|At a Glance|
|Managing indirect and direct labor costs can improve operational efficiency and a fleet’s bottom line. Fleet managers use various methods to track and manage indirect costs:
Tracking indirect and direct fleet costs has long been an area of focus for Aaron Alvarado, utilities fleet manager for the Public Utilities Department at the City of Tacoma, Wash. Managing those costs was also an area of focus for him at his previous position at the City of Tempe, Ariz.
“I’ve been here for about a year, and tracking those costs has been a battle cry,” said Alvarado, who manages about 1,200 vehicles and pieces of equipment including aerial bucket trucks, digger derricks, hydro excavators, mowers, backhoes, cars, and pickup trucks. “It’s always been an industry practice.”
Fleet managers interviewed for this article defined direct and indirect fleet costs in slightly different ways. They agree on direct labor, which Alvarado sums up as time on task, or any time spent doing a specific task or repair. The work order is open, and as soon as the technician clocks in to perform preventive maintenance (PM), for example, that counts as direct labor. The technician gets the work order, picks up the vehicle, and services it.
Alvarado defines indirect labor as everything else that is not “time on task,” such as training, sick time, vacation time, and breaks.
John Hunt, CFPP, fleet manager for the City of Portland, Ore., divides billable time into three major categories: direct time, paid leave time, and indirect time. Indirect time includes time spent in meetings, training programs, safety programs, work order processing, and invoice processing. Paid leave time includes vacations and sick leave. He said while they’re still a direct cost to the fleet operation, technicians are not directly billing for these activities.
The issue of monitoring and managing indirect labor costs is important because time is so important to fleet management, Hunt said. He quoted Benjamin Franklin, who said, “Lost time is never found again.” Every second a technician’s focus moves away from a direct labor task to non-productive time is time a fleet department can’t bill out, Hunt said, and the fleet during that non-productive time might not bring in the revenue needed to keep the lights on and pay for all indirect costs.
“The quote from Ben Franklin is so true in our world,” Hunt said. “You can’t ever get that lost time back. Tracking time within an organization can help improve operational efficiency and your bottom line.”
Alvarado and other government fleet managers agree with Hunt on the importance of tracking and managing indirect labor costs. However they define indirect labor, they mostly agree on a goal to have staff on task and performing direct labor at least 70% of the time, with 80% being the ultimate goal. Out of the 2,080 hours a year that a full-time technician can work, 70% of that, or 1,456 hours, to 80% of that, or 1,664 hours, should be direct hours.
Vehicle equivalency, or assigning class codes to vehicles, is an important aspect of meeting that 70% goal for Alvarado. He assigns class codes to each type of vehicle based on how long it takes to maintain the vehicle each year. A sedan takes about eight hours a year to maintain. An aerial bucket truck takes 120. Maintaining the Tacoma Public Utilities fleet takes about 30,000 hours per year on average. The maintenance times include PMs and inspections but do not include unscheduled breakdowns.
“I look at the [1,456] hours and how many techs I have,” Alvarado said. “Then I run out the 70%, and that’s how I calculate my staffing.”
Government fleet managers and a fleet consultant described for Government Fleet additional methods to track and manage indirect fleet costs.
Why Are Technicians Waiting?
Technicians waiting for parts to be delivered is a top indirect time issue. If that issue is taking a lot of technicians’ time, someone at the fleet organization should find out why.
The possibilities are numerous: parts staff doesn’t have the right parts in stock, the parts vendor is delayed, they don’t have anyone to go get the parts, or the shop is too small and the technician can’t work on anything else until he finishes repairing the vehicle he’s working on.
“Whatever the issue is, they need to find out why [the technician is] not working on a vehicle and get him working on a vehicle,” said James Wright, president and CEO of Fleet Counselor Services and associate director of the Government Fleet Management Alliance (GFMA).
When a technician is waiting for a part, Hunt calls that “non-productive time.” Figuring out a way to get the part in the technician’s hand is extremely important, and Hunt is proud his parts room staff consistently reports a fill rate of at least 80%. He explained that fill rate addresses how often the parts room has the part when the mechanic comes up to the counter.
Keeping that fill rate high is a challenge with a large fleet because of the diversity of the equipment. Hunt runs reports showing parts movement, reorder points, safety stock levels, and obsolescence reviews to keep the most-needed products on the shelf.
Alan Lane, fleet unit manager for the Palm Beach County Florida Sheriff’s Office, tracks indirect and direct labor to determine if a problem exists with a specific technician or if the department is putting too much workload on its technicians, and the department needs to hire more help.
Using Oracle and the FASTER fleet management system, Lane will search for the number of hours the technician worked in a specific month. The system shows information such as reports on technician labor activity and productivity percentage.
Fleets using this method should be aware of technician productivity in order to pinpoint any unusual numbers. In some cases, the system Lane uses will produce incorrect numbers that might show a technician producing at 103%, for example.
“We know that’s not true, so we know somewhere along the line the technician forgot to log off, or the technician wasn’t tracking his time properly,” Lane stated. A productive technician might show a low productivity number because he might have forgotten to log off on time. Lane is working with a fleet consulting firm to improve the validity of the data coming out of those reports.
Provide Incentives to Employees to Decrease Sick Time
Wright and Hunt both mentioned a program from Frank Morgan, who was with the City of Long Beach, Calif., in 2008 when he created “sick leave bingo.” The program, which awards a mark on a bingo card and then prizes for employees who use the least amount of sick time, reduced sick leave abuse by more than 1,500 hours in one year.
“Reducing that sick leave more than pays for gifts that would be provided,” Wright said.
Managers should pay close attention to their employees’ sick leave patterns. The closer they monitor it, the easier it is to fix. Often, it’s not abuse that needs to be remedied. If you’re understaffed and you overwork your employees, that can cause an increase in sick and injury leave. Rather than the employees doing a poor job, inadequate staffing might be the problem, Wright said.
Consider Disciplinary Action
Wright, who previously worked for different municipal fleets in Colorado, once suspected an employee of abusing injury leave time. Wright and the employee’s supervisor checked up on him and caught him on videotape installing a transmission in his race car at home.
“He came back to work and we showed that to him,” Wright said. “We gave him five days off without pay, and that kind of took care of the issue.”
Keep an eye out for time abuse. If a technician is reporting two-and-a-half hours to do a PM inspection on a one-ton truck while the rest of the shop averages one-and-a-half hours for the same job, for example, fleet managers can take several steps to remedy the situation.
Counseling is the first step, Wright said.
Taking action to remedy the situation is the second step. Determine if the work environment causes these delays, such as if the shop lacks adequate tools or space.
But if the time abuse continues, that means the employee might just be goofing off, Wright said. Disciplinary action is necessary at that point, as appropriate with each public agency’s policies. This can include unpaid leave or a pay cut. Wright remembers a particularly unproductive employee who often showed up late. After counseling didn’t work, Wright gave the employee a day off without pay. Employees at the facility normally received a 5% pay increase at the time of their merit review, but Wright gave that employee a 5% decrease.
Take time to investigate the situation before moving to disciplinary action, Wright said. It could be a morale issue or a conflict between employees. Alcohol or drug abuse could be involved. “Do your homework up front in a counseling session, because you only want to use disciplinary action as a last resort,” he said.
Recognize the Importance of Indirect Time
While reducing indirect time can improve operation efficiency, it’s also important to recognize the importance of some indirect time, and even schedule them in. Hunt realizes the importance of indirect labor, such as safety and training, and just how important people are to his organization. Skilled and knowledgeable technical staff can diagnose problems quickly and provide quality repairs, improving vehicle uptime, he stated. Hiring qualified employees and constant training helps fleet managers improve their operations and use of time.
Capture Indirect/Direct Costs In Your Fleet Management System
John Hunt of the City of Portland, Ore., produces reports that he says should provide data “that guides incremental change for organizational improvement.” The information includes:
- Employee Billable Hours.
- Employee Performance Summary Report. The report displays time by category by shop “so you know by shop the time spent for meetings and time for training or other indirect activities,” Hunt said. The report shows direct costs as well.
- Employee Performance Report. The report shows where each employee’s time is spent within a shop.
- Employee Performance Detail Report. This report compares direct job time to industry time standards to seek improvement opportunities. The goal is to bill an appropriate amount of time for each job task. “We’re using an industry standard for our job task time to see if we’re over or under the allotted amount of time,” Hunt said.
- Aaron Alvarado, utilities fleet manager, Public Utilities Department, City of Tacoma, Wash.
- John Hunt, CPFP, fleet manager, City of Portland, Ore.
- Alan Lane, fleet unit manager, Palm Beach County Sheriff’s Office, Fla.
- James Wright, president and CEO, Fleet Counselor Services