, right? Hopefully it's nearby. Right, right. Or you got to go rent or hire an owner-operator to go pick up that load for you because you've got perishables on board.

Bingo.

Hopefully you don't have downtime that causes an accident or causes some other catastrophic issue.

right?

Or you don't have your vac truck that's down, and now you got to go buy a second vac truck, right? The spare fleet issue comes into play, right? None of that's captured in an Oracle model, correct? Right, correct. Unless hopefully something here—

yeah, well, like, right, hopefully your consultant or your analyst or whoever's helping you with this— this is why we always say that has context, right? Um, has the context and the understanding and the expertise and the experience to be able to explain just that, because that is something you can model We've done it for folks, and you can show. Ironically, most of the time we get there because they're asking, what should my spare ratio be? Yes. And it's like, well, it's a more complicated— yeah, yeah, it's more complicated than that. Because are you going to continue to replace vehicles spending only half of what you should be spending? Well, guess what? You're going to need a lot bigger spare ratio, right? Because you're going to have less availability. So, so yeah, that's— it is a lot more nuanced and a lot more, uh, and we— that's, that's something that we can really model. I'm actually working on something right now to to truly, hopefully, identify for people that cost of availability, trying to capture some of those hidden costs, but that's a surprise, that's a to-come.

All right, that'll be some kind of feature release announcement about that later.

But yeah, I just want to get it, and I want to point out some pieces like, okay, fixing your replacement doesn't necessarily fix your PM compliance, right? Right. I acknowledge that. but it's going to fix a whole heck of a lot of those other M&R issues, right? You're going to have a lot more planned work, a lot more scheduled work. You're going to have a lot less failures, a lot less road calls, much faster work order turnaround times, lower comeback rates. I mean, all of the other KPIs around M&R literally are either, either go away or get dramatically mitigated simply by hitting on your replacement plan properly.

Yeah.

Which is funny because most fleet managers are out there chasing all of those issues.

I need more techs, I need more parts, I need more everything. I need more bays.

Correct.

You actually need a lot less bays if you just had an updated fleet.

Yeah, that's true. Because your, your, your value or your AEU value goes down.

Yes.

This is people, you know, again, AEU folks should be subjective to your fleet in a perfect world, right? It's what is your average cost for your average labor hour for your average asset, right? So to your point, if you got a younger fleet, that number is going to go down, right? How many demand hours? Let's use Scott and Steve's word, right? They like to talk about demand hours. How much time do we have to be able to bill to work order in order to properly maintain the fleet? Goes down with a younger fleet.

Yes.

So to your point, you need less base, you need less techs. You actually probably can get away with fewer, let's say, higher qualified or expert techs, right? Right, right, because you're not, you're not running into those issues as much, right?

And, and when you do, warranty, you send it out, warranty, right?

It's less frequent. Exactly. Or if that's, if that's working, if you're a warranty shop in-house, correct. Or you could just like— you exactly— and you could just decide to sublet that work. I'm not going to invest in that, right? We don't do enough of it kind of a thing, right? So, all right, that's, that's, that's my case. I— if I can implore folks, um, you know, to, to do anything, you You got to stop investing in OpEx. Stop investing in OpEx. You got to invest in CapEx. It's like the same reason why folks eventually want to buy a home, let's say, instead of continuing to rent, right? Because it pays you back. And it's the same thing here. It's OpEx and CapEx and fleet is a lot like E equals mc squared. It's going to wash out. So the question is, within those assets, to your point earlier, so the question is, where do I get more gains? And if you invest in CapEx, you're going to fix all those hidden costs. You're going to fix all those other issues that you're having in your shop, you know, pretty quickly.

And just from a brand perspective, you're going to have happier drivers.

Yes, you will. That's a great point.

Nicer vehicles.

That's a great point.

Newer vehicles. You're going to have safer drivers because the vehicles are all coming with more safety features.

Great, great point.

Right. You're going to have more fuel-efficient vehicles. So you're going to lower your carbon emissions just by updating your fleet. In fact, that's one of the first things we'll always tell people. Is before you go full-blown EV modernization, right? Hey, let's see if we can go like maybe plug-in hybrid makes more sense. But if you just upgrade that 2015 diesel to a 2024 diesel, you're going to get gains just by doing that. Absolutely. So we look at that kind of thing as your replacement program has a direct impact on your own carbon emissions initiatives. Absolutely.

And we can show that. We can prove that. Yeah. Those are all great points. They're absolutely the case. And by the way, you know, even if you're in the private sector, your customers feel better. As well if you go up in a newer vehicle, right? There's a lot more confidence like, all right, these folks know what they're doing.

They know what they're doing. They take care of themselves. They have pride in their profession. You know, like, I don't know about any service truck you've seen roll up, but if there's no branding on the side, if it's an older beat-up truck versus, you know, like one of the Ford Transit vans or something along those lines, right? I can tell who's investing in themselves and who's literally just scraping to get by.

It says a lot about you.

It says a ton about whether or not you want it to.

It says a lot about you, right?

But for any city, for any trucking company, it's the same thing.

It really is. It really is. You know, when you see city assets coming around and they're falling apart, you know, you can't help but think to yourself, all right, is this really getting taken care of the way it should? Right, right, right. Exactly. You know, that's just part of it.

So bottom line, first thing we're going to look at, you know, we talk about availability all the time on this show. If you're struggling with availability and you're struggling with I don't even know where to look, start with your replacement program. Absolutely right. Go look at your replacement program, see what the backlog is. How much are you, you know, out of schedule essentially, right? And then figure out a way to get back on schedule, get your stakeholders to buy in, understand the impact of that to your OpEx, right? So they can make the CapEx investment to make that better, right? And then if you want— this is the one thing I do love about the consulting side of the business. It's not like you don't have anything else better to do right now, right?

Yeah, right. You're not—

you're not totally busy or, you know, drowning in the work as it is, right? This is where if you do bring in a consultant, they can help do this work with you, supplement your own narratives, help give you some points that might make the case better to city council, your board members, whatever. And they can, you know, they can take this work on themselves, right? Whereas you don't have time necessarily to do it. So that's one of the reasons I love the consultant angle to this is come in, we do it faster, we can augment your abilities to do it and ultimately help you achieve the results you want.

Right.

So yeah.

That's a great point. And, you know, a couple of quick thoughts here on some of this. You know, number one is, you know, let us know, folks, in the feedback if you're interested in hearing more. You know, I know a lot of fleet managers say, well, how do I get my hands on CapEx? What do we do here? I can't get any more money. If you guys like this topic, we can certainly do another podcast around how to do exactly that. There are options out there. You don't need hard cash all the time. You just need to be a little open-minded.

We talk a lot about leasing.

Yeah.

You know, that'd be another good episode again.

Yeah. So we can talk about how to get that accomplished even with organizations that tend to be a little bit standoffish about wanting to do that kind of a thing. There are ways to accomplish that.

I'm a big fan of using other people's money.

Yeah. Yeah. What's the— who's—

Grant Cardone talks about that.

Is that what it is? Like, why—

real estate investment? Yeah, he's huge on that.

So why spend your money when you can spend someone else's kind of a thing? Yeah, it's true.

So if you do have feedback for us, just email us podcast@rtafleet.com. We'd love to hear from you. Yeah.

And a quick plug, I got to say, Because we've got a lot of feedback around availability at Connect, we have a whole track that's around kind of explaining this and deep diving, right? All of the various aspects and what could be causing your availability issues. We do the replacement stuff, we do the M&R stuff, we follow the whole thing. We basically do a little breadcrumbs here and do some root cause analysis with you. So if this is something you're interested in, come on over to Connect for sure. We— you're always welcome whether or not you use our software.

October 8th through 10th in Atlanta, Georgia. We'd love to see you there. Yeah, go to rtafleet.com/events. With that, I think that's going to wrap it for this week's episode.

Sounds good.

Always a pleasure.

Same here.

Until next time.

All right. Take care, everyone.

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