When the multiplier effect kicks in, even small variations in profit margins can quickly turn into significant business gains -- or losses. Aiming to minimise the risk it faces from its purchase of some 12,000 vehicles every year, New South Wales government fleet management body StateFleet has used business intelligence tools to increase its forecasting accuracy in an effort that's expected to save it millions of dollars annually.
Snapshot
source: StateFleet
- Operations
- Employees
- Financials
- Industry
Provides a range of fleet management and vehicle rental to NSW government departments, with an asset base of some 25,000 vehicles worth over AU$700 million.
An operating body of the NSW Department of Commerce, StateFleet provides fleet management, accident management, vehicle leasing and short-term rental services to government departments including the NSW Police, Department of Education and Training, Department of Health and others.
StateFleet has around 25,000 vehicles worth approximately AU$700 million under its purview, nearly half of which reach the end of their lease and are sold into the second-hand market every year. Revenue on these vehicles is more than AU$200 million, and StateFleet increased its asset base by AU$79 million during the 2005/6 financial year alone.
Predicting the future
With such high turnover, managing its leasing contracts effectively can be the difference between a profit and a loss for StateFleet, whose finance specialists must effectively gaze into their crystal balls to estimate how much any particular vehicle will be worth when the lease expires.
If their estimates of residual value are too high, profits take a double hit as customers pay lower leasing charges and StateFleet makes less profit than expected on the resale. "The used car market has been declining 25 to 30 percent annually, and it's always difficult when you're trying to predict future markets," says general manager Michael Wright.
"People with experience in the industry would sit down with a spreadsheet, look at various aspects of the market, and try to determine where the vehicle would be in two to three years' time. Sometimes you get it right, and sometimes you don't -- and when you don't, it can cost a significant amount of money given the volume of vehicles we sell. We wear the risk on whether [each contract] makes or loses money."
That risk was felt tangibly during the 2005/6 fiscal year, when lower than expected proceeds from the sale of StateFleet vehicles contributed to a AU$25.1 million revenue shortfall within the NSW Department of Commerce and a AU$110 million blowout in investing activities.
Aiming to improve its accuracy and prevent a repeat of such events, StateFleet has recently turned its attention to improving the detail and accuracy of its reporting and forecasting capabilities. One major goal was to make better use of StateFleet's large database of historical data on actual sale and resale values -- accumulated since its establishment in 1990 -- as well as independent data from companies like auto valuation specialist EurotaxGlass's.
This information provided a wealth of historical data for the assessors to use in their spreadsheets, but late in 2005 StateFleet began considering a more focused business intelligence solution. The organisation eventually worked with business intelligence giant SAS to implement its data analysis systems across its leasing department.
Initially, this investment allowed analysts to develop reports that easily updated customers with relevant information about their vehicle fleets.
Since introducing customers to the online reporting system, better access to live data has proved to be a boon for StateFleet, which is managing more than 800 customer queries daily compared with fewer than 150 a day before the system was introduced. That's a significant improvement over its legacy system, which struggled to provide meaningful reports and lacked the online element.
"This system allows our customers to tailor their reports to suit their needs, and they can do all sorts of things with live data," says Wright. "We've been able to develop and produce reports on [information] that we never could do before. And, since people are getting information online, they're not actually having to ring us to get it; this frees up both them and us."
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