Typically, fleet owners and managers will find themselves turning to the web in search of fleet solutions and products. When you do a web search for “fleet management” it is most likely that you will come across a host of various vehicle tracking and asset management platforms, and although neither of these options would do any harm in managing a corporate fleet, they certainly do not offer that of an end-to-end function and value chain of managing a fleet.
It is also notable that transport and logistics represents a sizeable chunk of operating cost in most companies and especially those where it is part of a more complex supply chain management process. It therefore boggles the mind that it remains such a misunderstood part of business.
Corporate governance and compliance are essential parts of today’s business environment and the true question it raises is whether its interpretation and application could become counterproductive?
I recently sat in a meeting hosted by a representative of quite a large corporation who spoke of how the company’s fleet is managed. It was clear from the onset was that this individual had little knowledge of fleet management. We discussed their intention to publish a tender for the procurement of both fuel and maintenance management services. The intriguing part is why this company would consider procuring maintenance and fuel management from a single supplier without establishing what the selection criteria be?
Using the above example, it should be clear that this adopted strategy is not based on a clear and thorough understanding of the dynamics influencing fuel and/or maintenance management. The two products could easily be described as two completely different disciplines. Chances are likely that these two products/services are managed by different teams with little or no cross-pollination between the two. Managing the repairs, maintenance, and tyres (RMT) as a service provider would require a form of technical qualification that would be distinctly different from the team responsible for interrogating fuel transactions and potential fraud/theft.
So, to what extent would the fleet owner be compromised by selecting the best fuel management service provider with an average or below par maintenance management division? Would it not make more sense to award the provision of fuel and RMT to the best service providers in the market, even if it is not the same supplier? For anyone involved in the Fleet Management (FM) industry, this should make perfect sense. The FM industry has itself to blame for not educating the market sufficiently to understand this dynamic.
The next phase of this equation, using the same example as above, is for the decision to award the tender. This is normally a multifaceted process where a whole host of criteria are applied to arrive at a shortlist of potential suppliers. Typically, respondents would be asked for trade references, the history of the company, to demo systems, the financial standing of the entity, sustainability, and product pricing. I have yet to witness a proper and scientific validation of all these issues. Usually, the evaluation process revolves around a high-level confirmation of some or all these aspects but with a very strong bias towards pricing. In general, pricing is quoted as a service fee per month/transaction per vehicle with an annual escalation linked to inflation. If the cost of the service fee is considered in isolation and without any regard for the technical and operational ability of the business, then outsourcing the fleet management function has the potential to become a very expensive decision.
The underlying reason is the lock-on on the service fee with a total disregard for the knowledge and experience behind the product offering. It becomes tantamount to appointing the tea lady as the MD purely based on cost-to-company and with a disregard for the ability of the individual.
But these two examples of poorly informed decision-making could, and most likely would, have far-reaching implications on the cost of fleet management. In the graphic illustration above the orange line denotes the resale value of an asset and the grey line represents the cumulative maintenance attracted over time. Based on this example the Optimal Replacement Point (ORP) of this vehicle should be around month 33 (i.e., ORP 1). However, if the company appointed the most skilled and knowledgeable service provider the focus would have shifted from the cost of the monthly service fee to the ability to extend the vehicle lifecycle to what is illustrated as ”Optimised ORP 2”. In the example above, it would have extended the vehicle life by circa 7 months, and this would have translated to a 10% reduction in the cost of the vehicle when calculated over the entire lifespan.
These two mistakes are easy to make but also quite common in the marketplace. My advice to fleet owners would be to start off by deciding whether to outsource the management of all or a part of your fleet operation. If fleet management is not your core business, then it would benefit your company to outsource some or all your fleet operations. My next bit of advice would be to appoint the most experienced and skilled fleet management service provider before you focus on the cost of a service fee and reporting requirements.
Someone once said that only the person willing to discount his product knows the true value thereof. So true of the fleet management industry but also more often ignored than what is necessary or sensible.