July 7, 2015

Competitive tendering cuts procurement costs

Substantial savings available through using a panel of suppliers

Procurement executives charged with finding the most cost effective buying solutions for their companies can ensure significant savings through the use of competitive tendering to source their company vehicles.

Competitive tendering can help find the most cost efficient leasing rates for new company cars, and drive down fleet funding costs, by using a panel of lessors, rather than a single leasing company, and then selecting only the most cost-effective rates available.

Why is competitive tendering necessary?

Leasing rates for every new car in the market invariably differ from supplier to supplier. There are a host of reasons for this, but typically they revolve around the perceptions of each individual leasing company to:

  • The future residual value of the vehicle involved
  • Servicing and maintenance costs over its life
  • The rebates and financial support they can achieve from the supplying vehicle manufacturer/ motor retailer

This results in a wide range of differing rates from leasing companies for the same vehicle, and provides the opportunity for procurement departments to identify the most competitive rates for each new vehicle if they want to keep funding costs in check.

However, this can be very difficult for those companies which rely on just a single leasing supplier. By selecting a single supplier, companies are buying into the supplier’s view of all available vehicles, and can also be taken in by initial, pre-contract quotes that have been set at an artificially low level just to secure the contract.

However, such arrangements almost inevitably lead to ‘rental creep’ – a hike in monthly leasing rentals that occurs following a very competitive set of initial contract hire rentals intended solely to win the business.

Many fleet operators who have been victims of rental creep, may harbour the suspicion that the very low figures quoted at the tender stage were made with the full knowledge that several months would pass before the leasing company actually replaced existing cars with new orders.

As a result, the leasing company will never actually have to deliver vehicles at the previously quoted rentals. This, coupled with further price rises over time, inevitably means that the actual prices paid bear very little resemblance to those first quoted.

How to combat ‘rental creep’

The answer to problems like rental creep is not to put all your eggs in one basket. By using a carefully selected panel of leasing suppliers and competitively tendering for each new vehicle, thus creating competition between the suppliers, the lowest possible rental for each new vehicle can be achieved.

Independent fleet management provider, CLM, typically works with a panel of three or four carefully selected vehicle funders, to ensure that when a fleet client requires a new car or wants to replace an existing one, only the cheapest quote from its preferred suppliers is the one put forward.

Competitive tendering is the cornerstone of a solution CLM calls ‘Contract Management’ which was first introduced almost 20 years ago – which just goes to show the issue has been around for more years than most people realise.

In that time, CLM Contract Management has saved many thousands of pounds for its fleet clients and last year saw further substantial savings achieved across its entire managed fleet.

Use one vendor manager

CLM manages the whole competitive tendering process, from selecting the most price-conscious leasing suppliers in the first place, to tendering each new car to be added to the client’s fleet, to securing the best and most advantageous rental price for the client.

Used effectively in this way, competitive tendering can reduce acquisition costs by as much as 8%-10%, which is great news for companies that are looking to cut costs to maintain their own profitability.

Contract Management also goes a step further than simply acquiring the most cost effective vehicles and allows the fleet client to have the best of both worlds – a service that allows the acquisition of vehicle funding from a number of different funders, but uses CLM as the vendor manager to manage the entire process.

The non-financial benefits of Contract Management typically include the provision of services such as:

  • all day-to-day fleet administration
  • driver support and liaison
  • invoice management
  • consolidated monthly reporting
  • accident management
  • fuel card monitoring
  • P11d/P46 reporting
  • supplier contract evaluation
  • maintenance management

By centralising core service delivery in this way, CLM ensures the fleet client enjoys the benefits of optimised market rentals, plus a fully outsourced fleet management service – it’s a win-win situation.

Contract Management is the perfect solution to the problems associated with finding the most cost-effective funding solution for a fleet of company vehicles and then managing them effectively.

If you’d like to find out more, please get in touch.

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