fleet renewal thru tpol

Volvo Truck Operations Asia Sales, Malaysia Region Business Development

1 May 18, 2012

The Business Case for Fleet Renewal By Manish Bhatnagar

FLEET RENEWAL BUSINESS CASE FOR A TYPICAL LOGISTIC CO

Purpose:

What is out of scope?

Project Objectives: Main Deliverables:

Project team

Risks and project interdependencies?

• Propose a Compelling & Holistic Fleet Renewal Haulage Solution

• To jointly study Client’s current Haulage operation and map the derived data in the agreed Total Profitability over Lifetime (TPOL) format on as is basis

• Benchmark operational efficiency for sustained profitable Haulage operation

• Analyze and propose a compelling profitable Haulage solution

• Sponsor: Client & VOLVO • PL: En. ABC • Team Client:

- Mr. XYZ & Team (Head of Haulage)

• Team Volvo - Manish Bhatnagar - (Business development

Consultant) - (Dealer Manager)

Develop a business case for replacing the old fleet with new one

• Anything beyond the development of Business case

Time line: 16 weeks (step 1-5 done)

• Potential risk for lack of commitment from functional areas

What are the main success factors?

• Driven by Client & Volvo Management • Support and availability of key contact person

for each TPOL function • Transparency in providing data for analysis • Management support and buy-in • Clear project targets and measurable results • Sustainable Compelling Solution

Milestones:

1. Volvo to study the haulage business across various customers to create a broad TPOL template

2. Share and Finalize the Template with Client 3. Jointly study & derive data for plugging into

the TPOL 4. Jointly develop the business case 5. Volvo provides the compelling solution


Client’s Current Business

Total Profitability over lifetime (TPOL) – using old fleet

– As is situation analysis

o Profitability evolution

o Revenue and cost summary 6th year

o Fuel a major cost contributor

o Key findings and improvement areas

Total Profitability over lifetime (TPOL) – using new fleet

– Profitability evolution compounded over 10 years

o Categorized – Long / Medium / Short haul

Renewal with Zero investment

2 May 18, 2012

Presentation Outline


3 May 18, 2012

Client’s Business Container Haulage

TYPE TRIPS /DAY

DISTANCE TRAVELED

/TRIP

FUEL CONSUMPTION

Km/L

REVENUE PER TRIP

MYR

NO OF TRUCKS

R/KM MYR

% BUSINESS

SHORT HAUL 3 52 1.82 235 19 4.52 40

MEDIUM HAUL 2.5 130 2.05 530 18 4.08 40

LONG HAUL 2 270 2.28 700 9 2.59 20

The present study is done based on units operations located at one location

The container haulage business is subdivided into three categories:-

The Fuel consumption is symptomatic of the type of Haulage in the current year


The no of working days have been taken as 26 with staggered decrease to 18 days from 1st to 6th Year of operation respectively (Decrease in Uptime over the Timeline)

The Fuel cost has been kept fixed at RM1.8

The Fuel consumption has been increased by 3% every year which is inline with 6th yr Figures

The Tyre cost has been kept as 0.28 RPK (As per earlier outsource agreement)

The driver incentive per trip has been kept current and same over the timeline

Monthly Maintenance cost has been taken at a base value of 16CPK with staggered annual escalation of (7.5, 12.5, 15, 20, 25 %) over 8 Years

For estimating the Finance cost :- Hire Purchase route @ 80% finance has been followed

Tenure 60 months, at 3% Simple Interest Per Annum

The Investment Tax allowance has been taken at 25%

4 May 18, 2012

Client’s Total Profitability over Lifetime (TPOL) Key Assumptions


TPOL business-mapping snapshot for Long-haul category

5 May 18, 2012

Client’s TPOL Timeline:- 1st Year to current 6th Year operations


6 May 18, 2012

TPOL Profitability evolution over 10 yrs

-35.00-30.00-25.00-20.00-15.00-10.00

-5.000.005.00

10.0015.0020.00

1 2 3 4 5 6 7 8 9 10

LONG HAUL

LONG HAUL AS IS

-10.00-5.000.005.00

10.0015.0020.0025.0030.0035.00

1 2 3 4 5 6 7 8 9 10

MEDIUM HAUL

MEDIUM HAUL AS IS

-35.00-30.00-25.00-20.00-15.00-10.00

-5.000.005.00

10.0015.0020.00

1 2 3 4 5 6 7 8 9 10

SHORT HAUL

SHORT HAUL AS IS

• Sharp Fall in profitability from Year 3 • Root cause is low-uptime • Rise in Fuel Consumption


DESCRIPTION LONG HAUL MEDIUM HAUL SHORT HAUL

REVENUE 25200 23850 12690

BUSINESS COST 25468 17434 10815

PROFITABILITY (%) -1.06% 26.9% 14.78%

7 May 18, 2012

6th Year Operation Revenue & Cost

The uptime has decreased by 30% over 6 years from 26 days to 18 days

MAIN COST DRIVERS

AVAILABLE WORKING DAYS 18 18 18

FUEL COST 7957 (31%) 5310 (22%) 2874 (22%)

DRIVER COST 4073 (16%) 3468 (14%) 2742 (21%)

MAINTENANCE COST 3880 (15%) 2335 (10%) 1121 (9%)

OVER HEADS 8% 8% 8%


8 May 18, 2012

Fuel Study (Short Haul)

At One Location

Km/Ltr Short Haul

Figures are for the Month of Jan, Feb, March

Figures derived from 13 Prime Movers dedicated for short haul

The highest Fuel Consumtion has been 1,02 Km/Ltr

The lowest Fuel Consumption has been 3,03 Km/Ltr

The Average Fuel Consumption has been 1.94 Km/Ltr

The Dispersion in Fuel consumption is too high

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

0 5 10 15 20 25 30 35 40 45


FINDINGS

Huge dispersion in fuel cost

The driver cost is relatively higher compared to Industry standard

Maintenance cost shows a steep increase from Year 6

Low vehicle uptime and sliding further

9 May 18, 2012

Key findings and improvement areas

IMPROVEMENT AREAS

Potential Pilferage of fuel

Higher downtime

Driver accountability, The driver remuneration is only linked with trips not Fuel consumption

Driver training needs

Higher rate of rise in maintenance costs

After the 3rd year the operation starts becoming more and more non-profitable


10 May 18, 2012

TPOL – using new fleet

RENEW THE FLEET EVERY 5 YEARS

Uptime Figures based on top quartile

Fuel Consumption based on past averaging and has been kept conservative

THE NEW TPOL WITH ZERO INVESTMENT MODEL


11 May 18, 2012

Profitability over 10 Years Timeline Long haul Business

Renew Fleet on a 5 year cycle

-35.00

-30.00

-25.00

-20.00

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

1 2 3 4 5 6 7 8 9 10

LONG HAUL AS IS LONG HAUL ZE-IN


12 May 18, 2012

Profitability over 10 Years Timeline Medium Haul Business


-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

1 2 3 4 5 6 7 8 9 10

MEDIUM HAUL AS IS MEDIUM HAUL ZE-IN


13 May 18, 2012

Profitability over 10 Years Timeline Short Haul Business


-35.00

-30.00

-25.00

-20.00

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

1 2 3 4 5 6 7 8 9 10

SHORT HAUL AS IS SHORT HAUL ZE-IN

fleet renewal thru tpol

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