Project management focus delivers radical improvement to heavy equipment rental fleet and supply-chain management

Chief Advisor, Business Catalyst Group, Ltd, Craig@B-Catalyst.com

Abstract

How many companies would not want to reduce components of their operating costs by 40% or more? That was the magnitude of savings that research uncovered for frequent users of heavy equipment such as oil refineries, power generation companies, and chemical companies. Research indicated that companies that frequently rented or owned even small fleets of this equipment unknowingly wasted 25% to over 40% of their annual spend. Are these companies not aware of the opportunities for improvement or do they simply choose to ignore them? In most cases, companies simply were not aware of the extent of the inefficiency and waste. This paper reports on newly developed tools that allows companies to quickly assess their effectiveness at fleet management, quantify their potential for improvement, and manage their progress through five maturity levels of fleet management competency.

Introduction

Companies such as oil refineries, power generation companies, and chemical companies spend five, ten, 15 million dollars or more annually on heavy equipment fleet management. Over 40% of these amounts may have been unknowingly wasted by these companies year after year. One might presume that for a company to operate with these levels of inefficiency, it must be poorly managed. Actually, the opposite was true. These companies tended to continuously push the upper limits for operational performance. Most of these companies had programs that pursued Six Sigma, ISO 9001, Total Quality Management (TQM), or customized management performance programs with criteria that often went beyond the industry-recognized programs. Many of these companies have been through the proverbial ringers of downsizing, cost-containment, mergers, and/or other cost-cutting edicts. How, then, can it be explained that such high-class organizations have latent opportunities of this magnitude? This article answers that and related questions by providing previews into ongoing research on this topic.

First, some background clarification on the terms heavy equipment and heavy equipment fleet management is in order:

“Heavy equipment” generally referred to cranes, aerial lifts, telescoping light towers, transportable power generators, hydraulic pumps, and other standard and customized non-permanent equipment.

“Heavy equipment fleet management” was defined as managing the heavy equipment assets including: (1) planning for future and current demand of the assets; (2) management of total cost, quality, and safety of the assets; and (3) life-cycle acquisition/procurement and disposal of the assets.

About the Research

The research focused on the domain of heavy equipment fleet management at companies with annual fleet expense in excess of one million dollars. The purpose of this research was to identify opportunities to improve heavy equipment fleet management for end-user companies. A focus group was established with seasoned personnel that had fleet management domain knowledge in the petrol-chemical and heavy equipment rental industries and also included professionals and academicians specializing in fleet/supply-chain management, business transformation/reengineering, and business information systems. The research planning and execution was influenced by the project management, business systems architecture, and business reengineering disciplines.

Research Objectives & Approach

In an effort to address the aforementioned issues, research was initiated with the following primary objectives:

  1. Investigate and validate the extent to which unnecessary expenditures existed in the current heavy equipment fleet management environment.
  2. Develop a solution (i.e., future environment) that resolves the issues identified within the current heavy equipment fleet management environment.
  3. Develop a methodical, low-risk, decision-based approach for organizations to evolve to that future environment.

The Business Systems Architecture Method for Managing Organizational Change

The research used the Business Systems Architecture (BSA) method for managing information-intensive organizational change as reported by Kallas, et. al (1996). This three-step BSA method is depicted in Exhibit 1 and is explained in this sub-section. With this approach, the current (As-Is) environment is identified first. Generally, there are various issues with the As-Is environment, such as inconsistent or poorly coordinated business processes, lack of standards, lack of performance metrics, data issues (e.g., difficulty access data or obtaining business management reports), or other inefficiencies that the organization desires to address. These current-environment issues are represented in Exhibit 1 by the disjointed organizational pieces in the model. These disjointed pieces symbolize a recognized need for improvement

The Three-Step Business System Architecture Approach for Managing Change

Exhibit 1 – The Three-Step Business System Architecture Approach for Managing Change

The second step of the three-step BSA method identifies the future (To-Be) environment. The To-Be environment is characterized by tightly integrated business processes, efficiency, and effectiveness relative to the As-Is environment. The improved environment is symbolized by the tightly interconnected pieces. The To-Be environment is developed without the limitations, constraints, or assumptions that existed in the current environment. The intention of this step is to avoid inhibiting creative problem solving with old-world problems, technology limitations, assumptions, or other filters.

The third step of the three-step BSA method identifies the management plan for transition the company from its current (As-Is) environment to the future (To-Be) environment. This is symbolized in Exhibit 1 by the series of projects and the guide-rails leading from the As-Is to the To-Be environments. One or more well-managed initiatives or projects guide the company along it progresses towards the To-Be state.

The BSA method for architecting and managing business organizational change provided methodology for the research. Relevant excerpts of the research corresponding to the three BSA stages are presented in the next three sub-sections. Most of the research conclusions and discussion about the significance within each of these three steps is deferred to the final section of this paper titled Discussion and Areas for Additional Research.

The Research

Step One – Identify the Current (As-Is) Environment

The first stage of the research investigated and validated the extent to which unnecessary expenditures existed in current As-Is heavy equipment fleet management environment. This was accomplished by identifying Opportunities For Improvement (OFIs) within the traditional fleet management environment. An OFI was a business issue that, if unresolved, resulted in excess or unnecessary cost, reduced quality, or reduced safety. Data about each OFI including magnitude and frequency of the business issue were gathered during this step of the research. Exhibit 2 includes a sampling of the types of problems, i.e., OFIs, that were commonplace.

Sample Opportunities For Improvement (OFIs)

Exhibit 2 - Sample Opportunities For Improvement (OFIs)

This stage of the research identified 122 company-independent Opportunities For Improvement (OFIs) in heavy equipment fleet management. Companies, with minor exceptions, did not actively pursue the OFIs. While companies made significant expenditures on the owned and rented fleets (e.g., expenditures of ten to fifteen million dollars among some of the targeted companies), fleet management was typically considered a very low priority or was not even recognized among the staff's “formal” responsibilities. Heavy equipment fleet management was not found to be a core competency.

Step Two – Identify the Future (To-Be) Environment

In the second step of the research, the future (or To-Be) environment of Exhibit 1 was identified. To accomplish this, several facilitated sessions were conducted, process and data models were developed, and various supply-chain simulations were executed and studied. Various To-Be models were developed, refined, and simulated, and the final solution architecture was developed. Some highlights are briefly described below with most discussion reserved for the discussion section of this paper.

Event-Driven Procurement™ (E-DP). E-DP™ resulted from a radical redesign of the equipment procurement, billing, payment, and supplier performance processes. It was a new procurement process that was a byproduct of this research effort. Because of the proprietary nature of this new development, disclosure of the details of E-DP™ were on hold pending completion of a U.S. Patent & Trade Office patent application.

New OFI Value Creation. One of the unanticipated byproducts of this stage of the research was the identification of new Opportunities for Improvement (OFIs). Recall that the initial OFIs were derived from the As-Is environment. Major redesign and business transformation, e.g., the development of the Event-Driven Procurement™ and other developments, resulted in identification of new OFIs that could not have been anticipated within the As-Is environment without also considering the new To-Be environment. In addition to introducing new OFIs, the magnitude of existing OFIs were revised to recognize the To-Be environment's additional improvement potential.

OFI-Supporting Architecture. One of the primary issues with the current (As-Is) environment was high number of Opportunities for Improvement (OFIs) that were not being pursued by the end-users. In the To-Be environment, resolution of the OFIs was part of the solution design. It was actually more cost-effective to correctly design the business process from scratch than it was for an organization to retrofit all individual OFIs into the ongoing operations. The To-Be environment also had advantage in economies of scale. Instead of each individual company grappling with pursing all of the individual OFIs, the OFI-Supporting Architecture enables the solution to be developed and resolved one time but used by multiple organizations thereby producing an economy of scale benefit. (As a practical matter, a company would at best only selectively pursue OFIs on their own. Hence, it is only with the OFI-supporting architecture that companies benefit from all of the OFIs.)

The E-DP™ and OFI-supporting architectures were among the components of the To-Be environment. Other components were omitted from this section due to space limitations. Some of these components represent the culmination of initiatives contained in the Gantt chart discussed later. Additional discussion is included in the final section of this paper.

Step Three – Identify How to Close the Gap (Between the As-Is and the To-Be)

The third step of the research developed a methodical, low-risk, decision-based approach to manage and guide the transition from the As-Is Environment to the To-Be environment. The research produced three tools to help achieve this goal. The first tool was the Competency Maturity Model™ (CMM). The second tool was a project management Gantt chart roadmap consisting of seven groups of initiatives. The third tool is a self-assessment questionnaire that organizations can complete to establish their current levels within the CMM. Discussion of these tools was contained in the next section.

Discussion and Areas for Additional Research

Three proprietary tools developed as part of this research and are included in this section. Each of these tools were developed as part of an effort to help organizations achieve higher levels of success. The Competency Maturity Model™ (CMM) of Exhibit 3 is to be used to by project managers or senior management to measure an organization's effectiveness or competency in five key Competency Management Areas (CMAs) of heavy equipment fleet management. The CMM™ can be used as both a planning tool as well as to assist in the project feasibility and approval process. The actualized Business Systems Architecture model in Exhibit 4 is intended to be used by project managers and management to assist with planning for CMM™ implementations. The Competency Maturity Model™ Self-Assessment Questionnaire is to be used in conjunction with the CMM™ during both early project planning as well as to help organizations measure and reassess their ongoing progress over time.

Competency Maturity Model™ (CMM)

The Competency Maturity Model™ (CMM) in Exhibit 3 is used to measure an organization's effectiveness or competency in five key areas called Competency Management Areas™ (CMAs). (See the Appendix for a description of each of the CMAs.) As an organization's competency advances or matures to higher levels of effectiveness within individual CMA, its ability to derive recurring benefits increases. Conversely, the less mature an organization is within a CMA, the greater are the benefits that can be derived by advancing the organization's maturity. Organizations that have lower composite CMM™ levels have more to gain by embracing the CMM™. The CMM™ is a tool that can be used by an organization to both assess its current level of maturity and to provide a decision-making guide for investing in organizational improvement.

The Competency Maturity Model™ for Heavy Equipment Fleet Management

Exhibit 3 – The Competency Maturity Model™ for Heavy Equipment Fleet Management

Consider for discussion purposes the 122 Opportunities For Improvement (OFIs) identified in Step One of the research. Each of the OFIs was categorized into one of the five CMAs as part of the research. For example, each of the OFIs illustrated in Exhibit 2 were categorized within the Optimization Management CMA. An organization that experienced the types of OFIs listed in Exhibit 2 would be at a lower CMA maturity level for Optimization Management than an organization that had successfully resolved those OFIs (assuming there were no other Optimization Management OFIs).

Notice in Exhibit 3 that each CMA has percentages listed for each corresponding maturity levels one through five. These percentages identify the approximate unrealized benefit available to an organization (measured as a percentage of total annual fleet expense) at each respective maturity level. For example, an organization at Optimization Management Level 1 stands to gain a 9% improvement in expenses (direct and indirect) by achieving Level 5 in that CMA. Similarly, an organization that is already at Level 3 stands to gain only and additional 4.5% improvement in expense savings by achieving Level 5.

An organization that is at Level 1 for all CMAs stands to gain a roughly 43% improvement in its expenses. Understandably, it is difficult for most organizations to fathom how such a sizable improvement is possible. In fairness to the reader, this paper was not able to elaborate on the types of waste that exist in the organizations not was there sufficient elaboration on the “To-Be” environment that delivers the improvements. Additional publications may be available when the research is completed. The reader is welcome to contact the author for additional data and information.

Competency Maturity Model™ Self-Assessment Questionnaire

The first step for an organization considering whether to embark on the path towards improving its CMM level is to understand its current CMM level. An assessment tool was derived in part from the Opportunities For Improvement (OFIs) in Step One of the research and from other research data. The tool will allow an organization to determine its approximate maturity level within each of the five CMAs. Such an assessment is critical to an organization's decision process and can be used as part of a preliminary feasibility study. The research-based questionnaire is expected to be available near the publication date of this article. Organizations interested in obtaining the questionnaire or participating in the ongoing related research are invited to contact this author.

Actualized Business Systems Architecture Model

Exhibit 4 shows the Business Systems Architecture model populated with a modified Gantt chart. The Gantt chart depicts the Business System Components (BSCs) necessary for achieving CMM Level 5. The BSC have been compartmentalized to facilitate project management and reduce risks. Each of the rectangles within the Gantt chart represents either a single BSC or multiple integrated BSCs. (A more detailed discussion of the individual BSCs is beyond the scope of this paper.)

Notice that the Gantt chart has been overlaid with the five maturity levels. Regardless of an organization's CMM level, each of the BSCs must be implemented to achieve CMM Level 5. Ironically, the cost-effectiveness of achieving CMM Level 5 favors the organization that begins towards the lower maturity levels. That is because the organization with the lower CMM level will realize more benefit than an organization that is at a higher CMM level implementing the same BSCs. To further illustrate that point, consider an organization that has managed to achieve CMM Level 4 (albeit unlikely) independent of this research. While such an organization has not implemented any of the BSCs, it has managed to eliminate most of the OFIs. It would likely not be cost-justified to pursue the full gamut of BSCs to gain the remaining incremental improvement.

Research-Derived Business Systems Architecture Model

Exhibit 4 – Research-Derived Business Systems Architecture Model

Conversely, consider an organization that is at CMM™ maturity Level 1. Theoretically, an organization at this level has the lowest cost of entry into the CMM path. The organization could start with only the initial Business System Component (BSC) within the Event-Driven Procurement™. The benefits derived during this initial stage may be sufficient to provide both a return of the initial investment as well as fund subsequent BSCs. Additional research and data is necessary to investigate the self-funding potential of this model.

Project Management

Project Management (PM) played a symbiotic relationship with this research. PM discipline was integral to the research planning and execution. Additionally, several tools derived from the research were specifically geared towards facilitating a PM-focused organization succeed.

Software Engineering Institute's Capability Maturity Model

It is worth noting that the Carnegie Mellon University Software Engineering Institute (SEI) has developed a Capability Maturity Model that addresses various aspects of the software development and maintenance domain. While it, too, is a maturity model, there are several differences. For one, the SEI model addresses the software domain, while this research's model addresses the domain of fleet management. Another distinction is highlighted by J. DiVanna (2003). The SEI model measures “capability” (the ability required for a specific task) while this research model measures “competency” (the condition of being adequately qualified to execute). According to DiVanna, the difference between the two is subtle but significant in terms of organizational success. “Organizations fall short of achieving their objectives when they confuse organizational capability…with business competency…Most organizations have the capability of performing almost any business function. However, few are competent at prolonged profitable execution” (p. 23).

In summary, this ongoing research has identified opportunities for companies to save in excess of 40% on their heavy equipment fleet management. Most companies are not aware of the magnitude of waste that occurs annually. These are not poorly run companies. In fact, these companies are often industry leaders in many regards. As it happens, heavy equipment fleet management in general has lacked attention in most industries. Because of this ongoing research effort, it is now possible for these companies to benefit from a core competency focus without having to develop the expertise internally and reinvent the proverbial wheel.

Appendix A - Competency Management Areas™ (CMAs)

Rate Management focuses on decreasing the equipment rental rates. Rate Management was identified as the primary technique used to reduce fleet management costs. Most companies rate themselves as effective or very effective at managing rental rates; however, it was concluded from this research that as much as ten percent additional reduction in rates was feasible.

Optimization Management focuses on increasing the utilization of assets. Increased utilization focuses on achieving higher levels of utilization. Examples include combining multiple short-term rental requests to create a single long-term rental to which a lower rate applies or redeploying idle equipment in lieu of procuring additional equipment.

Process Management includes both continuous improvement (e.g., TQM – Total Quality management) and process reengineering.

Performance Management addresses the monitoring and management of the performance of all parties, e.g., suppliers and end-users, and includes, for example, on-time equipment delivery performance and equipment up-time performance.

Information Management addresses data standardization, reuse, integration, access and control.

References

DiVanna, J.A. (2003). Synconomy: Adding value in a world of continuously connected business. New York, NY, U.S.A.: Palgrave Macmillan, 2003.

Kallas, N., Lipman, C. S., Prendergast, T.A., & Wichmann, G.R. (Oct, 1996). Experiences from combining project management and business systems architecture methods for information services projects. Project Management Institute 1996 Annual Seminar/Symposium Proceedings, Boston, MA USA.

SEI Areas of Work: Management Retrieved 8/20/2004 from www.sei.cmu.edu/managing/managing.html

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI or any listed author.

© Craig S. Lipman, Ph.D., PMP
Originally published as part of the 2004 PMI Global Congress Proceedings – Anaheim, California

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