Knowing the True Cost of Each Vehicle

How fleet cost management turned an unmeasured factory overhead into an accurate part of product cost.

Introduction

For this manufacturing business, the vehicle fleet is not a separate support function. Raw materials arrive by lorry, finished products are delivered to customer sites, and materials regularly move between factory yards.

Vehicles therefore represent a major operating cost and directly affect almost every product line.

Yet there was no reliable way to calculate the true running cost of each vehicle. Fuel, repairs, insurance, freight, driver wages and other expenses were available in the system, but they were scattered across different transactions.

The challenge was to bring them together through structured fleet management and vehicle expense tracking.

Problem Statement

1. Vehicle expenses were scattered across different records.

Fuel and charging costs were recorded in one place, servicing and repairs in another, while insurance, road tax, permits, fitness, tyres, FASTag and driver wages were tracked separately. There was no single vehicle cost management report showing the total expense of each vehicle.

2. Important fleet decisions could not be made using data.

Management could not easily determine whether an ageing lorry should be retained or replaced, whether hiring was cheaper than owning, or which vehicle had unusually high fuel or maintenance costs.

3. Fuel mileage tracking was unreliable.

Mileage depended on odometer readings between fuel fills. But fuel slips were not always entered in chronological order. A Tuesday fuel entry might be recorded after Wednesday's entry, causing incorrect distance and mileage calculations.

4. Annual vehicle expenses distorted monthly costs.

Insurance, permits, road tax and fitness charges were recorded in the month they were paid. This created an artificially high vehicle running cost in one month while understating the remaining months.

5. Inward freight was not included correctly in material cost.

Transportation expenses for bringing raw materials to the factory were recorded but not properly attributed. This understated the true landed cost of materials and made supplier comparisons inaccurate.

6. Vehicle renewals depended on manual reminders.

Insurance, permits and fitness renewals depended on employees remembering the due date. Missing a renewal could result in operational delays and avoidable penalties.

Solution Implemented

a. Complete vehicle-wise expense tracking.

Fuel, charging, servicing, repairs, tyres, FASTag, insurance, road tax, permits, fitness and other vehicle expenses are now recorded against the respective vehicle. This provides one complete vehicle running cost for management review.

b. Self-correcting odometer and mileage tracking.

Out-of-order odometer entries are handled automatically. When an earlier reading is entered, dependent draft records recalculate the travelled distance, improving the accuracy of fuel and mileage tracking.

c. Fuel consumption tracked by fuel type.

Fuel usage is monitored separately, including AdBlue consumption for applicable vehicles. This gives management a more accurate picture of fuel efficiency and operating cost.

d. Annual expenses distributed across their actual period.

Insurance, permits and other annual vehicle charges are spread across the period they relate to rather than appearing entirely in one month. Monthly fleet cost reports can therefore be compared accurately.

e. Inward freight connected with raw material cost.

Transportation cost for incoming materials is attributed to the material being carried. Supplier comparisons now consider both purchase price and the cost of bringing the material to the factory.

f. Fleet expenses allocated to product cost.

Vehicle costs are distributed across product lines using percentage-based allocation. Fleet expenses therefore become part of the true manufacturing cost per product instead of remaining as an unidentified general overhead.

g. Vehicle and fleet management reports.

Reports now provide vehicle-wise running cost, fuel consumption, mileage, inward freight expenses and product-wise vehicle cost allocation. Management can analyse the fleet using actual operational figures.

h. Automatic vehicle maintenance and renewal reminders.

Insurance, fitness and other renewal dates are tracked automatically, reducing dependence on manual follow-up and improving fleet maintenance management.

Outcomes & Benefits

✓ Every vehicle now has a complete running cost that can be analysed for any period.

✓ Keep-or-replace and hire-or-own decisions can be made using actual fleet cost data.

✓ Fuel and mileage tracking became reliable even when odometer entries arrive out of sequence.

✓ AdBlue and other vehicle-specific operating expenses are included in the total running cost.

✓ Monthly vehicle costs are comparable because annual expenses are distributed correctly.

✓ Inward freight is included in raw material cost, enabling more accurate supplier comparisons.

✓ Vehicle expenses are allocated to product cost instead of remaining hidden under general factory overheads.

✓ Insurance, fitness and vehicle renewal dates are monitored automatically.

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