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Applying Industry Best Practices to Federal Fleet Management – The Case for Total Cost of Ownership

June 28, 2012

Copyright © 2012 Accenture All rights reserved. 2

Federal Fleet Challenges

Presidential Memorandum: Federal Fleet Performance

“We owe a responsibility to American citizens to lead by example and contribute to meeting our national goals of reducing oil imports by one-third by 2025 and putting one millionadvanced vehicles on the road by 2015.”

GSA Guidance

Bulleting FMR B-30Vehicle Allocation Methodology:

Annually provide a standard way to ensure that each vehicle in your fleet is correctly sized and is appropriate for accomplishing the agency missions.

Bulletin FMR B-30Fleet Management Plan:

Annually describe how your agency will achieve its optimal fleet inventory, alternative fuel schedule, sourcing decisions, and incorporate in strategic sustainability performance plan.

Bulletin FMR B-15Fleet Management Information System:

Implement a centralized system to identify, collect, and analyze motor vehicle data with respect to all costs incurred for the operation, maintenance, acquisition, and disposition of motor vehicles.


Total Cost of Ownership

By using a structured, diagnostic approach to calculate TCO, fleet managers will have the information needed to make difficult changes


TCO is an easy-to-understand, but tricky to calculate, number that fleet managers can use to compare costs within their fleet, identify trends, and make replacement decisions

Key TCO Drivers

TCO can be offset or reduced by:

•Optimizing vehicle lifecycles (in years)

•Decreasing individual vehicle utilization

•Increasing disposal reimbursements


TCO metrics provide visibility into true fleet costs and provide justification for Fleet Management policy decisions

TCO Example Metric


Implementing World-Class Fleet Management is a multistep, interlinked set of actions leading to lowest Total Cost of Ownership

Mile Markers


TCO in ActionFleet: Major Telecommunication Provider

Results•Over $73M NPV Savings

through 8 years•Newer and More Reliable

Fleet•Universal Safety standards•Improve vehicle to employee

ratio from 1:5 to 1:1•Implement 1 fleet

management system

(migrating from 4)

A Telecommunication company needed to develop and implement a fleet transformation strategy. The company sought a centrally managed, strategically focused fleet program with standardized processes across the national fleet network.

Fleet Rationalization: Right-sized the fleet by performing an Allocation Review (Needs vs. Wants) and a Utilization Study (vehicle usage). This approach ensures that Operational needs are met by the right-sized fleet.

New Fleet Model: Moved to central Fleet Management operating under a central organization and on a single platform for all fleet transactions using a Total Cost of Ownership model to drive optimal replacement cycles and disposition timing.


Fleet rationalization considers utilization metrics as well as mission needs, as should be considered in every agency VAM

Fleet RationalizationSteps


TCO in ActionFleet: Major Utility Provider

Results•Rationalized specifications

down from 246 vehicle types

to 35 vehicle types•Quantified lease vs. own

decisions•$10.1 million in negotiated

savings over five years;

exceeding targets by 55%•Created a best-in-class

replacement schedule•Consolidated supplier base

from 11 to 6

A multi-billion dollar utility company delivering electric and natural gas in multiple states throughout the southwestern United States sought to optimize its resource allocation across its entire service vehicle fleet.

Spec Rationalization: Reduced variation in standards & specs to make for smaller number of larger classes; Re-engineered specifications exceeding work requirements.

Fleet Sourcing: Applied multi-year Strategic Sourcing of all major classes and sub-categories including (OEM, up-fitters, tire, fuel Financing, and FMS.)

Finance & Admin: Performed Lease v. Own evaluation and In-Source v. Out-source comparison (Administrative functions, Titling, licensing, permitting, In-servicing M&R Administration - Call center, Vendor management.)


Sedans

Upfit Package

“A”

Standard Specs

Sub-CompactCompactMid-SizeFull Size

Class

Type

Variations

Specifications

Key Questions& Issues

Can this class be replaced by another class to reduce overall number?

Can any of these vehicle types be combined with another to reduce the total?

Does this Up-fit Package meet all the business and operating functions required of the vehicle?

• Which specifications meet 95% of the business needs of the operating unit

• Which can be eliminated or combined?

• Which need to be added?

Phase 1(30 mins/category)

Phase 2(1 hr/category)

Workshop Overview

Agencies with a myriad different vehicle classes and types can find cost savings through standardization


TCO in ActionFleet: Major Telecommunication Provider

Results•Develop fleet strategy that will

deliver ~$90M in annual

benefits•Decrease tech to vehicle ratio

from .9 to .84•$11M in benefits for removing

excess and underutilized units

with the potential for $22M

over a 3 year period.

Company’s fleet is a 66,000 unit/$2B asset with approximately $500M in annual operating costs. Objective was to Identify opportunities to achieve the lowest Total Cost of Ownership (TCO) and define a long term fleet strategy.

Fleet Rationalization: Conducted utilization study that focused on reducing overall fleet size and age to best practice standards by using Best Practice utilization data and assessing the types of vehicles being used.

Pooling Surplus or under-utilized vehicles were identified in order to implement appropriate corrective measures: Vehicle pooling, Asset re-deployment / re-purposing, Asset disposition through specialized auction venue.

Disposition


Mileage Utilization

Fleet diagnostics identify low performing vehicles that are prime candidates for rightsizing and/or replacement


TCO in ActionFleet: Major Utility Provider

Results•Three scenarios, representing varying

degrees of outsourcing, were modeled

against the baseline cost structure to

determine potential savings associated with

outsourcing the additional maintenance•Savings range from $1M to $4.5M annually•Scenarios ranged from high-volume, non-

business critical vehicles which have easily

accessible commercial market support to all

maintenance activities

The intent of the Fleet Outsourcing Feasibility Study was to perform a study of fleet operations and maintenance to determine whether or not the US / regional market for Fleet Maintenance Outsourcing is viable, and to understand the high level economic and operational impact of additional Fleet Maintenance Outsourcing.

Maintenance & Repair Operations: Developed a model to determine outsourcing feasibility by vehicle type and maintenance activity based on three key criteria. Baselined current maintenance budget and modeled three outsourcing scenarios to create business case. Also designed high-level operating models, outlined customer impacts, and developed a roadmap for due diligence.


Outsourced Vehicles Outsourced Maint.

Company Industry LD MDHD Equip PM Repair

Company 1 Natural Gas / Electric

Company 2 Lawn Care, Home Maint.

Company 3 Natural Gas / Electric

Company 4 Electric

Company 5 Water

X - Maintenance outsourcing is a growing trend in the US with fleets across industries.

“Concerned with economics in a changing environment, fleet managers might find themselvesconsidering outsourcing vehicle maintenance services. Allowing professional vehiclemaintenance organizations to purchase, maintain and retire equipment, fleets can take advantageof an outside organization's expertise in maintenance and economic control of resources.”- John Dolce, “Outsourcing Strategies for Fleet Maintenance”

Source: Accenture Research

Degree of Outsourcing

FullPartialMin

Outsourcing fleet functions can lead to cost savings and improved performance

Fleet Maintenance OutsourcingIndustry Examples


Mile 1 – Data collection and validation•Does your agency have an FMIS that captures not just FAST data but other, relevant TCO

metrics? •Can you easily pull your data to run diagnostic analytics?

Mile 2 – Fleet Rationalization•Does your agency have a standardized method for rationalizing your Green Fleet decisions?•Does your agency’s Vehicle Allocation Methodology consider both quantitative cost factors

(vehicle utilization, vehicle lifecycles) and agency-specific factors (mission criticality, equipment

needs)?•Has your agency been able to identify rightsizing opportunities without sacrificing agency

mission needs?

Mile 3 – Spec Rationalization•Are your agency’s vehicle specifications in alignment with mission requirements? Do you have

vehicles that are “over-qualified” for their need?•How many vehicle classes and types are in your agency’s fleet? Is there opportunity to

standardize? •Do you consider a specification matrix before sourcing for a vehicle?

Key Takeaways


Mile 4 – Pooling•Is there opportunity at your agency to use the same vehicle for multiple purposes?•Does your agency take advantage of geographic or local motor pools?

Mile 5 – Disposition• Does your agency have a way to calculate the vehicle lifecycle’s effect on your TCO?• Do you seek out public auction venues to obtain the highest proceed returns (for your fleet

vehicles that qualify for resale)?

Mile 6 – Fleet Sourcing•Does your agency use a levelized replacement calendar to minimize TCO?•Has your agency completed strategic sourcing analysis across your various fleet categories

(OEM, Up-fit, Tire, Fuel, FMS and multi-year)?

Key Takeaways


Mile 7 – Maintenance & Repair Operations•How does your agency set your preventive maintenance schedules? Are they optimized?•Has your agency analyzed the costs and benefits of Internal vs. External maintenance?•Is there opportunity within your agency to consolidate maintenance operations?

Mile 8 – Finance & Administration•Does your agency complete a Lease vs. Own evaluation for different vehicle types?•Has your agency completed an In-Source v. Out-Source analysis for:–Administrative functions: Titling, licensing, permitting; In-servicing–Maintenance & Repair Administration: Call center; Vendor management

Mile 9 – New Fleet Model•Does your agency’s fleet management plan comprehensively consider Mile Markers 1-8?•Is your fleet model standardized and communicated to all affected departments? Are practices

and policies consistent?•Does your agency’s plan include iterative improvement programs to reanalyze data and

continuously optimize your TCO?•Have you developed a multi-year strategy roadmap to align with agency strategic objectives?

Key Takeaways


Contact Info

Bob PittsSenior PrincipalAccenture Management [email protected]+1 678 657 9627

Karl DedolphSenior ManagerAccenture Management [email protected]+1 703 947 2505

About AccentureAccenture is a global management consulting, technology services and outsourcing company, with more than 246,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$25.5 billion for the fiscal year ended Aug. 31, 2011. Its home page is www.accenture.com.

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