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Looking to a Leaner, Greener Future:
Mark McGrew- Sales Market Manager Date: 5/10/13
Reducing Lifecycle Costs Through Cost of Ownership Cost Management
• Economic Pressure on Fleets
• Understanding Fleet Costs
• Using Current Fleet Costs to Benchmark Improvements
• Fundamentals of a Value Proposition
• RunWise Value Proposition Example
• Does Technology Make Sense for Your Fleet?
• The Bottom Line
• Questions
Looking to a Leaner, Greener Future
Understanding Fleet Managers Pain Economic Pressure on Fleets
Economic Conditions
• Diesel prices continue to escalate.
• Fleet under pressure:
• Lower fuel costs
• Reduce maintenance costs
• Increase Productivity
• Fleet operators need data to make informed decisions
Diesel Fuel Impact
• Diesel fuel costs since 2000 to 2012*
• In 2000 the average price was $1.5/gal
• In 2012 the average price was $4.0/gal
• Roughly an 8.5% increase per year
• What do you budget for in the future?
• Most fleet managers conservatively say 5.0%.
* US Energy Information Association
Refuse Chassis Key Indicators Based on Municipal and Fleet Interviews • Refuse Fleet Life: 5-yrs to 15-yrs
• Municipalities: Average is 7-yrs
• Private Fleets: Average is 10 to 12 years
Refuse Chassis Key Indicators Based on Municipal and Fleet Interviews • Diesel Fuel Consumption: 3 gal/hr - 5 gal/hr
• Operating hours per week: 35 hours to 55 hours
• Annual fuel consumption range: 5,400 to 14,300 gal/yr
• EPA average refuse fuel consumption is 9800 gal/yr
• Fuel costs at $4/gal range from: $21k to $57k per year per truck
Refuse Chassis Key Indicators Based on Municipal and Fleet Interviews • Engine Rebuilds: None to 1x over life
• Costs range from $10,000 to $20,000
• Private fleets tend to rebuild more often
• Transmission rebuilds: None to 1x over life
• Costs range from $7500 to $12,000
• Private fleets tend to rebuild more often
Refuse Chassis Key Indicators Based on Municipal and Fleet Interviews • Brake Relines (axles): 2 /yr to 7 /yr
• Averages for non brake life extension devices
• Brake changes costs range: $500/axle to $2000/axle
• Air Compressor Rebuilds: 1.5-yr to 4-yr
• Rebuild cost ranges from $500 to $700
• Private fleets tend to rebuild more often
Air Quality/Fuel Economy Standards Tightening • Not impacting today’s
ownership costs
• Impacts future fleet purchasing
• Cannot be ignored
2017 Heavy Truck Fuel Economy Standards
Low Roof Mid Roof High Roof Low Roof Mid Roof High Roof
Day Cab Class 7 104 115 120 10.2 11.3 11.8
Day Cab Class 8 80 86 89 7.8 8.4 8.7
Sleeper Cab Class 8 66 73 72 6.5 7.2 7.1
http://www.nhtsa.gov/staticfiles/rulemaking/pdf/cafe/Factsheet.08092011.pdf
EPA Emissions Standards
(g CO2/ton-mile)
NHTSA Fuel Consumption Standards
(gal/1,000 ton-mile)
Air Quality/Fuel Economy Standards Tightening • Pressure to improve air quality.
• Future fuel economy standards & OBD being mandated
• More pressure on operating costs.
• Fleet operators have multiple options:
• CNG/LNG
• Electrics and Hybrids
2017 Heavy Truck Fuel Economy Standards
Low Roof Mid Roof High Roof Low Roof Mid Roof High Roof
Day Cab Class 7 104 115 120 10.2 11.3 11.8
Day Cab Class 8 80 86 89 7.8 8.4 8.7
Sleeper Cab Class 8 66 73 72 6.5 7.2 7.1
http://www.nhtsa.gov/staticfiles/rulemaking/pdf/cafe/Factsheet.08092011.pdf
EPA Emissions Standards
(g CO2/ton-mile)
NHTSA Fuel Consumption Standards
(gal/1,000 ton-mile)
What variables require tracking, and why data collection is important
UNDERSTANDING FLEET COSTS
“ You cannot improve,
what you cannot measure”
W.E. Deming
Godfather of
Continuous Improvement
Get Yourself Organized!!!
1. Define the variables that impact your fleet.
• Fuel, Powertrain, Brakes, Body issues usually get you in the right direction.
• Identify the top 5 items that impact your operation.
2. Establish reliable data tracking for the important items.
3. Track your top 5 variables to an annual level.
4. Extend annual costs for each year for the life of the vehicle.
Get Yourself Organized!!!
With fleet costs identified & monitored…
• Start with the heavy hitters.
• Question if these costs can be reduced.
• Start identifying alternatives to save expenses.
• Technologies exist for reducing fuel consumption, reducing maintenance costs, as well as productivity improvements.
You are ready to explore value propositions.
A new technology promises to lower costs? Identify the fundamentals to develop a value proposition.
FUNDAMENTALS OF A VALUE PROPOSITION
Reducing Costs and Solving Problems
• Value has to be accepted by you!
• Generalities and averages do not count in high $$ capital purchases.
• Qualitative data does not matter in the ROI phase.
• Every fleet, every route is different for every customer.
• Quantitative data is the only accepted form when determining ROI and positive cash flow over the life of the vehicle.
Evaluating Alternative Technologies
Understand the Technology
• Contact customers.
• Request a demo.
• Summarize your fleet costs to compare the technology.
• Ensure proper alignment!!
Hybrid Target Markets
Electric Hybrid
Hydraulic Hybrid
Mainly electric based Light Food
& Delivery
Light Food & Delivery
Cutaway/Shuttle Van
Medium Transit
Heavy Parcel
Small Trouble/ Service Truck
Large Trouble Truck
Beverage and Regional Delivery
Medium Military FMTV1
Refuse
Light Military
Mainly hydraulic
based
Yard Hostler
Heavy Transit
Bus
High # Stops
10,000 14,500 17,000 19,000 22,000 26,000 33,000 40,000
Gross Vehicle Weight (lbs.)
Summary of Hydraulic Hybrids
Parallel Series Adv Series
Brake Recovery
Engine Management
High Speed Efficiency
Fuel Usage Reduction * 0-15% 25-35% 35-50%
Brake Life Extension * 1.5X 3X 15X
Productivity * Good Better Best
UNDERSTANDING THE TECHNOLOGY
RunWise® Benefits
• Up to 35-50%
Reduces Fuel Consumption
• 38-55 tons per year
Lowers Emissions
• Up to 5-15%
Increases Productivity
• Once in the life of the vehicle
Increase Brake Life
On average
RunWise saves up to
4900 gallons of fuel
per year = 980 5-
gallon gas cans!
Creating a Value Proposition
1. Establish the variables.
Creating a Value Proposition
2. Gather baseline data over controlled route.
• Discuss which routes make sense and why?
• Want the “worst case” scenario?
• If so, then also establish “best case” scenario.
• Question how accurate baseline data really is.
REMEMBER –
The baseline establishes a key outcome in the model.
Eliminate variables you can control.
For example, ALWAYS – have the same driver run both tests.
Creating a Value Proposition
3. Set the expectation of what is reasonable for your route profiles.
• Be conservative!
• Question factors that impact results
o Highway miles
o Number of can pick ups in a route.
o Driver fear of new technology.
o Driver motivation
• Has the presenter earned your trust?
• Insist on a multiple day test period.
o 3-5 days or longer …. It’s your reputation!
Creating a Value Proposition
4. Run the hybrid demo according to plan.
• Ensure the driver is comfortable with the hybrid.
• Let him drive in collection prior to starting the test.
• Ride with him.
o Monitor ABS events
o Number of dropped cans.
o Compare his can count per minute to baseline. If it’s less, find the root cause.
o Can you obtain acceptable performance without extraordinary effort?
Creating a Value Proposition
5. Analyze results. Question everything.
• Fleet Managers. Gather information.
• Drivers talk about impressions.
• Manage the situation accordingly.
• Day 1: Chance to correct situational occurrences.
• Talk with both the driver and salesperson to ensure everyone is on the same page.
• Ask for feedback on test results.
• Be looking for optimization opportunities…they are always present.
Creating a Value Proposition
6. The Value Proposition.
• Establish a comparison of your baseline data to the demonstration results.
• Do they share the data?
• Do your results match theirs?
o Discuss the good and the bad.
o Ask about the factors you observed during test period.
o Establish what “good” looks like, AND
o Establish what “better” looks like!
Using Parker Hannifin’s RunWise Hybrid to demonstrate a value proposition.
VALUE PROPOSITION EXAMPLE
ASSUMPTIONS
Year of Purchase 2011
Expected Vehicle Life 12 years
Operating Hours per Week 50 hours / week 2756
Price of E3 System (Incremental to Base Truck) $120,960 Current real Price with FET
Productivity Cost/Hour 75.00$
Productivity Increase 10%
Cost of Money 5.00% per year
Inflation Rate 3%
Fuel increase factor 5%
Baseline Fuel Consumption per Hour 4.60 gal / hour
Anticipated Fuel Savings with E3 42%
Cost of Fuel $3.46
Current AAA
diesel costs
.
Cost to Perform a Brake Reline $1,250
Baseline Number of Brake Relines per Year 9.00 per year
Anticipated Number of Brake Relines per Year with E3 - per year 7 yr brake change
Cost to Perform and Engine Rebuild $20,000
Baseline Engine Life in Years 10.00 years
Anticipated Engine Life with E3 10.00 years
Cost to Perform an Transmission Rebuild $10,000
Baseline Transmission Life in Years 10.00 years
Annual Cost of Transmission Maintenance $450 per year
Cost to Perform an Air Compressor Rebuild $650
Baseline Air Compressor Life in Years 2.00 years
Anticipated Air Compressor Life with E3 6.00 years
Cost to Perform an Air Dryer Maintenance $270
Baseline Air Dryer Maintenance Cycle in Years 0.50 years
Anticipated Air Dryer Maintenance Cycle with E3 3.00 years
Urea Consumption Reduction
Base Line ( 10,472 gal/yr = 314 x $3.5/gal) 1,331$ per year
E3 Reduction 559$ per year
Cost of Urea per Gallon 3.50$
Expected Carbon Credit $0.00 per ton
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Initial Capital Expense ($120,960)
Cost of Money Capital Outlay ($6,113) ($6,113) ($6,113) ($6,113) ($6,113) ($6,113) ($6,113) ($6,113) ($6,113) ($6,113) ($6,048) ($6,048)
Cost of Money Expense Savings $1,468 $1,543 $1,543 $1,637 $1,655 $1,694 $1,588 $1,854 $1,869 $2,479 $2,014 $2,071
Productivity Increase $19,500 $19,500 $19,500 $19,500 $19,500 $19,500 $19,500 $19,500 $19,500 $19,500 $19,500 $19,500
Additional revenue for clean collection 0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
64,800
Assumed Fuel Consumption Savings $17,380 $18,249 $19,162 $20,120 $21,126 $22,182 $23,291 $24,456 $25,679 $26,963 $28,311 $29,726
Brake Reline Avoidance $11,250 $11,250 $11,250 $11,250 $11,250 $11,250 $7,750 $11,250 $11,250 $11,250 $11,250 $11,250
Engine Rebuild Avoidance
Transmission Maintenance Avoidance $450 $450 $450 $450 $450 $450 $450 $450 $450 $10,450 $450 $450
Air Compressor Rebuild Avoidance $650 $650 $650 $650
Air Dryer Maintenance Avoidance $270 $270 $270 $270 $270 $270 $270 $270
Urea Savings $527 $527 $527 $527 $527 $527 $527 $527 $527 $527 $527 $527
Projected Runwise Maintenance ($1,300) ($1,300) ($1,300) ($1,300) ($1,300) ($1,300) ($1,300) ($1,300) ($1,300) ($1,300) ($1,300) ($1,300)
Assumed Maintenance Savings $11,197 $11,847 $10,927 $11,847 $11,197 $10,927 $7,697 $11,847 $10,927 $21,847 $11,197 $10,927
Assumed Carbon Credit Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Annual Cash Flows ($120,960) $43,432 $45,027 $45,019 $46,991 $47,365 $48,191 $45,964 $51,544 $51,862 $64,676 $54,974 $56,177
IRR Cash Flow ($120,960) $48,078 $49,597 $49,589 $51,467 $51,823 $52,610 $50,489 $55,803 $56,106 $68,310 $59,008 $60,154
Cumulative Cash Flows ($120,960) ($77,528) ($32,501) $12,519 $59,510 $106,875 $155,066 $201,029 $252,573 $304,435 $369,111 $424,086 $480,262
Internal Rate of Return 41.0%
Payback Period 2.7 Years
Know your customers pain and know when not to engage.
KNOWING WHEN TO PURSUE THE VALUE PROPOSITION
ASSUMPTIONS
Year of Purchase 2011
Expected Vehicle Life 7 years
Operating Hours per Week 35 hours / week 2756
Price of E3 System (Incremental to Base Truck) $108,000
Current real
Price
Productivity Cost/Hour $ 75.00
Productivity Increase 0%
Cost of Money 0.00% per year
Inflation Rate 3%
Fuel increase factor 5%
Baseline Fuel Consumption per Hour 3.60 gal / hour
Anticipated Fuel Savings with E3 40%
Cost of Fuel $3.46
Current AAA
diesel costs
.
Cost to Perform a Brake Reline $850
Baseline Number of Brake Relines per Year 7.00 per year
Anticipated Number of Brake Relines per Year with
E3 - per year 7 yr. brake change
Cost to Perform and Engine Rebuild $20,000
Baseline Engine Life in Years 10.00 years
Anticipated Engine Life with E3 10.00 years
Cost to Perform an Transmission Rebuild $10,000
Baseline Transmission Life in Years 10.00 years
Annual Cost of Transmission Maintenance $450 per year
Cost to Perform an Air Compressor Rebuild $650
Baseline Air Compressor Life in Years 2.00 years
Anticipated Air Compressor Life with E3 6.00 years
Cost to Perform an Air Dryer Maintenance $270
Baseline Air Dryer Maintenance Cycle in Years 0.50 years
Anticipated Air Dryer Maintenance Cycle with E3 3.00 years
Urea Consumption Reduction
Base Line ( 10,472 gal/yr. = 314 x $3.5/gal) $ 1,042 per year
E3 Reduction $ 417 per year
Cost of Urea per Gallon $ 3.50
Expected Carbon Credit $0.00 per ton
2011 2012 2013 2014 2015 2016 2017
Initial Capital Expense ($108,000)
Cost of Money Capital Outlay $0 $0 $0 $0 $0 $0 $0
Cost of Money Expense Savings $0 $0 $0 $0 $0 $0 $0
Productivity Increase $0 $0 $0 $0 $0 $0 $0
Additional revenue for clean collection 0 $0 $0 $0 $0 $0 $0 $0
64,800
Assumed Fuel Consumption Savings $9,068 $9,521 $9,997 $10,497 $11,022 $11,573 $12,152
Brake Reline Avoidance $5,950 $5,950 $5,950 $5,950 $5,950 $5,950 $2,450
Engine Rebuild Avoidance
Transmission Maintenance Avoidance $450 $450 $450 $450 $450 $450 $450
Air Compressor Rebuild Avoidance $650 $650
Air Dryer Maintenance Avoidance $270 $270 $270 $270 $270
Urea Savings $275 $275 $275 $275 $275 $275 $275
Projected Runwise Maintenance ($1,300) ($1,300) ($1,300) ($1,300) ($1,300) ($1,300) ($1,300)
Assumed Maintenance Savings $5,645 $6,295 $5,375 $6,295 $5,645 $5,375 $2,145
Assumed Carbon Credit Value $0 $0 $0 $0 $0 $0 $0
Annual Cash Flows ($108,000) $14,713 $15,817 $15,373 $16,792 $16,667 $16,948 $14,297
IRR Cash Flow ($108,000) $14,713 $15,817 $15,373 $16,792 $16,667 $16,948 $14,297
Cumulative Cash Flows ($108,000) ($93,287) ($77,470) ($62,098) ($45,305) ($28,638) ($11,689) $2,608
Internal Rate of Return 0.6%
Payback Period 6.8 Years
“THE BOTTOM LINE”
Summary
• Pressure to do something…
• Costs are rising.
• Improvements require analysis.
• Analysis requires tracking costs.
• Value propositions require facts.
• Technology can provide solutions.
• Know the whole story before signing the PO.
THANK YOU!
39
Mark McGrew Sales Market Manager Parker Hannifin Corporation Hybrid Drive Systems Division 3885 Gateway Blvd Columbus OH, 43228 Cell: (508) 918-6352 [email protected] www.parker.com Visit Parker's Hydraulic Hybrid Website at http://parkerhybrid.parker.com
http://www.parker.com/http://www.parker.com/http://parkerhybrid.parker.com/