Improving BEST: Strategy for making the public transporter ‘Best for Mumbai’ –Part 7
The structure of an organisation has a huge bearing on its ability to optimise resources, increase profitability and control expenses. In the past six articles, we explored various means to improve performance of BrihanMumbai Electric Supply & Transport (BEST). In this concluding article, we will explore a strategic question about organisation structure that is best suited for BEST to operate as a profitable entity and serve the needs of society.  
 
BEST as independent company
BEST being a government body does not carry loans on its balance sheet. This is also a problem for the company. The lack of proper framework of asset and liabilities does not create a depreciation pool for future investments. Therefore, we need to create BEST transportation into a separate company with its own balance sheet. 
 
Better asset sharing
A separate balance sheet should improve the sharing of assets between BEST and Municipal Corp of Greater Mumbai (MCGM) as well as between the power distribution and transportation arms within BEST. At present assets being used by BEST and those belonging to BEST but used by other arms of Corporation are not paid for properly. With a separate balance sheet and legal entity, BEST will be able to pool and deploy its assets for maximum benefit. The bus stands, chowkies, buildings and real estate can be deployed better at higher remunerations than currently possible. If, through this exercise, the burden on MCGM is reduced then it will be all the more advantageous.
 
Asset formation
BEST claims its average age of fleet is 4.5 years. However, a look at the buses itself, the broken bus stops, dirty depots, imply rotting infrastructure. It is a result of lack of investment because of neglect by MCGM and BEST Undertaking. As a separate entity, BEST will be able to borrow on the strength of its own balance sheet. At least whatever support from government is required, will be clear because of transparent financials. Further, clearly owned assets will help create a depreciation pool for reinvestment in buses.
 
Improving return on existing assets 
The impact of lack of clear asset and liabilities is felt in the inability of BEST to leverage its Real Estate assets. Globally, these depots, and bus stops contribute to earning capacity. There is clear case for developing consumer-centric infrastructure such as convenience stores, medical stores, groceries and such which occupy footpaths at the present. Some of the depots can be developed into a proper shopping complex or commercial complex, for example, the Mahim depot. These ideas are not new, BEST Andheri West depot already houses a commercial building from which BEST earns revenues.
 
Cleaner operations
Currently, BEST functions as a dark pit for government largesse. One reason the bureaucracy does not want to incorporate BEST is that transparency will make it difficult for corruption. The opacity of BEST allows lot of the corrupt practices to thrive unchecked.
 
Alternative ownership structures
Alternatively, Municipal Corporation can take up ownership of bus stops and depots and monetise those. Even in this scenario these assets and their related expenses will be out of BEST's financials giving us clearer picture of the operating realities. Then BEST will be judged only as a bus-service provider and no more. 
 
Regional Transport Operations
BEST is only one operator within the Mumbai Metropolitan Region. Therefore, a MMR Transport Company can be created as apex multi-modal transport company with all transport operators including local trains, metros, Navi Mumbai Municipal Transport (NMMT), Thane Municipal Transport (TMT) and Kalyan Dombivli Municipal Transport (KDMTC), operating as subsidiaries. MMRT could include the future sea transportation options as well. A separate entity for MMR will resolve some of inter-transporter coordination problems. It will also help coordination with different stakeholders. Yet, there is also a risk of MMRT becoming unwieldy corporation given the large population we are talking about.
 
In conclusion
The suggestions in this series of articles fall into three buckets. First are inter-agency related suggestions (coordination), second are BEST operational suggestions (fleet configuration, and manpower issues) and third are customer facing suggestions (route planning, and advertising). The suggestions made in this series are not exhaustive but definitely a starting point. If more data is available, then we can make more granular suggestions. 
 
The suggestions take a competitive approach - BEST competing with trains, taxis and cars to meet transportation demand. The underlying principle is that when there is a viable public transportation solution car usage, taxi and private taxi usage will automatically decline. When we have won that war we can think of BRTs and dedicated lanes or congestion pricing. BEST or any bus operation will remain viable piece for last mile connectivity. The question is, with these issues then can BEST turn around? It can! A dogged pursuit of these objectives is necessary for BEST to turn profitable. Then it definitely can become a global leader in bus transportation services.  
 
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(Rahul Prakash Deodhar is a lawyer, investor and author with experience spanning manufacturing, consulting, investment banking firms. He has advised a wide range of clients including Fortune 500 companies, public and private sector banks, hedge funds and private equity funds among others. He has developed econometric models for demand forecasting in real estate, metals, airlines, and shipping. He designed MIS and planning and budgeting systems, sales networks, and operations for large corporates. He has worked with Aditya Birla Group, CRISIL and Morgan Stanley. He is author of two books – Subverting Capitalism and Democracy and Understanding Firms. He can be reached at [email protected] or at his website www.rahuldeodhar.com.
 
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    COMMENTS

    Secretary Kanchanjunga

    2 years ago

    Thank you above this article which gives very lucidly the details of this case.

    REPLY

    Rahul Deodhar

    In Reply to Secretary Kanchanjunga 2 years ago

    Thanks for the comment.

    Improving BEST: Fleet Re-Configuration to improve efficiency –Part 6
    In general, for all modes of transport, better assets (buses in this case) and less variety contribute to profitable operations. For example, airlines restrict the number of airplane designs it operates - SpiceJet uses only Boeing-Bombardier whereas Indigo uses Airbus-ATR. Operators using diverse fleet tend to buy capacity rather than assets themselves. Thus, you buy seat capacity and let maintenance be taken care of by asset owners. Thus, the BrihanMumbai Electric Supply & Transport (BEST) can buy capacity from all Tata, Ashok Leyland, and Eicher Motors and let the manufacturers maintain the buses. Or if BEST is going to maintain the buses it can buy all the buses from only one manufacturer. It allows better negotiation and efficiency in maintenance. 
     
    Maintenance costs of the BEST are 60% of its total costs and one way to reduce it is by streamlining the fleet. Improving operational efficiency of transportation can be done through better fleet composition. With huge maintenance costs at 60% of total costs, this area assumes importance for BEST.
     
    Advantages
    Fleet standardisation has many benefits. It improves maintenance efficiency, fewer types of machines and tools are required, inventory of parts is reduced, better discounts as purchases are high volume. In addition, the drivers, and maintenance staff get a feel for the vehicle. Further, fleet addition, specifications and contracts becomes easier and faster. However, there are risks too. It is possible the vendor can exploit by charging higher amount for parts unless adequate safeguards are built into the contract itself. Yet, with prudent non-corrupt management from BEST side, it is not impossible to achieve this. Further, BEST can explore fleet purchases internationally as well. 
     
    BEST's requirements
    The nature of fleet required by BEST emerges from our earlier discussion. 
     
    Feeder Buses
    BEST will need a smaller capacity bus for feeder role. These buses need to be comfortable but simple with easy get-on get-off access. Smaller buses will also find it easier to enter station areas or crowded inner-city lanes making BEST as convenient as taxi or auto-rickshaws. 
     
    Trunk-route buses
    The Trunk-transportation role needs higher capacity buses. Since it operates at two price points, it will have standard and luxury interior option. The underlying bus remains the same.
     
    Shuttle services
    Shuttle services to airports, long-distance railway stations, out-station buses need bus configuration that helps passengers carry larger bags. While these are large capacity buses of same make as Trunk route buses, it is only their configuration that is different.
     
    Fleet configuration
    BEST fleet will be of two capacities of buses - on smaller capacity, 20 seats and larger capacity 50 seats. The feeder buses need to have metro-style seating so that people can stand comfortably. It will also need larger doors and twin doors (separate for entry and exit). It needs to be fitted with ticketing system that allows easy ingress and egress.
     
    The standard trunk-route buses can be a large capacity buses with normal seating and one passenger exit. The luxury bus needs to have productivity options such as a table, access to charging points etc. The shuttle needs more space to carry luggage and probably facility for additional services such as check-in. These buses need to be of the same make and outer construction. Their interior construction just needs to be different to suit the requirements. The colour may be different to indicate the luxurious variant. Similarly, the shuttle too is the same shell just interior fitment is different. The principle is minimum variation as possible.
     
    Thus, we have two capacities and the larger one comes with three variants.
     
    Fleet size & other vehicles
    In terms of numbers, BEST needs more feeder buses than trunk-route buses. Within trunk-routes the mix between standard and luxury buses is a function of demand. Further, the choice of bus determines availability and thus how large fleet is required by BEST. Thus, we need fewer of reliable buses than unreliable ones. BEST had terrible experience with King Long buses. (Which are not the real Chinese King Long buses). Apart from the main bus fleet, any transport operator needs support vehicles, breakdown vehicles, towing vehicles, which may be selected based on reliability and other factors.
     
    Fleet ownership v Fleet rental
    Currently, BEST owns its fleet of buses and vehicles. However, there is a logic in buying capacity rather than bus. Bus being a depreciating asset, bus operators have two options. Shipping companies maintain the ships so well that fetches more than the book value. Airline companies prefer to lease the planes on a medium term basis. Volvo used to offer transporters an option to buy capacity rather than buses itself. Thus, Volvo would commit to make N buses available at all times. These options need to be tested for financial viability.
     
    Summary
    As per BEST financial statements, running expense and Repairs & Maintenance constitutes 60% of the total expenditure. This does not include fuel, operating materials, lubes and tyres. The shabby accounting does not allow for more detailed understanding of the expenses. Nevertheless, from my interactions with personnel, maintenance is a critical issue. Standardisation of fleet will reduce some of the inefficiencies in the maintenance program. In years to come, BEST has to make a strategic choice whether to own the fleet or rent influences this decision. Yet, the logic for fleet standardisation remain strong and BEST will benefit from it.
     
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    (Rahul Prakash Deodhar is a lawyer, investor and author with experience spanning manufacturing, consulting, investment banking firms. He has advised a wide range of clients including Fortune 500 companies, public and private sector banks, hedge funds and private equity funds among others. He has developed econometric models for demand forecasting in real estate, metals, airlines, and shipping. He designed MIS and planning and budgeting systems, sales networks, and operations for large corporates. He has worked with Aditya Birla Group, CRISIL and Morgan Stanley. He is author of two books – Subverting Capitalism and Democracy and Understanding Firms. He can be reached at [email protected] or at his website www.rahuldeodhar.com.
     
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    Improving BEST: Why none of the routes of Mumbai’s public transporter is profitable–Part5
    The BrihanMumbai Electric Supply & Transport (BEST) operates in two specific roles. Firstly, it is required to provide last mile connectivity to people travelling on local trains - which is the feeder role of BEST. Secondly, BEST also must provide an alternative to the local trains in serving the long-distance routes - the trunk-transportation role. In this fifth article of my series, I will look at ways to improve route planning, so that it balances the need for connectivity and profitability for Mumbai's bus operator.
     
    Feeder Routes
    BEST act as feeder transporter supporting suburban (local) trains and trunk routes journeys. This is evident from the fact that 45% of all BEST journeys are under 3kms. Thus, BEST is responsible to provide last mile connectivity for passengers travelling on trains, including passenger movement between western, central and harbour lines in non-junction stations (i.e. except Dadar and Kurla). A correlated responsibility is to serve the people moving within the feeder area. Both shuttle (between two specific points) and circle (along specific circular route) can be used to serve these requirements.
     
    In its feeder role, BEST needs to have many routes with frequent buses with lots of pick-up points covering the feeder area at regular interval. Thus, these passengers should be required to wait 3 minutes or less before boarding. These passengers will have lesser time for ticketing and their journey times may be shorter. They also do not want to pay high fares. They are balancing cost and convenience vis-a-vis bikes and shared auto-rickshaws or taxis.
     
    Therefore, feeder routes needs higher number of smaller capacity buses allocated to the feeder area. The higher number will ensure that there is a bus available every 3 minutes. Lower capacity will allow faster access through crowded roads. Now, lower capacity buses have higher cost per passenger kms (cpkm) therefore tickets will be priced higher on per km basis. Another challenge will be time for ticketing will be low. Hence, such buses are ideally suited for a prepaid electronic card system with one fare system. Go anywhere you will pay one fare on this route - say Rs10. 
     
    Trunk Transport Routes
    BEST needs to provide a substitute for cars to allow for decongestion and reducing pollution. BEST must thus operate along trunk routes and also connect different business districts during business times. This role needs larger capacity buses at specific time departures. Thus, in the morning, these buses may leave at frequency of 15 minutes and then between peak periods this frequency can drop to 1 hour. Inter-business district operations can be shuttle-service.
     
    There are two types of people on these routes - low cost and higher cost category. In the first, BEST is required to operate a low-cost alternative along trunk routes. It requires standard large capacity buses. 
     
    The second type needs BEST to operate higher-speed trunk routes in comfort. Here BEST is competing with private cars or private taxis (Uber, Ola and hired cars), which are more comfortable, higher priced but convenient option. BEST may address this market through luxury AC buses and convert them into productive workplaces giving high-speed Wi-Fi, charging stations and folding tablet-ops. This functionality is not feasible in all high-end cars. 
     
    Future Route Planning
    The route planning strategies discussed above are classical. However, for the future, BEST needs to have modern route planning strategies. Thus, it is possible to use algorithms and apps to create pre-committed routes that users have paid in advance. Today, school bus operators use algorithms to optimise their pick-up and drops. The same principle can be used for long-haul trunk routes with pre-booked capacity. Thus, passengers on the app can indicate they want to travel between the two points at certain frequency at certain time of their choosing and the algorithm can try to assign a bus to them. Once such a bus is allotted, then the passengers pre-book this special bus for a month and pay monthly. These special routes will never make a loss. We can also operationalise the route once break even capacity is reached. We will discuss in details some ideas like efficient route strategies such as pre-committed routes and flex-capacity deployment across routes in subsequent articles. 
     
    Flexible capacity deployment
    The ideal bus-level capacity utilisation in any route is about 70% and peak utilisation should be 90%. Ideally, there is some buffer capacity always available. The bus capacity and demand determines the frequency. Generally, frequency is higher at peak times and low at lean times. Thus, the fleet is idle in the lean time. To improve fleet utilisation between lean times, BEST can look at alternatives and deploy the buses for new routes, which only operate at lean times. The route to be chosen depends on people movement in volumes. For example, at lunch times there is a movement from offices to restaurant complexes. In effect, the bus-on-road to idle-buses ratio has to be brought down intelligently.
     
    Summary
    At present BEST does not give data with respect to capacity utilisation of various routes. Still, with better route planning we can improve BEST service utilisation and facilitate return to profitability. In the next article, we look at how fleet design ties in with these and how that can further create efficiencies.
     
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    (Rahul Prakash Deodhar is a lawyer, investor and author with experience spanning manufacturing, consulting, investment banking firms. He has advised a wide range of clients including Fortune 500 companies, public and private sector banks, hedge funds and private equity funds among others. He has developed econometric models for demand forecasting in real estate, metals, airlines, and shipping. He designed MIS and planning and budgeting systems, sales networks, and operations for large corporates. He has worked with Aditya Birla Group, CRISIL and Morgan Stanley. He is author of two books – Subverting Capitalism and Democracy and Understanding Firms. He can be reached at [email protected] or at his website www.rahuldeodhar.com.)
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