Fleet Category Management

In this blog we look at global fleet category management and approaches for fleet procurement and supply chain professionals.  There are many different approaches from single sourcing across all countries to multi-bidding requirements in each country.

After reading this blog you will understand more about:

  1. How to set up the category management process
  2. The procurement levers you can utilise within the fleet management category
  3. How you can generate savings of up to 20% through effective category management

Definition

Category Management is defined by CIPS as “a strategic approach to procurement where organisations segment their spend into areas which contain similar or related products enabling focus opportunities for consolidation and efficiency”.

Category Management Process

Step 1 | Category Definition

Establish the scope of the category and existing spend for each sub category area.  For the fleet this will include some or all of the following areas:

  • Vehicle purchase and disposal
  • Vehicle lease
  • Vehicle maintenance, tyres, breakdown and glass
  • Fuel and mileage
  • Accident management
  • Short term hire, daily rental and mini-lease
  • Telematics
  • Cash allowances and mileage payments (Grey Fleet)
  • Vehicle conversion and branding
  • Risk management services (driver licence checks, risk assessments, driver training, O Licence)

Step 2 | Role and Purpose

Define the purpose of the fleet.  For some this will be the delivery of people, goods or services whilst for others it could be the delivery of additional employee benefits through the provision of a company car.

Step 3 | Baseline Current Performance

Measure the current fleet cost baseline within each geography.  This should cover all suppliers with a list of services provided and existing service levels.  This step can be quite difficult as the availability of suitable information can be limited in some areas.

Internal support costs and the costs of direct taxation associated with the fleet also need to be measured to assess the total cost of ownership for the fleet.

Step 4 | Set Objectives and SMART targets

Procurement professionals are often measured on cost savings or efficiencies and in the fleet category this is no different.  However, fleet comes with a high degree of physical risk to drivers and makes a visible contribution to organisation emissions.  Senior management are generally offered company cars so maintaining service levels is another key measurement.  Nobody likes a call from the Managing Director as they are having problems getting their car serviced!

Step 5 | Devise Strategies

Fleet can be a complex area with many competing interests.  In this section we take a look at how procurement levers can be used to achieve desired outcomes.

Lever 1 | Define Business Needs

The ability to clearly aligning suppliers to the specific needs of the business is crucial to effective fleet 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.

Business requirements are often overlooked when it comes to fleet or worse still blurred with other factors.

Where a vehicle is required for a specific purpose, its characteristics should be clearly defined by asking questions such as:

  • What is the role for the vehicle?
  • Does it need to carry goods or people?
  • What does the vehicle need to carry  – weight, height, load requirements, hazardous materials (gasses etc…)
  • What is the usual operational cycle?

Where a vehicle is a perk of the role then this becomes a benefits conversation around what vehicle is suitable for a particular grade of driver:

  • Benchmark against other businesses with whom you compete for labour?
  • How does the vehicle sit in the overall benefits package?
  • Should you offer a cash alternative?
  • How long should the driver keep the vehicle for?
  • What brands would be appealing to the driver?

Answering these questions can lead to much clearer business requirements and will help optimise procurement through the lifecycle.

Lever 2 | Spend Consolidation

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.

Lever 3 | Alternative Specification

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.

Lever 4 | Competitive Sourcing

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.  When benchmarking, it is essential that prices are compared on a like-for-like basis.  Make sure discount terms are the same as well as the term and mileage of the vehicle to be priced.

Pricing for some vehicles can also be impacted by special offers especially when the model is due to be replaced.  Try to exclude these from your comparisons as it is unlikely that this pricing will be sustainable over any length of time.

Lever 5 | 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.

When benchmarking your prices you need to take into account any contractual concessions or differences in service delivery.  Fleet management companies using a highly digitised platform will have cost advantages which might not be immediately visible from a pricing comparison due to the corresponding impact on resource requirements.

Lever 6 | Restructure Relationship

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.

Even if a good relationship exists with your fleet management provider it is often wise to benchmark against the market.  The market is evolving with new innovations being introduced.  These may help your business with its strategic objectives.

Step 6 | Implementation

Running a fleet RFP process can often be a time consuming and complex exercise especially when multiple geographies are involved.  A structured approach helps deal with the complexities of the process.

Our blog on managing supplier change is a useful resource to help with this process.

Step 7 | Review

A thorough supplier relationship management should be put in place to manage the fleet suppliers.  This should include regular benchmarks of performance and periodical price checks.  Fleet management companies have a habit of walking the prices up once they have won a contract.

The Benefits

In our experience a well managed fleet category can make savings of up to 20%. 

The savings come from a combination of sources and in-life contract management is much more important than in other indirect categories.

Summary

Fleet category management can be a challenge especially on a global scale. Fleet comes with more complexity than other indirect category areas and will also impact on senior managers personal benefits packages.

Fleet is often in the top 5 areas of spend, so it is important to be managed correctly and with savings up up to 20% it is worth the investment.

How can EVP help?

At EVP we have solutions which help businesses with fleet category management on a national or global scale.  We can help you deliver through

1. Showing you how to do it

2. Helping you do it

3. Doing it for you

Get in touch