Increase efficiency of car fleet management and utilization of vehicles
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Mai 2011 |
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ACCENTURE CENTRAL EUROPE B.V AMSTERDAM, OLANDA-SUCURSALA BUCURESTI |
Adresa
Strada Preciziei, Nr. 24
Cladirea Westgate Park, Cladirea H 1, Etaj 1, Ap. 4
062204 Bucuresti, Sector 6
Telefon
+40-372-28.60.00
Fax
+40-372-28.60.01
Website
www.accenture.ro
CAR FLEET OPTIMIZATION ENABLES REALIZATION OF UNEXPECTED SAVINGS
Interest in the issue of company cars is in general very high in majority of companies. However, it is not a surprise that employees including managers are more interested in car entitlement, trim level and optional packages rather than fleet management and optimization of cost / performance ratio of the fleet size as a whole. Most executives don’t really understand the challenges their fleet managers face and the tools available to address them. Even if not being part of the core business (if the case) the car fleet management deserves attention due to its significant potential for optimization and thus increase of overall profitability.
CHALLENGES
The key areas challenging the fleet managers of today are mostly inadequate company fleet size with many different types and classes of vehicles requiring ever growing maintenance and repair costs. Among others, the different life cycles of individual vehicles are also substantial aspect of complexity for companies. Taking into consideration addition external pressures like decrease of alternative transportation prices or drive to decrease carbon footprint the role of a fleet manager is not one to be envied. The only relevant aspect of recent times helping to bear this burden are currently low purchasing prices for cars of all types as a result of global slowdown.
MAJOR OPTIMIZATION TOOLS
To address the challenges the high performing companies use a combination of the following tools:
- TCO (Total cost of ownership)
- Streamlined vehicles allocation and fleet size optimization
- Operating model alternatives and potential outsourcing of selected services
- Risk management tools
The road for improvement usually starts in-house, with thorough and detailed investigation into all TCO categories and related contractual conditions. Rigorous and holistic approach is a must to provide reliable results. It is followed by analysis of the current size and structure of fleet as a result of historical decisions and response to operational needs. With situation mapped and needs defined available operating models alternatives are confronted and the proper combination selected.
To secure the availability and quality of service appropriate risk management tools are employed.
TOTAL COST OF OWNERSHIP
Companies with large fleet of vehicles strive to continually improve operating efficiency by focusing on the key areas: Buy smart, operate and maintain smart and sell smart.
One of the concepts used to success in this endeavour is the TCO, which tackles all three of them while providing rationale for executives when making decisions.
TCO model in fleet management typically consists of easily visible big items, where purchasing price and resale price are seen as biggest influencers of the whole model. These items however create only half of the overall TCO costs. The rest lies in areas like usage costs, maintenance and repairs, fuel costs and overall administration costs. Typically, improvement areas for companies lie in all of these areas and by conducting detailed analysis rather easily obtainable savings can be achieved. This however requires effort coming not only from one department, but needs involvement of fleet managers, procurement, maintenance and mostly willingness from the fleet users – the internal customers.
STREAMLINED VEHICLES ALLOCATION AND FLEET SIZE OPTIMIZATION
With the TCO analyzed the focus moves to current size and structure of the fleet. This means gathering the data on vehicle types and numbers as well as the different vehicle specification on one side followed by utilization analysis of individual vehicles by users and geographies. The typical result shows proliferation of vehicles and specs, as a result of various vehicle or rewards policies and not clearly defined vehicle purpose. In this case it is recommended to review and update the company car policy. Important factor is also hidden in matching vehicles with work needs. It is vital to define necessary specification of the vehicle, while having in mind the purpose, for which it has been bought, whether for core technical activities or administrative personal rides.
The way the vehicles are used often creates space for further savings. Too many cars in fleet imply not only unnecessary purchase cost, but cause low utilization leading to over aging and thus deteriorating safety, eco-impact, maintenance and repair costs and image of the company.
On top of securing the required vehicles for the company each fleet manager should therefore focus on fleet size optimization from time to time, if not regularly. Accenture is helping its clients in this uneasy task by processing the vast GPS and logbook data, analyzing the driving patterns and preparing optimization options. Using various indicators (monthly mileage, total monthly driving time, days in usage per month, hours in usage per day, number of drivers, etc.) allows assessing the possibility to opt for alternatives like taxi, short term car rental or intensification of cars sharing among employees. This way more flexibility and transportation costs correlating with the business need can be achieved without sacrificing mobility.
Fleet size is very sensitive topic and not easy to optimize as company car is perceived as benefit even if it is not part of the employment contract. The results of analysis provide management with viable arguments to change fleet related employee’s habits of and corporate culture.
OPERATING MODEL ALTERNATIVES
With the TCO and vehicles need in mind, the next logical step is to think about options of operating model to source the fleet related services, check the market and look for potential savings.
The basic 4 types of operating model to be considered are:
- In-house – vehicles are in ownership of the user company, which also manages the fleet itself.
- In-house with outsourced Fleet services – so called „Fleet Management“, where fleet management provider renders a range of services to vehicles that he doesn‘t own.
- Operating lease with open calculation – service and maintenance costs are invoiced to client as they were consumed.
- Full service lease – so called „All inclusive“ operating lease, which includes all costs in the monthly fee with no additional invoicing on top of it. In models with closed calculation the client hands over the control over the repair and maintenance costs to the service provider as exchange for fixed monthly fee allowing him to exactly plan the cost of fleet services. On the contrary, by open calculation the control over the repair and maintenance costs is fully in hands (and all related risks on the shoulders) of the client, creating a potential for savings. However, this potential is very hard to exploit not scarifying the quality of the service.
The sunny and cloudy sides of fleet outsourcing
Teaming with an outsourcing partner can bring benefits stemming from 4 main sources:
- Efficiency of operations – number of fleet department employees / size of managed fleet ratio is a simple yet clear indicator of who is able to provide the service with lover costs. Apart from personnel costs, other administrative and overhead cost may represent significant burden.
- Optimized Life-Cycle of vehicles – the bigger the fleet the better and more complex information is available to the fleet manager allowing defining optimum usage duration in terms of time and mileage. In this area professional fleet managers have big advantage compared to companies whose core business is something completely different.
- Better contractual conditions due to the scope – especially companies with smaller fleet size have limited negotiating power to purchase vehicles and services for prices the bigger players do.
- Interest rate differential – the gap between client’s WACC (cost of capital) and lease interest rate.
According to Accenture project experiences the saving potential of operating model change (with the level of service and mobility unchanged) lays between 10 and 20%, in some industries even higher. Very important is also the cash utilization perspective – client’s net margin and investment opportunities show clearly if it is more profitable to invest into core business or purchase cars.
Apart from these quantifiable benefits the change will simplify planning of future cash flows and cost of car fleet, increase process and costs transparency, standardize services and reduce management effort spent on fleet management.
As any other outsourcing deal the implementation brings some risks and drawbacks, however they are far less significant compared to outsourcing of other functions like finance, IT or some HR processes.
Rightsizing is always difficult and misunderstood. The concept of TCO is not known to many employees (even on the managerial level) and trade unions and loss of control over the process of purchase and management of vehicles is often unreasonably perceived as critical. Implementation costs must not be forgotten as well. Selecting the provider or even running a tender, calculating the business case, payment of severance pay, handing over the operations all takes time and money.
