Otis Elevator Reduces Operational Costs Through Quality Initiative
Otis Elevator Company, a wholly-owned subsidiary of United Technologies Corporation (UTC), is a world leader in the manufacture, installation, and maintenance of elevators, escalators, and moving walkways. For more than 150 years, its mission has been to provide the best service to its customers. In 2006, the company’s revenue exceeded $10.3 billion.
Keeping a close eye on its fleet financials, Otis executives and management team partnered successfully to create fleet efficiencies utilizing a system called Achieving Competitive Excellence (ACE). ACE is an Otis and UTC proprietary operating system focused on increasing efficiency and reducing waste. Otis facilities worldwide use the ACE operating system to improve quality and customer satisfaction while lowering costs.
“We’ve made a company-wide commitment to providing outstanding service,” said Tom Vaccaro, director, modernization and service, for Otis North and South America Area (NSAA). “That means responding promptly to customer requests, delivering what we promise, and never compromising on quality and safety.”
Approximately 3,500 of the company’s 4,000 U.S. and Canada vehicles are leased. Eighty-two percent of the company’s fleet vehicles are Fords (ranging from four-door sedans up to 26,000 lb.-GVW truck models). The remaining fleet makeup includes GM models (16 percent) and other assorted makes and models. The executive fleet includes 100 vehicles selected by drivers.
Fleet is currently the second-largest expense at Otis behind salaries and benefits.
Fleet Shift Allows Policy Changes and Cost Savings
Otis recommitted to its mission of quality and service seven years ago, undergoing a “fleet shift.”
“You can’t fix 10 low-lying fruit at the same time,” Vaccaro said. “We’ve targeted our goals one at a time since then and been very successful in the process.”
The fleet team, which includes Phil Schreiber, fleet manager, North America, and Cathy D’Onofrio, manager, supply management, Otis NSAA, first targeted out-of-stock purchases (at 38 percent) because they were the costliest expense, as well as an easy immediate fix with an immediate large payback at the time.
“We set a goal of no more than 5 percent of out-of-stock vehicle urchases,” Schreiber said.
Previously, there was an average price deferential of $2,500 per truck, and close to 300 trucks were purchased yearly out of stock. “Within two years, we reduced it to 3 percent out of stock,” he said.
Out-of-stock purchases are done only when all other methods, such as factory orders, bailment pools, and the leasing company pool, cannot provide the vehicle needed.
According to the team, branch communication was critical to the initiative’s success. Otis is a decentralized company with more than 120 branches in the United States and Canada, each branch acting as a separate profit center.
Fleet Manager Phil Schrieber (left) and Tom Vining, VP, operations, stand by one of Otis' 4,000 vehicles. The company reduced out-of-stock purchases to 3 percent over two years.
“Within the three years it took to change the mindset of our employees, we started to realize some substantial savings from where we were before,” Schreiber said.
In 2000, the average cost per vehicle, including cap cost and operating cost, was higher than it is today.
“This is in spite of inflation and gas prices,” D’Onofrio said. “So today, on a cost-per-vehicle basis, our costs are less than they were six or seven years ago.”
The team also redefined its replacement strategy, moving from a 48-month/80,000-mile cycle to a 60-month/100,000-mile cycle.
“We achieved more reliability with a longer cycle,” Schreiber said. “By the time we replace a vehicle, it is just about paid off.”
Otis recognized immediate results from the switch, gaining in excess of $400,000 net over book value for all vehicles sold, and up to $700,000 over time. Schreiber expects to surpass the $1 million mark this year. All savings go back to the fleet and fleet purchases.
“We also have the right mix of vehicles to generate that type of income as a result of vehicle sales,” D’Onofrio said. “And we have many remarketing venues that increase our results, including auctions, retailers, E-Value Buy, employee sales via our leasing company’s Web site, and wholesalers.”
After the switch to a higher mileage policy and fleet standardization, drivers remain happy with the vehicles due to a careful selection of company-added options that created a comfortable, safe environment for drivers. Maintenance issues have not increased, and the rate of catastrophic events, such as a loss of transmissions or engines, remains the same.
“If we had seen more maintenance or heavy repairs, we would have gone back to our 40/80 cycle,” Schreiber said.
Fleet Management Partners with Executives to Streamline Process
The fleet team works with Otis executives to continually evaluate fleet policy and cost initiatives. When the “fleet shift” movement was implemented in 2000, their partnership was more important than ever.
The fleet team worked with senior executives to uncover high-cost areas, understand the cost drivers, and simplify the number of models in the fleet.
“Our mechanics and their usage of the fleet are critical to our delivery of excellent customer service,” said Tom Vining, vice president of operations, Otis NSAA. “We were not willing to sacrifice quality or service to control costs. Together, we took a hard look at our processes to see where we could find better efficiencies.”
According to Vaccaro, certain levels of decisions had to reside with regional VPs or the president of the company in some cases.
“We are setting out guidelines and reviewing them on a regular basis,” Vaccaro said. “Developing a rational policy and enforcing it from the top had a lot to do with our success.”
According to D’Onofrio, senior management relies heavily on Schreiber’s expertise and leadership.
“He communicates benefits to us and allows management to make informed decisions based on well thought-out strategies, such as how to reduce our carbon footprint and how to offset cost increases in fuel,” she said.
Informing management of options and alternatives allows everyone on the team to make better decisions.
“The one thing we don’t want to do is negatively affect the productivity of our drivers who service our customers,” D’Onofrio said.
Follow-up and execution is vital, and so the team conducts regularly scheduled leadership meetings to develop and enforce policies.