Episode 213: Why Your Replacement Plan Is Sabotaging Your Fleet #podcast #fleetmanagement #fleet

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. Hey, welcome back for another episode of the Fleet Success Show. Your host, Josh Turley, joined today with Griffin Scott. One of our fleet management analysts here at RTA who works side by side with our consulting team as they work on a bunch of different projects and helping fleets improve their different operations. And today we wanted to talk about the kind of the power of replacement planning. [Speaker:GRIFFIN] Absolutely. [Speaker:RYAN] Some of the wins we get out of that, what happens when we do it wrong, some of the, maybe the hesitancy, why people don't do it well. But just, you know, kind of give people an idea, Griffin, one of the things that you love doing is helping people build out replacement plans.

Absolutely.

What are some of the common things when you go into a fleet operation, right? And they said, hey, you know, RTA, come in, help us as, you know, part of your consulting operation, come help us build out a replacement plan. How many of them have a replacement plan versus just have nothing? Like it's just literally somebody throws them some money and—

Yeah, most are reacting year to year. They get thrown in a certain amount of money and they have to decide out of like, the vast majority of their fleet which needs to be replaced, which, you know, maybe 50 to 100 assets can they actually replace. So, you know, which are the most severe that they have to get done?

How are they making that decision in the absence of data? Right. Or at least any kind of model.

Yeah.

How are they making that decision right now?

Like, it's really the oldest assets or, you know, whatever department kind of has the most power and is knocking on the door like, I need these replaced right now. So it's not typically data-driven, unfortunately.

Okay.

Now there are some organizations that are taking a look at, okay, you know, how old is this asset? How much maintenance have we put into this? You know, how far along is it?

So I might get a couple of data points, you know, around maintenance cost and like what was the expected lifetime of that asset? All right. Like it's, it's still got a couple more years. It'll be okay. Yeah, we can limp that one along a little bit. As you've gone through that though, obviously people don't call us out of the blue because everything's going amazing.

Of course not.

What are some of the things that you see when people are doing this reactive mode of replacement planning?

I think it's pretty common for me to see in, in a lot of the studies that I do, it's about like half of people's fleets. Well, that are overdue is what we call them, or they should have been replaced already in terms of their own replacement parameters, which sometimes are really high, you know, 16 to 20 years. You know, they're not even replacing them at that rate, which is crazy.

It's crazy to think like I could walk out into somebody's yard, there's a 20-year-old asset just sitting out there.

Yeah, yeah.

I think she has a 2025, so like that's something that like when I graduated high school, you know, it was like brand new.

Yeah.

So no, some, some of them even seen older, like, yeah, 40, 50-year-old trucks, you know, like old side bodies, old sidestep.

I think almost every organization I've worked with has had at least like a one 1950s truck that they keep for like parade or something like that. Yeah, but they have a bunch of free.

That's fun, right?

There's always an excuse.

What's really sad is when it's actually been parked and you just never disposed of it, because I have seen that, you know. And usually it's some like Caterpillar bulldozer or something. It's like parked in the weeds. Exactly. Like, ah, one day we might use that. Never, never will we touch that again.

Nope.

All right, so you kind of see this where they're kind of going reactive. It's who's, who's screaming the loudest. Well, what ends up happening in that situation? What happens to their fleet? What happens to their cost? What happens just be— if they're going through this model of not using a model and being completely reactive.

Exactly.

What ends up happening?

Oh, I mean, it has a bunch of impacts downstream. So your fleet is getting older and older as you don't replace things when they need to be replaced. And that has a huge impact on maintenance. You know, everyone knows the older asset you have, the more maintenance you have to put into it, right? So that means you got to hire more techs, or try to. Of course, good luck getting more techs. It's kind of hard these days.

So we're compounding that problem.

Yeah.

In addition to like, hey, we not only have more maintenance to do, but we don't have enough techs to do it, and we're just going to keep increasing increasing this maintenance load because we suck at replacing vehicles.

Exactly. And if you're an ISF and you're doing depreciation chargebacks, a lot of the time you'll start to get to that point where you've, you've fully depreciated that asset and you're not charging back for it anymore. So you have even less funding for replacements.

Nice.

So you get into this, this terrible cycle where like you don't have the money to replace all the assets in, in a good system, which is ISF. ISFs. Yeah.

No, which is like using like an internal service fund is what that stands for.

Yep.

So you end up in like this just crazy little doom loop of there's not enough money and we don't have enough technicians to do the maintenance. So stuff is just breaking down all the time.

Exactly.

So like we talk about availability being the number one metric.

Yeah.

And the best way to improve your availability is to get your replacement plan up to date.

Yep.

But a lot of people don't make that correlation, right? That this is, oh, if I just got my replacement plan funded, I would imagine that as you step into these fleets, they don't have the data necessarily to even prove how much funding they need.

Yeah, that's the biggest question.

How do they even know, like, hey, City Council, I'm going to give you $500,000? How do they even know that's enough or not enough?

Yeah. So it's really taking a look at a certain little formula that we use.

Okay.

So with any replacement plan, we know how long the replacement cycle should be. So maybe 10 years, 8 years, depending on what type of vehicle. And then how much does it cost today to replace it? And so we'll take that number. Hey, what would it cost to replace the entire fleet today? Let's say it's $150 million.

Okay.

What's the, the average replacement cycle for all of the assets? It's 10 years across the board.

Okay.

And so it's simply dividing that, hey, how much does it cost to replace the whole fleet by how many years it would take? So if it's $150 million, 10 years, $15 million a year, it's that simple. It's nothing too crazy.

It seems pretty simple.

Yeah.

And I bet that when you step into these operations, how many of them are not even coming close to that?

Not even close.

What do you, what do you think? Like, they needed $15 million, they might get $7.5 million.

Yeah.

If they're lucky.

Yeah.

And so what do you say to a fleet manager that you're like, by the way, you've been way underfunded. Mm-hmm. Here's how we're gonna fix this. Like, what's the plan of attack to even getting back to $15 million, let alone doing catch-up.

Yeah, exactly. It's really getting in, in front of the, the boards or the council of their organizations and showing them the impact. Hey, if you keep funding them at this level, your average age of your fleet's just going up and up. It's going to hit 20 years, it's going to hit 30 years in 10 years from now.

Yeah.

And it just has a massive backlog effect on your fleet.

Yeah. Well, you're shifting everything from CapEx to OpEx. Exactly. So it's coming out of your budget one way or the other.

Yeah, you're paying for it.

Yeah.

It's just where—

how would you like to pay for it?

Exactly.

Like shiny new vehicles that make the city look good, or would you like rusty old broken-down ones that you have to just hire more technicians that you can't?

Yeah, it's your choice. Exactly.

Okay, so then what— you come in and like, what's your process as you step into a fleet like this? What do you go through and do to kind of help them get to at least a manageable spot, if not a cure?

Yeah, so oftentimes, you know, we're performing these studies, we're going in, we're getting the inventory, we're taking a look. I develop a 20-year replacement plan for these organizations and then providing them a report and then presentations to leadership to kind of help them get the story across.

Yeah. Would you say that that's a big challenge for a lot of fleet managers, is that, is that piece of it, right? It's the managing up, communicating how severe the situation is, communicating up towards, you know, leadership about how dire things have gotten.

Yep.

Kind of really making the sell.

And you know what's interesting is it's, it's the sell part. You know, a lot of these fleet managers I've worked with, they know this. Like, they already know this. They've tried to explain it to their leadership, and for some reason, their leadership just doesn't trust them.

It's because they're not a paid expert.

Yeah.

Right?

And so they have to bring us in just to regurgitate what they've been saying for years, which is unfortunate.

It's the fancy title, and it's the glasses, right? Like, it just— it makes you look— do you also throw on a British accent?

No.

Right? Like, I feel like you should.

Maybe. That's a new tactic.

Just really just to drive home the point that I know what I'm talking about. Right. Just everybody thinks you're automatically smarter if you talk like a Brit.

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But yeah, I think sometimes like, A, fleet managers just maybe they don't know the words or the vocabulary. They know what the problem is, but like, how do I translate this to those guys?

To finance. Yeah.

But then the other side of it is, you know, it's just credibility, right? It's, you know, how trustworthy are they? Have they built up the political capital? Do people trust their opinion? Or do they really need somebody to come out and be like, see, I've been telling you, this person agrees with me, and they just need validation?

Yeah, exactly.

Okay. So I'm guessing you come out and like you give them a model and everything as well. Like here's, you said you give them a 20-year model.

Yeah.

So they can really like, hey, here's not only the 10-year replacement for these fleet, these vehicles, but it's also the replacement model for their replacements.

Exactly.

So that way you're not like just coming in one and done.

Yeah.

You've got something you can use for the next 20 years until you retire, right?

Yep.

So talk to me about some like big wins you've gone through and you've done a lot of these studies. How many, how many times do you think you've done this study?

Oh man, at least 100 times. Like I do like—

100 different replacement plans?

Oh, at least.

Okay.

Yeah, I do at least a baseline for people to kind of give them an idea of, hey, where you're at. Yeah. And then sometimes I'll, I'll design an actual model for them to go forward with. We give them a little feelers at the beginning, but sometimes I go even deeper into it. But yeah, at least 100 times.

So 100 times, what— I guess I don't know where I want to go with this. Tell me about like one of your favorite stories. You've done this 100 times, like what have been some of the highlights?

So most recently I've I think I have a good success story. Okay. Where this fleet was only getting about, you know, half a million dollars in replacement funds.

Okay.

And they had maybe 1,000 assets. And so they, they weren't even close to coming.

How much did they need?

Uh, they needed about like $2.2 million.

They were getting half a million.

Yeah.

So they were getting 25%.

Not even close. It was so sad to see. I think their average fleet, uh, average age of their fleet was like 16 years old.

Oh geez.

and it should have been like 9. Yeah. So it was really bad, like almost already double. So very unfortunate.

But if there's a fleet manager listening to this right now and you're like, hey, that's me.

Yeah.

And just know you're not alone. Right. Yeah.

Definitely not alone. It's almost every fleet I go to. Yeah. So I gave a presentation to their council.

Okay.

And showed them the numbers and they agreed and they were like, okay. Yeah, no, we had no idea. We just didn't know it was this bad. So, and they agreed to fund it up to $2 million. So I was really happy about that.

Oh, that's awesome. And they're not like, hey, well, let's go ahead and we'll just go this up to a million. Like, what does this look— because I'm sure you get that too.

Yeah.

Well, what if we didn't go a full 2.2? What if we only went up to like a million? Yeah, right.

Yeah.

I don't know if we can afford that.

I'll model that out for some people and show them, okay, well, you know, you'll catch up in 20 years at that point.

Well, not enough if they ever catch up. They might just like— it'll just slow down the decay.

Yeah.

You know, so now your age, your age of your fleet if you continue at this rate, I'm sure you do that too, right?

Yeah.

Like this fleet here, you're only doing 25% of your fleet every year, so it'll take you 40 years and by then you'll have to replace those vehicles. And so like it just ends up compounding. I'm sure the graph just looks like this.

Yeah. Yeah.

So like if you went to half, okay, well it doesn't go like this now. It goes like this, right? But it never— the gap never closes.

Yeah. So I did that for that project and at half a million dollars we show overdue as red, meaning assets that should have been replaced today. For the 20 years, it was all red. It was all overdue assets that should have been replaced already.

Yeah.

So they just, they never even caught up to what they should have already replaced. It was insane.

They like, you really, okay, you're gonna give us $2 million, you should just give us the full, let me think about this, $2.2 million, 10%. So you needed $20 million.

Yeah.

Yeah. So you just give us the $20 million, we'll replace the entire fleet this year, and then $2 million every year after.

Yeah.

What a racket that would've turned into. So tell me about a, maybe the other side of this, like tell me about a story where you went in, you pitched it and they did what I was suggesting where it was like, yeah, what if we, what if we didn't do that at all? I'm guessing you've had that happen too.

That has definitely happened plenty of times where they just don't have the money. Like it's just a money factor, right? Especially in the past couple of years where money's been tight, you know, they just can't, they can't scratch it, unfortunately.

But I would, I would tell you they do have the money.

They do.

They just don't have the money, they don't want to give up whatever they're having to give up to pay for this.

The best way to address that, that I've been kind of angling at when they just don't want to flat out give it is, hey, you need to do an ISF, an internal service fund. Because fleet is a service. Your organization doesn't run if fleet isn't maintaining the assets or replacing them. So do that, do a chargeback system so the organizations are paying for what they use and it's fair, it's transparent.

Nope.

And that's a good way to kind of get back on track because you charge them for what it costs and it'll give you some money to actually replace the assets.

So, so as we walked in here, I asked you like, hey, what's something you're really passionate about? And you said replacement plans. Now you've done 100 of them. So like, I'd assume— what is it about replacement plans? Like, why do you like this so much?

One, it's just I'm an analytical guy, so it's kind of fun for me to dig into the numbers and kind of see where things end up. But also I think it's just kind of the, like, it's the root cause of a lot of things. Like I mentioned before, it has that, that snowball effect where if you're not planning for replacements, you're going to see issues on the other end and you're not going to know why.

Yeah.

You know, if you don't have that idea in your head about when you should be doing this and how far behind you are and all that stuff. Yeah. So why do we have so much work? Why are assets so old? Oh, I haven't been replacing them on time.

No. And why— yeah, why do I have so many technician vacancies? Do I really need this many technicians? And all that, you know, it, it is the little kernel that just sprouts a ton of weeds.

Yep.

You know, you think about it, you had a bad— if you've got a bad replacement plan, not only you're going to drive technician shortage, uh, you're gonna have a lot of downtime, which means you're gonna have a lot more spare fleet.

Yep.

It's like just all of a sudden it starts compounding. There's one little thing, if you just got your replacement plan in order it fixed a lot of these problems just by doing that. So I can get, I can definitely see why you're a bit passionate about it. And it is a total numbers game. Yeah, it's super easy. It's like there's no, you know, like flimsy math. There's no art to this. It's just literally straight up math.

Yep.

We can math this stuff and really project out exactly what you need, how often you need it, and get down to like this vehicle, when should you replace that vehicle versus this vehicle? You know, and this is just the replacement plan. This doesn't get into the next piece of this. Yeah. which is like the full-on rightsizing study, right, typing study, because you kind of need this foundationally.

Yep.

If you're not replacing any vehicles, it doesn't matter what you're replacing them with.

Nope.

But, you know, as we, we like to— those kind of go really hand in hand. But you have to start with your replacement plan, then you figure out, okay, of these vehicles, what should we replace, what shouldn't we replace?

Yeah.

Should replace them with a cheaper asset, because then you'll see if you really are hard up for money is a great way to extend the life of your, you know, CapEx allocation.

Exactly.

So you're only getting $2.2 million. Okay, well, what if you reduce the, you know, cost per asset by 10%? Now all of a sudden you can go get another asset. Yep. You know, and, or maybe 2 or 3 depending on the cost of your asset. You know, if you're averaging $20,000 or $30,000 apiece, that goes a lot of places. So then all of a sudden now you can replace more of your backlog instead of trying to play catch up.

Yep.

Okay. All right. Well, any last parting wisdom for our listeners on replacement studies, replacement planning? I like— I know they can do this themselves. Can. But obviously if they, if they get stuck or something like that, that's what we're here for.

Yeah.

And you could probably get a lot of this data out of your FMIS. Yeah, I know ours has it built into it.

Exactly.

But any last words of wisdom for our listeners?

Yeah. Take a look at your replacement plans. You know, try and build out, you know, at least a 10-year plan, a 20-year plan. Really try and look at those numbers 'cause it's really the root cause of a lot of issues.

Yeah, and if I had a takeaway, it's like the very simple math of what's the total cost of your fleet?

Yeah.

What's the average life of your fleet that you need to get?

Yep.

And if your allocation every year isn't doing at least that, you're falling behind.

Yep.

Right, and so that's super simple math. You can hit that, you can present that to council.

Yeah.

Guys, I don't even need to model this out. I can tell you this is the math.

Yeah. Right?

$150 million fleet, I need to do $15 million a year. That's it. And you're giving me 7. What do you think is going to happen? That's it. Like you just put that on a PowerPoint. You don't even need the rest of it.

Exactly.

You can literally just sketch that out on pencil. So, but yeah, if you want to go further deeper, get actually into the weeds, because some assets have different life cycles and things like that. So we'll put that in the model as well. This is a 5-year asset. This is a 10-year asset. Yep. Hopefully there's not a 15, although I guess you could probably do that for some like back trucks or something. But yeah, other things that are just like you just don't need, we'll model out the entire plan and then give you something that has— that you can go back and build out your ISF, your chargeback system. Yep. Because the replacement fund has to be a big piece of the chargeback system.

Oh, it's the basic stuff.

It's not just M&R.

Yeah.

Yeah, like you have to have all this stuff. So, and then otherwise you're getting fallen behind in that as well.

And yeah.

Because the departments really should be funding their own replacement.

Yep.

So. All right. Well, that's going to do it for this week's episode of the Fleet Success Show. Griffin, awesome having you on board.

Thanks for having me, man.

Super smart with the beard and the glasses. It's just— it's a whole thing. I'm telling you, if you want to work at RTA, I'm pretty sure like a beard's a requirement.

I think so.

So with that, though, that's going to do it for us until next time. Thanks for listening. We hope you enjoyed the show. If you'd like to help support the podcast, Please share it with others, post about it on LinkedIn, or leave a review. Want to learn more about our fleet management software Fleet 360? Check us out at rtafleet.com. If you want to learn more about having your fleet evaluated by our consulting team, go to fleetconsulting.com.