Reducing 3rd Party Ground Transportation Costs (CS154a)

How a $50Bn energy company took control of its ground logistics contracts, saving $6.4M in just a few months

This story is for executives who:

• Are concerned about the rising costs of their ground transportation

• Feel that they are in a captive situation with their contractors / suppliers

• Want to effectively monitor and improve ground transportation costs and service levels

The Challenge

This company is one of Canada’s largest integrated energy companies. Their ground transportation services are delivered through a contractor, which is one of the main bus operators in the region. Our client and the contractor had entered into a new 10-year cost-plus contract which rewarded inefficiencies and contained no incentives for improvement.

With costs due to escalate by a staggering $1Bn over the 10 years and a consistently poor level of service, our client lacked the organizational capability to proactively manage their transport provider. That was when the client asked Maine Pointe to help them achieve that capability.

Regaining control of ground transportation

Maine Pointe quickly established that the company did not have robust processes in place to effectively monitor and review service levels and costs for the 300 vehicles (around 45% of the contractors fleet) they were using. Maine Pointe's multi-faceted solution to give them better control and visibility included:

• Designing and implementing a management operation system to better manage service and costs
• Building a master scheduling tool for the optimization of routes, schedules and vehicles
• Conducting a focus and alignment process to establish better organizational capability to manage transport providers
• Creating a monthly recurring balanced scorecard for senior leadership
• Optimizing the number of vehicles
• Finding and beginning to eliminate issues with the contract through a joint resolution process
• Enhancing competition in the region and providing optionality through an additional supplier

The Results

Maine Pointe’s multi-faceted solution provided our client, with the tools they needed to gain control of their ground transportation. As a direct result, our client was able to make significant and sustainable cost savings:

• Transport costs reduced by $6.4M (ROI 3:1)
• Annualized savings over the next 12 months $20.8M (ROI 14:1) Removed 34 vehicles due to low utilization, almost one third of the yellow bus fleet
• Implemented a fuel control program giving unprecedented visibility into fuel use and driving usage down by 43% (seasonally adjusted)
• Eliminated surplus and underutilized vehicles – reduced negative economic and environmental impacts

In addition, greater visibility enabled this client to target waste and strengthened their negotiating position with the contractor.

Lessons learned for other executives

• You can introduce optionality in a perceived captive situation
• It is possible to curtail rising 3rd party costs
• You can achieve a high level of service, reduce costs and align ground transportation with sustainability objectives