Interview with David Swift, KONE

KONE lifts European fleet efficiency to new heights

The world's fourth largest elevator and escalator company, KONE International sells, manufactures, installs and services elevators, escalators and automatic building doors. In addition the company operates around 800 service centres in more than 40 countries.

As you can imagine, an operation of this size and geographical spread requires quite a fleet. KONE runs 12,000 vehicles worldwide. However the company recently set out to create its own internal 'pan-European' fleet management system, which in combination with its existing US system, would provide a consolidated view of its global fleet.

When planning this move, KONE knew it had effective supplier-side control in place but needed to look at its expenditure to achieve further cost savings. The plan was to achieve this through a process of benchmarking, followed up by looking carefully at any over-spends revealed by benchmarking.

KONE International's main fleet operation is based in Belgium, where we spoke to fleet manager David Swift.

By James White

Fleet Europe: How large is your global fleet, and how is it made up - in terms of which makes and vehicles etc?

David Swift: KONE's global fleet is made up of approximately 12,000 vehicles. About 65% of these would be classified as LCVs with the remainder being passenger cars. KONE uses a number of makes as we have found no one make is able to provide us with both cost-effective vehicles and an adequate service network in all of our major markets. In addition, national preferences mean that it’s difficult to impose certain brands in certain countries. KONE works with Ford, Citroen, GM/Opel and Renault in its principal markets.

FE: What are most vehicles used for?

D.Swift: KONE's business consists of the installation, maintenance and modernisation of elevators and escalators and the maintenance of automatic building doors. Therefore the large majority of our vehicles are used to carry out these activities.

FE: How are vehicles sourced (purchase/lease)?

D.Swift: KONE leases its entire fleet.

FE: What are the reasons for running your fleet globally, and not nationally or regionally?

D.Swift: In the past the various business units did a lot of KONE’s sourcing activities locally. This approach ensured a high degree of flexibility as the country units were largely autonomous. However it also resulted in a sub-optimisation of our buying power, as we had no co-coordinated approach towards the market. Because of this we ended up with a large number of lease suppliers, makes and models.

Over the last few years KONE has changed its approach by putting in place a lead buyer in the centre, who is responsible for setting the strategy and for working closely with the country purchasing managers. This hybrid approach - neither completely centralised, neither completely decentralised - has allowed us to be much more effective when going to market as well as in managing vendor performance once contracts have been put in place.

FE: Was your system hard to set up?

D.Swift: For a lot of people change can be frightening, uncertain and therefore resistance is common. We at KONE are no different in that respect! Moving from a situation where country purchasing managers were largely masters of their own destiny, to having to work closely with a lead buyer from corporate headquarters was naturally difficult for some people.

FE: What issues have you had to face in overcoming these HR obstacles, and can you give examples of how any problems were resolved?

D.Swift: A lack of good quality data on our fleet and its cost has been a major obstacle to effective management. To remedy this problem we purchased a fleet management system that we are currently implementing. I'll come back to that later.

Some country management teams are reluctant to address areas they perceive may demotivate their company vehicle drivers and thus adversely affect the business. This has meant that it hasn't been easy to address the 'demand' side - i.e. rather than getting the best price for a Rolls Royce, why not use a smaller, less expensive vehicle? The ability to build a clear coherent business case with demonstrable benefits for the local unit is key. We hope our new computerised fleet management system will enable us to do this.

FE: You mentioned that some changes been difficult to 'sell' to certain countries/departments/individuals within the KONE International group. Is this because of resistance to central management of any kind?

D.Swift: Quite often, yes. Some countries/departments/individuals are in general scathing in their assessment of any corporate led function. Most of these sceptics believe that they will always get a better deal than the one being proposed by corporate. In the past that may have been true. The way we seek to overcome the "not made here" issue is to work hand in hand with the local units from the very start of any sourcing process right through to the management of the supplier over the lifetime of the contract. This approach tends to have a much higher success rate, as any deal is as much a local deal as a corporate deal.

FE: What lessons can others in fleet management learn from what you've built up?

D.Swift: From a supply side perspective the devil is in the detail. Having the management information that allows you to fully understand your complete cost structure is very important. Good knowledge of your cost structure, allied to a thorough understanding of the fleet market improves the quality of decision-making.

Finally never forget the demand side. Most companies concentrate on the supply side – squeezing suppliers is much easier than down-sizing vehicles. However there is a limit to how far you can squeeze a supplier before a deal becomes unprofitable. In many instances there is far greater scope for cost reduction through demand management than in beating an extra per cent out of a supplier.

FE: If you were starting afresh today, would you have everything set up the same way?

D.Swift: I don’t think I would reverse any of the changes made over the last few years. However we haven't completed our journey and there are still a number of changes that need to be made in our organisational structure.

FE: Would running separate US and pan-European fleets work better? What do you think is different about operating a fleet in Europe, as opposed to the US?

D.Swift: We don’t approach fleet management with a 'one size fits all' formula. We look at it from a global perspective in terms of setting a strategy and ensuring a certain common approach. Each country has a purchasing manager and fleet manager and they collaborate with the fleet lead buyer. We look to leverage our global spend through consolidation where it makes sense. Forcing a country to use a particular make or lease company without any clear benefit for their unit in terms of cost reduction or service improvement usually ends in failure.

The US market is very different to most of the European markets. While we tend to buy operational leases with fixed interest rates in Europe, the North American market is principally based on finance leases. This means the company using the vehicles and not the lease company carries the residual value risk. In the US the cost of our fleet appears on the balance sheet, whereas in Europe contract hire largely exists to keep fleets off balance sheet. In most European markets, companies leasing vehicles don’t have to deal with fluctuating interest rates. In North America this is part and parcel of a finance lease. In addition, European lease companies tend to bundle service, maintenance and repair into an operational lease. In North America these services are purchased separately.

FE: What kind of computer system do you use and how has this evolved?

D.Swift: Most of KONE's vehicle fleet was in the past managed on a variety of excel sheets and homemade fleet management databases. Our old system used a variety of Microsoft office applications such as Excel and Access, all of which has given way to a new software system. We’re currently in the process of implementing a tool called FleetWave, which we purchased from a company in the UK called Chevin Fleet Solutions.

We spent more than twelve months on our fleet management system search. The selection team was comprised of the fleet lead buyer (me) and the purchasing managers from France, Germany, Holland and Belgium. This team examined in depth a number of solutions, one of which was FleetWave®. In the end the selection team unanimously chose FleetWave.

We made our decision because FleetWave® is a specialist vehicle fleet management application, written by people who understand fleet. The system is web-based, which means easy access and a good degree of user friendliness. Also FleetWave® can be translated into multiple languages - KONE has already translated the application into French. In fact all sites throughout the world are able to view FleetWave® in their own language and instantly pull off information that is applicable to them, as opposed to waiting for it from head office. When rolled out across the globe, FleetWave® will for the very first time allow KONE to have a single global view of its fleet costs with timely and accurate management information. We also felt that FleetWave® provided the functionality we required at a cost we could afford.

FE: In addition to having good management software, how can the fleet operation be improved from this point on?

D.Swift: There are many ways of improving our current fleet operation. I believe one of the key means to achieving improvement is to ensure the availability of accurate and timely management information. Just as it is very difficult to navigate a course without a map, it's very difficult to effectively manage a fleet without good quality data.

FE: What goals have you set for increasing efficiency?

D.Swift: As I say, KONE is in the process of implementing a specialized fleet management tool, which it is hoped will allow us to truly understand our global cost base. This in turn should enable us to finally start to address some of the demand side issues where we believe the greatest savings potential lies.

FE: Are you achieving your own personal ambitions, or would you like to move on at some point to other things?

D.Swift: While thoroughly enjoying my present role, from a career perspective I would need to change sooner rather than later. I would very much like to gain experience in a number of other spend categories.

FE: Do you still find the fleet industry stimulating?

D.Swift: Very much so. Maybe it’s something to do with "boys and their toys".

FE: What do you get out of your job?

D.Swift: I frequently tell my colleagues I’ve the best job in KONE. Being involved in sourcing on a global basis is very stimulating. On top of that being responsible for sourcing KONE's vehicle fleet is the icing on the cake. Having an affinity with the product/service you source is definitely a plus.

FE: What kind of vehicle do you drive - a company vehicle?

D.Swift: Having "outlawed" 4 wheel drive vehicles as well as sports cars from the KONE car policy, I chose a BMW 5 series estate as my company car.

ends

Jan 26th 2006