LEAD: SPECIAL REPORT: Business intelligence changes the face of fleetmanagement

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“Aarto has not yet been implemented but it does address the fact that, until now, there has been no clear accountability for company cars.”

Fleet management technology enables companies to sharply reduce logistics costs.

In fleet management, the vehicle cannot be separated from either its cargo or its driver. In addition, it’s increasingly a package that has also become inseparable from technology, specifically its business intelligence (BI) or analytics component.

In the case of freight companies, fleet management is clearly their backbone. However, this is also true for many companies’ delivery vehicles, staff cars or construction vehicles. For each of them, it is a vital part of their lifeblood and needs to be handled with finesse.

Andrew McLintock, MD and joint owner of BI firm Foxfire, consults to many of the country’s large fleets and rental companies. McLintock believes that the quality of analysed data generated by BI is commensurate with the quality of input data relating to the vehicle, driver behaviour, time of day, seasonal factors, billing, fuel and maintenance costs.

“Typically, where a fleet management system has access to all this data and is integrated with enterprise resource planning [ERP] and customer relations management [CRM] systems, it becomes a far more versatile management tool than simply monitoring fleet costs. It offers the potential to manage three of any business’ biggest assets – its vehicle fleet, its stock and its people, or at least its drivers,” explains McLintock.

Fleet management commenced as an industry in South Africa in the late 1970s, being little more than a fuel/maintenance card and monthly reporting system. It evolved along with technology but recently, as is the case in so many other industries, there has been a wave of new legislation and governance requirements necessitating automation of fleet management simply to cope.

There is the Sanral open toll system (finally signed into effect by President Jacob Zuma in September), health and occupational safety regulations (requiring companies to pay full salary to drivers unable to drive for medical reasons), the Aarto traffic fine system (under which companies will be liable for all the misdeeds of its drivers), and other controls necessary for insurance purposes to contend with.

Drivers are the single biggest vulnerability in any fleet, says McLintock. In freight, drivers are typically males, with more than half the country’s pool of professional drivers aged between 46 and 56 and on average having a Grade 8 level of education. Within the next decade they will begin retiring. Notwithstanding high youth unemployment, younger people are not being attracted to the tough working life of a driver. Because of the work conditions, divorce and alcoholism are more prevalent among long-distance drivers than in other occupations, and they have a higher incidence of HIV/Aids.

“Health and occupational safety organisation NOSA has a campaign to adopt the European model of safety management in driving, which is becoming a big part of fleet management,” McLintock adds.

Justin Thomas, Wesbank head of Product Development and Marketing, confirms South Africa is set to follow the European trend of using fleet management tools to improve driver behaviour.

“We get involved with companies in the design of their fleet management policies and strategy, and it is the impact of such policies on driver behaviour that is currently generating the most interest in South African fleet management, through systems of rewards and penalties,” says Thomas

Misuse of company cars – they are regarded as 4×4s on the weekends and racing cars during the week – is a sensitive disciplinary issue, says McLintock, but drivers have to be made responsible by law for their traffic fines, accidents and general driver habits. He says a fleet management policy should avoid having financial deductions as its first measure, but rather aim to influence driver behaviour through driver refresher courses.

Thomas says that Aarto will also be re-enforcing this. “Aarto has not yet been implemented but it does address the fact that, until now, there has been no clear accountability for company cars. Once Aarto is implemented that accountability will reside with the company, which will be liable for any sort of traffic infringement by its employees while driving a company vehicle. In particular, under the demerit system, companies will have to closely manage driver demerits because where a driver’s licence becomes suspended and he continues to drive, the company will be liable for any consequences.”

Tools are becoming available to assist in monitoring driver behaviour. For instance, trucks are starting to be manufactured with ‘breathalyser ignitions’. McLintock says the driver has to breathe into the device both before starting and at regular intervals while driving. Intelligent telematics systems also monitor exactly how a driver is operating the vehicle, such as exceeding the speed limit, or simply driving too fast or recklessly for the road conditions, the load or the environment (such as a built-up area). This mass of data enables corrective measures to be taken with drivers.

Because of all these implications, Thomas says the legacy system in South Africa of having a fragmented approach to fleet management must start to give way to a one-stop proposition.

The challenge facing most users of fleet management products, says Thomas, is that the card provider, fleet manager, tracking company and analytics provider have always been separate companies.

“Wesbank decided that we had the capability to perform all these functions and so established a platform, FleetVantage, which enables us to provide what is essentially a one-stop fleet management solution that caters for small and medium sized enterprises as well as large corporates.”

Hein du Plessis, head of Consulting at Eqstra Fleet Management, emphasises the importance of having smarter technology in the fleet management sector. “The average fleet manager is inundated with figures and invoices from at least four different fleet suppliers every month (finance, fuel, insurance and telematics) – data that is meaningless when not seen in context.”

He explains that “Technology plays an integral role in not just managing driver behaviour (telematics) but, more importantly, integrating all supplier data into one consolidated view per vehicle, region or fleet. Only once a fleet manager has this total cost of ownership [TCO] will they be able to benchmark and ultimately manage their fleet costs.”.

He says that Eqstra has invested extensively into delivering all fleet-related services as one solution, and now boasts technology that can provide customers with a single TCO view of their fleet. “This approach has enabled our customers to understand where their cost drivers are and introduce measurable actions to reduce their operating expenses, thereby allowing them to remain competitive in their market.”

Thomas says that for most clients, the entry point to a one-stop offering remains the potential for cost savings. A number of factors have driven the TCO to new highs: the weak rand has resulted in a highly inflated direct cost of vehicles, as well as of fuel and spare parts. The petrol price in 2010 was R6/litre compared to today’s R13, and such inflationary pressures tend to drive up costs of maintenance and spares. There are also fuel levies and carbon taxes adding to the cost load.

McLintock confirms that maintenance is the first cost logistics firms usually try to cut – by delaying services, allowing the skills base within their own workshop to slip, or using grey parts or unregistered vendors. “An analytics system can monitor all this, because the single most important aspect of logistics is reliability of service. Vehicles must be properly maintained for least downtime,” he explains.

In addition to rising costs, freight fleet managers face a major challenge: the single biggest factor affecting fleet management in South Africa is the state of our railways. Global best practice is for any freight travelling more than 600 km to go by rail, but poor customer service and reliability of rail mean that road freight technology has left the rail network behind. More rather than less freight is shifting to road.

One way in which a fleet manager can assist in reducing costs, says Thomas, is by using their buying power to negotiate preferential rates with reputable workshops. “We are averaging aggregate savings on behalf of clients of R43 million a year for 2012 both through such negotiations, and also our managed maintenance strategy, whereby we have to pre-approve all maintenance costs and verify pricing. We have trained technical consultants who check the process and question any discrepancy.”

Standard Bank Fleet Management’s live transaction authorisation product is one of its most popular and successful, due to the savings it achieves through the usage of fleet cards. David Molapo, head of Standard Bank Fleet Management, says that already in 2013 it has achieved savings for clients of R186 million YTD, compared to R257 million for all of last year and R228 million in 2011, by means of live authorisations.

“In addition, the actual fraud component relating to cloned or stolen fleet cards has been declining for quite some time, to a relatively negligible figure, as the transactions are declined at point of sale through our online fleet card authorisations,” says Molapo.

This is the grey area between fraud and misuse of a card. A fleet management system such as Standard Bank’s has the analytical capacity to determine maintenance costs in real time, such as whether a part is still covered by warranty and if the workshop should be charging for parts or labour.

Demonstrating the concept of the one-stop shop, Nicholas de Canha, CEO at Imperial Fleet Management, explains its full offering in a release on its website. “We operate in three major areas: we provide advice on fleet management, including the ideal vehicles and optimal running periods required to minimise fleet costs; we provide finance to enable firms to fund their fleets; and we provide the full array of value-added fleet management products to our clients to simplify the management of fleets. These include roadside assistance, fuel cards, licencing, registration and fines administration.

“The South African vehicle market is a tough one. Due to certain external factors, vehicle prices remain stable for long periods, followed by steep price increases. This makes the value of a fleet vary substantially over time and exposes the fleet manager to significant risk when disposing of the vehicles,” said De Canha.

Imperial is the largest vehicle dealership group in South Africa, selling approximately one in five vehicles in South Africa. De Canha warns that the resale of fleet vehicles can be influenced by the personal use of that vehicle. This is because the fleet vehicle’s goal resale price has a direct relationship to the amount of kilometres allowed on that vehicle for private use.

Also the fleet vehicle’s service life is shortened by each kilometre driven for private use, not to mention its expected residual value. A small fleet sedan car would average approximately 40 000 km per year. If the staff member uses that fleet car for personal use at a rate of 10%, then the fleet manager can calculate an extra 4 000 km per year of mileage for that kind of fleet car.

The service life is not the only thing affected – wear and tear items such as tyres and maintenance parts for this type of personal usage will greatly affect the costs involved with this fleet vehicle.

If a fleet vehicle is given as an employee perk, then the fleet manager must also add administrative costs onto the overall costing for the vehicle. The company needs to manage this whole process very carefully if it wants to avoid the possible high costs associated with the private use of a fleet vehicle. This company perk has indirect as well as direct costs that need to be taken into consideration. Examples of these costs are fuel consumption, maintenance parts, added wear and tear, admin, insurance and risk.

‘Big data’ takes fleet management far deeper than just costs. McLintock explains that vehicle scheduling has much to do with safety and efficiency. Government is looking to negotiate with Sanral for preferential toll rates for trucks travelling between 10 pm and 4 am – and McLintock adds that this is also a safer time to drive as there is less traffic on the road.

“BI can reveal trends relating to road incidents. Retailers are increasingly doing this and finding that, nationally, most absenteeism and accidents [both major and minor] occur on Mondays and most accidents take place at dawn [due to fatigue] or dusk [poor light]. Routing and scheduling can therefore be used to avoid high risk times and high risk areas, thereby reducing not only operating costs but insurance premiums,” he says.

He explains that the full picture is extracted from data not only related to fleet management but data on cargo and customers. “The importance of BI is that the customer can also benefit significantly, as well as the distributor.”

It has been found that even in an efficient supply chain, there is still as much as 10% cost that can be reduced – because it is introduced by some other company passing on a cost. Efficient supply chain is therefore all about managing the network and entire value chain.

Nick Gazzard of Incept explains:

“Retailers and manufacturers can map and optimise their extended supply networks, from point of manufacture through to the product’s arrival in store. This enables companies to evaluate routes to market, simulate different activity options en route, as well as any flow in terms of cost and carbon footprint, thereby helping to optimise their supply chains from end to end, and reduce their carbon footprints.

“Why is this important now? We find that companies have already cut every single business cost they are able to – and are now looking at the ones beyond their immediate control. Companies were struggling to identify such external costs because they did not have a complete view of their supply chain costs – and especially their future costs.

“It helps you create a different value chain, and identify that sometimes the most expensive transport can be the best, if it saves lead time, response time and improves overall sales through being far more responsive to consumer tastes,” he says.

“Its effectiveness stems from the fact [that] it does not look just at average costs but looks in detail at every single cost,” adds Gazzard.

Fleet management has therefore come a long way from its origins as merely a fleet card with which to pay all expenses. These were issued by banks, most of which have in recent years ventured into management of the fleet itself, and now the one-stop facility described by Thomas.

Standard Bank’s Molapo reviews the typical fleet management product range: “Of course, no two clients are the same. The core products of fleet management are the fleet card, managed maintenance and full maintenance leasing [FML]. The most fundamental product is the fleet card. On top of that is a variety of value added services, such as electronic reporting, vehicle tracking, insurance and everything in between – but increasingly it also covers other value-add services such as roadside assistance, transaction authorisation and carbon footprint measurements.”

That message clearly hasn’t gotten though to Corporate SA yet, for out of a corporate car park of about 2.5 million vehicles, barely 60 000 are under FML, and of course many more under partial outsourcing. This lack of take-up of fleet management services is not for want of competition. There are various fleet management companies across the market, including all the major banks – Standard Bank, Absa, Wesbank and Nedbank Fleet – which all rely heavily on BI systems and reporting, as well as many of the car rental companies such as Barloworld Logistics, Avis, Imperial Logistics and Eqstra.

The area where South Africa has traditionally lagged behind more developed economies is in outsourcing car ownership, explains Molapo. In many such countries, a car is viewed simply as an operating cost like any other and through a FML contract companies, and even individual drivers, are content to budget for a fixed cost.

“In South Africa, there has long been a tradition for having one’s vehicles on balance sheet, and FML is therefore not prevalent among corporates or individuals, though it is slowly increasing in popularity among larger companies. I believe we will eventually go the same route as the rest of the world, but it will require a long educational process to change that mindset. With FML, a company has a fixed cost per car and this makes planning so much easier. For the individual, it is highly advantageous to the young career person from a cash flow management perspective, as well as from a vehicle aspirational perspective as their career grows,” he says.

Another international trend that has not yet taken off is for companies to outsource their fleet management. Molapo explains that large fleets in South Africa tend to be managed in-house, with outsourcing limited to the use of various electronic reporting or analytical products offered by companies such as Standard Bank. “We tend to provide outsourcing more to those companies without in-house fleet operators or managers and will typically manage fleets sized anything from three cars to a thousand vehicles or more. For fleets of 30 vehicles or more we can play a role in the development of their fleet strategy,” he adds.

“Reporting is the main management tool and over the years the industry has shifted from snail mail to online live reporting. The next step would be the introduction of mobile apps with the capability of empowering fleet managers to perform certain functions themselves that currently would have to be requested through their fleet management company.”

In addition to vehicle-related analytics, an important aspect of the overall product suite is tracking devices, and the telematics component, a car-based device which monitors individual driving performance. Insurance companies such as Mutual & Federal have announced they too are looking at the voluntary installation of these devices.

Matrix, the MIX Telematics brand, is increasing its range of services in response to findings in the Victims of Crime survey, conducted by Statistics SA. This reported a high incidence of fear of hijacking. Matrix was one of the first players in this space and has regularly added to the functionality of its system. The launch of the Matrix One Button Remote simplifies roadside assistance and panic functionality for customers, according to the firm’s website.

Matrix IQ became available earlier this year, enabling fleet managers to monitor harsh braking or acceleration and speeding. The Matrix MX3 Enhanced Safety offers services such as early warning, roadside assistance, high risk area warning and crash alert.

It is this emphasis on technology which has driven the overseas trend to outsource fleet management.

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