Wal-Mart Goes Green – What about your company?

With the price of gas above $3.00, some companies (and hopefully all) are beginning to look at the fuel efficiency of their fleets. Wal-Mart is the most public example of this with its trucking fleet. Its efforts include:

1. Side skirting and installation of other aerodynamics to improve fuel economy
2. Use of super single tires, and other weight saving measures to decrease diesel consumption
3. Installation of Auxiliary Power Units to power human conveniences during stop-overs
4. Cooperation on the development of hybrid propulsion technologies for their trucking fleet

Wal-Mart’s efforts are aimed purely at cost cutting, but it is also getting the added public relations boost for being “green-minded” for its efforts. Wal-Mart expects to save $52 million per year in fuel costs from its conventional efforts and un-specified amount from the use of hybrid propulsion in the future.

But are companies going far enough?

Should companies be reconsidering their fleet vehicle purchases? Fleet vehicle purchases after all, should be determined not by whoever gives the fleet purchasing manager the biggest discount or takes them out to the nicest dinner, but by the true operational and financial goals. To make truly cost-efficient and “green-minded” fleet purchases, questions need to be asked such as:

1. What is the expected typical passenger load (number of people carried)?
2. How many different key passenger load scenarios are there?
3. What percentage of trips involve the carrying of bags or cargo?
4. What is the expected typical cargo volume and weight?
5. How many different cargo load scenarios are there?

Notice that my questions focus on typical loads rather than average loads. The reason is that a fleet should never be homogeneous because the needs of the users are not homogeneous, and in many cases you may over-spend on your fleet by trying to meet average requirements. What are the costs of a vehicle fleet? Quickly, we have:

1. Purchase cost of vehicles
2. Insurance
3. Fuel
4. Depreciation
5. Maintenance
6. Overhead (Fleet Purchasing, Fleet Management, Fleet Liquidation)
7. Space to park vehicles
8. Positive or negative branding effect

How can an organization minimize costs?

Some organizations standardize on one vehicle so that they can buy them in bulk and get a big discount. The result is usually a higher than ideal specification that likely raises negative costs of all but overhead.

Other organizations organize their fleets like rental car agencies where members “purchase” time like they would with Hertz or Avis (by vehicle class). Each vehicle class has a different price, and you would hope this influences vehicle selection by end users, but in practice price differences are usually so small that people are likely to trade up.

One other approach is a branding-focused approach. Foxtons in the United Kingdom is an example of this approach. Foxtons is a real estate firm expanding to the United States from the United Kingdom, and they standardized in London on Mini’s with distinctive paint jobs that they change about every 3-6 months to keep the branding fresh. The Mini might be a good choice for branding because they are sporty and fun, which appeals to their main target market young renters, and they are a good choice for parking in a cramped city like London. However, they are a poor choice for the business because they only come with two doors so you’ve got clients climbing in and out of the back seat through the front door when out with agents viewing properties. A four door Volkswagen Golf, Mercedes A class, or equivalent Peugeot or Renault might have been a better choice.

So, what’s the ideal solution?

The ideal solution will be different for every company. In every situation, you have to start with your goals. In Foxton’s case where it wanted to focus more strongly on branding, they nearly got it right. If the Mini came with four doors, they would have been spot on for their goals. Instead they should have chosen a sporty, compact four door fleet instead.

Most companies’ main goal will be to minimize cost. To do this the goal will be to focus on the usage of the vehicles in the fleet and cut vehicle size at every opportunity, resulting in decreased costs for purchases, depreciation, fuel, maintenance, insurance, and space to park the fleet. Total cost of ownership should be the key driving metric per car class, and reducing total overall fleet ownerships costs should be the main goal. The police department in London recently started purchasing some BMW’s to use as police cars because even though the purchase cost was higher, the total cost of ownership is expected to be lower.

For a company like Progressive or Geico who have fleets for insurance adjusters to travel around and write estimates and the like, my recommendation would be to standardize on a fleet of either Smart Cars (60mpg 2-seaters from Mercedes), or a fleet of Toyota Yaris or Honda Jazz automobiles. This would likely lower all of their costs when compared to their current fleet, including a boost from improved branding. An economy car fleet would communicate that Progressive or Geico are low cost (even if they aren’t).

For companies with heterogeneous fleet needs, this means heterogeneous fleets designed around first asking “How many people and how much cargo?” If the answer is one person, you might get a Toyota Yaris. If the answer is four people you might still get a Toyota Yaris. If the answer is three people plus three suitcases for a week trip, maybe you get a Toyota Prius.

These are very general potential solutions, and in practice they would require much more detailed fleet usage research and conversations with the marketing department. These conversations would focus on the branding impact of fleet choices (and possible marketing contribution to fleet purchase where marketing’s choice is more expensive). Research would also include usage sampling, user interviews to better understand vehicle needs, and total cost of ownership research for each considered vehicle class.

Please contact me if you would like to work with us on such a project.

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Braden Kelley is a Social Business Architect and the author of Stoking Your Innovation Bonfire from John Wiley & Sons. Braden is also a popular innovation speaker and trainer, and advises companies on embedding innovation across the organization and how to attract and engage customers, partners, and employees.