Identifying Best Practices In Fleet Vehicle Purchasing
Best practices. You've heard the term for a long time; it seems as though all good business managers use "best practices," both in day-to-day activity, as well as in strategic planning. But what exactly docs it mean? Is there a single definition? How can you define and institute best practices into your fleet operation?
No Single Answer
Among the fleet management pros AF talked to about this issue, the one common theme seemed to be that, for lack of a better definition, best practices are in the eyes of the beholder.
"Actually, best practices is self explanatory," says John Coyle, director, special markets for Automotive Resources International (ARI), a Mt. Laurel, NJ- based fleet management company. "It means exactly what it says." By that, Coyle means that when a process is analyzed, the most advantageous and efficient methods used to perform the task can be termed best practices.
Coyle works with a number of ARI's customers, on a consulting basis, in studying their operations and assisting in determining and instituting best practices. One of the companies that he indicated has had great success is Aventis Pharmaceuticals Inc., based in Bridgewater, NJ.
Drive Cost Out
Aventis Manager of Fleet and Fleet Safety Josie Sharp was enthusiastic about the success she and the company have had in instituting best practices, particularly in purchasing/leasing. After merging with another large pharmaceutical firm, Sharp's fleet now numbers some 6,000 vehicles, so that the opportunities for savings and cost efficiency are large. "When we began this formal best practices process, we found that only about 17 percent of what we did qualified," Sharp recalls. As is the case with any fleet, Sharp recognized that the most fertile area for achieving best practices, and the ensuing savings, would be in purchasing.
"Combining two distinct fleets is both difficult and challenging," she says. "But the opportunities for identifying and achieving cost efficiencies are numerous."
Driving cost out of the overall purchasing area (which includes depreciation and replacement cycling) began with controlling depreciation.
"It's pretty obvious that depreciation, because it is the single largest fixed expense, will offer the greatest potential for savings from the institution of best practices," Sharp says.
She began with the premise that no matter how carefully a fleet manager tracks the used-vehicle market, it is rife with uncertainty. While certain models, colors, and equipment can, at one time or another, provide increased resale value, Sharp explains that one tried and true practice works every time.
"No matter what kind of car you buy, how it is equipped, or what color it is, the model-year is the largest determinant of value," she says.
The best way to use this fact is to maximize the 'model-year use' of as many vehicles as possible. "The best practice of focusing on vehicle ordering in the fall allows us to make certain that when vehicles are sold, we've gotten full 'use' out of the model-year," Sharp says. Fall ordering is now the rule rather than the exception, and the savings have been dramatic. "We've realized $1,100 savings per unit over a three-year cycle," she says. That adds up to an impressive $6.6 million in three years.
All in all, working with ARI's Coyle, Sharp says that they have doubled the best practices percentages from 17 to 34 percent. "John took the top 14 fleets at ARI, and they averaged 16 percent best practices," she says. "We've been very successful.
Another fleet that Coyle cites for the institution of best practices is Progressive Insurance, the Ohio- based property and casualty insurance company.
"Progressive has a unique fleet in two ways: first, nearly the entire fleet consists of SUVs, and, second, rather than assigning vehicles to specific drivers, the majority of their vehicles are used as 'pool vehicles,'" says Coyle. Vehicles are assigned to drivers as needed; an adjuster may drive several vehicles in a short period of time.
Coyle worked with Kathy Schulz, Progressive's fleet manager, to track vehicle utilization. "Progressive wanted to make certain they were getting maximum utilization out of their vehicles because of their pool concept," he says. Schulz and Coyle reviewed the utilization noting that vehicle utilization was acceptable, due to previous steps Progressive took over the past year to reduce the size of the fleet.
"Best practices not only means obtaining the most efficient use of your vehicles," Coyle says. "It also means making certain that you actually need the vehicles you have." Schulz noted the downsizing efforts achieved savings in both depreciation (fixed) as well as variable costs.
Vehicle Cycling Is Important
Greg Corrigan, vice president of marketing and strategic business services for PHH Arval, a Hunt Valley, MD, fleet management company, heads up, among other areas, the company's consulting practice.
"We work with customers every day in identifying and implementing best practices, particularly in the areas of depreciation control and vehicle replacement cycling," he says.
One of Corrigan's customers is Beverly Enterprises of Fort Smith, AR. "We've worked with Beverly Enterprises for some years now, particularly in replacement policy, and in providing benchmarking data," Corrigan says.
Beverly's Fleet Supervisor Leigh Ann Blake confirms Corrigan's comments about cycling. "About seven years ago, we began to take a look at how our vehicles were being used," she says. "Our policy at the time was to replace vehicles at 24 months or 60,000 miles, whichever came first." Because of the disparity in many of their territories (some were very large, resulting in extremely high mileage), "we averaged replacement at about 30 months," Blake says. "But some vehicles were replaced in as little as 18 months, because of high mileage."
A major change in the reduction of offices the company retained led Blake and Beverly to change the fleet cycle, initially to 36 months/60,000 miles, and ultimately 36 months/70,000 miles. In addition, Blake said Beverly Enterprises began to amortize its vehicles (the leased using an open-end. TRAC lease) at 40 months, rather than the 45 month they had been using. "We were under depreciating our units, particularly after we closed some offices, territories grew in size, and mileage increased," she says. "Now, our amortization schedule belter matches the actual depreciation."
Blake says one of the areas where Corrigan and PHH have been most helpful is in benchmarking, which she says is critical to the search for best practices. "Although it's valuable to track history internally, it's also important to understand how we stack up versus other companies with similar fleets," she explains.
Every two years, Blake says, Beverly Enterprises and PHH conduct a Business Opportunity Study, where they review past performance, and make recommendations on how to further best practices. All in all, Blake says their efforts have resulted in modest, but important, savings. "We've saved about $10,000 in renegotiating with the auto manufacturers, $20,000 in the amortization change, and $30,000 in tracking our maintenance and fuel exception reports using PHH's online data and reporting system."
Best Practices Can Change
Agreeing with Coyle, Elsie Lucia, fleet operations manager for Engle-wood, NJ's Unilever Bestfoods North America, says that not only is the search for best practices never over, but that best practices can change regularly. "Circumstances change, vehicle requirements change, and best practices can, and do, change." Lucia's circumstances certainly did change - Bestfoods and Unilever, the Dutch consumer products company, merged a few years ago, and, not unlike Sharp at Aventis, the new combined company offered both challenges and opportunities.
"The opportunities, we found, were numerous, particularly in the particularly in the purchase and use of our vehicles," Lucia says. "We've taken advantage of as many of them as we can." Although the Unilever and Bestfoods fleets are managed separately, Lucia says that they've instituted best practices in utilization. "The missions of our two fleets are similar so that we've standardized the equipment we use across the board, which enables us to re-deploy assets as needed," she explains. For example, if a relatively new Bestfoods vehicle becomes surplus, rather than setting it. Lucia has the flexibility to transfer it to another Bestfoods driver, or to a Unilever driver. The ability to transfer cars from one business partner to another (as the companies are called within the organization) provides Lucia with a best practices process not always available to other fleet managers. Standardizing equipment also led to the ability to sole source.
"We've now consolidated our buy with a single manufacturer, which enables us to leverage our volume," Lucia says. "We've also further concentrated our buy in the fall." In this way, like Aventis's Sharp, Lucia gets the full first model-year's use from the majority of their new units.
Like Blake of Beverly Enterprises, Lucia also places great emphasis on benchmarking, in finding opportunities for the institution of best practices.
"Benchmarking often provides graphic evidence of both successes as well as shortcoming in our fleet program," she says. "It provides both a pat on the back as well as an, 'uh oh.' Both can lead to savings." She is also adamant that benchmarking must be done both internally, as well as externally. "We rely on our suppliers (CitiCapital Fleet and GE Fleet Services) as well as NAFA (National Association of Fleet Administrators) to provide us with data for external benchmarking." But she also says that she tracks their performance internally, as well as maintaining internal cost history, so that she can see how their efforts have tracked.
Redefining Best Practices
Whether it's a focus on seasonal ordering, such as Aventis; changing vehicle replacement policy, such as Beverly; downsizing the fleet, such as Progressive; or standardizing equipment and consolidating purchasing within business partners, a la Unilever Bestfoods, the search for best practices is an ongoing process.
"Best practices change as your circumstances change," Lucia reiterates. "It's not something for which there is a universal definition." The process is constant, and never ending. "Our best practices today are not what they were five years ago," Blake says. "We've got far fewer offices, larger territories, and a higher-mileage mission. That calls for change; change in best practices."
"It isn't rocket science to say that fleets must constantly adapt to circumstances," says ARI's Coyle. "Best practices are fluid."