April 2008
You’ll hear me refer to “usage” quite a bit throughout these wireless management posts. Of course that means minutes used, but there are several different types and/or levels of “usage” or “minutes”. Wireless companies like to invent things at their convenience. In addition to the different types of minutes, different providers can have different terms for the same type of minute. I’m convinced this is because the implicit intention is to confuse as many people as possible. Here’s a rundown of the most common types of minutes you’ll encounter. Keep in mind, not all providers will offer unlimited amounts of some of these types of minutes. Know your usage (and type of usage) to find the best plan with the right carrier.

Peak Minutes: These are minutes used typically between the hours of 7am and 9pm, Monday through Friday. Peak minutes are the type of minutes that draw away from the plan minutes you bought into, but not in every instance. Keep reading.

Nights & Weekends: Common sense on that one. These can also be referred to as non-peak minutes. These minutes typically will not take away from the peak minutes purchased. Some providers, such as Sprint, have calling plans where nights and weekends start at 7pm.

Shared/Pooled Minutes: This applies to groups who have purchased a large chunk of minutes for use amongst all participating users with that carrier. This also applies to people on a family share plan. A “pool” can be a large glut of minutes bought that everyone pulls from, it can be a collection of minutes where every user has plan minutes contributing to be shared, or a hybrid of the two.

Within Network Usage: These are minutes used between people on the same provider (Verizon to Verizon, Alltel to Alltel, etc). Verizon refers to this as “IN” usage. Sprint and T-Mobile refer to it as “Mobile to Mobile” usage. Some providers have unlimited mobile-to-mobile calling on all plans, which will not take away from peak minutes purchased. Other providers may not include this is every plan but offer it at an additional monthly charge as a line feature. Still others may let you choose a certain number of people where you can have unlimited calling.

Push-to-Talk Minutes: This is also known as walkie-talkie or direct connect minutes. This is the feature that Nextel popularized with that annoying chirp and bad reception everyone within 250 meters could hear. As with everything else, it depends on the provider whether this comes standard with your plan or if costs extra. Also, depending on the carrier (how many times have I said that or a derivative of it so far), you may need to choose from a select variety of phones that are capable of this feature.

Overage Minutes: In the wireless mismanaged company, overage minutes are like herpes; you certainly don’t want it, but you may not know you have it. Overage minutes are any amount of minutes used over your allotted pool of minutes. Too many of these will put you in an early financial grave. Costs of overage can range from $.25 to $.40 per minute. You better have protection to prevent this. Always have at least a 10% buffer over average peak minutes used. I will get into this in more detail in the next post on usage.

Roaming Minutes: These are minutes where the call you make originates outside of the territory of the service provider. For instance, you bought your phone in Chicago and have a Chicago area code. You take a vacation to Cabo and call the office to check on things. Those minutes are considered roaming and you will be charged (oftentimes an arm and a leg) for those minutes. The reason for this exorbitant charge is you are using the network of a provider you have no contract with. I use the international example because that is most common. In the early days, roaming could occur within the same country. Now even mom and pop wireless providers will piggy-back on a large provider’s network who have nation-wide coverage. Most wireless providers on their web pages will provide a list of international rates.

Wasn’t that fun? I could have gotten into more detail and said what providers offered what, but we probably suffered quite a few casualties already. This is the jumbled wireless world we live in. For the individual, it’s not too bad. But for businesses, it gets ugly. Now that you know the various types of minutes, the next step is knowing your usage of each type of minute and finding the proper plan. The next installment will do just that.
This post is going to sound a bit rudimentary, but I feel the need to cover my bases so much I’m posting on a Friday. There will be some overlap between this and my eventual usage post, but for good reason.

After you’ve recruited the company decision-maker, the next step is to know the inventory. On the surface, this sounds like a no-brainer, but it isn’t as easy as you think. In my experience, most companies assume they know their inventory, but you know what the acronym assume stands for. You can be dealing with different wireless providers (Verizon, AT&T, Sprint, T-Mobile, Alltel, Helio, etc), and among those different providers, you may have people who submit expense reports, and others whose invoice is billed directly to the company. You may also have single users who have family share plans (not individual plans), multiple devices (such as a cell, blackberry, and aircard) and those devices may be with different providers. That leaves ample room for people’s complete inventory of devices to fall under the radar. Can you now see how un-simple the inventory issue can be?

You can’t control your wireless spend until you can control your wireless inventory. There’s no one silver bullet to this situation, but here is a comprehensive approach that is as good as any I can think of:

  • Talk to your wireless rep for each provider and have them generate a report of all users they bill for on all company accounts and sub-accounts
  • Work with accounting and get all wireless expense reports
  • Get an HR listing of all employees and their cell phones (there is a fine line between corporate and private use, so use discretion with this)
  • Consult the general ledger and see if all costs in the first two points have been captured in wireless spend GL categories

Another issue with inventory, is once you know what you’re paying for, you know what you can get rid of. There may be spare phones sitting around that have had no usage in the past six months and aren’t even on stand-by and you’re footing the bill. Dump those devices. This is the cross-over with usage I alluded to. You can get rid of those devices without penalty if you’re slick about contract negotiations, but that’s a post I’ll get to down the road.

As I hope you can see, inventory management isn’t simply about having a head count. It has implications that are very broad. This is the foundation to get you on the path to wireless savings. Next time, I’ll speak about the different types of minutes. Until then, enjoy your weekend.

And I’m not talking Springsteen. The absolute first step in addressing wireless issues is to FIND THE DECISION MAKER! I know this sounds simplistic, but having done many wireless projects, you’d be amazed at how important this step is to a successful savings initiative.

The reason this is so important, which partly depends on the size of the company, is that different department budgets can be involved. You can have a sales department who handles the sales team, an IT department that handles Blackberries, a fleet department that handles push-to-talk phones, an executive secretary who handles C-level phones. See how convoluted this is already? When laid out like this, it sounds ridiculous to have so many levels of influence in something like wireless, but the reality is that many companies work with this model. When it comes to wireless, corporations immediately become schizophrenic. It reminds me of the Bill Murray movie “What About Bob”. “Roses are red, violets are blue, I’m a schizophrenic, and so am I.”

Before you can have any impact, find the one person in the company who can pull the trigger and supersede everyone else. It can be the CFO, the CEO, the COO, whoever. The example of schizophrenia above is actually dumbed-down. Not only can you have different department budgets to deal with, but you may have different wireless providers to deal with and corporate liable and individual liable phones. That’s a morass that can only be traversed with a solid, upper-level sponsor. Get that person or get out of Dodge.

Next class session I’ll discuss inventory issues and how that can affect the overall savings goal. It’s basic, I know, but you have to start somewhere. It’s all going to add up and save a bundle.
Now that I’ve managed to wean myself off fleet management posts, it’s time to tackle another corporate enemy: Wireless.

Wireless is one of the most out of control secondary spend categories in the corporate world. It’s understandable to see how it can get crazy; add a few sales people here, write off some expense reports there, just another bill to pay, etc etc. That’s no excuse however, for not lassoing that spend. Depending on the size of the inventory, there can be huge hard dollar savings. Regardless of the number of lines, the savings percentage will be motivating.

The next series of posts will deal with what steps should be taken to stop the wireless spend bleeding. It will encompass basic issues such as inventory, to more expert knowledge such as contract negotiations. So if we’re all going to get brain tumors from being addicted to our cell phones like crack, we may as well do it on the cheap (and smart). Stay tuned.
So now you know the basics of fleet management. You have a basic understanding of the ins and outs and have a good idea of what kind of lease best fits your needs. Now you need to put that out to bid. The problem is different fleet management companies have different quoting standards. Some are incredibly meticulous and others write their quotes on a napkin. To compare quotes with any amount of confidence, the best scenario is to have apples-to-apples comparisons. Easier said than done. This is a Catch-22. You want to have solid numbers you can manipulate in a spreadsheet for a clean comparison, but you also don’t want to stifle the creativity of the fleet management company. What’s a sourcer to do? There are certain bits of information you should request that will make a comparison of quotes easier and will not tie the hands of the fleet management provider.

MSRP vs. Invoice Price: This is as basic as it gets. You want to be able to see the discount available by buying from the factory, not the dealer. Although this sounds simplistic, it can expose discrepancies in quotes. If you’re asking for a vehicle quote and one provider comes in a grand or two below everyone else, you want to dig in to that. Is that provider not being honest or is everyone else gouging you? Having those hard numbers gives you the best market information and can provide you with solid leveraging fire power.

Depreciation Factor: This is a dynamic element. You’re not beholden to the fleet provider on this one. You can determine based on the anticipated use of the vehicle what the depreciation percent is. This gets technical beyond what I can post in a five-minute blog, but be sure to ask for this percent and don’t be shy about negotiating it.

Interest: Be sure you get the interest percentage in any quote. Also, know whether or not the interest is factored into the principal on a monthly basis or is calculated on the lump sum of the amount financed.

Monthly Schedule of Payments: This is the best way to figure out the lifecycle cost of a vehicle. This is not an unreasonable request either. Going back to the interest factor, some companies will put the interest cost upfront and will make the monthly payment a consistent amount. Others will have the interest on a sliding scale monthly or annually. This makes for more migraines than a bottle of black label can handle. Knowing the interest factor and how it’s assessed will make spreadsheeting everything much easier. At the end of the day, you want the lifecycle cost of the vehicle. Put the onus on the fleet manager as much as you possibly can.

Insurance: Few fleet managers provide insurance. Most will refer your fleet to a broker. There are pros and cons to this. The pro is this approach utilizes regional variations. If your fleet is mostly suburban, it makes more sense to insure all vehicles based on their local municipality. Insurance rates can be drastically cheaper in the burbs. If your fleet is mainly metropolitan or a mix, it can be better to pool the amount of insurance across the fleet and get a better price that way. Do what you can to nail down a quote from a fleet provider who won’t insure your fleet in house.

Extras: Fleet management providers will throw in a bunch of value-ads to entice you. This is fairly standard. The usual suspects are fuel management, maintenance, auto vehicle registration renewal, yada yada yada. These offerings are more of a convenience than anything else. Make sure your quote breaks all of this out. This is more of a minor detail, but it can make the difference between apples-to-apples and apples-to-oranges.
Whether you are conducting a Strategic Sourcing initiative internally, engaging your supply chain vendors for a multi-level process-restructuring overhaul or hiring help from the outside consulting world, the first step of the process is often the most critical……building the proper project team.

Our series of posts “Building your Strategic Sourcing Project Team” aims to help you select the right team for the job. Part one of this post focuses on building proper project sponsorship.

The first step in your team building phase is perhaps the most critical, selecting the right project sponsor(s). A strong project sponsor is not only responsible for the selection of the right team for the initiative, but must also gain all internal and external support throughout the entire organization and supply chain.

A project sponsor does not necessarily need to be an upper-level manager or executive, but must have the full support of the entire management team. The most effective project sponsor is typically an individual that has been hand selected by the entire management team for their knowledge of all company processes and their ability to overcome internal roadblocks.

An individual that has been tasked with the strategic sourcing initiative in a single department, who must then go and attempt to gain support from other departments and business units, typically will not have the ability to make decisions and implement the changes that are often required for a successful cost savings event.

Most strategic sourcing initiatives will cross borders into many different departments, which makes it critical to have the entire organization aware and in support of the initiative. A project sponsor must be able to involve and communicate with all departments within the organization to ensure proper support throughout the company.

Without total support and awareness throughout the organization, it is not uncommon for an initiative to fail at the last hour:
• Take for example, a packaging department’s strategic sourcing initiative that has decided to standardize on corrugated materials. They go through the process of identifying the proper industry standards, qualifying and bidding the spend area, and testing the new boxes. Before implementation of savings begins, they find out that their marketing department specifically uses the existing packaging as the part of their corporate branding, or their largest customer requires the old packaging style and the entire project is ended or delayed.
• Or, take the marketing department that decides to focus on their online spending for website promotion. They evaluate different suppliers and tactics that can be used to help reduce spend, and begin the selection process. Close to the end of the initiative they decide to involve to IT department, which informs them that they have already been working on a new website and search engine optimization plan, which directly conflicts with the work that marketing has been conducting.
• Or, the Information Technology department that specifies a new VOIP phone system and the infrastructure to support it. They involve purchasing in the final hours to procure the systems, unaware of any existing supplier agreements or carrier contract termination penalties that may cost the organization tens of thousands of dollars.

These are just a few examples, it would be impossible to list them all. In our Strategic Sourcing consulting roles, Source One has heard many horror stories of wasted time, money and resources because of the lack of information sharing between different levels in an organization. The project sponsor will ensure that critical initiatives are communicated to everyone in the organization to ensure that events like this do not happen.

A good sponsor should be able to navigate the politics within your organization and bring attention to the roadblocks that arise during the course of the project. Often, the easiest path to overcoming a roadblock in any organization is simply making the rest of the organization aware that there is a problem.

A sponsor whose main concern is job security, afraid to step on the toes of those around them, or that does not want to disrupt the status quo will not be effective. Sure, they may obtain some results in cost reduction, but will not obtain the results that a proper initiative can deliver. The sponsor must know that they have the full support of the entire management team in order to an effective job.

Your project sponsor should be able to assist in the creation and development of the proper cross-functional team in your organization. In the next “Building your project team” post, we will focus on the criteria used to select your core team.
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A little while back I wrote a bit of a rant about the lack of coverage from analyst firms, media, and bloggers surrounding anyone that was not in the Fortune 500 space, or not selling software. As soon as I blogged it, Michael Lamoureux, aka the doctor, proved me wrong when he contacted Source One and opened up some new dialog.

The doctor was also quick to provide coverage in his recent piece “Source One scores a Grand Slam with WhyAbe”.

I suspect if you are reading my blog you are reading the doctor’s blog already. But for those of you that don’t know of Michael, he is one of the most respected and knowledgeable individuals in the procurement, sourcing, and particularly e-sourcing space. His blog has been live for almost two years, and provides a very detailed and technical view into Sourcing and Supply Chain. His primary goal is “to raise awareness of innovative best practices and technologies that are relatively unknown but that could be used by a large number of organizations to elevate their performance as a whole.”

I, for one, particularly enjoy Sourcing Innovation. Although all bloggers lean heavily towards covering their sponsors and putting them in the best light, the doctor does one of the best jobs of providing fair coverage to organizations, processes, and innovations that are not contributing to lining his pockets. As a practitioner, I find his tips and research on metrics, strategies and processes to be detailed and useful, not just fluff to fill the page.

I just wanted to take a moment to thank the doctor for the coverage, it is always nice to see an outsider’s perspective on the work that we have been doing.
After reviewing my growing library of fleet management posts, I realized I have yet to fully describe and compare factory orders and stock purchases; two things I have mentioned in previous posts. This is about as lopsided a contest as humanly possible. If this were a boxing match, factory orders would be Mike Tyson and stock purchases would be Andy Dick. Can I be any clearer? Here’s why:

Factory Orders Defined: Factory orders are when you place an order for a specific vehicle with specified features through your fleet management provider to be made to those specs by a manufacturer. This requires you to place the order in advance. This is what I was referring to in previous posts of being on a regular replacement schedule. The lead time is typically between 8 and 12 weeks for delivery. Here is a great link to the Donlen Corp web page that outlines order and roll-out dates and other info needed when making a factory order:


Factory Order Benefits: The main benefit of factory ordering is a reduction in purchase price. Depending on Competitive Assistance Program (CAP) qualifications and the provider’s relationship with the manufacturer, a discount of $1,000 per vehicle is not uncommon. That means you’ll be paying invoice price, since there’s no dealer mark-up, AND you get the fleet incentive AND any other fleet management provider discount. Would you rather pay $18K for that truck from the dealer lot or $16,500 direct from the manufacturer? That’s not just a $1,500 savings, think of the smaller amount you’ll be paying in interest on a smaller principal. Now think of that savings on every vehicle in your fleet. Factory orders are starting to sound pretty good now, aren’t they?

The second main benefit of a factory order is you get exactly the vehicle you want; no more, no less. Everything is made to your specifications, so you can obtain a vehicle that’s as stripped-down or supped-up as you’d like. The only real downside to a factory order is the lead time. You need to be on your game when it comes to vehicle replenishment in order to reap the benefits of this program. So get on your game and start saving money.

Stock Purchases Defined: A stock purchase is when a vehicle is bought from a dealer lot, not from the factory direct. Stock purchases are typically urgent need purchases, such as a new employee is hired and needs a vehicle, a vehicle is totaled, or there is a catastrophic failure. For the most part, you have no choice but to go with a stock purchase in these situations, that is, unless you’re smart and have a pool fleet. A pool, or overstock fleet, is a small number of surplus vehicles for situations like a new employee or an accident. These vehicles are used while waiting for a factory order to be delivered. It buys time and saves money.

Stock Purchase Drawbacks: There really are no benefits to a stock purchase unless you’re really in a bind and need a vehicle now. I’ll save the overstock fleet I-told-you-so’s for later. The drawbacks to stock purchases are the opposite of the benefits of a factory order. The financial drawback with a stock purchase is actually compounded. Not only are you giving up paying invoice price and giving up fleet discounts, you’re also paying dealer and fleet management margins. When the fleet management provider acquires a vehicle from a dealership, the management company pays for the dealer’s profit margin, which in turn is passed on to the buyer. These dealership margins vary from purchase to purchase. In addition to that, the management company adds a profit margin. In order to gain compensation for such a purchase, a surcharge (average of 2%) is added to the purchase price of the vehicle. As an example, a stock purchase vehicle with an MSRP of $20,000 could cost as much as $2,000 (or more) more than a factory order when factoring in loss of CAP incentives and the addition of dealership and fleet manager margins.

On top of this, you probably won’t be getting the exact specs you want. There are two cost pitfalls with this. The first, is you may buy a vehicle with features you don’t need/want. In this case, you’re paying a premium you otherwise wouldn’t have with a factory order. On the flip side, the only vehicle available in your desperate search for a quick replacement may have fewer features than you need. In this case, you have to pay to up fit the vehicle to have all the features you need/want. Stock purchases are looking pretty crappy, aren’t they? Then why do you replace your entire fleet with stock purchases?

I can’t be emphatic enough; go with factory orders. It doesn’t take a rocket scientist to know when a vehicle is on its rocking chair and ready to take the big sleep. Be proactive. Actually, you don’t even have to be proactive; let your fleet provider do it for you. You’ll save a lot of money, and you’ll have fewer surprises when it comes to urgent buys.
Welcome back. It’s time for the second half of the Crossfire vehicle leasing debate and find out when a closed-end lease is a good idea. So grab some popcorn and your favorite beverage.

Vehicle Use: Vehicles that have a regular territory for driving and spend a majority of the time on the highway and not engaged in rugged use, such as sales fleet vehicles, can be good candidates for closed-end leases. This can be a slippery slope, however. The heads side of the coin is that mileage can be reasonably predictable, so a favorable mileage limitation can be agreed upon at least inception which shouldn’t leave you open to overage. Also, sales vehicles doing mostly highway driving acquire less wear and tear, so paying dearly for these items at lease termination shouldn’t be much of a concern. The tails side of this coin is that the more miles you need in the lease, the more you’re going to shell out in your monthly payment.

Replenishment Process: When dealing with a sales fleet, it can make financial and intuitive sense to replace on a strict, closed-end basis. Sales vehicles typically accumulate miles in a hurry and surpass the 100K mark in just a few years. Getting rid of the vehicle sooner will circumvent repair and maintenance costs associated with a heavy use vehicle. Replacing vehicles every three to four years also keeps the fleet fresh and looking new, which presents a good image to current and potential clients. And on an elemental level, simply being forced to relinquish the vehicle after a certain period of time can be a good thing. If your sales fleet is on open-end leases, it’s too easy to just say “I’ll get around to it” when a vehicle should be replaced. You can’t be lazy like this in a closed-end lease.

Overage Strategy: If you’re still leery about entering into a closed-end lease due to steep overage charges, there are two offerings/negotiation points to be aware of. Instead of a mileage limitation per vehicle, you can negotiate a mileage limitation for the entire fleet. Not every vehicle in the fleet has the same mileage requirements, so high use vehicles will snag miles away from low use vehicles and the fleet can balance itself out without incurring overage charges. In a somewhat similar way, some fleet management companies will credit back unused miles as well as charge for overage. The underlying concept here is the same; balance out the fleet between high and low usage vehicles. In this situation, all vehicles will have their own mileage limitation, but instead of achieving balance through mile allocation, balance is achieved through cost allocation.
Now that you have the basics on open-end leases, it’s time to discuss its counterpart; closed-end leases.

Closed-end leases are your typical consumer lease. There’s no difference, however, when using this type of lease in the corporate world. Corporate volume may present additional strategy not found in the consumer market. I’ll get to that later. First, here are the basics on closed-end leases.

Just like the milk in your fridge, closed-end leases come with an expiration date. The only difference is you may still want your vehicle after it’s past due; I’d stay away from the milk at that point. The typical lease period with closed-end is 36-48 months. Once D-day hits, the vehicle goes back to the lessor. You can buy it from them at that point, but you are under no obligation and no one will hold a gun to your head to do so. The purchase price is typically determined at lease initiation.

There are mileage restrictions when signing on to a closed-end lease. Mileage limitations are typically between 12K and 15K, with overage charges per mile after that limitation. This makes closed-end leasing unattractive to most corporate buyers since fleet vehicles can cover that in their sleep. Higher mileage limitations can be negotiated, but this will inflate the monthly and lifecycle costs.

Wear and tear is the next basic principle you need to wrap your head around with closed-end leases. Leasing companies will charge extra for damage to the vehicle and any excessive repairs. The reasoning behind this is the dealer expects you to not buy the vehicle at lease termination, meaning the dealer has to hawk it. Since the dealer has to resell it, and part of their profit on the lease depends on the resale value, they want to be reimbursed for any whoopings you administered that may take away from the resale value. There’s no set standard price per scratch; this is up to the discretion of the dealer.

These are the bare-bones of closed-end leasing, but are really all you need to know to get the foundations laid for your knowledge in fleet management. The minutia is just that. Next time around, I’ll discuss some strategy as to whether this may be the right fit for you.
Good question. Although I have no final answer, Regis, there are certain situations and conditions which will determine if pulling a Randy Moss and getting open is the wise thing to do.

Current Replenishment Process: If you stubbornly refuse to step into the 21st century and put your fleet on a management program, and insist on running your vehicles into dust, go open-ended. As Jack Leary, president of Motorlease said in Business Fleet Magazine, “The greater the percentage of the vehicle’s life that is going to be consumed by the fleet, the greater the likelihood it’ll be an open-end lease. Consuming 95% of a vehicle’s life, the consumer is better on an open-end lease.” This goes back to ownership and resale value. It makes no sense to be on a protracted closed-end lease where the dealer cashes in on the equity and you don’t.

Mileage Use: There are no mileage limitations in an open-ended lease. You can put as many miles on that wagon as there are sad country songs. If your vehicles put on an inordinate number or miles, or an unpredictable number of miles, open-end is the way to go. In terms of high mileage vehicles, even if they run a predictable pattern, it would typically be too expensive to go with a close-end lease with high mileage limitations. If your vehicles have random usage patterns, based on seasonal work or multiple driver vehicles, open is typically the best. You don’t want to gamble on a closed-end lease and risk getting hammered on overage if there’s an unexpected spike in mileage. Overage isn’t cheap in this industry.

Vehicle Use: Heavy duty use vehicles, such as pick-up trucks used for hauling, are best on an open-end lease. These types of vehicles take a regular beating and accumulate dings, scratches, and other types of war injuries. If such a vehicle was on a closed-end lease, you’d have to shell out some major cash at lease termination because you’d be responsible for all that damage. On an open-end lease, you will own the vehicle. You’ll take the hit in the resale price, but at least you’ll be getting money in, rather than sending it out. You should cycle these types of vehicles frequently anyway as if they were on closed-end leases to avoid exorbitant expenses in maintenance, repairs, yada yada yada.