Case Study: Anglian Water

The fleet operation is frequently the second biggest cost in an organisation after employees, so when the pressure is on to save money it is essential to know that the most cost-effective vehicles are being operated.

That is why fleet professionals such as Nigel Allen, Anglian Water’s fleet manager, uses industry knowledge and expertise to compile his own vehicle wholelife costs to ensure the operation’s optimum efficiency.

Choosing the most cost-effective vehicles for the van fleet is the first crucial decision in the fleet management process.

The cheapest vehicles to operate are those with the lowest wholelife costs – not necessarily those with the lowest list price – over a fleet replacement cycle, which in Anglian Water’s case is 120,000 miles/five years.

However, in-house management flexibility and used van market acceptance mean that vehicle replacement is driven more by mileage than age, with some of the organisation’s 1,200 light commercial vehicles replaced at three years while a handful run into a sixth year.

Anglian Water, the largest water and wastewater service in England and Wales by geographic area, operates a 95% Vauxhall van fleet embracing Corsa, Combo, Vivaro and Movano models.

The remainder of the fleet is composed of a wide cross-section of LCVs from other manufacturers which, in the main, Anglian Water has had on trial and then opted to buy. They range from Renault Kangoos to a five-tonne Mercedes-Benz Sprinter.

“Our current fleet is the best, most cost-effective solution we’ve ever had,” says Allen, who believes it is vital to be aware of what is happening in the marketplace, which is why the company continues to work with other manufacturers despite its long-term Vauxhall allegiance.

Reduced wholelife costs

“We borrow a vehicle for perhaps six months and put it through its paces in the day-to-day work environment. We frequently end up buying the van as long as it is fit for purpose and that then enables us to gather five years of data on the vehicle for comparison purposes.”

Excluding fuel – the biggest single cost on any fleet outside of vehicle acquisition/depreciation – Allen has seen wholelife costs reduce in recent years as vehicle build quality and reliability improves.

Additionally, following the introduction by Vauxhall of its 100,000-mile lifetime car warranty in 2010, Allen negotiated a five-year warranty on Vauxhall vans which replaced a previously agreed four-year warranty.

Anglian Water has seven workshops across its region, which stretches from the Humber north of Grimsby to the Thames estuary in the south, and from Buckinghamshire in the west to Lowestoft in the east.

“We undertake our own warranty work and have parts delivered next day through Vauxhall Trade Club, which not only provides the most affordable solution, but reduces downtime. All parts are supplied under warranty.”

Factors that are taken into account by Allen when calculating wholelife costs are: budget price; estimated residual value utilising a combination of data from vehicle information provider CAP and his own market intelligence; maintenance using own workshop costs and labour rates versus national averages; cost of common parts based on fleet history and the company’s accident management data; and manufacturers’ average fuel economy.

Costs are reviewed annually

“That gives us our wholelife costs on a per-vehicle basis utilising a combination of published data and our own real-world knowledge and experience,” says Allen, fleet manager since 1997 and previously a workshop manager during his 34-year Anglian Water career.

“We review costs annually and all figures are based on market testing. We actively monitor costs day by day and that means we can react to any issue before it has any significant impact.”

For example, if a major vehicle mechanical problem materialises, the fleet team will investigate and discuss the issue with the relevant manufacturer in a bid to implement a solution to prevent other vans on the fleet being similarly affected.

Allen believes that smaller fleets can also benefit from close relationships with manufacturers, which helps keep costs under control.

“Fleets need to talk to manufacturers to enable them to build up an understanding of what is required and they can then deliver. Too often fleets aren’t sure what they want and they don’t understand what help and support is available from manufacturers. If fleets don’t know what they want then it is difficult for manufacturers to help.”

Not surprisingly, Allen believes some employers have been too quick in dispensing with fleet managers and effectively outsourcing the role to a leasing and fleet management company.

“The major fleets are getting smarter in their operations, but smaller fleets often use third-party suppliers who have different objectives and that frequently costs them money,” he says.

Allen believes smaller fleets could group together and employ a fleet manager between them. He says: “A knowledgeable fleet manager could use their experience to cost-effectively and efficiently manage two or three fleets and I believe those companies would benefit significantly.”

As a member of the Freight Transport Association’s Utilities Group, Allen discusses key issues with his opposite numbers from other organisations.

“We discuss data with each other and that helps to ensure that I have a firm handle on fleet finances. If one fleet identifies a problem it could be that another already has a solution or we can take an issue to a manufacturer and get it resolved,” he says. “Everyone has the same aim, which is keeping costs under control, so it helps to work together.”

Over the years, Anglian Water has moved from purchasing to leasing vehicles and outsourced fleet and maintenance management, then brought it back in-house; now all vehicles are bought, managed and maintained in-house.

“We are definitely saving money; we are efficient and we are in control,” says Allen, highlighting the fact that the organisation has the flexibility to defleet vehicles as determined by market conditions and not by when a contract hire agreement ends, unless penalties are incurred.

A financial balancing act

“We forecast residual values annually for budget purposes, but quarterly we look at the market and see what is happening in the auction halls. Taking account of vehicle mileage and market conditions we then react accordingly. It is a financial balancing act between vehicle value, mileage and predicted maintenance costs so we remain within our budget forecasts.”

Aiding wholelife cost savings was behind Anglian Water’s 2006 decision to ask van storage solutions spe-cialist Bott to fit new vans with shelving, work benches, hand washers and other equipment from defleeted vehicles. Today, many vans are equipped with second-generation fittings – and now the company is considering a possible third-time reuse – with Allen saying: “We are making a 25% cost saving over two lifecycles.”

He believes Anglian Water was one of the first organisations to fit new vans with fittings and fixtures from de-fleeted vehicles and says it is a practice that others fleet could learn from as they seek to reduce costs.

Indeed, one item of equipment – jetting machines – has been ‘recycled’ since 1996, meaning that some are 16 years old.

However, while fixtures and fittings may be enjoying an extended life, Allen does not believe van replacement cycles can be similarly doubled or tripled.

“Vans are more reliable and robust than in the past, but it is a question of what is remarketable,” he says. “120,000 miles remains the benchmark in the used van market and there is the cost benefit analysis to take account of in terms of vehicle reliability and repair costs versus residual value. Eight years is perhaps the optimum, but then it depends on mileage.”

With an eye continually on operating costs, Anglian Water is already utilising Vauxhall’s fuel-sipping, low-emission EcoFlex vans equipped with speed limiters. Together with the manufacturer, it is investigating having them equipped with rev limiters.

“Fuel costs are rising, but fitting speed limiters has helped limit budget increases and fitting rev limiters will further help keep costs in check,” he says. “Indications are that a 4% fuel saving will result.”

Operating petrol-engined vans has also been considered to cut costs. For example, when the price differential between a litre of petrol and diesel reached 16p last year as pump prices soared, Anglian Water added a petrol-engined Combo van to its all-diesel fleet.

Real-world operating conditions revealed that the price difference needed to reach 18p to make the vehicle financially viable – a figure not achieved – so the Combo remains the only petrol-engined model on the fleet.

Meanwhile, Allen is reserving judgement as to whether electric vans will be added. Although a £60 a month saving in fuel costs is being recorded from a ‘test’ Kangoo, that benefit is cancelled out by battery rental costs. Additionally, the vehicle’s 75-mile van range is a concern.

Allen says: “We are looking at a replacement cycle of eight to 10 years to make such a vehicle viable. If our data reveals that electric vans could be at least cost-neutral versus diesel then we would probably accommodate them in the fleet due to environmental benefits.”

Vehicles may sometimes be stationary, but it is not a word that exists in Allen’s vocabulary as he pro-actively uses wholelife costs to manage budgets.