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2006-MY Was a Tough Year for Fleet Order-to-Delivery

September 26, 2006, by Mike Antich

Order-to-delivery times for some 2006-model year fleet vehicles were delayed by a combination of weather-related and logistics impediments, such as the ongoing railcar shortage and retail incentive programs that generated high volumes of sales, according to Automotive Fleet’s seventh annual OTD survey.

Six fleet management companies provided data for this year’s study: Automotive Resources International (ARI), Donlen, GE Commercial Finance Fleet Services, LeasePlan USA, PHH Arval, and Wheels. The study tracked new-vehicle deliveries for 175,987 models during the 2006-model year, representing 72 models. The models selected were those with more than 1,000 units registered to commercial fleets in the 2005-model year; however, there were exceptions to this criterion.

“While there was an improvement in OTD for a few models, in general, lead times increased by at least a week on the majority of fleet models,” said Linda Tiberi, manager of motor company relations for PHH Arval. “In the fourth quarter of the 2005 calendar year, railcar shortages due to Hurricanes Katrina and Rita were definitely a factor, and this spilled over into the beginning of 2006. Also, in the 2006 calendar year, the demand for certain truck models versus the available fleet allocation created longer lead times.”

The impact of the hurricanes occurred at the start of the 2006-model year and cascaded across the country. “The hurricanes made a rough start of the 2006-model year. Although the storms were regional, they created a ripple effect that spread to other states. They stressed an already strained transportation network,” said Lance Schultz, manager of manufacturer relations and vendor management for GE Commercial Finance Fleet Services.

Sharing a similar assessment was Tim Delaney, manager of operations for ARI. “Katrina was the biggest factor overall in terms of 2006 OTD. But instability in the industry and the pricing wars also affected OTD,” said Delaney.

Rick Shick, vice president of purchasing for Donlen Corporation, cites the ongoing railcar shortage. “The railcar shortage was exasperated not only by Hurricane Katrina, but also by overproduction, a soft retail market, and new-model introductions,” said Shick. OTD for 2006 was more challenging than might be apparent in examining industry averages.

“The average OTD numbers do not reflect the many challenges the industry faced this past year. In addition to increased demand, quality holds, and significant railcar shortages, there were weather-related problems caused by hurricanes, hailstorms, and flood washouts,” said Jan Freund, director of manufacturer relations for Wheels Inc. “Vehicles were held at ramps, unloaded, reloaded, and rerouted. Those vehicles affected by hailstorms this past spring had to be inspected and often repaired. With hundreds of vehicles affected and a limited number of agents to conduct the inspections, deliveries were delayed. All of this required significant tracking, monitoring, and constant communication between Wheels and the manufacturers with continuous updates to our customers,” added Freund.

Not all fleets experienced the same degree of problems as a result of last year’s hurricane season.

“The hurricanes did not have the same impact on us,” said Jack Pierce, vice president of operations for LeasePlan USA. “Certainly, there were locally affected vehicles, but we did not have that many vehicles affected. We came through Hurricane Katrina fairly unscathed,” said Pierce.

Another factor that may play a greater influence in the future is the shift by OEMs to flexible manufacturing.

“We have seen OTD creep back up, and this may continue into the future. Manufacturers are looking to produce different types of vehicles on the same production lines using flexible manufacturing. Increasingly, vehicles are going to be tailored to retail demand, so fleet is not going to get preference as quickly because OEMs are building different vehicles,” said Pierce.

Ongoing Railcar Shortage
Since the inception of this survey seven years ago, there has been a shortage of railcars to transport new vehicles to dealers. The same is true this year.

“The railcar situation is the same in 2006 as it was in 2005. Not very many new railcars have been put into the system,” said Kathy Mathiesen, POINT supervisor for Ford North American Sales Planning and Distribution.

One reason for the ongoing shortage is that railroads are under capital constraints and are instead looking to maximize existing assets.

“The railroads have decided that their first priority is to increase efficiency and optimize railcar resources before making significant investments in new equipment,” said Dennis Baranik, general manager, market & sales strategy for Ford North American Fleet, Lease & Remarketing Operations. “In fact, there are probably more railcars going out of service than new cars into service. However, new-found efficiencies have prevented the situation from getting worse.”

The railcar shortage is an industry-wide problem. “The rail industry, like every industry, does not have unlimited budgets for capital spending,” said Bick Pratt, senior manager, fleet business relations for DaimlerChrysler Fleet Operations. “Railcars are not being built or replaced in numbers requested by the auto industry. In addition to delays from an overall shortage, we understand that there have been an increasing number of delays based on equipment failures as railcars age. This issue is under investigation by a team of industry experts from each of the Detroit-based manufacturers.

“The challenges are not limited to the rail industry, though. We are watching the trucking companies very closely as several key players face financial challenges. Each manufacturer uses the same railroads and trucking companies and each of us is working closely with those partners, updating contingency planning, and looking for every opportunity to streamline processes,” said Pratt.

Another factor that contributed to the railcar shortage was the success of the summer new-car retail sales incentive programs.

“Last summer, the manufacturers moved a lot of retail inventory with their pricing and incentive programs. In the fall, the assembly plants were pushing out production and there weren’t enough railcars to move all the vehicles,” said Freund. “In several instances vehicles had to be moved to out lots before getting on a railcar. Vehicles that were built first often did not get shipped first, and body upfitters were backed up because carriers would drop off vehicles, but not pick up any for the return trip. The situation was also impacted due to natural disasters,” added Freund.

Order-to-delivery times were particularly difficult in the August through October 2005 timeframe.

“Railcar shortages had a significant impact on fleet deliveries in the last quarter of 2005-calendar year, and there were residual problems that spilled into the 2006-calendar year. With no railcars available, vehicles are stockpiled in holding lots until shipping can ocur. This compounds the problem, because unfortunately the units are moved out of those lots in reverse order, and generally there is no way to prioritize fleet units,” said Tiberi.

“The first quarter of 2006 delays were caused by the aftermath of Katrina. However, the balance of the year seemed to go smoothly,” said Delaney.

Schultz agrees. “We saw delays in the August through November timeframe. After January, OTD seemed to improve,” he said.

A weak link in the OTD chain is communication from transporters. “All manufacturers have become more sophisticated in providing vehicle status. The frustration occurs when vehicles are stuck in transportation. It was very difficult for manufacturers to verify which vehicles were affected by these transportation delays. However, it speaks more to the transportation industry than it does to the manufacturers,” said Pierce.

“Like any other business, the manufacturers should consider contingency plans to address railcar shortages and events such as Katrina. I firmly believe that most fleet managers simply want accurate lead times communicated to them, along with accurate and timely status to include estimated delivery dates and when exceptions do arise, timely communication, along with an expected resolution date,” said Shick. “In most cases, the manufacturers transmit logistics and production information to us or it is directly accessible. Ideally this information could be provided to us in one electronic feed. One repository with complete, accurate, and timely information rolled into one electronic feed would improve communications and reduce hours for all of us,” said Shick.

Aggressive Retail Programs
Another factor impacting 2006 OTDs were major fluctuations in sales volume resulting from the highly successful retail incentive programs, such as employee pricing.

“Employee pricing programs drove increases in volume in the June through September timeframe. When the programs ended, there was a dramatic reduction in retail sales leaving many vehicles in the pipeline. The OEMs were not able to adjust their production levels quick enough. As a result, it was hard to get the overall shipping and logistics properly calibrated,” said Schultz. “The surge of vehicles coming into the retail market initially overtaxed the transport system, which led to delays,” said Schultz.

Freund seconds this assessment. “Employee sales retail incentive programs definitely contributed to OTD delays. The OEMs blew out a lot of inventory from the summer incentive program. Then they had to restock all the dealers. When production really picked up in the fall, the OEMs didn’t have sufficient railcars to ship the vehicles. They were forced to park cars in various out-lots. The railcar delays were pretty significant from the end of August to October,” said Freund.

Better Status from Upfitters
There were a number of initiatives that upfitters and OEMs implemented to help better track ship-thru units.

“The good news is that the upfitters are improving their internal processes to capture more status data. They are reporting additional status events other than when it arrives and when it leaves the upfitter. ”Examples are actual start date and estimated completion date of upfits. In addition, Ford has improved its reporting of the date the vehicle was delivered to the upfitter,” said Ken Gillies, manager, truck ordering services for GE Commercial Finance Fleet Services.

Decrease in Quality Holds
Quality holds were a significant factor delaying OTD during the 2005-model year; however, it played less of a role in 2006.

“New-model quality holds were an issue for 2006 OTD. However, there were fewer quality holds than in previous years, which I believe was attributable to some improvements in product launches by the manufacturers. There were no major disruptions to fleet orders, but obviously, where they occurred, longer lead times were experienced and additional follow-up was necessary,” said Tiberi.

Quality holds are anticipated to be a factor in fleet OTD in future model-years. “I expect these holds to continue as quality remains a high focus for manufacturers,” said Shick.

Sitting on the Dealership Lot
One of the ongoing OTD issues is the inconsistency among dealerships in notifying fleets when replacement vehicles arrive.

“What is needed is an improvement in the timeliness and accuracy of this information. For example, it would be mutually beneficial for all if we knew when a vehicle arrives at the dealership so that we can ensure prompt delivery to the driver. The breakdown really begins if the transporter doesn’t report on a timely basis when the unit was delivered to the dealership. If we had an accurate date, it would allow us to more accurately track the time the vehicle is sitting on the dealer’s lot and how the dealer is performing. Also, while there have been improvements, misshipped vehicles are still an issue, especially the time involved in getting the units backhauled,” said Tiberi.

Pierce agrees that more timely status reports are key to resolving this problem. “We still find vehicles sitting at a dealership days before we are notified. Our biggest issue is timeliness of status. For instance, the transporter will update status to state the vehicle was delivered on the 18th, but they deliver the status on the 23rd. As a result, we are not aware that the vehicle was delivered until the 23rd, but the status shows the car has been there since the 18th,” said Pierce.

“Misships continue to occur at a higher than acceptable rate and the time it takes to rectify the problem doesn’t meet customer expectations,” said Shick. “Timely status is essential. Combining production and logistical data into one repository and electronic feed as mentioned earlier would significantly help all of us.”

Poor fleet customer service by dealers can hurt their retail sales by discouraging drivers from purchasing personal vehicles from them. “Manufacturers need to come up with creative incentives to encourage delivering dealers to prioritize courtesy deliveries. This in itself would help customers decide where they would purchase their next family or personal vehicle,” said Delaney.

Fleet Lessor OTD Initiatives
Each fleet management company is implementing initiatives to help fleet managers when problems occur during the order-to-delivery process.

ARI: One of ARI’s top IT projects for 2006 is working on improved production status and data required for vocational fleets. “With enhanced tracking, we can follow up with manufacturers expeditiously to ensure timely delivery occurs for turnkey, road-ready vehicles,” said Delaney.

Donlen: Donlen is testing a new internal order process and enhancing its vendor system to further reduce order placement timing. “We continue to improve our status exception reporting that allows us to proactively manage true exceptions, thereby reducing and/or eliminating significant delays,” said Shick. “We also continue to expand the quantity and utilization of pools with manufacturers, to include working with the import manufacturers and customers to ensure vehicles are either equipped to match manufacturer pool specifications or modifying the specifications contained in the manufacturer’s pool to match the customer’s desired specifications. Additionally, we are working on an automated pool assignment process that will improve and automate the flow of information from customers to Donlen to manufacturer and/or equipment vendors,” said Shick.

GE Commercial Finance Fleet Services: “Our focus this year has been to enhance our processes around exception management. We monitor all vehicles to proactively identify vehicle delays. We work with the OEMs to mitigate any delays and if necessary, push e-mails to the impacted drivers. We are proactively pushing this type of communication to both the driver and fleet manager level to ensure everyone is aware of the situation and expected delay. This helps our customers make repair decisions on their old vehicles and better plan for their business,” said Schultz.

“The other thing we are doing is putting more emphasis on how quickly our dealers are delivering the vehicles to the drivers. This is one of the key metrics we use to monitor each dealer’s performance,” said Schultz.

LeasePlan USA: “We are working on an IVR (integrated voice response) system to get better information as to when a vehicle arrives at a dealership,” said Pierce. “This is starting to be more of an issue, especially as interest rates rise. Holding costs are becoming more significant and interim interest charges are growing, especially among upfitted customers. Fleets want to get the vehicles off dealers’ lots ASAP and to make sure they get them in service as quickly as possible. It also helps the remarketing process by liquidating the vehicle faster,” said Pierce.

PHH Arval: PHH has added resources to its status team and enhanced exception reports, and processes to reduce touch points, ensuring prompt focus on those units that fall out of the “normal” status parameters.

“Also, PHH encourages our delivering dealers to become linked electronically with our delivery team whenever possible,” said Tiberi. “This communication mode provides the dealer an ongoing ‘queue’ of deliveries headed their way. This is one of the many efficiencies we’ve put in place to address OTD.”

Wheels: “Wheels’ processes are designed to ensure accurate set-up of model specs, pricing, and order templates so that placing orders through FleetView and DriverView is efficient and correct ensuring same day transmission to the manufacturer. We proactively track vehicles from order received through delivery to the driver. Along with our exception-based reporting and estimated delivery calculations, Wheels has direct access to the manufacturer’s transportation systems,” said Freund. “In addition, our dealer relations team works closely with the dealers to ensure timely deliveries, and dealers report that our instructions are clear and concise. Wheels also maintains pools of vehicles at several locations throughout the country and will work with the manufacturers to establish a customer-specific pool,” said Freund.

Ford OTD Initiatives
Ford Motor Company is focusing on several key projects relating to order fulfillment. “Our order fulfillment progam has seven projects that target different pieces of the OTD experience. We are reworking these systems from the inside out.” said Peggy O’Neill, communications manager, order fullfillment.

“The first project Ford will roll out to fleets is the Vehicle Visibility Tool. Designed to provide greater access to order/vehicle production and delivery data, “It will provide more updated data, including transportation data, allowing fleet management companies to look at units in the pipeline and know their exact location,” said O’Neill. “This tool won’t affect timing, but the availability of the data will enable better planning by the fleet management companies and fleet customers. With this tool, fleet managers will be able to see when a vehicle is ordered, serialized, produced, and provide enhanced transportation information such as passing ramp points. This tool will provide more timely data and in the future, more accurate ETAs.”

The Vehicle Visibility Tool will not use status codes. “Instead, all status events will be in the English language, such as ‘arrival at ramp’, ‘awaiting shipment’, ‘departed ramp’, etc.,” said Mathiesen. “The system is customizable, so if you care about that kind of detail, you can drill down into it. If you don’t care about it, you can stay at the higher level.”

With future releases, Ford will provide alarms and alerts as part of a notification process.

“We will be able to notify fleet customers at key triggers that will also allow them to prepare customizable reports,” said Mathiesen. The Ford Fleet Advisory Board along with the Dealer Advisory Board will be piloting the tool and providing feedback through the end of the year.

“Another key order fulfillment project is focused on forecasting commodity needs and strengthening releases sent to suppliers to provide a more stable influx of parts aligned with vehicle orders and manufacturing requirements. We hope to reduce downtime associated with commodity-related issues. This translates into the ability to build quicker and minimize disruptions due to commodity shortages and smoothes production. It will be phased in starting with 2007 production,” said O’Neill.

Next year, the scheduling process will be improved as to how vehicle orders are serialized in the manufacturing process. it will open up the window of order-timing to provide greater flexibility in setting up build timing. Fleets will have more flexibility in telling Ford when they would like to have their vehicles built and enhances Ford’s ability to reserve those spots using targeted production weeks,” said O’Neill.

GM OTD Initiatives
GM reported OTD gains in 2006 versus 2005. “In particular, we were happy with order response on the Saab products where our efforts to integrate Saab into many GM processes significantly decreased OTD by double-digit days,” said Neil Stirling, director, forecast planning and customer support for General Motors Fleet & Commercial Operations.

One impact on GM’s 2006 OTD averages was the introduction of its new full-size SUVs. “General Motors introduced many new vehicles in the past year, including a new line of full-size SUVs (Chevrolet Tahoe, Suburban, Avalanche; GMC Yukon and Yukon XL; and Cadillac Escalade, ESV and EXT). These new models, new product content, high demand, and start-up quality processes increased our OTD response beyond our average response in 2005,” said Stirling.

“Similar to other manufacturers, we continued to see railcar issues in early 2006 that affected our OTD response. This was particularly evident in vehicles built in Mexico and somewhat from our plants in Oshawa, Ontario,” said Stirling.

“One area that we felt we needed to improve was our logistic operations. We’re in the final stages of purchasing a majority of the shares in Vector, our joint-venture logistics partner. In this transaction, GM will take more control over our inbound and outbound logistics, said Stirling.

“Another area that I think we’ve made great strides in the past year is our direct communication between our customers and the GM customer support team (CST). The individuals working in this group have a very high standard of providing excellent customer service. Many unique concerns and opportunities are presented to CST personnel each day, and they strive very hard to resolve these issues in 24 hours. Our internal surveys tell us that we’ve made great progress in supporting our fleet customers,” said Stirling.

DCX OTD Initiatives
DaimlerChrysler reported a variety of factors impacting OTD during the 2006-model year. “The hurricanes jammed up deliveries in the South and Southwest, but the impact went far beyond those two regions,” said Pratt. “In addition to the ever-present railcar shortages, the trucking industry faces a driver shortage evidenced by the barrage of employment advertising being done by the trucking industry.”

DaimlerChrysler reported dramatic improvements in the first six months of the 2006 calendar year, or the second half of the 2006-model year. Early in the model-year, Charger, 300, Magnum, and Pacifica had been taking longer to get into schedule due to the strong order condition relative to DaimlerChrysler’s original plans. “Success can be good and bad. Our production plans have been revisited and those models are moving into schedule much more quickly, but the overall 2006-model year numbers suffered from the early shortages,” said Pratt.

Also in 2006, DaimlerChrysler began to shift many of its upfitters to a process that keeps units within its distribution channels. “This shift has been methodical because it requires different processes for the upfitters, the logistics community, and DaimlerChrysler Fleet Operations. With that shift, dealers and fleet management companies have visibility of those units prior to reaching the upfitter and once again when they leave the upfitter,” said Pratt. DCX also implemented several initiatives in relation to communicating status information.

Other OTD initiatives include new tools for dealers and fleet management companies that will allow them to quickly and easily make order changes; fleet management company benchmark metrics regarding average times for order changes; customer forecasts from key accounts to help highlight large order swings, equipment levels; isolation of sold orders as they come off the assembly line to facilitate shipment during launch containment, and similar activities.

Subaru OTD Initiatives
Subaru pools typical fleet-equipped models for availability throughout the year. “Our overriding goal is to treat the commercial driver the same as a retail driver,” said Charles Reed, manager, national fleet sales operations for Subaru of America. “Subaru appears to be achieving that goal by having improved our OTD by 7 days,” added Reed.

One of Subaru’s OTD initiatives is to maintain daily contact between its commercial fleet distribution area and the major fleet leasing companies. “An updated vehicle ‘pipeline’ report is provided weekly to the fleet lease companies and is a valuable tool when tracking delivery progress of clients’ vehicles,” said Reed.

Toyota OTD Initiatives
In the 2007-MY, Toyota Motor Sales USA (TMS) dramatically increased the size of its commerical pools. The Toyota vehicles placed in the commerical pool are those with common fleet configurations, which do not require subsequent plant production changes.

“This will offer a larger number of already-built vehicles available through our ‘emmediate pool’ for delivery to fleet customers within 30 days,” said Gail Kunkle, national fleet/commercial vehicle operation manager for TMS. “Also, we are sending out a daily list of emmediate vehicles available to fleet management companies and we are restricting access to only commerical accounts for the first 15 days of every month,” added Kunkle.

Another OTD initiative implemented by TMS has been to increase the number of TED (Toyota Executive Delivery) dealers in its delivery network.

In addition, TMS has also completed its Direct Order Entry project that provides fleet management companies with daily status updates. “Currently, only the National Rent-A-Car companies are using it,” said Kunkle.

Mazda OTD Initiatives
Mazda North America Operations (MNAO) developed an initiative to re-educate dealers with a revised methodology of allocating and delivering vehicles to dealerships called “Direct Dealer Ordering” or DDO. “The initiative proved very successful, allowing dealers and MNAO to right-size the flow of vehicles to be sales driven as opposed to production-driven, thus enabling dealer inventories to be reduced and, at the same time, reduce Mazda port inventories from around 60 days to approximately 15 days,” said David Tripoli, fleet sales manager for Mazda Motor Sales Fleet Operations.

This initiative, however, provided a bit of a quandary for commercial fleets that might have benefited from the “old system” creating an easier opportunity for MNAO’s Fleet Operations to find a vehicle in port to facilitate the occasional “onesy-twosy” orders for commercial customers. It became apparent that initiatives needed to be put into place to facilitate improved fleet delivery timetables.

“We have alleviated these issues with Fleet Operations initiatives for the 2007-model year, whereby any commercial or government unit will be ‘filled’ on a weekly basis rather than monthly. This should reduce the OTD timing dramatically,” said Tripoli.

Mazda also asks all commercial, government, and rental customers for “delivery windows” on all requested vehicles that allows the account to tell MNAO Fleet Operations when the vehicles are needed. Among Mazda’s other OTD initiatives is a system developed and implemented with the 2005-model year — a Web-based ordering and tracking mechanism that is available to all fleet management companies and rental customers.

“With this system, our customers can enter the Web platform, record their PIN, and order and track all vehicles from VIN assignment to delivery,” said Tripoli.

“For our larger volume accounts, we sit down with them annually and ask them to help us forecast their selector needs. We ask them to provide us a ‘spreadsheet’ that approximates their monthly production needs to help us plan our production flow requirements,” added Tripoli.

Volvo OTD Initiatives
For 2006, Volvo began to work with pre-built pools for the S40 and S60 in the most popular colors with fleet value packages. “For this reason, these vehicles showed the biggest improvement,” said Rick Bryant, commercial fleet manager for Volvo Cars of North America LLC.

“We also began working closely with fleet leasing companies and fleet customers to anticipate expansions. In these cases, we actually pre-built vehicles to the fleet customer’s specs and parked them at appropriate ports around the U.S. As these companies realized their expansion plans, we were able to ship cars immediately to the new hires. We did this with no risk to the fleet customer. If the expansion plans did not pan out, we assumed responsibility for the vehicles,” said Bryant.

“Volvo invoices are generated when the vehicle physically leaves the port headed for the retailer. Since all Volvos are trucked, it takes only one day for a vehicle to reach most retailers. This means the fleet leasing company can safely assume that when they receive the invoice, the vehicle is at the retailer and awaiting registration instructions,” said Bryant.

“We are also increasing our port pools to include all vehicles offering fleet value packages. This is for S40, V50, S60, V70, and, for the first time, the XC90. We continue to work on processes to hone our pipeline availability,” said Bryant.

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Mike Antich

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Mike has covered fleet management and remarketing for more than 20 years and entered the Fleet Hall of Fame in 2010.

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