Fleet Category Management
In this blog we look at global fleet category management and approaches for fleet procurement professionals. We have seen many different approaches from single sourcing across all countries to multi-bidding requirements in each country. So, which one is best?
Set the baseline
Understand and measure the current fleet baseline. This not only refers to the current costs of provision but also the suppliers, policies and processes in place within each geography. This involves being clear about the parameters of the category, defining the scope which could also vary by country.
Identifying and engaging relevant stakeholders is also important as this is usually a diverse and often very vocal range of people.
In many cases establishing the baseline can prove a challenging task as information can be dispersed across a wide supply chain with different formats, but it is very important to get as clear a picture as possible.
Set the strategy
Once the baseline has been established the overall business strategy should be reviewed. An assessment should be made as to how the current provision is meeting the needs of the business. The assessment should cover cost, compliance, operations, risk and environment as well as factors influencing employee benefits.
Current and future market influences should be understood as the strategy is formed recognising the risk impact this has on any options.
From a procurement perspective there are several levers which can be used to maximize the value from the fleet.
Develop Category Plan
Use appropriate procurement levers to generate opportunities for change in line with the strategic plan.
Clearly aligning suppliers to the specific needs of the business is crucial to effective category management. Effective communication with suppliers will help them understand requirements and align their service offerings accordingly. It is important for the buyer to keep this flow of information as to avoid setting the supplier up to fail.
Many categories lend themselves to concentrating volume with suppliers to maximize pricing competitiveness and the same can be said about fleet but not in all cases especially when different geographical locations are concerned.
On a country level it is worthwhile consolidating spend around dealer terms, vehicle funding, maintenance. At a global level you could extend this to tyres, manufacturers and glass.
One area of contention is in consolidation of fleet management provider. There are undoubtedly benefits to a global sourcing arrangement such as a single view of management information across all countries and certain financial incentives offered by the supplier. The purchaser also has more influence over the supplier given the increased scope.
However, all suppliers have P&L’s at a country level meaning limited scope for cross country subsidies. Each market is different in terms of vehicle acquisition cost, funding, maintenance provision and residual value. Service levels and access to credit can also vary significantly by country.
In our opinion it is therefore highly unlikely a single provider will offer the best commercial outcome in each country. It becomes a hard sell to the countries where they are not getting the best commercial arrangements!
This can also be the case at a local level. No leasing company will be the most competitive on all vehicles. However sole supply deals can bring contractual and operational benefits which outweigh a competitive bid for each vehicle. Which is more effective generally boils down to what is in the vehicle policy.
Simplistically, where there is a limited choice then it is easier to benchmark pricing, ensuring that price doesn’t creep up over time. However, a user chooser fleet with free choice can make it very difficult to manage the ongoing pricing provided by a sole supplier which may mean a competitive bidding environment is more suitable.
Ancillary services such as daily hire or accident management services, are major value drivers for fleet management companies. The extent to which these should be bundled or un-bundled is important to drive the maximum value from the fleet. There is a balance between operational effectiveness and commercial value which will depend on the individual circumstances of the fleet.
To create the conditions for maximizing commercial arrangements the structure of the vehicle fleet needs to be identified before going to market.
Where possible the vehicle specification and selection should be rationalized. This helps with volume leverage but also assists with the operational running of the fleet. This can be particularly effective with commercial vehicles, business need or operational vehicles.
One company we have worked with saved up 17% on 1,000 vehicles through specification rationalization over 8 countries. Even for status vehicles consideration should be given to whether a fully open choice is desirable, or would drivers be happy with selecting from three or four manufacturers.
How services are delivered to drivers and the business are important considerations. Business facing processes need to be as efficient and unambiguous as possible. Billing, quote, order, maintenance and de-fleeting processes are all key aspects of the vehicle life cycle. The degree to which some or all of these services are outsourced have a significant impact on how the supplier relationship is structured.
Pricing for vehicles is impacted regularly through changes to list prices, discounts, interest rates, maintenance and residual values. Fleet management providers often offer low entry pricing to win a deal then attempt to walk up margins through pricing and other profit levers. Therefore, it is important, especially in a sole supply arrangement, to benchmark prices to make sure they are competitive.
Total Cost Of Ownership
Many contractual concessions provided by fleet management companies are either not taken or not utilized. Any concessions should be regularly reviewed with suppliers to ensure maximum value is extracted. It is important for regular contract reviews with the supplier to make sure value from profit shares or mileage pooling is realised.
Review the invoices regularly. This seems a simple principle but in our experience, suppliers often incorrectly charge for assets and associated services
Where business objectives change, or there is a change in the market or supplier, then you may want to change the relationship with the supplier. If the service delivery is strong and transparent pricing then you may wish to move towards a partnership type arrangement. The supplier then can invest more in you as a customer helping to drive further enhancements or innovations.
Fleet category management can be a challenge especially on a global scale. Putting all your eggs in one basket with one fleet management company can appeal, but in our, experience rarely secures the optimal financial and operational outcome. Fleet is often a significant area of spend so it is important to be managed correctly.
How can EVP help?
At EVP we have solutions which help businesses with fleet category management on a national or global scale.
For more information please e-mail firstname.lastname@example.org