How Merck Saved $30 Million by Revamping Global Fleet

What was the cat­a­lyst for Mer­ck to revamp its glob­al fleet poli­cies?

Mer­ck looked at the way its fleet oper­a­tions were being admin­is­tered and rec­og­nized the need for change; the need to opti­mize and har­mo­nize. The merg­er with Scher­ing Plough meant that a few things need­ed to be done a bit dif­fer­ent­ly. A team was put togeth­er that looked at, “what is it that we need to do in order to bet­ter con­trol end-to-end process­es?” Once that analy­sis was com­plet­ed, we devel­oped and imple­ment­ed our strat­e­gy.

How was bring­ing all of the Mer­ck com­pa­nies under one glob­al vehi­cle plan accom­plished?

We had to har­mo­nize the two dif­fer­ent com­pa­nies into one, going for­ward. That meant that the pol­i­cy stan­dard was trans­lat­ed through­out the com­pa­ny. The com­mer­cial fleet process allowed us to con­tribute to the over­all com­mit­ment for cer­tain merg­er sav­ings’ val­ues to Wall Street. We deliv­ered some of these val­ues through opti­miza­tion.

How many coun­tries were involved?

In Europe, there were 52 coun­tries with­in scope. This was quite chal­leng­ing not only because of the num­ber of coun­tries, but because of very dif­fer­ent lev­els of mar­ket matu­ri­ty.  Some coun­tries were high­ly mature with numer­ous ser­vices and pro­vi­sions being avail­able and oth­er coun­tries, espe­cial­ly the fur­ther east you went, the more lim­it­ed you were in the options you could actu­al­ly imple­ment.

What were your sav­ings?

Dur­ing a three year peri­od, we saw sig­nif­i­cant sav­ings of approx­i­mate­ly USD $30 mil­lion. That was in many dif­fer­ent areas of the fleet man­age­ment space as we opti­mized many dif­fer­ent ele­ments.

Where did the sav­ings actu­al­ly come from?

We have to look back to the strat­e­gy — what does each part of the strat­e­gy con­tribute to the over­all ben­e­fit of the com­pa­ny?  We had to stan­dard­ize the cars at a point that the com­pa­ny is will­ing to pay and thinks is the right lev­el for the mar­ket that gives them still an abil­i­ty to com­pete. If you do that right, that in itself deliv­ers some ben­e­fit, but the ben­e­fit then has to be extract­ed from that via the com­mer­cial process. The com­mer­cial process real­ly deliv­ers the ben­e­fit, not only from the nego­ti­a­tions with the man­u­fac­tur­ers and the leas­ing com­pa­nies, but also from mak­ing sure that the pol­i­cy is at the right point. That enables a stream of sav­ings to flow to the orga­ni­za­tion.

The oth­er sav­ings that were achieved, that were not as obvi­ous ini­tial­ly, were oper­a­tional sav­ings. As we opti­mized what we did we were able, also, to reduce our costs from an oper­a­tional point of view. Those sorts of oper­a­tional costs ranged from avoid­ing rental cars to mak­ing sure we did not over con­tract.

How did you man­age the dif­fer­ences in the lev­el of vehi­cles the two com­pa­nies offered their dri­vers?

There cer­tain­ly was a dif­fer­ence between the lev­els, from a car per­spec­tive, between the two orga­ni­za­tions, which also changes from coun­try to coun­ty. For exam­ple:  I have one orga­ni­za­tion that was high­er than the oth­er but we had to har­mo­nize the approach for the future. We had to deal with the car pro­vi­sion and the lev­el of that pro­vi­sion as an urgent mat­ter.

At the same time, we also noticed that the com­mer­cial part was very dif­fer­ent. In some cas­es, the lega­cy MSD, which is what Mer­ck is known as in Europe, was much high­er and then in oth­ers it was the oppo­site. We had to max­i­mize the com­mer­cial process and then mar­ry that with the pol­i­cy process to get the best val­ue for the com­pa­ny.

How did you achieve oper­a­tional sav­ings?

We also looked at the com­mer­cial part and the pol­i­cy part, but the oth­er aspect — the third ele­ment that was real­ly an inte­gral part of the strat­e­gy — was real­ly the oper­a­tions.  How were we going to man­age the oper­a­tions in the future? We decid­ed that going for­ward we would pur­sue out­sourc­ing as much as pos­si­ble. This is in com­mon with the com­pa­ny stan­dards to out-source non-car activ­i­ties.  We did have some inter­nal resources; we decid­ed to actu­al­ly set up a fleet man­age­ment com­pa­ny to man­age the fleet in the future where we could real­ly sup­port com­pe­ti­tion.

That was the oth­er thing, we were main­ly sin­gle sourced from a com­mer­cial point of view and we want­ed to move to a com­pet­i­tive envi­ron­ment that enabled us to get a bit of feel of whether or not we were pay­ing the right sort of mon­ey for our cars. It is very dif­fi­cult when you are in a sin­gle source arrange­ment to get a good feel for whether or not you are pay­ing the best price. So, for this rea­son we were able to move from an inter­nal, I sup­pose, man­age­ment of the fleet to an exter­nal man­age­ment of the fleet, which like­wise man­ages the com­pe­ti­tion.

You low­ered CO2 emis­sions, which trans­lat­ed into cost reduc­tion. How did you achieve that?

In the region of the world that I come from in Europe, CO2 is a major, major dri­ver of not only com­pli­ance but of sav­ings; the rea­son being that almost all of the gov­ern­ments in the west­ern part of Europe have leg­is­la­tion that is based on CO2. So, if you can reduce the CO2 pro­file of your fleet, you will by default also low­er the tax that you pay, so that gives you one advan­tage.

The oth­er advan­tage is, obvi­ous­ly, that CO2 is on the same par­al­lel line as con­sump­tion. So, if you can reduce your CO2 you are auto­mat­i­cal­ly reduc­ing your con­sump­tion, so that gives you a third sav­ing. As a fur­ther sav­ing, which is to do with, real­ly, the way that leas­ing works in the region, is that the resid­ual val­ue risk is tak­en by the leas­ing com­pa­ny. But the sec­ond hand mar­ket is so much more vibrant for high­ly effi­cient, low con­sump­tion cars that it actu­al­ly affects the resid­ual val­ue, so the high­er that resid­ual val­ue the less we pay, so we get a big­ger sav­ing.

If you can reduce your CO2 down to the low­est num­ber that the busi­ness will tol­er­ate for that sort of car, it will deliv­er sub­stan­tial sav­ings.

Tell us about Merck’s glob­al fleet pol­i­cy.

One of the things that we real­ized ini­tial­ly was that we did not have a glob­al pol­i­cy on fleet. This was real­ly one of the start­ing points for us. We had a Six Sig­ma project that we launched. We got senior lead­er­ships and spon­sor­ship of that and there were two prin­ci­pal out­puts.

One was that we set up a glob­al gov­er­nance coun­cil which enabled us to deal with excep­tions from any­where in the world so excep­tions to either the pol­i­cy, the process, what­ev­er, could be fil­tered out for a deci­sion to be made at a high­er lev­el.

The oth­er one was real­ly a guid­ance doc­u­ment that came out. It was not a glob­al pol­i­cy because the world is dif­fer­ent cul­tur­al­ly. It is a very diverse world and there­fore we need to adapt to the dif­fer­ent needs of the dif­fer­ent areas of the world. How­ev­er, there are some com­mon prin­ci­ples that we need­ed to man­age and like­wise cre­at­ed a RACI doc­u­ment in order to deter­mine who was respon­si­ble, account­able, com­mu­ni­cat­ed to, and informed. The glob­al guid­ing prin­ci­pals real­ly allowed us to have some indi­ca­tion of what needs to be man­aged with­in fleet, such as who gets a car, what lev­el and why.

The next part was real­ly to look at safe­ty and the envi­ron­ment. The lev­els of safe­ty, the lev­els of envi­ron­ment pro­tec­tion that the cars need­ed, and then there­after there were real­ly a lot of oper­a­tional items. The oper­a­tional items could be, for instance, a fuel card pro­gram. Each coun­try had to have a fuel card pro­gram. Not a fuel card pro­gram but a fuel man­age­ment pro­gram, which meant in a lot of coun­tries that that was a fuel card pro­gram. But in coun­tries where they do not have that lev­el of matu­ri­ty then they had to have some­thing, which meant they were man­ag­ing their fuel con­sump­tion.

One of the oth­er crit­i­cal out­puts of that was that one of the guid­ing prin­ci­ples said that at the region­al lev­el a fur­ther doc­u­ment would be writ­ing to take account of some of the region­al speci­fici­ties that exist with­in the region. I wrote that doc­u­ment for the EMEA (Europe, Mid­dle East, Africa) Region to ensure that it met the glob­al prin­ci­ples but at the same time dealt with some of the things that are dif­fer­ent in Europe.

How many fleet man­agers are there in the Mer­ck glob­al net­work?

In the Mer­ck glob­al net­work there is a man­ag­er in North Amer­i­ca and one for EMEA.   For Latin Amer­i­ca and Asia-Pacif­ic we uti­lize fleet coor­di­na­tors who are strate­gi­cal­ly placed in Sao Paulo, Mex­i­co City, Syd­ney and Tokyo.  All man­agers or coor­di­na­tors cov­er mul­ti­ple coun­tries.  At the local lev­el it is actu­al­ly admin­is­tered by the facil­i­ties orga­ni­za­tion with the facil­i­ty man­ag­er tak­ing on wider respon­si­bil­i­ties.

Out of this exten­sive process, was there some­thing that you didn’t expect to see?

Some of the sur­pris­es that came out of the process was how com­pli­cat­ed it was. There are so many mov­ing parts in this process. There are so many inter­ac­tions; there are so many peo­ple that have a view. Cars are such an emo­tive sub­ject in the EMEA Region that it doesn’t mat­ter which coun­try you go to. Try­ing to man­age that and try­ing to man­age the expec­ta­tions of all of the stake­hold­ers was far more chal­leng­ing, more involved than I had antic­i­pat­ed.

What would you do dif­fer­ent­ly if you were doing this project all over again?

I am not sure that we would do a lot dif­fer­ent­ly. That would sug­gest that there will be dif­fer­ent options avail­able local­ly and at present those options don’t real­ly exist. How­ev­er, we have learned a lot from it. We have much bet­ter data than we had when we start­ed. So, if we were look­ing at the data we have today, would we make deci­sions that were dif­fer­ent from when we start­ed? I would say, prob­a­bly not a lot dif­fer­ent from what we have actu­al­ly done because we need­ed com­pe­ti­tion to real­ly get us to a point where we felt that the pric­ing was right. Once we have that infor­ma­tion then the oth­er things can then flow from that, which means that we can look at fur­ther oppor­tu­ni­ties for improve­ment, but until you build that base it is dif­fi­cult to do the next steps.

How long did this process take from the onset to its com­ple­tion?

The merg­er took place in 2009 and from a pol­i­cy point of view we had all of the coun­tries with new poli­cies by the end of 2012. The com­mer­cial process­es were in place by the end of 2012 and then it’s deliv­er­ing the ben­e­fit. But the ben­e­fit is a dif­fi­cult one to quan­ti­fy because you are not turn­ing over the entire fleet so you are not going to get the sav­ings in one go.  Because we are on 48 month con­tracts we are only replac­ing a quar­ter of the fleet at a time. We are deliv­er­ing a quar­ter of the ben­e­fit each year. It becomes a lit­tle bit more involved than maybe some oth­er areas where you nego­ti­ate the price and you get all of the ben­e­fit in one go.

What is next, now that you have com­plet­ed this process?

Now that we have much bet­ter data we are look­ing at what oth­er parts of the fleet man­age­ment space we can har­mo­nize, we can improve, we can opti­mize.  The things we want to do next involve opti­miz­ing the dif­fer­ent ele­ments of the fleet man­age­ment process.

Cer­tain­ly we are going to look at insur­ance. We have already launched an insur­ance pro­gram where we can stan­dard­ize insur­ance in any way, not only for the region but glob­al­ly. We have already this year com­plet­ed glob­al at ten­der for the man­u­fac­tur­ers which meant that we now have pre­ferred man­u­fac­tur­ers for all part of the globe includ­ing Japan, which is always very tricky to do.

Fuel could be anoth­er tar­get. Can we har­mo­nize across the coun­ties? It is tricky but I think we can do some­thing and go forth until we get to a stage where we have opti­mized as much as we can.

Tell us about your expe­ri­ence at NAFA’s Inter­na­tion­al Fleet Acad­e­my.

NAFA Inter­na­tion­al Fleet Acad­e­my  is always a great oppor­tu­ni­ty to learn some­thing new, to see dif­fer­ent points of view, espe­cial­ly for me com­ing from Europe to see how oth­ers are doing things and also rec­og­niz­ing that dif­fer­ent solu­tions are avail­able in dif­fer­ent parts of the world. They are more applic­a­ble in dif­fer­ent parts of the world. It is always nice to see what is hap­pen­ing because you can get quite insu­lat­ed with­in your own region and only see the solu­tions that are avail­able in your own region. Step­ping out­side the region and look­ing at what else is hap­pen­ing in oth­er parts of the world is always help­ful.

These sorts of events are always great to judge what is hap­pen­ing in the wider world that you don’t see on a day-to-day basis and to inter­act with oth­ers; shar­ing ideas and shar­ing expe­ri­ences are always some­thing that is part of the learn­ing process. As you go through life you have to learn dif­fer­ent things. Get­ting togeth­er with peo­ple that see things in dif­fer­ent way is always a good way of learn­ing.

Joe.Carreira@Merck.com

 

 

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