Fleet Management Outsourcing
Fleet management outsourcing has grown in popularity in recent years. At a time where there are cost challenges for most businesses, outsourcing is being used by businesses as a method of reducing the costs of providing fleet by outsourcing non-core activities.
Outsourcing is the contracting to a third-party provider the management of some or all of the fleet processes currently being delivered in house. Outsourced arrangements can involve the delivery of all fleet related services and processes.
Partial outsourcing could involve specific services such as accident management, VE103 processing, tax disk administration or driver license checking.
The Benefits Of Outsourcing
The benefits of outsourcing flow from allowing the business to focus on core activities. For the most part, businesses and employees who work there, are not fleet management experts and maybe lack the internal resource to run the fleet at the most efficient level.
The benefits of fleet management outsourcing can include:
Core Function | Allows internal resources to concentrate on core activities without being distracted by peripheral activities which don’t drive revenue or add additional value to the organisation
Skilled Expertise | It generally falls on Procurement, HR or Finance to manage the fleet administration. These resources may lack the time or have the relevant skills to perform the role effectively. Often the fleet management is only part of someones role so it can be difficult to respond quickly to all requests leading to gaps in service delivery.
Economies of Scale | Fleet management companies can offer economies of scale both in terms of procurement leverage and in terms of efficiency of operational delivery.
Digital | Fleet management companies are increasingly looking to digitize their offerings to control their own costs but also to differentiate their service offering from the competition. These technologies allow the host business to benefit from enhanced flexibility and process control, generating cost savings through reduced overhead and flexible staffing.
Speed of Delivery | Fleet management companies will have larger teams of resources. Utilising additional resources especially where there are peaks in demand can significantly speed up the delivery of services to stakeholders.
Resilience | Having access to a pool of suitably skilled people to service your account removes any single point of failure issues. This will normally lead to improved consistency of service to end customers.
The Drawbacks Of Outsourcing
The main drawback of outsourcing is a perceived or actual loss of control. It is important that the services are well scoped and a trusted partner is appointed to work as an extension of the business rather than a commoditised supplier.
Further drawbacks of fleet management outsourcing can include:
Hidden Costs | If services are not suitably scoped there can be unforeseen additional costs. Anyone remember how much the facilities management company wanted to charge the NHS for changing a lightbulb?
Quality Control | Outsourcing companies can often be motivated by profit rather than a job well done. That means the work you outsource may come back quickly and lack the quality that customers have come to expect.
Small Cog in a Big Wheel | Large fleet management companies will service multiple clients at any given time. Sometimes the biggest customers will get the focus especially during busy times when workloads are stretched. To counter this some fleet management companies offer a differentiated service depending on the level of outsourced activity required.
Making the Leap – Supplier Selection
Businesses looking to outsource services should follow a structured procurement process to ensure appropriate decisions are made.
Take time to really understand what it is you are looking to outsource. Define the scope of products and services to be provided with specific technical and business requirements. Agree a requirements document with an internal project team. A RACI document is very useful for this purpose to clarify where the supplier will be responsible and where internal resource will still be required. Often it is helpful to have initial dialog with potential providers as this can provide a view on how services can be delivered and the capability within the marketplace.
Compile a list of potential providers who could fulfill your service requirements and select a long list to request additional information from. Issue a request for information to better understand each providers proposition and fit with your organisation. Create a short list from the evaluation of responses received being careful to have broad panel to evaluate the submissions.
At this stage you should focus on who has the capability to meet your needs and to get a better understanding of the supplier approach. A close alignment of organisation culture will be a key element of getting an outsourced agreement to work effectively.
Request for Proposal
Ask the shortlisted potential suppliers for a full written proposal. This should include detailed specifications, assumptions and constraints, terms and conditions. Detailed qualitative responses should be requested to support a broad evaluation process.
Detailed pricing schedules should be requested which provides a clear cost breakdown for evaluation.
Evaluation and Supplier Selection
Evaluate all responses and score each supplier according to an agreed scoring matrix. This should be completed by a broad stakeholder group using a common scoring process. Scoring should be calibrated in a group discussion to iron out any outlying opinions and get a consensus on the preferred supplier. Scoring should be based on the strategic objectives for the exercise finding the right weighting between cost and quality.
Following the scoring of the RFP the top suppliers should be invited to make a presentation to the selection panel. This an important step because it will provide the opportunity to meet the people who will be delivering the services on behalf of the supplier and an assessment can be made as to the cultural fit between the two organisations.
Presentations should be based on a clear agenda so all important areas are covered and any questions from the RFP are clarified. Allow time for the suppliers to ask questions so they can further their understanding of the requirements prior to any best and final offers.
Draft contracts should be requested from the potential suppliers at the Request for Proposal stage to identify any potential red flags in advance of final negotiations.
At this stage it is best to identify a preferred supplier as well as a backup in case of any issues with contract negotiations.
Final Offers and Contract Negotiation
Allow the opportunity for the shortlisted suppliers to submit a best and final offer.
The negotiation phase should look to refine the proposed agreement and contractual obligations. This should reflect the original commercial and operational objectives of the process.
The final agreement should reflect a balanced agreement between the two parties. The provider should have incentives to deliver a good service with negative consequences should they fail to deliver.
Whilst there are many benefits to the outsourcing of fleet management processes, there can be some drawbacks once contracts have gone live. The scope of service needs to reflect the customer’s individual requirements as opposed to an out of the box operational model the supplier may wish to propose or enforce.
The implementation phase is when the service transitions from the internal functions to the external provider. This phase needs to have a strong governance structure in place to effectively manage the transition. Project milestones should be agreed where both parties can measure progress against the project scope.
Senior level sponsors should regularly review progress with the outsourced provider ensuring timely decisions are made where appropriate. Failure to implement properly can create lasting impacts on the services to be delivered and should not be under-resourced or under-estimated.
Once the service provision has gone live, the delivery of the service should be effectively monitored through effective key performance indicators (KPI’s) and service level agreements (SLA’s). The KPI’s inform the customer how important elements of the outsourced arrangement are running against set criteria.
Service level variances should be followed up by the client and service provider, ensuring corrective actions take place. Should any KPI’s be consistently broken then the SLA’s should provide a framework for restorative action either in the form of financial penalties or other contractual concessions.
It is important that performance measures reflect what is important. Many measures such as call handling statistics may be easy to measure but may not be a key to good service delivery. Strong governance around query and complaint handling should form part of the performance metrics as the fleet supply chain can be diverse, with a large number of sub contractors being used.
Customers should also ensure the supplier focuses on the continual improvement of fleet through innovation and process enhancements. Some suppliers may get lazy or take customers for granted.
Organisations that outsource their fleet management should ensure they frequently benchmark the costs and benefits of service provision. This helps ensure costs do not creep up and erode any of the savings generated as part of the business case for outsourcing.
Pricing for individual vehicles will change for a number of factors such as list prices, residual value forecast changes and interest rate movements so it is important to keep track of the elements which are driving the price changes.