Many opinions on equipment utilization – What does the utilization number represent?
Everyone agrees that equipment utilization is a Key Performance Indicator (KPI). Fleets prioritize utilization differently on the list of KPIs, but generally keep it near the top five analysis priorities. High utilization is a great indicator of a high revenue, low cost per mile, and a healthy bottom line.
However, even fleets that understand the importance of the utilization number eventually wonder “What does the utilization percentage number actually represent?”
Fleet Utilization Trend for 10 days
The premise appears simple – vehicles are utilized by moving and pulling a load, and vehicles are not utilized while sitting idle in the yard – but does everything fit cleanly into those two categories?
In this post, we will discuss utilization based on miles, in terms of miles driven per day. In another post we will discuss utilization based on hours and revenue.
We find that a majority of fleets measure utilization based on miles. For example, your fleet may set a goal of 3000 weekly miles as a 100 percent utilization threshold. Meeting or exceeding that goal counts as 100 percent utilization, and anything below your goal is calculated as a proportionate percentage of your goal, all the way down to zero miles, or zero percent utilization.
So far, so good, and very simple. However, there are varying approaches to how to count miles. Some fleets consider it adequate to calculate utilization based on all miles. If the truck is moving, then dispatchers cannot use it elsewhere. The truck is utilized.
Weekly Utilization Trend for a vehicle
Other fleets prefer to discount empty miles from the calculation – if there is no revenue generated per mile, then the truck is not utilized. Empty miles can skew utilization metrics. For example, you may send a Milwaukee-based truck to pick up a load in Chicago, ninety miles away, then take the load to Grand Rapids, bring another load back to Chicago, and then send the truck home, to Milwaukee. The truck has a 580 mile day with 400 revenue miles. If the utilization percentage is based on all miles, with a goal of 600 daily miles as 100 percent, then the truck is utilized 96 percent. That looks great, but is potentially misleading. If the empty miles are discounted, this truck is utilized only 66 percent. Big difference! Of course, if the rate per mile is high enough, then a fleet can make a case for counting empty miles.
Larger fleets profit from further refinement of utilization calculations, and may introduce weighted categories into the equation. For example, one fleet’s utilization calculation might count only 50 percent of the stem miles, but 75 percent of the deadhead miles that occur between two loads. Another fleet may count 100 percent of miles for headhauls, but only 95 percent of miles for the backhauls.
Fleets can also count the revenue per mile as a weighted factor in the utilization calculation. For example, the miles on a fronthaul at $2.49 per mile would account for a higher utilization percentage than the same miles on the way back at $1.99 per mile.
Daily Utilization by Hour for Five Units
So, which is the best way? That depends on a few factors. If your fleet does not use a dispatching software able to connect to on-board devices, your only option may be a simple ‘all miles in’ approach. If you run a dispatch software as a part of your transportation management system but lack personnel and time to interpret sophisticated weighted parameters, you may benefit most from the revenue miles utilization schema. Arguably, you could achieve the most accurate results with the comprehensive approach that uses weighted parameters.
Increasing the relative precision of a utilization calculation has a trade-off. As you introduce more factors into the calculation of a number, that number becomes harder to understand. When the calculations are too obscure, the information itself may become less actionable. What do you actually need to fix if you see a problem?
We would like to hear your opinion. What is utilization to you? What method do you use, and why? If you are a LoadTrek Software customer, what methodology would you like us to use as a default?
Please leave a comment on this post! We will read the comments and consider your suggestions for our next software release.