Fleet Care: Servicising in the Humanitarian World

Transcription

1 Fleet Care: Servicising in the Humanitarian World 09/ This case was written by Orla Stapleton, Research Associate at INSEAD s Humanitarian Research Group, Alfonso Pedraza Martinez, INSEAD PhD Candidate, and Luk N. Van Wassenhove, the Henry Ford Chaired Professor of Manufacturing at INSEAD and Academic Director of the INSEAD. It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright 2009 INSEAD TO ORDER COPIES OF INSEAD CASES, SEE DETAILS ON THE BACK COVER. COPIES MAY NOT BE MADE WITHOUT PERMISSION. ecch the case for learning Distributed by ecch, UK and USA North America Rest of the world t t +44 (0) All rights reserved f f +44 (0) Printed in UK and USA e [email protected] e [email protected]

2 Introduction Dante Disparte, General Manager of Marketing and Solutions Development at Kjaer Group, pulled up in front of the company headquarters on a cold November morning in Wrapping his scarf a little tighter around his neck, he thought about his first visit to Svendborg, a suburban port town on the Danish island of Funen (see Exhibit 1) three years previously. On that day in 2005, he had just arrived from Washington where he had been working as an insurance broker with the humanitarian (aid and development) sector. The summer sun glinting on the harbour reflected the excitement he felt at the thought of the project he was about to take on. He had been tasked with creating a team to design and develop a solution to critical issues faced by humanitarian fleet management. It would be the first of its kind ever used in the sector. Keen to take up the challenge, Dante had conservatively estimated that they would have approximately 500 of the estimated 80,000 4x4 vehicles (units) currently used by the humanitarian sector, operating under this solution, Fleet Care, within a year. Now in 2008, with the rain trickling down the window, he faced the third board meeting in which he would have to explain the delays, problems and challenges involved in getting even one humanitarian organisation to put its fleet under the Fleet Care solution. Yet he and his team knew they were on to something. World Vision International, the largest international NGO (non-governmental organisation) had committed to implementing Fleet Care, 12 additional NGO fleet assessments had been completed and 16 letters of intent were signed. Kjaer Group s reputation and that of the product were rapidly growing in the sector, a crucial development in such a tightly knit community. The team were deeply committed to what they had worked so hard to construct. Gathering his thoughts to present his case to the board, he paused to reflect on the events of the previous three years. Kjaer Group The Solution Provider? Dante originally came to know of Kjaer Group though his experience in insurance, they were his customer. Founded in 1962 as the leading Renault dealership on Funen, Kjaer Group was originally meant to serve the suburban area of Svendborg. In 1977, the first export arm of the business was introduced to supply vehicles to the Danish Volunteer Service based in Zambia. By 1989, the domestic dealership had been discontinued and the company focused entirely on exports. That same year, Kjaer & Kjaer Worldwide A/S was established. The company focused on supplying vehicles, motorcycles and spare parts to humanitarian fleets. In the years that followed, Kjaer Group s coverage spread to over 40 developing countries, the majority of which were in Africa, with 80% of the total staff based overseas. They also supplied services for humanitarian fleets including insurance and in-country maintenance provision. With Kjaer & Kjaer, AES Kjaer, Motorcare and AES Support (see Exhibit 2), their trinity of activities included: dealer development, international distribution and national distribution (see Exhibit 3). Kjaer Group s core activity remained the sale of vehicles to humanitarian organisations. The competitiveness of this market was intensified by the procurement process, which required a tender offer from at least three suppliers. Although Kjaer Group had some advantages over Copyright 2009 INSEAD 1 09/

3 their main competitors, Toyota Gibraltar and Bukkehave, in terms of reach (they had prepositioned in-country stock and exported to 133 countries) and additional services (for example, insurance), they also faced significant disadvantages. First of all, Toyota Land Cruiser was the most popular vehicle used in humanitarian operations, while Kjaer Group was a representative of Nissan. Secondly, local dealers were in a position to put the keys directly in the hands of the customer. Kjaer Group s sales were substantially based on orders from local procurement managers. In this aggressive market they could no longer afford to wait for the phone to ring to place an order. In 2005, Kjaer Group made the decision to focus on two principal areas of the business: developing and professionalising auto-dealerships in developing countries, and supporting humanitarian organisations. After over 30 years supplying vehicles to humanitarians, the company sought to use this experience to provide solutions to fleet management problems within their organisations. Fleet Care was designed for this purpose. The Need Since the 1990s, transport had grown to be the second largest operational cost to humanitarian organisations after personnel. Yet fleet management was virtually unheard of throughout the sector. Vehicles were being used far beyond the recommended time of replacement, accidents were reaching a critical level, preventive maintenance was not regularly carried out, adequate insurance was difficult to obtain, fuel prices were rising and theft was becoming an issue. Effective data collection was rarely, if ever, performed, to the point where many organisations were unaware of their fleet size. In fact, most organisations were operating fleets far in excess of their needs. Moreover, donors were beginning to question the merit of funding the procurement of vehicles that were not being managed efficiently. Some changes in the approach to humanitarian fleet management began to appear around 2000, prompted by the increased attention from the public and donors on humanitarian action. The International Committee of the Red Cross (ICRC) established a fleet management department at their headquarters in Geneva and centralised the internal leasing of vehicles to their delegations. 1 In 2002, the International Federation of the Red Cross and Red Crescent Societies (IFRC) established the centralised vehicle rental programme (VRP) run out of the Global Fleet Base in Dubai. This was made compulsory for all IFRC delegations in The changes instigated by these two organisations showed real benefit and began to be seen as a benchmark for other humanitarians. However, they were far ahead of the pack in professionalising their fleet management. What of those humanitarian organisations yet to acknowledge that they were facing serious issues? In 2003, the Fleet Forum 2 was founded as a joint initiative of the IFRC, the World Food Programme (WFP), World Vision International (WVI) and TNT, one of the world leaders in global logistics and international mail services. As an interagency association of more than 40 members, it included international NGOs, UN agencies, academic institutions, donors and corporate partners. The Fleet Forum was conceived as a collaborating body to highlight and 1 Delegation is the name given by ICRC and IFRC to their national offices. 2 Copyright 2009 INSEAD 2 09/

4 help identify solutions to humanitarian fleet management. It focused on three pillars: efficient and effective humanitarian action, increased road safety, and reduced environmental impact. Recognising the alignment of Fleet Forum s goals and Kjaer Group s capabilities, in 2005 Lars Bo Lauritzen, Executive Vice President of Kjaer Group, met with Fleet Forum Coordinator Rob McConnell at six o clock on a spring morning in Geneva airport. Walking away from that meeting, Rob thought to himself: There is no doubt we are going to do something with them. Clearly, these are people we need to work with. Kjaer Group s question was: How would they work together? Using the Fleet Forum annual conference as a platform to advertise Kjaer Group s product would not have been acceptable to the Forum members. However, their knowledge of the area meant that they were a valuable addition to the list of speakers. In October 2005, Carsten Heise and Lars Bo Lauritzen from Kjaer Group spoke at the Fleet Forum annual meeting. From the attendees at the conference, they were able to identify the potential market for Fleet Care 1.0. The Business Case Getting Killed by a Calculator! Fleet Care 1.0 offered humanitarian organisations a leasing option for their fleets. This model was based closely on the IFRC s VRP (see Exhibit 4). Vehicles would be leased by Kjaer Group to the organisations for a defined period. Once in operation, responsibility for and cost of managing the upkeep of vehicles would fall to the organisation itself. At the end of the period, Kjaer Group would dispose of the vehicles. In the wake of their first experience at Fleet Forum, Kjaer Group were very hopeful. Their offering, Fleet Care 1.0, had aroused interest and during the months that followed, Kjaer Group met with 80 organisations to explain the product. There were a number of unforeseen challenges to the uptake of Fleet Care 1.0. In the first instance, Kjaer Group was approaching their regular contacts those in charge of local procurement. As Palle Maschoreck, Strategic Relations Specialist, explained: It was not in these people s job responsibility to redesign the buying pattern or fleet management model of their organisations. Secondly, albeit highly effective in improving fleet management within the organisation, the VRP was compulsory for IFRC delegations. In contrast, Kjaer Group were a private company operating under market conditions. They were investing in something for organisations that had the option to choose. Thirdly, Kjaer Group s potential customers preferred to buy vehicles. It gave them full asset control and was perceived as less expensive than leasing in terms of cost of capital. As Palle observed: Copyright 2009 INSEAD 3 09/

5 At the end of the day, we were killed by a calculator! In addition to this, as the standard practice across the sector was to purchase vehicles, leasing was not a financial tool that these organisations were accustomed to. Kjaer Group needed to rethink their solution and the value it would create for the humanitarian sector. Developing Fleet Care Making the Car Disappear! Fleet Care 1.0 had offered customers a solution to their procurement and disposal problems but in the course of their meetings the problems that they heard about, such as maintenance, data collection and driver training, related to fleet management as a whole. Kjaer Group had to move from the concept of asset to the concept of service. They needed to make the car disappear! Fleet Care s business mission was to be concerned with what happened to the vehicle during its lifespan after it reached the customer. As Dante explained: In the [Kjaer Group] business, success was measured by units sold. For Fleet Care, success would be measured by units under management; very different success criteria. One is focused on repetition and the other on longevity. It was over the long run that Fleet Care would become an interesting business opportunity. In order to develop this product, a task force was put in place with a well focused mission and agenda. The Fleet Care team was established at the beginning of 2006 on the request of Per Lundgren, CEO of Kjaer Group. Under the direction of Dante, the core group consisted of Palle Maschoreck, and Carsten Heise, Project Manager. It was rounded off with Jan Plettner in marketing, and Britt Lightbody who managed fleet insurance. Each member was chosen based on their background and specific skill set. Palle, for example, had extensive experience of working with the humanitarian sector; he spoke their language. Carsten had a strong background in product development and project management. The team were considered intrapreneurs within the company and were within one reporting line from the top management. According to Dante, this freedom to expound on new ideas was crucial to developing the offering but created some confusion within the company. He explained: Regardless of roles and responsibilities, we had to be able to take people away from the organisation, build a firewall around them and emerge from the laboratory with the product. The two strands were not competing but it was important to understand them both and sometimes there was a lack of understanding within the company. The team emerged with a fleet management solution, Fleet Care 2.0, which would focus on building long-term relationships with their customers. Grounded in local operations and staff, the goal of Fleet Care was to achieve a lasting improvement in their customers fleet management capabilities. This integrated solution would go beyond supplying vehicles to providing humanitarian organisations with an integrated range of fleet management services. Kjaer Group would work with their customers to manage their fleets, focusing on four core areas: supply chain, technical, financial and capacity services (see Exhibit 5). In order to determine what each customer would require, they also created a comprehensive fleet Copyright 2009 INSEAD 4 09/

6 assessment. Expectations for Fleet Care ran high in the company. It was time for Dante and his team to start showing results. Starting the Ignition Dante s Dilemma By mid-2006, Fleet Care 2.0 was ready to go. Kjaer Group needed to convince their potential customers of two things. First of all, that even as a private company they could create value for the humanitarian sector; secondly, that they had shed the mantle of that leasing company. Dante knew that they would face resistance. Firstly, Fleet Care took into account not only the purchasing cost of the vehicle but also that of running the vehicle, so was perceived as much more expensive than traditional options (see Exhibit 6). Secondly, the implementation of Fleet Care would involve structural changes in the customer s organisation in terms of management, policies and procedures (see Exhibit 7). Thirdly, as humanitarian organisations are funded by donors, they would need to have donor approval before implementing the solution, a lengthy process in itself. Finally, the mentality within many humanitarian organisations was that of self-sufficiency. They feared not having vehicles when they needed them, which implied that a high level of trust would be required. This would be a new departure for humanitarian fleet management. For the first time ever, responsibility for running their vehicles would be shared with an external, private sector organisation. Using the Fleet Care management software, the team in Denmark could monitor the customer s fleet anywhere in the world, but convincing humanitarian organisations to radically change their practices would not be an easy task. Finding the Right Gear As a result of their meetings with 80 organisations, the Fleet Care team reformulated their buy-in strategy. Focusing on the international headquarters (HQ), they mapped 40 organisations worldwide that they believed to be potential customers in terms of capacity and fleet size. Yet so far this strategy had not proved as fruitful as they had hoped. Neither the people at HQ nor the local procurement managers seemed to have the authority or the inclination to commit. Rob McConnell elaborated: Authority and responsibility are terribly diluted in the humanitarian sector; there s very little centralisation. You ve got a product; you know it s good, you know who the customers are in terms of organisations, but who do you approach? As the October 2006 Fleet Forum was drawing to a close, Dante was approached by Lars Gustavsson, Senior Executive Officer and Vice President of Humanitarian and Emergency Affairs, at World Vision International. He had learned about the Fleet Care product and wanted to introduce it in a number of national offices of WVI. Dante recognised this as a golden opportunity. The interest of such a senior figure seemed to be the key he needed to enter the sector s world (see Exhibit 8). The team decided to concentrate their energy on WVI. A series of meetings attended by the Associate Supply Chain Director of Humanitarian and Emergency Affairs, Head of Finance and Accounting of Global Pre-positioning Response Network, Director of Global Supply Chain Management, Regional Fleet Coordinator and Rob McConnell took place. The decision Copyright 2009 INSEAD 5 09/

7 process was long and highly consensus-based, something Kjaer Group was not accustomed to. By July 2007, they carried out their first fleet assessment in Uganda, and by November 2007 they presented their findings to this senior team including Lars Gustavsson who was keen to sign an agreement to implement Fleet Care. Dante was soon to learn that his support would not be enough. Subsequent to signing the agreement with WVI, all those involved met with the Country Director of Uganda in February Palle recalled the impact this meeting had on their Fleet Care strategy: Before the meeting began, she said bluntly to her superiors, If this strategy does not fit with my plan for Uganda, then there will be no implementation of any fleet solution. I remember Dante calling me. He was whispering down the phone but I could tell he was excited. We have to change our strategy, he said. We need to take another stakeholder into account! It was a significant lesson for the team as they had not taken into account the layered and often decentralised managerial structure of humanitarian organisations. They also realised that it was too risky to focus their attention on one organisation and began to target national offices of other organisations, offering to carry out fleet assessments at their own cost. They mapped the buying procedure of each of the organisations and developed a sales procedure to match it (see Exhibit 8). Using this procedure, the team would be able to estimate the likelihood of product uptake for an organisation at the country level. With the change of strategy the uptake increased immediately. Within two weeks, the team had 16 letters of intent and were struggling to keep up with the workload. Conclusion At a Crossroads Dante felt a sense of satisfaction as he remembered all he and the Fleet Care team had achieved in the last three years despite unforeseen contingencies. In March 2008, WVI Uganda signed an agreement to implement the Fleet Care solution for their fleet of 101 vehicles. Kjaer Group had been instrumental in raising awareness of fleet management across the sector through their involvement with Fleet Forum, the publication of CarNation which had become an industry platform on fleet management issues, and the re-design of the Kjaer Group website to serve as a fleet management and road safety resource. Kjaer Group had achieved first-page status on Google for all fleet management terms. Rob McConnell enthused: Kjaer Group was enormously flexible; they ve re-constructed the whole offering, taken different approaches and had the tolerance to stay with it. Serious challenges still persisted. In Uganda, the vehicles had been held in bond for six months due to registration problems and the 16 signed letters of intent had yet to be converted into units under management. Moreover, for three years they had been behind expectations on financial performance. The road ahead was looking brighter, but they weren t home yet. Would the board decide to scrap the project? Should the team continue with their strategy or re-adapt it? Dante stepped out of the car and caught a glimpse of a rainbow appearing in the grey sky. Perhaps the day would be fine after all. Copyright 2009 INSEAD 6 09/

8 Exhibit 1 Kjaer Group Location Svendborg Copyright 2009 INSEAD 7 09/

9 Exhibit 2 Kjaer Group Subsidiaries Kjaer & Kjaer AES Support AES Kjaer Motorcare Kjaer & Kjaer is officially appointed by two of the largest automakers (Nissan and Honda) in the world to provide vehicles and motorcycles in emerging countries. All products are backed by one of the most extensive service and support networks in the world. AES Support represents Land Rover, BMW and Ford as Kjaer Group s dealer development distribution channel. As an official global distributor for Ford Motor Company, AES Kjaer offers a combination of 4x4 vehicle supply, logistics experience and value pricing into new frontiers. AES Kjaer has numerous stock locations and virtually 24-hour capacity to respond across time zones. Motorcare represents Nissan as Kjaer Group s national sales company and distribution channel in Uganda, Mozambique, Vietnam, Cambodia, Laos and Liberia. Source: Exhibit 3 Kjaer Group Trinity of Activities Source: Copyright 2009 INSEAD 8 09/

10 Exhibit 4 IFRC Global Fleet Base (GFB) and Vehicle Rental Programme (VRP) Vehicle requisition, monthly fee, nationalisation, data capture International HQ Procurement order Warehouse Manufacturer Policies and procedures, data analysis Through the centralisation of vehicle procurement and fleet management, and the introduction of the VRP, IFRC, delegations no longer procured vehicles as required by programmes. GFB procure 80% of their vehicles in bulk directly from the manufacturer, either Toyota or Nissan, thus benefiting from reduced rates and economies of scale. GFB rents vehicles to delegations at a monthly rate that allows it to achieve full cost recovery on each vehicle. Vehicles are rented to delegations for a maximum of 5 years or 150,000 km mileage. Data on each of the vehicles are collected at programme level, but sent to GFB via the web-based fleet management system, Fleet Wave, where it is compiled and analysed. At the end of the vehicle s life cycle, the vehicle is generally shipped back to GFB Dubai to be sold at auction although they may also be sold locally. They are rarely scrapped. If they are sold in Dubai, they are auctioned in lots. The revenue from the sale of vehicles is shared 90:10% between GFB and the delegations. The resale value of a vehicle is a very important component of the VRP business model which aims to sell vehicles at the best possible prices and minimise capital cost. In this way, the VRP has been designed to be financially self sustaining. Source: Pedraza Martinez et al., Fleet Forum presentation Copyright 2009 INSEAD 9 09/

11 Exhibit 5 Fleet Care The Solution Provider Capacity Services Technical Services Supply Chain Services Financial Services Training Mechanics Technical Fleet Management Road Safety Drivers Capacity Building Feasibility Study Fleet Diagnostic GPS/Black Box Audit/Reporting/KPI Fleet Management Software Parts and Accessories Vehicles Motorcycles Procurement Planning Logistics Inbound Outbound Fleet Disposal Risk Management Insurance Finance Leasing Open-ended Time limited Source: Kjaer Group Internal Presentation, Copyright 2009 INSEAD 10 09/

12 Exhibit 6 Kjaer Group Pricing in Comparison to the Humanitarian Sector Monthly fee comparison: Fleet Care vs. IFRC Vehicle Rental Programme (VRP) Description*** Fleet Care** IFRC VRP Vehicle provision * Inbound logistics 0.09 Integrated insurance 0.17 Excess liability insurance 0.05 Spare parts coverage 0.34 Drivers training 0.04 Reverse logistics 0.09 Total * Values are normalised dividing by IFRC s monthly fee for the vehicle rental programme (VRP). ** Kjaer Group s products also included fleet diagnostic, integrated fleet management software platform and data analysis without additional charge to the customer. *** Initially, humanitarian organisations compared totals without comparing what was included in the product. Kjaer Group s Fleet Care 2.0 appears expensive compared to leasing options available for the humanitarian sector. Copyright 2009 INSEAD 11 09/

13 Exhibit 7 The Fleet Care Solution Model Approval and support International HQ Vehicle requisition, monthly fee, data capture External provider Procurement order Manufacturer Vehicle life cycle management, training, data analysis The external provider will have been approved by HQ and the orders are sent from the national office to this provider. The provider procures the vehicles from the manufacturer and delivers them to the national office where they are rented for a specified monthly fee or purchased outright. Vehicle life cycle management, training and data analysis are the responsibility of the external provider. The national office is responsible for vehicle requisition, data capture and the monthly fee, including rental and services. In this model, control of vehicle life cycle management is shared between the national office and the external provider. Advanced planning for the transport needs of the programmes is vital. Although this model is perceived as costly, there are few hidden costs. On the other hand, this model requires effective relationship management between the two parties to adapt to different and often contrasting approaches to operating. This can require a change of mentality for both organisations. Source: Pedraza Martinez, Stapleton, Van Wassenhove, Copyright 2009 INSEAD 12 09/

14 Exhibit 8 Fleet Care Business Process Based on the Five-Step Sales Strategy Timeline in months (0) (3) (6) (9) (12) (1+) PHASE Customer Contact Fleet Diagnostics Analysis Solution Implementation ACTION Awareness Contact Letter of Intent Survey Interviews Hard Data Business Case Bundle key services Advise Customer Service Agreement Service Team FMS Vehicle Removal Service Roll Out Status Reports TOOL *(10%) Letter of Intent (30%) Fleet Diagnostics Survey (50%) Fleet Assessment (75%) Service Level Agreement *Percentage values indicate likelihood of product uptake at each stage. Source: Kjaer Group Internal Presentation, Copyright 2009 INSEAD 13 09/

15 Step 1 Customer Contact Step 2 Fleet Diagnostic Step 3 Analysis Establish contact and present fleet assessment. Send the specific person some information in writing so that they can discuss it with the four or five other people concerned. Even if one talks to the country director, this may involve a committee. Send a letter of intent to sign KG will not move forward unless the letter of intent is signed. This is also a measure of commitment. Too many sales in the humanitarian sector are based on gut feelings. Sales people talk a lot and listen too little, and the evaluation is often poor. (This is a problem not only in the humanitarian sector, but also in sales pitches in general). Fleet Care will not move from one step to the other without a signature. Return to the organisation and take them through the operational phase of the assessment. Send them some documents to be completed and returned to KG. Once this is in place, the assessment begins. The assessment consists of web-based surveys, interviews and document analysis. Completion of the survey by the entire national management team indicates a step in the right direction. Kjaer Group s analysis is based on surveys, interviews and documents. The assessment is sent to the organisation, which organises an initial phone call to make sure that both sides are in agreement. At this point, they arrange a meeting to discuss the results and next steps: The meeting comprises two parts: the first part is of four hour duration (no less) with the right people in the room. In other words, who they send and how long they spend is a way of measuring commitment. The people required to participate in the survey include the country director, finance manager, fleet manager, procurement manager, HR manager and programme director, administration director, and logistics manager. Although they do not always have specific titles, they have equivalents. All these people must participate in the project and it is the most senior representative who signs the letter, i.e., the country director. They have two days in which to discuss the feedback, so when Kjaer Group books a meeting on a Monday, they also book a follow-up meeting for the following Wednesday. They will not take the first meeting unless a follow-up meeting is fixed. Step 4 Solution Step 5 Implementation At the follow-up meeting, Kjaer Group presents the Fleet Care solution: If the organisation agrees to their solution, a Service Level Agreement or a Memorandum of Understanding is drawn up and signed by both parties, committing them to further collaboration. Implementation of the Fleet Care solution. Source: Palle Maschoreck interview, Copyright 2009 INSEAD 14 09/

16 Exhibit 9 Dante Disparte Biography Mr. Dante Disparte General Manager & Board Member, Kjaer Group A/S Dante Disparte, a General Manager for Business Effectiveness and Board Member at Kjaer Group A/S, is a leading provider of professional market expansion services for automakers and fleet management services in emerging countries. Dante is currently responsible for developing, implementing and monitoring Group-wide performance standards. He is credited with developing and launching the first ever humanitarian fleet management business and was voted among the top 20 business leaders under 35 by Danish newspapers. Dante is fluent in six languages and has completed the 6 th session of Harvard Business School s Program for Leadership Development (PLD) and the Strategic Negotiation and Competitive Decision Making courses. Source: Dante Disparte, Copyright 2009 INSEAD 15 09/

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