LeasePlan Corporation is the world’s market leader in car leasing, with a vehicle fleet of more then one million cars. For suppliers of replacement parts, such as shock absorbers, tires and exhausts, LeasePlan is a very attractive customer. In Europe alone, LeasePlan buys over 1.2 million new tires each year, a scale which offers LeasePlan attractive discount opportunities from suppliers. However, in practice, optimal utilization of this advantage appears not to be so easy.
Tires are purchased locally by the 26 subsidiaries of LeasePlan. Most of these companies work in one country or region and have their own purchasing policy. Each single company strives for the most favorable purchasing agreements. To gain a benefit on a European scale, coordination is essential.
But LeasePlan’s subsidiaries do not always purchase form the same suppliers. This is not surprising given that the availability of large suppliers differs from country to country.
These suppliers also offer different kinds of discounts, on both a regional and European basis. Therefore, evaluating the consequences of a supplier’s changing market share is very difficult.
Finding a Solution
Bert de Graaff, then Director of International Operations at LeasePlan Corporation, realized that significant extra discounts could be obtained if there would be more interactions between the companies on a European level. The next thing he did was to summarize all the existing agreements in an Excel spreadsheet. Using this sheet it became possible to compute the distribution of demand and supply of tires for all LeasePlan companies and their suppliers, and the existing accumulated discount resulting from all the current agreements.
An important question naturally occurred: what distribution would lead to the best discounts. Sander Post, a student, was asked to help. He succeeded in converting all the information into a mathematical optimization problem. Unfortunately, the problem could not be solved using a reasonable amount of computer time, not even after consulting various experts. In a roundabout way LeasePlan then found CQM.
Bert de Graaff: “Already at the first meeting the people of CQM were asking questions we hadn’t even thought of, even though they were very relevant to the problem.”
After a short orientation period, CQM claimed that they could resolve the issues using AIMMS. LeasePlan decided, albeit with some doubts, to let CQM tackle the job. The doubts have completely disappeared. Bert de Graaff: “CQM has done what they said they would, in the agreed time and without exceeding the budget. From experience I know that this is special, especially, as in this case, when software has to be developed. So I am extremely satisfied.”
CQM has improved the existing model in several areas, implemented this improved model using AIMMS-software and built a graphical user interface. With this, LeasePlan can optimize agreements with their subsidiaries and suppliers on a European-wide level. The extra discounts result in savings of millions of Euro a year for LeasePlan. Another important advantage is that the subsidiaries can see that although some of the agreements might not seem to be optimal locally, they are indeed very favorable for LeasePlan as a corporation. For the acceptance of the new strategy proposed by a corporate department this is very important.
After the initial introduction of the AIMMS-based model at LeasePlan, CQM has extended the model even further. The most important extension has been the enforcement of the robustness of a proposed optimal solution. Raymond Deckers, senior data analyst and user of the optimization model at LeasePlan Corporation: “Because many discount schemes use price bands, a small change in the distribution can lead to a large change in the total discount. There will always be small differences between the total purchases estimated at the beginning of the year and the actual purchases. To avoid much of the estimated discounts failing to be delivered, the model has been altered in such way that we can make demands on the robustness of the solution, and this has increased the usability of the model.”
LeasePlan, founded in 1963, is the world’s market leader in operational car leasing, and worldwide is one of the leading players in the market for vehicle park management. As a subsidiary of LeasePlan Corporation, the company is located in more than 25 countries.
CQM provides insight, structure and optimal solutions. Using a unique approach. Fact based, quantitative and supported by models. And always in close collaboration with their customers. For 25 years, their quantitative approach has proved its value, with more than 100 customers world wide. They are active in the following areas:
- Process improvement
- Faster development of products and processes
- Networks: design and performance analysis
CQM has been an AIMMS user since 1993, and became AIMMS’ first Dutch Service Partner in February of 2004.