A fleet fit for the future

10 June 2014

For a company with a large fleet dispersed across many countries, the demands on fleet management strategy are constantly changing. To boost cost-efficiency, flexibility and choice, a company may need to thoroughly rethink its strategy. We speak to Luc Dendievel about how Johnson & Johnson has done just that.

Johnson & Johnson is one of the biggest names in the healthcare sector, with diverse business units covering medical devices, consumer products and pharmaceuticals. Its interests span the globe, and, as a result, it has a vast fleet of vehicles, whether for corporate sales activities of as part of employee compensation packages. To put it in perspective, the company's EMEA operations have a combined fleet of more than 14,000 vehicles spread across 37 countries.

Within this fleet, there is the obvious division between managerial vehicles and sales force vehicles, which must be managed across three different operating groups and a total of 137 separate legal entities. Add in the variations in regulation and cost structures across the countries in which the company operates, and it is abundantly clear that managing the company's fleet is a complex task.

The company aims always to operate environmental responsibly a fuel-efficient, cost-efficient in a way that allows individual business units to choose the best solutions for their local market while balancing this autonomy with a coherent set of rules that can apply to all.

"It is imperative to establish broad guidelines across EMEA to give different parts of the business - and individuals - the freedom to choose," says Johnson & Johnson's fleet director EMEA Luc Dendievel.

"Decentralisation is very important to Johnson & Johnson and therefore we provide choice within a decentralised environment, but within the scope of centralised guidelines," notes Dendievel.

The rise of the self-funding model

To achieve the necessary flexibility in its fleet operations and get greater control of the total cost of ownership of its fleet, the company spent years refining a self-funding model, in which it controls the procurement of its vehicles.

By owning the vehicles itself, the company can manage its assets in a more efficient way, optimise the cost of funds by relying on its own sources of funding instead of those of leasing companies, have full transparency on total cost of ownership and take a balanced approach to the disposal of vehicles.

"We went through a journey to find the self-funding model, and we found that the stars were aligned. We wanted to circumvent the operating lease. If you own the vehicle, then you have a better funding model, particularly if you are a AAA-rated company like Johnson & Johnson. Through our treasury function, we have impressive access to funding, and our model also gives us a lot of transparency on cost," says Dendievel.

The journey started in 2003, when the company seized the opportunity with cross-border funding. Cost-efficiency is a key part of the overall strategy that has formed since then, and, in 2005, the company piloted a scheme in France that Dendievel describes as a "challenging and difficult market", in which it purchased its own vehicles and self-insured them.

"We saw an increase in transparency in total cost of ownership that we had not seen before," he notes.

Soon after, the company rolled out a similar scheme in Belgium and the Netherlands, and then, in 2008, came a call for the fleet division to deliver more cost savings. Its initial response was to again examine the possibility of pushing the self-funding model into other countries.

"We went through a journey to find the self-funding model, and we found that the stars aligned. If you own the vehicle, then you have a better funding model."

"We put forward the Fleet 2010 plan that proposed self-funding, self-insurance, a reduction in the number of brands from 47 to seven and the goal of reducing CO2 emissions by 20% by the end of 2013. This plan was approved and we went ahead with it," Dendievel explains.

"The exact figure is changing all the time, but, today, around 75% of our EMEA vehicles are owned by the company. Around 15% of our vehicles are in our 'risk to asset' category, which means they operate in countries where we feel it is not worth the risk to own the vehicles, so we have a decentralised model. However, there is centralisation in regards to asset management," he adds.

The guidelines that govern the self-funding model are formulated centrally, but the implementation of the model in individual markets is handled with a great deal of local autonomy. The strategy has, however, led to a reappraisal of the company's relationships with suppliers.

"The model gives opportunities to suppliers. Our largest fleet management supplier in EMEA has worked with us all the way towards a self-funding model. That gives us good control of costs and full transparency, but not everyone wants to work with us on that model, because they do not want to give us full transparency when it comes to their costs. So, we choose our suppliers on that basis, and, as a result, we have a higher proportion of control over our costs than our competitors do," remarks Dendievel.

Green for go

The environmental impact of the fleet has always been a central consideration for the new model. Fleet 2010 laid down goals for the reduction of carbon emissions, and the self-funding model has been able to deliver on them.

"In 2008, emissions were 168g/km on average, and, by the end of 2013, that figure had fallen to 131g/km, so we were very happy with the progress that had been made. One of our main fleet management suppliers tells us its customers on average achieved a 15% reduction in carbon emissions during the same time period, so, with a reduction of 20%, we could see that we were doing very well," says Dendievel.

"In 2012, our new cars on the road had average emissions of 122g/km. Carbon emissions translate into fuel, and that translates into money. From 2010, we put in place a further reduction scheme and a cap on carbon emissions. The company has made important moves in this area, but it is also true that the industry has reacted to European Commission guidelines."

A new fleet management model cannot be implemented overnight, and the company has progressed steadily towards its targets. It has constantly looked to extend the model to encompass new ways of improving efficiency.

"Now, 90% of our fleet is within brand-compliance parameters, and we are rolling out the programme further. We are tightening are carbon emissions targets and adding emissions caps in line with segmentation that are set at appropriate levels for different types of vehicle. We are also introducing eco-driving programmes to train drivers in how to drive more economically and more safely."

The company has created a central support network that comprises project management skills as well as subject matter expertise in aspects like fleet management, HR and tax to provide help to individual parts of the business interpret and apply the evolving model. Each country has its own deployment leader with a team that can work across the different business units in those countries, and there are fleet academies to teach people about key issues like self-funding and carbon emissions reduction.

This structure provides the flexibility to adapt as new challenges arise. For instance, there is a lack of clarity about the strategies that vehicle manufacturers will adopt in the future, and the regulatory environment is constantly changing.

"We also have to keep a close eye on issues like tax. The economic situation in many countries is hard to predict, although we can expect that, in the EU, vehicle taxation will be aligned to carbon emissions. We have to be able to respond to the choices that regulators and manufacturers make in the future, and we have the flexibility in our fleet strategy to do that," says Dendievel.