Unpacking the Complexity of Fleet Procurement
If you were asked about fleet procurement, the subject that’s likely to be in the front of your mind is the process of negotiating the best possible deal on vehicles. While that is certainly an important part of the story, the scope of fleet procurement is far wider.
At the highest level, fleet procurement can be categorised into two areas of activity – development of the fleet procurement strategy and activating this strategy to get the best outcomes for the business. We’ll look at these two areas in detail.
Setting the right fleet procurement strategy
This is where the underlying work is done to ensure that future fleet procurement decisions are based on a solid framework of principles and policies. Fleets tend to be one of the big-ticket items in any set of accounts. Taking the time to develop an efficient procurement strategy can make a significant difference to the overall financial position of the business.
To outsource or retain in-house?
At the beginning of this process decide whether or not the organisation has the necessary competencies to successfully develop and implement a fleet procurement strategy. If there isn’t internal experience in the fleet category within the organisation, it makes a lot of sense to seek external help.
The fleet category is widely recognised as one of the most complex within procurement, with a multitude of vehicle manufacturers, models, supply channels and funding options. A good fleet management partner will be able to advise on all elements of the fleet procurement strategy, as well as undertaking the necessary supplier negotiations on behalf of the organisation. For more information on selecting the right outsourced fleet partner download our guide here.
Does it make more financial sense to use business reserves to buy vehicles outright or to use some form of funding? While outright purchase does give the ultimate level of control to the organisation, it also brings with it greater risk in terms of vehicle residual values. Through funding methods such as contract hire, this risk is borne by the finance provider, giving greater certainty in terms of cost over the life of the vehicle.
If the organisation’s decision is that funding is the best way forward, there’s an array of financing options to consider. These include contract hire, contract purchase, hire purchase, finance lease, and alternative schemes like Employee Car Ownership and Salary Sacrifice.
The fleet procurement strategy should outline the principles to be used when making purchase-versus-funding decisions and define the range of finance methods that are most suitable for the organisation. To learn more about the range of funding types available download our guide.
Manufacturer and Vehicle Procurement Strategy
In formulating this part of the fleet procurement strategy, a careful balance needs to be maintained between cost management, the mobility needs of the organisation, and the provision of benefits to employees.
Pursuing a procurement strategy employing a restricted number of manufacturers, or even a single manufacturer, is likely to result in the best financial terms. However, being over-restrictive can mean that the range of available vehicles doesn’t meet the travel demands of the business, or that it fails to act as an incentive for drivers of perk vehicles.
Another crucial decision to be made in relation to vehicle procurement is the length of replacement cycles. Extending replacement cycles tends to reduce the monthly cost of leased vehicles, but keeping them for a longer period, or for higher mileages, can increase maintenance costs. There’s also the small issue of whether perk drivers will accept being in the same vehicle for a longer period.
Getting the right vehicle procurement solution takes time and any decisions should be regularly reviewed to ensure that they continue to meet the organisation’s needs.
Supplier Procurement Strategy
Alongside decisions on vehicle supply come similar considerations for all of the additional services required by the fleet. This can range from ancillary services, such as maintenance and glass and tyre replacement, through to fuel management and telematics services.
This is another area where outsourcing becomes a key consideration in the procurement process. Does the business have both the capacity and expertise to select and manage a wide range of suppliers across such diverse categories?
Activating the fleet procurement strategy
If getting the fleet procurement strategy right provides the bedrock of an efficient fleet, it’s in the implementation that the results are actually delivered. Having the right partners and suppliers on board is essential, but it’s how these relationships are managed in the longer term that determines the level of value that can be derived.
Luckily, for those without the expertise, or time, to optimise results, it’s possible to outsource some or all of these fleet procurement activities to a fleet management partner.
Getting the best deal on every vehicle…
A deal with a single vehicle supplier can appear to be the most cost-effective way of acquiring vehicles. But a lack of competitive pressure often sees prices creeping up in the medium term, negating any early gains. The alternative, getting several quotes for each and every vehicle, is certainly likely to secure a better price, but this comes at the cost of time and internal resources to run the process.
One way of getting the best of both worlds is to use a partner that will run a competitive procurement process for each vehicle on behalf of the organisation. Services like CLM’s Smartpanel do just this, saving clients both time and money. For more information on Smartpanel click here.
…And the right funding
Shopping around for the right car is an obvious tool in the fleet procurement kit, but it’s also wise to consider both the source and type of funding. A deal with a single leasing company, for example, limits the available funding options to those within its portfolio and you’re stuck with their pricing. An arrangement with a fleet management partner can provide access to numerous lenders and to a variety of alternative funding methods.
To maximise efficiencies, a fleet management specialist can look at the right type of funding, and the best deal available, for each and every vehicle acquired.
Don’t forget the special offers
Manufacturers and dealers often release special offers on selected vehicles, that can save thousands of pounds. They also provide greatly improved vehicle procurement terms when organisations are in a position to order batches of several vehicles at a time.
Accessing these deals is a bit of an art in itself, as they are often reserved for organisations that can guarantee a significant volume of orders. For many businesses, the best way to access these deals is through a fleet partner that can utilise its specialist procurement expertise and meet order volume requirements by combining orders from a number of clients.
Keep maintenance and repair providers on their toes
When a vehicle needs scheduled maintenance, or a specific repair, it can be difficult to know whether all of the work quoted by the provider is strictly necessary. From a procurement process perspective, it’s best practice to regularly audit individual maintenance outlets and also to require authorisation to be gained for any work before it is carried out.
Ensuring that all costs can be justified and that they are in line with pre-agreed rates for parts and labour is a very effective way of controlling ongoing fleet expenditure. It does, of course, require a team of highly skilled and experienced procurement controllers to assess each and every maintenance request.
Maximising value on disposal
While it may not be strictly part of the procurement process, ensuring that vehicles are handled correctly at the end of their lifecycle is absolutely key in minimising their overall cost to the organisation.
For owned vehicles, this means ensuring that vehicles are in optimum condition for sale and that a number of disposal channels are available to maximise the price achieved. For leased vehicles, ensuring that they are returned to the funder in a state that will not invoke damage recharges, by carrying out minor repairs when necessary, can save considerable sums across the fleet.
What’s probably clear from the information above is that setting the fleet procurement strategy and having the right ongoing procurement processes in place isn’t straightforward. So, whether you’re a fleet specialist looking for help in tightening up your procurement processes, or a procurement specialist needing assistance with the intricacies of the fleet category, seeking advice from a specialist, independent source can make all the difference.