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.