Accenture Management Consulting Applying Industry Best Practices to Federal Fleet Management – The Case for Total Cost of Ownership June 28, 2012

Copyright © 2012 Accenture All rights reserved. 2 Federal Fleet Challenges Presidential Memorandum: Federal Fleet Performance “We owe a responsibility to American citizens to lead by example and contribute to meeting our national goals of reducing oil imports by one-third by 2025 and putting one million advanced vehicles on the road by 2015.” GSA Guidance Bulleting FMR B-30 Vehicle Allocation Methodology: Annually provide a standard way to ensure that each vehicle in your fleet is correctly sized and is appropriate for accomplishing the agency missions. Bulletin FMR B-30 Fleet Management Plan: Annually describe how your agency will achieve its optimal fleet inventory, alternative fuel schedule, sourcing decisions, and incorporate in strategic sustainability performance plan. Bulletin FMR B-15 Fleet Management Information System: Implement a centralized system to identify, collect, and analyze motor vehicle data with respect to all costs incurred for the operation, maintenance, acquisition, and disposition of motor vehicles.

Copyright © 2012 Accenture All rights reserved. 3 Total Cost of Ownership By using a structured, diagnostic approach to calculate TCO, fleet managers will have the information needed to make difficult changes

Copyright © 2012 Accenture All rights reserved. 4 TCO is an easy-to-understand, but tricky to calculate, number that fleet managers can use to compare costs within their fleet, identify trends, and make replacement decisions Key TCO Drivers TCO can be offset or reduced by: Optimizing vehicle lifecycles (in years) Decreasing individual vehicle utilization Increasing disposal reimbursements

Copyright © 2012 Accenture All rights reserved. 5 TCO metrics provide visibility into true fleet costs and provide justification for Fleet Management policy decisions TCO Example Metric

Copyright © 2012 Accenture All rights reserved. 6 Implementing World-Class Fleet Management is a multistep, interlinked set of actions leading to lowest Total Cost of Ownership Mile Markers

Copyright © 2012 Accenture All rights reserved. 7 TCO in Action Fleet: Major Telecommunication Provider Results Over $73M NPV Savings through 8 years Newer and More Reliable Fleet Universal Safety standards Improve vehicle to employee ratio from 1:5 to 1:1 Implement 1 fleet management system (migrating from 4) A Telecommunication company needed to develop and implement a fleet transformation strategy. The company sought a centrally managed, strategically focused fleet program with standardized processes across the national fleet network. Fleet Rationalization: Right-sized the fleet by performing an Allocation Review (Needs vs. Wants) and a Utilization Study (vehicle usage). This approach ensures that Operational needs are met by the right- sized fleet. New Fleet Model: Moved to central Fleet Management operating under a central organization and on a single platform for all fleet transactions using a Total Cost of Ownership model to drive optimal replacement cycles and disposition timing.

Copyright © 2012 Accenture All rights reserved. 8 Fleet rationalization considers utilization metrics as well as mission needs, as should be considered in every agency VAM Fleet Rationalization Steps Rationalization Rationalization will focus initially on non-service vehicles, with the focus shifting to service vehicles to follow Non-Service Vehicles: Reduced by 50% Service Vehicles: Tech Veh to Tech ratio reduced to 1:1 Utilization Review “being used?” Gather and review odometer readings, vehicle age and location information Identify and categorize surplus vehicles Identify candidates for rationalization Allocation Review “needs?” Determine which job functions require a vehicle Compare as-is/to-be allocation model Identify candidates for rationalization

Copyright © 2012 Accenture All rights reserved. 9 TCO in Action Fleet: Major Utility Provider Results Rationalized specifications down from 246 vehicle types to 35 vehicle types Quantified lease vs. own decisions $10.1 million in negotiated savings over five years; exceeding targets by 55% Created a best-in-class replacement schedule Consolidated supplier base from 11 to 6 A multi-billion dollar utility company delivering electric and natural gas in multiple states throughout the southwestern United States sought to optimize its resource allocation across its entire service vehicle fleet. Spec Rationalization: Reduced variation in standards & specs to make for smaller number of larger classes; Re-engineered specifications exceeding work requirements. Fleet Sourcing: Applied multi-year Strategic Sourcing of all major classes and sub-categories including (OEM, up-fitters, tire, fuel Financing, and FMS.) Finance & Admin: Performed Lease v. Own evaluation and In-Source v. Out-source comparison (Administrative functions, Titling, licensing, permitting, In-servicing M&R Administration - Call center, Vendor management.)

Copyright © 2012 Accenture All rights reserved. 10 Sedans Upfit Package “A” Standard Specs Sub-Compact Compact Mid-Size Full Size Class Type Variations Specifications Key Questions & Issues Can this class be replaced by another class to reduce overall number? Can any of these vehicle types be combined with another to reduce the total? Does this Up- fit Package meet all the business and operating functions required of the vehicle? Which specifications meet 95% of the business needs of the operating unit Which can be eliminated or combined? Which need to be added? Phase 1 (30 mins/category) Phase 2 (1 hr/category) Workshop Overview Agencies with a myriad different vehicle classes and types can find cost savings through standardization

Copyright © 2012 Accenture All rights reserved. 11 TCO in Action Fleet: Major Telecommunication Provider Results Develop fleet strategy that will deliver ~$90M in annual benefits Decrease tech to vehicle ratio from.9 to.84 $11M in benefits for removing excess and underutilized units with the potential for $22M over a 3 year period. Company’s fleet is a 66,000 unit/$2B asset with approximately $500M in annual operating costs. Objective was to Identify opportunities to achieve the lowest Total Cost of Ownership (TCO) and define a long term fleet strategy. Fleet Rationalization: Conducted utilization study that focused on reducing overall fleet size and age to best practice standards by using Best Practice utilization data and assessing the types of vehicles being used. Pooling Surplus or under-utilized vehicles were identified in order to implement appropriate corrective measures: Vehicle pooling, Asset re-deployment / re-purposing, Asset disposition through specialized auction venue. Disposition

Copyright © 2012 Accenture All rights reserved. 12 Mileage Utilization Fleet diagnostics identify low performing vehicles that are prime candidates for rightsizing and/or replacement

Copyright © 2012 Accenture All rights reserved. 13 TCO in Action Fleet: Major Utility Provider Results Three scenarios, representing varying degrees of outsourcing, were modeled against the baseline cost structure to determine potential savings associated with outsourcing the additional maintenance Savings range from $1M to $4.5M annually Scenarios ranged from high-volume, non- business critical vehicles which have easily accessible commercial market support to all maintenance activities The intent of the Fleet Outsourcing Feasibility Study was to perform a study of fleet operations and maintenance to determine whether or not the US / regional market for Fleet Maintenance Outsourcing is viable, and to understand the high level economic and operational impact of additional Fleet Maintenance Outsourcing. Maintenance & Repair Operations: Developed a model to determine outsourcing feasibility by vehicle type and maintenance activity based on three key criteria. Baselined current maintenance budget and modeled three outsourcing scenarios to create business case. Also designed high-level operating models, outlined customer impacts, and developed a roadmap for due diligence.

Copyright © 2012 Accenture All rights reserved. 14 Outsourced VehiclesOutsourced Maint. CompanyIndustryLDMDHDEquipPMRepair Company 1Natural Gas / Electric Company 2Lawn Care, Home Maint. Company 3Natural Gas / Electric Company 4Electric Company 5Water X - Maintenance outsourcing is a growing trend in the US with fleets across industries. “Concerned with economics in a changing environment, fleet managers might find themselves considering outsourcing vehicle maintenance services. Allowing professional vehicle maintenance organizations to purchase, maintain and retire equipment, fleets can take advantage of an outside organization's expertise in maintenance and economic control of resources.” - John Dolce, “Outsourcing Strategies for Fleet Maintenance” Source: Accenture Research Degree of Outsourcing Full Partial Min Outsourcing fleet functions can lead to cost savings and improved performance Fleet Maintenance Outsourcing Industry Examples

Copyright © 2012 Accenture All rights reserved. 15 Mile 1 – Data collection and validation Does your agency have an FMIS that captures not just FAST data but other, relevant TCO metrics? Can you easily pull your data to run diagnostic analytics? Mile 2 – Fleet Rationalization Does your agency have a standardized method for rationalizing your Green Fleet decisions? Does your agency’s Vehicle Allocation Methodology consider both quantitative cost factors (vehicle utilization, vehicle lifecycles) and agency-specific factors (mission criticality, equipment needs)? Has your agency been able to identify rightsizing opportunities without sacrificing agency mission needs? Mile 3 – Spec Rationalization Are your agency’s vehicle specifications in alignment with mission requirements? Do you have vehicles that are “over-qualified” for their need? How many vehicle classes and types are in your agency’s fleet? Is there opportunity to standardize? Do you consider a specification matrix before sourcing for a vehicle? Key Takeaways

Copyright © 2012 Accenture All rights reserved. 16 Mile 4 – Pooling Is there opportunity at your agency to use the same vehicle for multiple purposes? Does your agency take advantage of geographic or local motor pools? Mile 5 – Disposition Does your agency have a way to calculate the vehicle lifecycle’s effect on your TCO? Do you seek out public auction venues to obtain the highest proceed returns (for your fleet vehicles that qualify for resale)? Mile 6 – Fleet Sourcing Does your agency use a levelized replacement calendar to minimize TCO? Has your agency completed strategic sourcing analysis across your various fleet categories (OEM, Up-fit, Tire, Fuel, FMS and multi-year)? Key Takeaways

Copyright © 2012 Accenture All rights reserved. 17 Mile 7 – Maintenance & Repair Operations How does your agency set your preventive maintenance schedules? Are they optimized? Has your agency analyzed the costs and benefits of Internal vs. External maintenance? Is there opportunity within your agency to consolidate maintenance operations? Mile 8 – Finance & Administration Does your agency complete a Lease vs. Own evaluation for different vehicle types? Has your agency completed an In-Source v. Out-Source analysis for: –Administrative functions: Titling, licensing, permitting; In-servicing –Maintenance & Repair Administration: Call center; Vendor management Mile 9 – New Fleet Model Does your agency’s fleet management plan comprehensively consider Mile Markers 1-8? Is your fleet model standardized and communicated to all affected departments? Are practices and policies consistent? Does your agency’s plan include iterative improvement programs to reanalyze data and continuously optimize your TCO? Have you developed a multi-year strategy roadmap to align with agency strategic objectives? Key Takeaways

Copyright © 2012 Accenture All rights reserved. 18 Contact Info Bob Pitts Senior Principal Accenture Management Consulting Karl Dedolph Senior Manager Accenture Management Consulting About Accenture Accenture is a global management consulting, technology services and outsourcing company, with more than 246,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$25.5 billion for the fiscal year ended Aug. 31, Its home page is en/Pages/insight-simplifying-federal- fleet-conundrum-summary.aspx Improving Fleet Efficiency and Compliance Through Best Practices