World Trade - March 2009 - (Page 33) Brooks Bentz, Accenture Partner in charge of Supply Chain Transportation. Switching the fleet to alternative fuels or to hybrid vehicles, for example, may have made economic sense when fuel cost more than $4 per gallon. When fuel costs dropped to under $2 per gallon, alternative options became less attractive. “As we reach World Peak Oil (the point at which maximum extraction is reached, currently predicted to begin sometime between the years 2010 and 2030) and the resulting inexorable decline in production in the face of continually rising demand, fuel costs will go up again,” Bentz predicts. But that isn’t the main point. The decision of whether to switch to alternatives involves more than simple fuel calculations. It includes the total cost of ownership: maintenance costs, availability of fuel, costs of the vehicles, resale potential, insurance rates and even tax and regulatory concerns. Are there, for example, state or local incentives to use alternative fuels or hybrid vehicles? Even goodwill may need to be factored into the decision. It’s not a one-calculation fuel price no-brainer. “Each situation creates opportunities,” he points out, and fleet managers need to be able to identify them and leverage them to their benefit. Likewise, for transportation departments that operate like those of common carriers, one of the pressing questions may be whether to maintain an in-house fleet or to outsource. In making that decision, fleet managers need to understand the true costs of maintaining and managing their own fleets before they can know whether outsourcing makes business sense. Many, observes Bentz, tend to look only at direct costs and fail to include such indirect costs as insurance, information technology, fleet facilities, human resources, taxes, vehicle reliability, etc. Consequently “they end up with false economy,” he explains. Instead, managers also need to include the risks attached to owning and managing a fleet and the flexibility issues in which surge capacity is pitted against the inflexibility of always having certain assets, regardless of their frequency of use. Bentz frequently participates in workshops for transportation managers, with his central theme the need to focus upon finding transportation’s hidden costs. “Costs are only hidden if you allow them to be hidden. Finding them depends on how good you are at it.” Typically, he says, “the most overlooked costs are the less direct, allocated costs, like property taxes or maintenance of yards or facilities.” Insurance is a good example. He says clients often say they have no costs for insurance because they are self-insured. “But,” he counters, “do you have claims? Nobody can run an operation of any size without having claims filed,” and they sometimes lead to litigation. Consequently, even self-insured companies must account, at some level, for costs associated with insurance, regardless who provides it. To help discover the true cost of ownership, Bentz advises looking at operations on an avoidable expense basis. “If a company outsourced an operation, would it still need the real estate, equipment, maintenance, personnel, etc.?” he asks. If not, could that expense be eliminated? If the expense involves capital assets or real estate, would they be sold? The answer impacts the total cost of ownership and affects the profitability of the enterprise. WWW.WORLDTRADEMAG.COM 33 http://WWW.WORLDTRADEMAG.COM
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