Sommario Total Cost of Ownership of corporate car fleet

Transcription

1 Sommario Total Cost of Ownership of corporate car fleet Prof. Angelo Paletta Department of Management Alma Mater Studiorum - Unibo

2 Sommario Summary In many companies the budget of the corporate car fleet represents a significant proportion of the total costs. In this circumstance, the fleet manager is one of the managerial roles that is mainly under pressure to reduce costs. If the fleet manager is not able to propose cost management strategies for the company s fleet car park, he might be involved in huge discussions about cost reduction policies. In this sense, the course analyzes the Total Cost of Ownership (TCO) as a fleet management philosophy that allows to get a systemic vision of total costs and their reasons (drivers).

3 From cost analysis to cost management Basic assumptions: Globally, the last thirty years have been characterized by a radical rethinking of the traditional methods of cost accounting Direct costing and full costing have revealed serious shortcomings that are the reasons behind wrong managerial decisions. Traditional methods have lost their importance and many companies have developed new approaches. Why those same companies should not use more sophisticated methods to manage a significant part of their fleet management costs?

4 Principles of process management

5 Principles of process management Homogeneity in organizational tasks (from the technical point of view); people with common and specialized skills Processes are sets of activities aimed to obtain an operational objective for a business (purchase orders, fulfill orders, product development, supply management ) Processes cross the formal or legal boundaries of the productive entities Processes are assigned to a cross-functional coordinator (process owner)

6 Total cost of ownership

7 Total cost of ownership It s a particular application of ABC/ ABM to the supply chain processes The TCO is a new approach to the suppliers relationship management in the procurement processes: From a low price system to a low cost system

8 Low price suppliers Low price suppliers Vs. Low cost suppliers Spot market Responsibility of purchase managers on the basis of standard cost variance Large quantity purchases: discounts Purchases from marginal suppliers in terms of quality, innovation, service Purchases from suppliers in countries with lower personnel costs Purchases from suppliers with low cost structure because of their underinvestment in technology and operating systems Purchases from suppliers with limited engineering capacity Low cost suppliers Optimize the cost of ownership (Total cost of ownership) Long term relationships with a few trusted suppliers - Supplier Assessment, based on Tco and other indexes Assessment dei fornitori in base al TCO e ad altri indicatori

9 The Procurement process

10 ABC/ABM of the procurement activities of ACME Activities Cost of resources Cost driver Cost driver amount Cost driver rate Purchase requisition processing Vendor selection Vendor evaluation Vendor coordination Materials processing $200,000 Number of requisition $510,000 Number of vendors $510,000 Number of vendors $615,000 Number of vendors $195,000 Number of PO line items 6,000 $33, $2, $2, $3,075 7,500 $26 Warehouse $84,000 Number of PO line items 7,500 $11,20 Invoice processing $50,000 Number of invoice 5,000 $10

11 Activity Value Analysis ACTIVITY Ricevimento Order ordine Receipt Selezione Suppliers fornitori selection Valutazione Suppliers fornitori evaluation Coordinamento Suppliers fornitori coordination Controllo Materials materiali control Magazzino Warehouse Controllo Invoices fatture control Value si yes si yes si yes si yes no no no What kind of activities create value to costumers? On which strategic determinants can they act? SUPPLIER RELATIONSHIPS

12 REDISIGN PROCESS New relationships with suppliers affect the cost driver and the business costs Number of suppliers Number of control over the goods Number of orders Number of invoices Number of inspections on invoices Consolidation of relationships with a few suppliers to increase confidence; Development of a supplier quality certification program to remove post-receipt controls Do cumulative orders, and not fragmented; Implementation of corporate credit card for small orders

13 Low TCO of corporate fleet price suppliers Low list price Front-end discounts Low cost suppliers Price list is just the tip of the iceberg! Low cost minimize the total cost of ownership How can we identify the TCO items?

14 TCO of corporate fleet Fleet s life cycle Procurement requests process Suppliers selection and delivery management Financing capital investment Operating activities Maintenance and repair service Replacement and Remarketing The TCO can be calculated through an Activity based Costing approach. The TCO considers both the cost items directly depending by activities (fuel, insurance, taxes, staff, etc.) and also the sale proceeds from the used market (cost reduction)

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16 The value chain of the fleet How to change the Fleet Manager in a strategic partner 1. Creating a vision 2. Communicating the vision 3. Using new methods of performance management 4. Planning and creating continuous performance improvements 5. Consolidating improvements 6. Institutionalizing new approaches

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22 TCO and residual values From the economic point of view, it s necessary to distinguish between purchase price, residual value and operating costs. The purchase price is a multi-year cost that goes to the balance sheet. The residual value is the difference between the original capitalised cost and amortization fund at a certain date. The operating costs are costs that pass through the profit and loss account: According to nature: depreciation of goods of property, financial expense/rental-leasing fees; fuels, maintenance and repair, etc. According to assignment procedures: direct costs vs indirect costs According to costs behavior: variable costs, fixed costs, semi-fixed costs and semi-variable costs Ordinary and extraordinary components (gains and losses)

23 TCO and residual values Historical price Presumed Realizable Value Service Life Depreciation Rate To calculate the rates by means of the depreciation plan, you should consider: - the historical cost of asset acquisition, which also includes any additional charges. - - the presumed realizable value at the end of the asset s life span. - - depreciation, given by the difference between the historical value and the presumed realizable value - - asset s service life, expressed in years or in months, is presumed on its life span and on its technical and economic utility. - - the criterion for the over time subdivision of the depreciation rates; there are several criteria of subdivision (mathematical, straight line or declining balance methods; elastic, according to business needs; economic, fixed from year to year according to the possibility of the future use of the asset).

24 TCO management The TCO is determined by the costs of the activities during the product life span: Acquisition orders suppliers selection contracts administration operating activities maintenance and repair services realization of the residual values. To manage the TCO costs, it s necessary to manage the drivers of the activities (ABC/ABM)

25 Fleet s ABC/ABM Acquisition orders Car policy Suppliers selection Car list Delivery Lead Time Administration Number of brands/models Number of suppliers Number of km covered Operating activities Vehicle type Downtime Cycle time Maintenance and repair services Term guarantees Replacement and remarketing Residual value

26 Thanks for your attention!