Master of the fleet – inside Ericsson’s vehicle offering

1 July 2016

Ericsson’s vehicle fleet is critical to the company’s success, whether it is used as incentives to retain senior staff, or as a necessary component to ensure its customers are supported. Chris Tinajero, global category manager, speaks to James Lawson about what it takes to procure and oversee 17,000 vehicles in more than 180 countries and run fleets of over 75 vehicles in 60 markets.

Chris Tinajero, global category manager, heads the company's procurement team. His team's responsibilities include funding and leasing contracts, maintenance, tyres, fuel, insurance, telematics and fleet-management tools. Tinajero says that benefit vehicles are in the majority in Europe. "Benefit fleets are about giving the keys to an individual and waiting for three or four years, or however long the ownership, employment or lease contract term is," says Tinajero.

Service vehicles, however, dominate the other markets in which Ericsson operates. "A service vehicle is a tool used to execute a service. In the finance world, it's part of the cost of sale. So it's a different animal, it's something you need to monitor and manage," he says.

Managing the fleet becomes more important to the finance department as changing rules in accounts push up costs. This is why dealing with finance plays such a significant part of Tinajero's role. The total cost of ownership (TCO) is the key management metric for Ericsson, with the depreciation inherent in lease, rent or purchase representing 50% or more of TCO in most markets.

Overall strategy

"Any time we make a strategy decision on how to fund or purchase in a market, we engage directly with finance," says Tinajero. "Finance is also very involved in reviewing how we depreciate and at what rate, and what our cash positions are in any given market. It also reviews our overall spend."

That might mean deciding if open or closed-end leasing is the best strategy, or if purchasing is more viable. Supported by finance, Tinajero's team conducts a detailed financial appraisal of any local market where a fleet of 100 or more vehicles is required.

"We have an overall strategy for when we should rent, lease or buy," explains Tinajero. "Rent and lease are off the balance sheet, and financial lease and buying are on the balance sheet. How we should fund it first requires an assessment of our cash."

In countries where it's difficult to extract cash from the local market, the best strategy is to use cash for any assets including vehicles. In other markets, leasing will be preferable. It is better in these situations to retain cash for acquisitions or to reinvest in the business.

Changes to local regulation also make the finance department's advice invaluable. The UK is a good example of where offering a car allowance instead of a company car can reduce the business's national insurance contributions and the employee's own personal tax liability.

"We use the competence that finance has in areas such as accounting rule changes," says Tinajero. "For example, the perception is that in the future, even a closed-end lease will be on balance sheet."

Procurement shouldn’t just be about driving the lowest TCO, you need to understand how the vehicles will be used and how it provides value to the business.

Beyond funding and tax liability, other criteria for the choice of vehicle procurement include fuel consumption, safety performance, accident-repair cost (based on insurance premiums) and telematics support. Having a shortlist of preferred models with low TCO helps Ericsson reduce costs, particularly where purchase is the funding solution. It refreshes its selection criteria annually and strikes global deals with manufacturers.

"Mostly we have a few brands that we stick closely to, but it does differ by market," says Tinajero. He describes this as a global strategy, which helps to reduce cost and ensure best practice, but it is essential to have local flexibility. For example, sourcing vehicles in Iran or Nigeria can be challenging. In Venezuela, car values increase due to the tough import controls and shortages. Romania is another challenging market, with the Dacia brand dominating it. "If we couldn't select Dacia in Romania, then we would have a hard time executing any strategy at all," says Tinajero.

Focusing purely on TCO for procurement can be misleading, however, especially in service fleets. The first concern is to specify vehicles that are fit for purpose and that help to maximise productivity in local conditions - even if their TCO is slightly higher. Consider, as an example, the technician driving from the local warehouse to work at a remote cell tower. If the vehicle isn't large enough to carry sufficient spare parts or materials to fix most problems, there's going to be a lot of wasted journeys. Accessing remote places of work, such as the cell tower example, is a common challenge, which requires sufficient numbers of sturdy 4WD vehicles as a solution.

"Procurement shouldn't just be about driving the lowest TCO, you need to understand how the vehicles will be used and how it provides value to the business," says Tinajero. "If you haven't considered what a fleet manager or, more specifically, what a driver will do with the vehicle, you will never have a winning strategy."

Safety is a major concern for Ericsson, which is why the company carefully chooses the types of vehicles and prefers to procure new rather than used vehicles. Training drivers is also integral to safety. Tinajero's team is currently developing a training manual that each local fleet manager can source through third-party providers. With international scope, it can be tailored to different languages and to suit local driving conditions.

"This programme will mirror some of the great training solutions we already have, and allow the local fleet manager to address some of the more specific training challenges that they have, such as dealing with animal strikes when driving in the Australian bush, or handling conditions during the rainy season in India," says Tinajero.

Boost safety performance

To make sure suppliers drive as safely as possible, Ericsson adds terms and conditions within contracts that specify what procedures need to be followed.

Telematics is another way to boost safety performance and is a subject close to Tinajero's heart. "Telematics helps manage the impact of 70-85% of total fleet costs," says Tinajero. "We try to use telematics in our daily operations as much as possible."

Telematics has huge potential to link backend-fleet-management systems to monitor and optimise metrics to minimise overall TCO. Speed, acceleration, top speed, seatbelt use and detailed engine fault codes can be logged remotely, which is particularly relevant for service fleets.

"Managing service fleets is much more intensive than the benefit fleet," says Tinajero. "You have unpredictable costs for fuel, CO2-congestion charges, tax - all of these make for a greater burden when managing that vehicle's life cycle. Understanding the maintenance network, making sure the tyres are replaced and preventive maintenance completed, there's a lot more information involved."

Simply knowing a vehicle's mileage is a benefit. Managers can schedule preventive maintenance and track depreciation from their desktops. They can decide to sell vehicles or renegotiate lease terms to keep them.

Integrating GPS location data with telematics informs multiple other areas. Liability for driving service vehicles is tied closely to the corporation, so the behaviour of drivers can be monitored and accident-prone areas can be identified.

Ericsson's multimodal-mobility allowances are being tested to evaluate the effectiveness of the total-cost-of-mobility approach to reduce the cost of the benefit fleet and boost sustainability. In practice, it might mean offering shared access to a pool car while paying for a Metro pass and providing access to staff bicycles. An important lesson so far is that one size doesn't fit all; each market needs its own custom solution.

"Millennials increasingly prefer a wider mobility solution to a vehicle," says Tinajero. "We're testing and evaluating that in a few markets, but we don't have anything that is bulletproof and ready to roll out."

With so many factors to consider when procuring vehicles, experience is vital to see the bigger picture. Ericsson has built a comprehensive induction programme to help new fleet managers adapt to their roles.

"The most critical component of executing our fleet operation is competence," says Tinajero. "We share that competence wherever we identify a need for it."

To connect local operations to global management, Ericsson reviews its large markets, and compares large and small operations to identify best practices. Top fleet managers meet at an annual forum, and there are regular monthly calls to review the hottest topics.

Each of the company's ten regions also takes turns to host regular governance meetings where review of the fleet is an important point of discussion. The management structure, and finance's close involvement, has supported the explosive growth of Ericsson's service fleet, as it operates more networks for its clients.

"Finance's engagement has enabled us to be successful in a short period of time," says Tinajero. "The ultimate goal is to be scaled and ready to operate in any market in which a customer asks us to deliver services."

Fleet vehicles need to be safe and maximise productivity in local conditions.
Using telematics to monitor a fleet helps keep track of essential information such as speed, seatbelt use and engine faults.