The employees of Denmark’s ISS are a common sight at many global companies, delivering the company’s outsourced services across security, cleaning, catering and many other vital facilities. To do their jobs, they need vehicles – lots of them. James Lawson speaks to Christian Lindskov Alsø, head of group supply chain and procurement, about all that entails.
Based in Copenhagen, ISS’s internal fleet function oversees more than 20,000 vehicles spread across 30 countries. With the vast majority of them service vehicles, the company’s head of group supply chain and procurement, Christian Lindskov Alsø, has focused hard on minimising the fleet’s key metric: total cost of ownership (TCO).
“We don’t have any owned vehicles besides specialist ones like street sweepers,” explains Alsø. “95% of our fleet is financed via operational leases, and that is our deliberate choice for two reasons: the financing element and the management side.”
ISS works with two multinational leasing companies – ALD Automotive and Leaseplan International – that offer solid outsourcing options for many of the standard fleet tasks. So besides financing, they also take care of service maintenance, repairs, and fuel card administration, and manage vehicles, on and off contract.
So far, so normal, but ISS has also driven fundamental changes in vehicle evaluation and procurement. This is the Local Sourcing Initiative (LSI). “We have a dual sourcing strategy for the leasing aspect and the vehicle aspect,” Alsø says. “Though we do a full operational lease, we also deal directly with car manufacturers.”
Given the sheer number of vehicles it purchases, ISS can strike the keenest possible deal by going direct. But once the purchase agreements are in place, it’s back to the normal operational lease model: the vehicles are owned by the leasing companies, which then rents them back to ISS and manages them on its behalf.
“We agree the purchase price directly with the OEMs,” explains Alsø. “Then we agree the financing costs, and the costs of service, repair and maintenance, and so on with the leasing company. By separating the two elements, we get the lowest cost of running the fleet.”
In complete control
But there’s more to LSI than bulk discounts on new vans and passenger cars: going direct to manufacturers lets ISS itself retain full control of the brands it employs and ensures that it selects the most suitable vehicles. Otherwise, leasing companies will apply their own priorities when selecting the fleets they offer to their clients.
“Leasing companies have their own manufacturer alliances and will balance their own vehicle portfolio to suit their own objectives,” Alsø says. “This way, we can determine upfront exactly which vehicles will fit our portfolio the best.”
Under the scheme, ISS segments its entire fleet into different size categories then matches those categories precisely to the requirements of each country and its operations. That way, the true needs of the operational business drives the selection of the vehicles (sizes and specifications) with the lowest cost.
“Many companies operate with an allowance band,” says Alsø. “For a certain size of vehicle, they are willing to spend a certain number of euros. We’ve turned that around [by] asking what vehicle will serve the required purpose.
“In simple terms, we don’t care if it’s a Renault or a Peugeot,” he continues. “Because our suppliers know our business intimately, we will take the lowest-cost vehicle that meets the overall service requirements that we have defined.”
Though the fleet function is centrally led, ISS works from the bottom up when considering which vehicles should make the final shortlist for its global fleet. That ensures that local needs such as tax regimes and accounting rules are taken into consideration from the start.
“Our overall global menu is the same but locally we can tailor the spec of the vehicle to the requirements,” Alsø explains. “The Netherlands has the strictest emissions regulations in Europe, so we tailor our fleet composition to suit that market. In France, there is a strong focus on French manufacturers, so our vehicle list there caters for that.”
In touch with the supply chain
The company’s head of fleet travels to more than 30 countries annually and sits down with the local ISS fleet, finance or HR teams along with the local OEMs and leasing company representatives. Their preferences feed back to the head of iss group fleet management and his multinational team of category decision-makers who tweak that year’s global list to maintain the lowest TCO for each segment band.
“The key is the process and employing a standard way of analysing TCO,” says Alsø. “Our TCO model lets us look at cost in exactly the same way in every country. We have used it to source over 10,000 vehicles globally in the past three years.”
This approach streamlines the vehicles roster, with Renault-Nissan and Peugeot-Citroen now the main suppliers. Introduced just over three years ago, the first OEM agreements under LSI went live on 1 January 2014. Those saw the number of primary and operational brands within the fleet fall from eight to three overnight.
“In the beginning, there was a lot of discussion, but now we have no maverick local choices,” says Alsø. “There is 100% local compliance with our supplier strategy, and we have architected it that way from the beginning.”
ISS’s LSI platform provides the management information to base this strategy on. Built on an esourcing system from vendor Scanmarket, its cloud infrastructure makes it easy to access centrally and locally in each market.
“When we go through what we call a local LSI to select and negotiate the supply of vehicles in each country, we analyse around 140,000 data points,” says Alsø. “All the way from the funding costs, the cost of the vehicles and their options down to the fuel costs, the insurance and repair elements.”
The LSI platform is instrumental in helping ISS optimise vehicle choice to better match business needs. The Right Sizing project run two years ago in the UK is a great example, bringing together 14 operational directors to revamp the service-vehicle list.
Demonstrations and test drives showed that smaller, lower-specification vehicles could replace many incumbent choices for light commercial vehicles (LCVs). By dropping down from a LCV C size to an LCV B van, ISS reduced TCO by more than 30%.
“Engaging with operations is an interesting exercise because the most money you can save is simply by not buying,” muses Alsø. “That way, you not only lower the amount of money you pay for the vehicle, you also actually lower the overall requirement, which lets you reduce TCO a lot further.”
This initiative certainly cut fleet costs, but it also led directly to reduced operating costs for the UK business. That translates into lower prices for ISS’s services, increasing its overall market competitiveness.
“It does take a lot of work to challenge the status quo and change vehicles as it also has an impact on the operational processes in other business units, the tools that they can carry and so on,” says Alsø. “But by going through this process together, it becomes a joint win.”
Up to standard
By incorporating standards like safety ratings in vehicle evaluation, it is also baked into the LSI programme. The company’s driver handbook specifies all guidelines for operating and managing the fleet, with many other local initiatives from video tutorials to annual driving tests.
“The safety of our drivers is far ahead of any financial decisions,” says Alsø. “That’s most important in the type of vehicles we choose. They must be fit for purpose and meet all safety requirements.”
‘Green’ vehicles are likewise a built-in LSI option, with many electric and hybrid vehicles already in the fleet. However, with TCO always the prime parameter, electric vehicles and hybrids still struggle to compete in most countries.
“Electric vehicles’ running costs are becoming more competitive, but we are still challenged by their range,” says Alsø. “We review their development biannually and use them on specific customer campuses where there aren’t large distances to cover or where emissions are restricted, in the case of Eurotunnel for example.”
ISS is also following the total-cost-of-mobility (TCM) approach to reduce benefit fleet cost and boost sustainability performance. In practice, that might mean offering shared access to a pool car while paying for a Metro pass and providing access to staff bicycles. ISS is now tapping into green innovations introduced by leasing partner ALD Automotive.
“TCM is very much on our radar,” says Alsø. “Internally, we have introduced a TCM scheme in Switzerland. It comes down to local legislation and also the availability of such solutions. ALD is investing significant resources in this area.”
Another growing area of interest is telematics. With around 60% of the operational ISS fleet so enabled, its potential to feed real-time data to ISS central management fits well with the company’s already highly data-driven style. However, the varying legislation governing telematics in different countries means it will remain a local management tool for the time being.
“Telematics provides loads of data points but does that equal knowledge?” Alsø asks. “Not in our view. We are working with strategic partners to build a global platform to operationalise and simplify the big-data aspect because one does not exist today.”
This willingness to innovate and use business intelligence to drive efficiency is what gives ISS its edge in fleet management. Rather than burying decisions in a local office, the company has instead elevated them to a senior strategic level.
“If you talk to our CEO, he will have an opinion about our fleet and the difference it makes to our cost structure,” concludes Alsø. “We make the right decisions centrally, then we push them out consistently to our global operations.”