Evaluating Fuel Reduction Costs for Peregrine Trucking Company
MGT325
Instructor: Ricky Benito
September 28, 2014

The transportation system is designed to move cargo between points of embarkation to debarkation and serves the customer (requestor) and the carrier (shipper). Within the transportation system, different entities are working together to ensure a smooth reliable process is in place to benefit the customer and the company. As with any business, there are expenses related to the daily operation and with a company that operates modes of transportation, fuel is probably their biggest expense. As a transportation analyst for Peregrine Trucking Company, I will identify five areas in which the company can cut fuel costs. These five areas include optimal use of the trucks, ensuring the right equipment is being used like tires and engines, consideration of fleet commonality, the use of a third part logistics (3PL) and employee retention. Additionally, introducing new processes, equipment and calculating the cost savings will enable management to make proper fuel savings decisions for the company using all available resources we have. Looking at the costs associated within the transportation system, there are two that are calculated as expenses-- variable costs and fixed costs. Though both cost structures reflect a distinct portion of the business expense, variable costs (such as fuel, wages, maintenance and highway user fees) account for 70 to 90% of the operating budget (Coyle, J., Novack, R.A., Gibson, B.J., & Barbi, E.J., Page 179 (2011). With such a high cost basis, reducing fuel costs is essential in order to maintain a competitive edge and increasing profit margins. These variable costs are necessary to keep the company running and keeping it competitive and able to draw in new business. The first area of focus in reducing fuel costs is to determine if the right equipment is being used and if the fuel consumption rate is enough to warrant the expenses incurred. Since the operating budget for fueling heavy-duty vehicles is so high, management has to think of ways to curb the excessive costs associated with trucking goods across the country. One of the steps to curb fuel cost is to utilize the vehicles at optimal times. Ensure that we are not sending out less-than-truckloads (LTL) shipments, as that cannot always be economical for the company.
By limiting truck transport to more than half full or full loads, we are able to increase our shipping charge and the revenue received from full truckloads gives us the ability to utilize the fleet in a more economic condition. Regular maintenance is important to having the best fuel economy and having your trucks inspected on a regular basis will ensure that they remain in good operational condition.
To calculate our fuel savings, we must find our fuel economy (X) and fuel consumption (Y) to determine at what point the fuel reduction savings start to happen. This will have to be done over a measured period of time, for example, one year, to see if we receive adequate savings. Based on a hypothetical average of 120,000 miles per year driven by the long haul trucks, with an average 6 to 7 mpg, then the savings per fuel per year comes out to about 2,800 gallons (Committee, T.A.F.N.E.T., 2010). Another area of concentration is the type of tires that are being used on the trucks. New designs in tire technology through companies like Bridgestone® means that truckers now have the ability to not only decrease fuel consumption, but also remain environmentally conscious while traveling the highways. Bridgestone’s Ecopia ™ tires offer a 25% improvement in roll efficiency and that results in less fuel use and CO2 emissions while driving (Bridgestone, 2014). By using these types of tires, we are not only saving on frequent and necessary fuel use, but the tires are designed for a longer lifetime and from are made from recycled tires, so they are not filling up landfills. By making this change, we can having a positive image to the public and gain their trust in delivering their goods and services. Tire technology is also important because the right type of tire will help to balance the load on the truck, but also offer a smoother ride and better highway capabilities. Ensuring that we have the right kinds of tires on the fleet will save on money since a common type of tire can be interchangeable between trucks. If one truck is broken down, the tires can be used to service another vehicle and make it operational. Fleet commonality is important when it comes to spending money on the right equipment. By having a fleet that is similar then we can operate with fewer spare parts required since the repair team will be able to cannibalize parts from one broken truck to fix another. This is important because having only one type of fleet reduces the need to purchase spare parts from multiple companies. By having a contract source to maintain the fleet, resources can be better allocated to invest in other areas that help in achieving fuel savings, such as newer and reliable engines. Having current technology in the engines being used and the right training will keep the fleet of trucks moving and if there is repair to be done, it should be minimal, since they will have current advanced tires through sources like Bridgestone. Calculating the fuel saving by using a common fleet all depends on when we can implement the new changes to replace the outdated equipment and organize the supply chain to reflect the new common parts needed to fix the fleet and maintain it. The fuel reduction would happen since new engines are designed to be more economically friendly and the trucks would have a longer road time before servicing. Another recourse the company has in reducing fuel costs is through the use of Third Party Logistics service provider (3PL). A 3PL is an outsourced transportation management company that handles some of the shipping needs of a client and provides process improvements for the company. This is important because by having a 3PL, Peregrine Trucking can save on fuel by having another company deliver cargo to areas that they might not serve. A good 3PL provider should be able to deliver several distinct services…from offering multiple modes of movement, having a low-cost network, and establish reliable transit times (Coyle, J., Novack, R.A., Gibson, B.J., & Barbi, E.J., Page 397 (2011). It is imperative that whatever 3PL Peregrine chooses, that they have he distinct capabilities to support Peregrine in all their daily transportation needs. This will ensure that Peregrine can utilize their fleet less and that in turn can lead to lower fuel use and lead to fuel savings. In the logistics community, building the right relationship can have a lasting effect on how business gets done and how whether or not the customers will come back. According to Lean Sigma Six Logistics, “Choosing a third-party logistics company (3PL) is a serious strategic sourcing decision. In most cases, when a company considers outsourcing to a 3PL, it is making a decision to give a piece of its business to the 3PL. This decision has lasting impact, as the 3PL will have direct communications with the company’s suppliers and customers” (Goldsby, Thomas J., and Martichenko, Robert, 2005, Page 162). So as you can see, the 3PL becomes an extended part of the organization because they are carrying out services that Peregrine would normally accomplish. The last area that Peregrine can look towards as a means of controlling fuel costs is to determine their employee numbers. The trucks need to be driven, that is a given, however, we must remember that wages are also a variable cost and that costs the company money also. Determination needs to be made to see if the right amounts of employees are with the company and what roles do they play in the daily operations. We do not want to have an over saturation of employees that are just eating up company finances. The idle time between delivery loads counts against company time and idle trucks are also wasting gas. Employees need to feel valued by the company and the way management treats them is a reflection of how they treat their clients and the public. Creating an atmosphere where the workers want to come to work daily is important because it shows that the company cares about them. There are certain companies in every community that have built reputations as companies where people want to work. They have become ‘‘employers of choice’’—an enviable status in today’s war-for-talent economy (Branham, F. Leigh, 2000, Page 23). By listening to ideas of improvement by employees, management is also empowering them to make suggestions that the company can implement if it is something that can benefit the company. Managers have a responsibility to be open and responsive to employees’ needs and that in turns drives the employees to trust management and the company more. Without that trust in place, it sets the company up for future failure and potential loss of clients. Keeping the employees happy and well compensated is important to keep the business going and avoid potential disruptions such as employees striking or failing to follow proper procedures when operating company vehicles and equipment. Activities like that can have a negative effect on the company atmosphere and also affect morale of the employees. But again, the company’s desire is to reduce the fuel cost and one of the ways that employees contribute to high fuel cost is the daily use of the vehicles, so to offset that, a staggered work schedule can be implemented to control vehicle usage and time that the drivers spend on the road. By introducing this measure, the savings can be calculated based on how many drivers are on the road each day and the vehicle utilization rate. Management must be able to accurately capture the cost saving measures that are outlined above. One way that they can do this is through an audit of their processes. An internal audit can determine what areas of the operation draw the largest amount of fuel consumption. Once the determination is made on areas that need fixing then management can make the correct decision such as how much fuel is being consumed and ways of saving on fuel needs and costs. The audit will also serve the purpose of developing workarounds to issues involved in making the operation run efficiently and to focus attention on growing the business in the right direction. Management can also use an audit to track the efficiency of the delivery network and where bottlenecks happen. By using timesheets and GPS installed in the vehicles, they can track how much fuel is being consumed by each truck, the loads that they are carry and to see where changes can be made in the delivery schedule. If there are certain areas of the delivery route that have roads that are harder to travel than others, such as highways that travel uphill, that causes the trucks to use more fuel because of the added power needed to get over the hills. Additionally, if there are routes that do not follow a straight highway system and requires the drive to use city streets, those areas can cause in increase in fuel. They would have to come up with new routes for the drives to use, or as suggested earlier, the use of a 3PL service provider to offset the need of Peregrine to use their own vehicles. Looking over the five areas that can be studied as means of reducing fuel consumption by the Peregrine Company, the easiest focus area to concentrate on is to ensure that the vehicles have the right tires. By changing to tires that have proven to reduce fuel consumption and increase mpg, the company can ensure that the measure they implement will lead to a decrease in fuel expenses. As managers it is our job to be corporately responsible and ensure that the company is operating in a responsible, environmentally safe manner. Implementing fuel reduction savings such as investing in new tires for our trucks and modernizing the fleet can reap savings in the long run for the company. Reducing carbon footprint is necessary in the transportation industry since heavy-duty vehicles contribute so much pollution compared to passenger vehicles. It is imperative that the major companies take the responsibility of ensuring that the future remains open for business and that they are doing their part in maintaining the environment. Innovative ideas are needed to keep pace with the changing shift to protecting the environment. Science is developing new technology that will reduce the oil consumed by transport. This means moving resources away from research into transport technology that can deliver only longer-term solutions (i.e., after 2025) and redeploying them into the deployment of available technology that can deliver short-term reductions in oil consumption (i.e., before 2015). The key to keeping ahead of oil depletion is to begin transforming our current mobility arrangements sooner rather than later (Gilbert, Richard, and Perl, Anthony, Page 278, 2010). This report covered five areas that Peregrine Trucking Company needed to focus on in order to reduce their fuel cost. The five areas include optimal use of the trucks (transporting a full truck load), investing in new tires that provide better gas mileage, developing fleet commonality, the use of 3PL and employee retention. All these areas serve to understand ways that the company can work to reduce one of its variable costs. By analyzing each area, management can come to a decision on which change is best for the company. In this case, the tires will provide the easiest solution to the fuels needs because it provides the most economical sense for Peregrine. Future development will eventually reduce the need for oil to transport cargo by truck, but for now, the resources are being utilized while still maintaining a small carbon footprint.

References
1. http://eds.a.ebscohost.com.proxy-library.ashford.edu/eds/ebookviewer/ebook/bmxlYmtfXzg2OTM4X19BTg2?sid=3446e907-9f41-4a7a-bb3f-39326dc8e287@sessionmgr4004&vid=23&format=EB&rid=4
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2. Committee, T. A. F. E. T., National, R. C., & Transportation, R. B. (2010). Technologies and Approaches to Reducing the Fuel Consumption of Medium- and Heavy-Duty Vehicles. Washington, DC, USA: National Academies Press. Retrieved from http://www.ebrary.com

3. Bridgestone Tire Company, Ecopia Tires http://www.ecopiatrucktires.com/environmental 4. Goldsby, Thomas J., and Martichenko, Robert. Lean Six Sigma Logistics. Boca Raton, FL, USA: J. Ross Publishing, Incorporated, 2005. ProQuest ebrary. Web. 28 September 2014.
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5. Branham, F. Leigh. Keeping the People Who Keep You in Business : Twenty Four Ways to Hang on to Your Most Valuable Talent. Saranac Lake, NY, USA: AMACOM Books, 2000. ProQuest ebrary. Web. 28 September 2014.
Copyright © 2000. AMACOM Books. All rights reserved.

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