The Drive for Business Improvement in Fleet Management
Richard Hipkiss, Managing Director of Fleet Operations, examines why the fleet department is ripe for outsourcing and explains the potential for cost savings and business improvements.
The vehicle fleet’s impact on the bottom line is too often underestimated. Part of the problem is that vehicles have traditionally been viewed as a straightforward, unavoidable cost and consequently, few efforts are made to scrutinise the fleet department.
It is also an area where there is a serious shortage of relevant expertise. The traditional fleet manager’s role is disappearing, as different elements of the role are increasingly split between a number of departments, including finance, procurement, human resources and operations.
At the same time, when vehicles are acquired through typical, sole-supply contract hire agreements, a range of supplementary services – from servicing and maintenance to accident management – are packaged together as part of the vehicle cost. Many firms will accept these ancillary services out of convenience, without stopping to take a look at what might be gained from outsourcing different elements.
For businesses where there is a lack of specialist expertise, considerable time and cost-saving benefits can be realised by outsourcing fleet services. But equally, a fleet manager might also benefit from extra administrative support and the support of third-party providers that are better aligned to business goals.
What elements of fleet management are best outsourced?
As with any outsourcing decision, it is first important to determine levels of resource and expertise that already exist in house. But the elements that may be outsourced cover a wide range of different skills, including procurement and vehicle selection, driver support, risk management and accident management.
In businesses where fleet is a core function – couriers, for example – there may be sufficient experience and specialist knowledge to tick many of the boxes. But even then, it can be difficult for a fleet department to maintain the same high standards across different areas that require different skillsets. Purchasing is a prime example. The majority of businesses will opt for a sole-supply contract hire model, largely because this has become accepted practice. However, greater value for money and improved flexibility can actually be gained through a multi-bid approach, where a number of different suppliers compete as part of the purchasing process.
The benefits of multi-bid
In straightforward terms, multi-bid allows companies to find the best price for each new vehicle that is purchased, rather than simply opting for the price quoted by a single supplier. This saving is not insignificant, as the price differential on the same model of vehicle can often be up to £30 to £40 a month or around £1,500 over the lifespan of a three-year contract. But what prevents many businesses from employing this model is the perception that handling a number of supplier relationships will overcomplicate management of the vehicle fleet. This is where an outsourced partner can prove valuable, as they are likely to manage a panel of preferred suppliers who can be invited to bid on new vehicles. Not only can this help to mitigate the risk of forging new supplier relationships, it will also provide consistency in the point of contact. The outsourced fleet function will be able to manage the various supplier relationships to help ensure all new purchases meet pre-defined requirements and all information is reported back in a format that meets business need. But multi-bid does not just mean getting the best vehicle lease price. It also enables businesses to start unravelling the various costs associated with the management of a vehicle fleet.
Calculating Total Cost of Ownership (TCO)
Complete cost transparency is important if businesses are to figure out exactly how much their fleet costs them and where control measures can be introduced. This is difficult in a typical contract hire arrangement provided by a leasing company. Usually these agreements will include ancillary services, such as maintenance packages that cover vehicle servicing, accident management or risk management. The customer does not have the benefit of selecting which third-party supplies these services and has no say on the price of repair services or vehicle parts, such as tyres or replacement glass.
In an outsourced multi-bid environment, the leasing provider is charged solely with supplying the vehicle and the business has greater control over the other required fleet management services. As a result, more scrutiny can be placed on all constituent costs and it becomes possible to conduct a true calculation of Total Cost of Ownership (TCO). This figure takes into account the cost of the vehicle, expenses spent on fuel, insurance, maintenance, repairs and service, as well as interest on loan payments and losses incurred due to depreciation.
With greater control over the different factors that contribute to TCO, it is not only possible to control cost but also to make a more informed decision on what to outsource. For example, if insurance costs are deemed to be high, it may be appropriate to look for an outsourced risk management provider that can work to improve the organisation’s risk profile. Unlike in a sole-supply environment, outsourced partners can be selected for the appropriate services based on their fit with the business and ability to deliver towards defined goals.
All spend should be benchmarked and monitored – from the biggest costs, such as vehicle leasing, to smaller costs, such as spend on replacement tyres. Key Performance Indicators (KPIs) can then be established to monitor the effectiveness of outsourced partners and in-house functions. Measurement areas might include service delivery to drivers and stakeholders, cost control procedures, delivery of data and reporting, accuracy of data, compliance with legislation (such as MOT and tax returns), timeframes for key processes and vehicle off-road management. This covers a wide range of variables, but the evolution of fleet management software makes it easier to bring different streams of data together in a single view. An outsourced fleet function can help by collecting data from the various suppliers and reporting back in a way that reflects priority goals and KPIs.
Ultimately, a company’s vehicle fleet represents a major area of opportunity, rather than a burden, as long as it is managed properly. The significant amount of daily administrative support required – covering everything from the handling of driver enquiries to the payment of parking charges and management of servicing and repair – should not be underestimated…and neither should the level of specialist skills required. But by taking a proactive approach that examines all areas of the supply chain, it is possible to deliver a boost to the bottom-line while taking steps to improve compliance, risk and operational efficiency.
Richard Hipkiss is Managing Director at Fleet Operations, the UK’s leading independent provider of outsourced fleet management services. Fleet Operations works with customers to help them develop more robust purchasing models, achieve greater operational efficiency and minimise total cost of ownership for vehicles. Hipkiss has 15 years’ experience in fleet management, having joined Fleet Operations in 2002, and was appointed Managing Director in 2016. He has been crucial in the development of the company’s MOVE software platform, that has delivered an average saving of £21 vehicle/month for customers.