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Slow Transition from TCO to TCM approach in Fleet Management

by Raj Manohar , Customer Success Lead

17 May 2018

‘Mobility’ has become the new buzzword in the fleet management industry as service providers diversify their product portfolio and offer smarter ways for customers to move their employees and other resources from place to place. In the mature markets of North America and Europe, fleet is leased from leasing firms and fleet management functions are outsourced. The trends in APAC and LATAM markets differ as the approach is slightly fragmented. Companies across the world either outsource fleet leasing or perform in-house fleet management. In both cases, companies undertake a Total Cost of Ownership (TCO) approach to determine the lifetime cost of a vehicle. However, the TCO approach has been fraught with many challenges for the present-day procurement of fleet services.

Some of the key challenges are:

i) It is only possible to calculate the lifetime cost of a vehicle. This helps determine the effective cost of the particular vehicle. The approach also helps to only compare the cost between two vehicles.
ii) It is not possible to determine the total mobility cost of an employee. Total mobility costs help organizations determine the overall cost of a journey.
iii) TCO approach does not provide data pertinent to alternatives at lower costs.

TCM Approach – A Paradigm Shift in Fleet Management

The concept of TCM or mobility management simply allows employees to receive a mobility budget instead of a car allowance. This budget acts as a financial incentive that drives employees to choose sustainable means of travel. Instead of calculating costs per car in the TCO model, the TCM approach considers all aspects of mobility. Thus, the costs are calculated per mobility user. TCM links the car costs with overall travel costs of an employee, as well as all other travel options from points A to B. This includes options like hired cars, taxis, parking, flights and car sharing. In the TCM model, the fleet and travel functions are combined as one in the same IT platform since these functions are two different manifestations of mobility. It therefore provides the opportunity to reduce corporate spending while offering effective and better options to employees in these functions.

Emerging Elements of the TCM Approach

Many Fortune 500 companies such as ABB and SAP have experimented merging the fleet and travel functions under the TCM approach, as this is the way forward for the industry. Many organizations across the world are running pilot programs for managing these categories under the TCM approach. Some of these programs are:

TCM program	Description
Single mobility budget	Merger of fleet and T&E functions is believed to be an ideal solution in the future.
Mode of transport chosen by employees	No need of buying/leasing company cars. The employee chooses convenient and cost-effective transport for respective purposes.
Mobility manager	Mobility manager is responsible for entire employee travel needs and manages the travel expenses.
Smartphone applications	Employees use smartphone applications to manage travel bookings, which are paid through company accounts/profiles or reimbursements.
Integrated mobility	Utilization of car sharing, car-pooling, ride-hailing, mobility cards, etc. for employees.
Support from service providers	Traditional leasing companies and car rental companies are also supporting the new shift by introducing innovative solutions such as ride-sharing and mobility cards.

The TCM approach will be a key metric for businesses as companies will look to increasingly optimize fleet and travel costs. Knowledge of the total cost of mobility enables firms to have high transparency of its total mobility expenditure. More importantly, this helps fleet managers simultaneously save costs and frame prudent travel policies specific to employee requirements.

Rise of the Mobility Manager

Traditionally, companies use a dedicated fleet manager to manage company vehicles. As more firms are moving the travel and expense management functions under the same spend banner, it becomes possible to identify efficient ways of tracking spending as well as areas of potential savings. This has led to the transition of the ‘modern fleet manager’ into a ‘mobility manager’, whose key responsibility is to identify holistic costs and value of the company staff movements. Understanding these costs will help the mobility manager extend the vision to business travel and car usage policies to fill in the gaps and optimize total costs.

Technology Impact on Fleet Management

Technology is changing the pace of the fleet industry growth as few cities in the U.S. are already utilizing automated vehicles. Companies have been forced to include ride-hailing services in their travel policies, as most travel and expense platforms such as Concur and Coupa have tied up with fast-emerging travel collaborator platforms such as Uber, Lyft, and Deliveroo. These collaborator platforms additionally provide services such as car sharing, carpooling, and executive/black cars, which suit specific employee requirements. Mobility cards have been introduced by various mobility solutions providers, and are utilized by companies to help employees streamline their travel needs. Technological advancement in mobility solutions is swiftly changing the facet of mobility within large companies. The main aim of large companies is to meet the evolving travel needs of its employees with dynamic solutions that are cost effective and help reduce the carbon footprint of these companies.

Case Studies:

a) Company Name: Bayer

Problem faced:

Bayer fully relied on ‘leased cars’ for employee transport.
Unpredictability of the number of travelling employees led to losses.

Solution:

TCM program utilized: Corporate Car Sharing

Bayer introduced corporate car sharing for its employees

It achieved more than 45 business usages per month and more than 15 cars per day are available at its main site.
Achieved cost savings in the process.
Cars are used by employees at all hierarchies and no service complaints were received.

b) Company Name: SAP

Problem faced:

SAP wanted to contribute to the environmental sustenance program by replacing 20 percent of its fleet with electric vehicles to reduce CO₂ emission while increasing the flexibility of mobility options to its employees.

Solution:

TCM program utilized: Mobility Cards

SAP introduced a ‘BahnCar 100’ system, which gives free access to trains for its employees through a one-year card.
Alternatively, company cars without fuel cards were also offered and introduced to an app for car sharing.
SAP’s car sharing app ‘Two-go’ can be accessed through employees’ smartphones and outlook.
The whole program resulted in cost savings, while also increasing employees’ mobility options and convenience.

c) Company Name: ABB

TCM program utilized: Introduction of mobility manager

ABB merged its travel and fleet programs under the mobility manager. The mobility manager spends 60 percent of the time for fleet and 40 percent of the time for travel. It also takes the help of TMCs, car rental companies and airlines. Furthermore, it charges car providers to manage the same.

In the UK, if an employee is planning a small trip, he/she is allowed to use the company vehicle. If the trip is estimated to take six to seven hours on road, he/she is expected to take a flight instead.

Conclusion:

Fleet industry professionals claim that the switch to the TCM model has been slated to offer cost savings of up to 25 percent for companies. However, this trend is still at a nascent stage as it is presently being implemented only by certain large Fortune 500 companies who are market leaders in their respective industries. Presently, the biggest hurdle for switching to the TCM approach is raising awareness about this approach and generating interest for large to mid-level companies to explore various mobility options. Companies need to assess the mobility needs of employees to identify gaps and then lay a clear mobility policy approach for the future. Industry analysts expect this transition to near completion within the next decade, as the focus of all companies will be to optimize mobility costs and provide the smartest means of transportation for their employees.