You're a sales and marketing representative in the truck equipment industry. How do you win the bid?
It's not easy. John Dolce made no pretensions about that in his convention workshop.
"It's complex and it's busy and it's technical," said Dolce, who has spent 25 years in the field of fleet management, has written three books, and teaches seminars for three organizations. "There is no one way you can walk in and say, 'I'm going to win this bid by doing this.' You have to do 100 things and you have to do them right.
"It's very difficult to predict the environment you're in. If you're in the municipal environment, the state environment, the federal environment, private truck environment, or private construction environment, the rules are different. You have to find out what the rules are. Then you make a conscious decision to play by the rules or fight with the rules. If you fight with the rules, you know what the result is. You have to change the rules from within. And that's a long process."
Even if you play by the rules, the process is complicated by what Dolce called "political and social" factors that cause people to say one thing and mean another, rendering language arbitrary.
Dolce said the one of the keys is to get inside the fleet manager's head. Ask, "What does he need?" instead of "What does he want?"
Needs change. The capital budget is a two-year process. In the first year, two years before it is approved, the fleet manager is saying to himself, "I would like --- " He's trying to anticipate what might happen down the road, whether it's weather or a potentially huge growth year. In the second year, numbers start getting attached and the fleet manager has to provide choices to his management people.
Know the Scenario Who are you dealing with? A numbers expert who is using the job as a brief precursor to attending graduate school at Harvard? Or someone who has been at the job a long time and is disillusioned? Dolce said there are "10 seconds to find out where he falls on the range of sophistication - from kindergarten to Ph D."
And who is the fleet manager dealing with in his organization? On the financial side, Dolce said it's probably someone whose expectation is to "spend no money and have the fleet get new automatically."
"That's what's in the financial person's mind," he said. "The less I give you, the more I want you to regenerate, like a starfish. The less they understand about the fleet business, the more they can, in their solitude, expect that. So we have to communicate to them the elements of the bid."
He said it is beneficial to be a part of defining the terms and conditions by using subjective language ("The Series 60 engine costs you $22 per hour to operate, while the Series 50 costs $18.50") instead of objective ("This is more cost-effective").
Consider fuel and labor costs. Take advantage of outsourcing potential if your mechanic has a lower productivity cost than the fleet manager's.
Dolce detailed the three parts to the bid: technical review, commercial review, and price review.
The Mechanics of Technical Review In the technical review, each vendor is subjectively rated. In Dolce's example, the fleet manager would rate the vendors in eight categories, giving more weight to conformance to specifications (30%) than any of the others: quality of product (20%), reliability of product (20%), spare parts support (10%) and service maintenance, technical support, ease of maintenance, and service of manual quality (5% each). The rating (on a scale of 0 to 5) would be multiplied by the weight factor to determine a point total. To summarize the vendors by normalizing their totals, that point total would then be divided by the score of the highest vendor to equate each to 1.00 and give a final score.
"The real world says the low bid is the best bid," Dolce said. "Very few administrative people are willing to sign up for a technical matrix analysis because of opening it up to ethics compromises. If you have a $100,000 vehicle and somebody bids $90,000, obviously that's too low. If somebody bids $98,000 and somebody $106,000, and the $106,000 vehicle comes out to be best technical vehicle, there's room in there for kickback and ethics compromises. Even if you resolve it to the point where there are no provable ethics violations, the aura is still there.
"Many people want it as simple as possible. But the business suffers. You get a poorer-quality product. The manufacturer/distributor wants to get the sale and perceives what the rules are. And the rules are, low bid is best bid. He will use the components needed to get the low award."
In the commercial review, the same thing is done with different categories: warranty compliance, field service, inventory effect, training technical, training operating, geography, delivery performance, quality program, follow-up, manufacturing capital, management support, and conformance to bid. The key questions that are asked: "Is the company going to stay in business? Do they communicate with us?"
In the price review, the vendors' lowest price per unit is normalized with a similar weight factor.
The final stage is to take the vendors' scores in the three reviews, decide on weight factor for each, and then multiply them. In Dolce's example, price and technical were 40% and commercial 20%.
"You can monkey with these and you'll get a different answer," Dolce said, referring to the weight factor given to each category. "The thought going through everyone's mind is, 'Figures lie and liars figure.' You can adjust the numbers to tell you what you want them to tell you. But the bottom line is that a good organization is proactive rather than reactive."
Quality for the Money When asked about the mechanics of a city/county/state situation, Dolce said low bid is the best bid. He stressed the necessity to structure the line items to offer the best quality for the money.
"If you have to give them a five-year life-cycle vehicle when they were expecting a 10-year but they only want to pay for a three-year, you're giving them a bonus," he said. "If they're willing to pay for a seven-year life cycle and you gave them a five, then they're not going to come back again.
"Do what you've got to do to structure your bid to be a winner. Now, I'm not saying shave. I'm saying, he's asking for a 300 horsepower engine that has 800 ft-lb of torque with 2100 rpm range. You might have a 295 horsepower engine that will do that and $3,000 cheaper. Sell it to them, because it'll do the job they want. You communicate that to them. Say, 'Don't penalize me for that.' If they're looking at a Cat engine, you're going to have to make a conscious decision. Even though you sell a Series 60, you get the Cat to give them what they want."
Dolce said it's critical to understand fleet trend reporting: units, money spent and budgeted, cents per mile, direct labor costs, average age, usage hours, percent operated, downtime, percent in inventory, ordered and received.
"You want to make a difference," he said. "The way you make a difference is to know what the best thing to do is and then sell it to them as the best."
For example, you go to the owner of a company and list the costs for repair, replacement, and reconditioning. Lay out a strategy: Six bodies each require rebuilding every three months. That cost is $27,000 a month, compared to $36,000 a month for replacement and $5,000 to repair.
And if they ask, "Why not repair?" You say, "What you're doing is putting a new leg on a cadaver."
"So you've supplied the most valuable service that you can provide: cost-effective management," Dolce said.
Life-Cycle Costing Critical Life-cycle costing, the cost of the new versus the cost of the old, enters critically into the equation. Dolce said this is where it's especially important to be proactive rather than reactive.
When the principal and interest of an old vehicle decrease, the maintenance and operating costs usually increase, at a slighter higher rate than the principal and interest decrease. The annual resale value is the tiebreaker, along with fleet incentives given by the manufacturer each year.
If the resale value of the old vehicle is high enough coupled with the new vehicle's incentive, the new vehicle's principal and interest will be reduced. Then if the principal, interest, maintenance, and operating costs of the old vehicle become higher than those of the new vehicle, the old vehicle should be replaced.
If resale values and manufacturer incentives are low, the old vehicle should be retained, taking advantage of minimal principal and interest costs after the vehicle is depreciated. Higher maintenance and operating costs will be incurred by extending the vehicle's replacement cycle. Determine whether the increased maintenance and operating costs exceed the reduced principal and interest cost savings.
"The bottom line is, why keep an old piece of equipment that's counterproductive when you can replace it with something that offers technological improvements and more productivity for the user?" Dolce said.
One case study involved a fleet of refuse trucks at a public works department in Missouri. The refuse division wanted to replace the trucks after 10 years instead of six. The fleet operations superintendent calculated the purchase prices and maintenance costs, factored in the trade-in value of 20% at the six-year stage and determined that the average annual life-cycle cost would be $37,166 for a new truck versus $39,264 for the old truck. Clearly, the new vehicles were the best option.
"When a vehicle is young, it's labor intensive," Dolce said. "When a vehicle is old, it's parts intensive. Parts costs are twice as high as labor. For every $1 in rebuild labor, you're going to have $2 in parts for an old fleet. For every $1 in parts, you're going to have $2 in labor for a young fleet. If we see a 1-to-1 ratio for a class of vehicle, we know that it's probably in the right life-cycle zone." Dolce also presented the workshop attendees with a case to help sell a fleet new equipment: A company reports a $10-million profit and pays a 34% capital gains tax for a net profit of $6.6 million. If it buys the new equipment and takes advantage of the government's $4-million-a-year depreciation for five years, the net profit would be $7.96 million a year.
Information and Communication It's all about giving the fleet manager as much information as you can give him."You say, 'Why should I go that far?' " he said. "Because you are a multiple, varied resource. You have Henry Ford knowledge. You need to share that information with fleet managers. Do a matrix analysis. If your product for X-amount of dollars lasts 10 years and other products for the same dollars last seven years, which product is better? Yours.
"Ten years is better. But we have to talk numbers. Which one is better? The only way we know that is to ask, 'What is the historical use and how much did it cost?' "
Resistance might be encountered from the fleet manager or his associates. Agreement is not always achieved. Dolce compared the process to a marriage.
"A marriage doesn't grow unless you fight," he said. "And when you fight, you make up after. When it's all over, you're both going to be smarter. What does that do? It brings you closer together."