Is your Asset Replacement Policy up to Speed?


By intouch * posted 18-07-2019 12:42


Over the years at IPWEA, we have consistently seen fleet practitioners grapple with the creation of effective asset replacement policies. It’s not an easy task to create effective policies and it can be tempting to take one of the easier routes, like continuing to apply past policies, looking to examples from others, or simply applying a ‘one size fits all’ industry rule of thumb.

However, in this age of data abundance and analytics, there’s likely to be a better way that can lead to an improved asset replacement policy for your organisation’s fleet – and a better bottom-line. 

For a long time now, fleet practitioners have wanted to optimise asset replacement. They know that as assets age, their operational costs increase while their book and residual value decline, due to factors like depreciation and a reduction in market prices of similar assets. So, policies are created seeking that sweet-spot where the value of an asset is optimised. 

To achieve this, traditionally, it’s been common to apply a standardised rule of thumb for different asset classes like replacing light vehicles when a certain usage is reached, for example at say 120,000km, or at a fixed point in time, like every three to five years for light vehicles and say, eight to ten years for heavy vehicles. However, as we all know, new technology has seen an explosion in the data available to fleet managers and along with it, there’s been nothing short of a revolution in data analytics. This has led to a trend for fleet managers to improve on methods of the past. 

IPWEA provides extensive assistance to fleet practitioners in this area. Their position has been that information needs to be current and decisions on when to replace assets should be based on optimum replacement timing determined for the specific asset type in its specific operating conditions. For example, optimum replacement timing for all fleet assets considers things like:

      • whole-of-life cost; 
      • WHS considerations;
      • environmental impact;
      • warranty conditions;
      • market conditions (including changeable residual values);
      • operating conditions;
      • remote locations – make/model availability and service support; and
      • technology.

IPWEA's Plant and Vehicle Management Manual provides guidance on determining useful asset life. It also provides subscribers with tools to undertake their own analyses, for example:

      • a Whole of Life cost calculator, which can be used to estimate WOL costs over various scenarios using an organisations own data; and 
      • a Light Vehicle Comparison Service, which is a great tool to compare WOL costs over different life cycle scenarios using fleet industry data.

These can be found at the IPWEA website Fleet & Plant – Institute of Public Works Engineering Australasia. Ideally optimum changeover is reviewed annually, taking into account the above factors, a risk assessment of deferring replacement and the organisation policy, which should allow the fleet practitioner flexibility to take advantage of market opportunities.

The use of this type of broader approach to asset replacement has been reflected for a while by a growing portion of the industry. An example is QFleet, which is evident in their ‘Fleet Efficiency and Utilisation Policy’ for the Queensland Government. This states an objective to provide consistent principles under a fleet management framework for all agencies to follow in the selection, operational management and assessment of vehicle assets. It uses a five-step process to try and achieve this goal, including conducting annual strategic fleet management reviews, assessing whole of fleet performance and requiring government agencies to make informed, justified decisions on fleet replacement, for example by assessing environmental and financial parameters specific to each agency.

This type of tailored approach to asset replacement has been aided substantially by improved fleet technology. An increase in the effectiveness and availability of fleet software has provided the means to capture and analyse extensive and targeted data. Comprehensive asset replacement plans can be created which are customised to an organisation’s own fleet and requirements.

So, fulsome, customised and effective asset replacement plans are becoming more and more common. They can improve profitability within a fleet and, thereby, enhance a fleet practitioner’s value to their organisation. It’s therefore clearly worth considering whether your asset replacement policy is up to speed.