February 21, 2017

Identifying the essentials of fleet management

Identifying the essentials of fleet management

Fleet management is about efficiency improvement, risk management and cost reduction

Fleet management is essentially the management of a company’s fleet of vehicles to improve their performance and efficiency, reduce their costs and minimise their associated risk.

It is a multi-faceted discipline in so much that it covers all aspects of a vehicle’s in-life services from acquisition to disposal.

Who is responsible for the management of a company fleet?

Many companies employ a full or part-time fleet manager who has overall responsibility for the efficient running of the vehicle fleet, sometimes with a dedicated team of internal employees.

Others prefer to outsource the management of their fleet to a professional fleet management company which is then responsible for overseeing the management of the vehicles and all the connected administration.

This approach does not preclude a partnership in conjunction with the existing company fleet manager, depending on the size of the fleet and the complexity of services required.

As a rough rule of thumb, the larger the fleet, the more professional and extensive the level of management required to run it effectively.

What does fleet management entail?

Effective fleet management covers the efficient running of every aspect of the vehicle fleet, optimising its operation and minimising its costs, risk and environmental impact.

There are a number of key areas to consider including the procurement of the vehicles and type of funding employed, the type of fleet policy you adopt and the length of replacement cycles that you choose for your vehicles.

To buy or to lease

The cost of funding vehicles is, in most cases, the greatest spend associated with running your fleet. Most businesses have two main options when it comes to funding their vehicles, either to purchase the vehicles outright or lease them.

Purchasing vehicles outright requires a high outlay of capital upfront. This may mean tying up funds that could be better used elsewhere in your business, or sourcing a bank or other loan to cover the costs.

Any vehicles you own outright are a depreciating asset and your business is exposed to fluctuating residual values.

On the other hand, if ownership is not an issue, there are many leasing options available that could deliver considerable savings through lower costs, along with a number of benefits including improved cash flow.

There has been a definite shift towards leasing since the last recession, not least because it provides known, easily budgeted costs with no hidden surprises. Any risk on disposal is borne by the supplying leasing company.

Companies can also ensure significant savings through the use of competitive tendering to source their company vehicles.

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

More details are available here.

Choosing your fleet policy

Your fleet policy determines the types of vehicles you may wish to operate and the length of time you run them before replacing them. This may be in line with the type of fleet you operate – such as a delivery, sales or service fleet – where the vehicles involved are very much tools of the trade.

Other companies may see the provision of company cars as being a key part of their rewards system, and allocate cars across the business based on seniority of staff and linked to job grades.

There are definite fleet efficiency savings to be made by renegotiating your vehicle sourcing terms with supplying manufacturers, and the expertise of your fleet management provider could be put to good use here.

For example, you may wish to reduce the number of manufacturers who appear on your choice list in order to maximise your spending power and improve your cost-savings.

Which replacement cycle?

Around 70% of fleets currently use a replacement cycle for their vehicles in excess of three years. Increasing this may deliver immediate and considerable savings by reducing monthly leasing rates or vehicle holding costs.

There are clearly human resources aspects to consider – most employees like to drive newer cars – but the durability of modern vehicles means that a four year cycle could be adopted with no discernible impact on operational capability.

A possible way to balance HR considerations is to trade back some of the savings made by adopting a longer replacement cycle via an improved model when drivers next renew their car.

Managing in-life costs

Good fleet management is about the cost-effective management of all vehicle in-life costs. These include the cost of service, maintenance and repair, tyres and glass, fuel costs and accident management.

Many of these costs can be managed more effectively in partnership with preferred suppliers, and if a fleet management company is being employed, they will have pre-existing relationships with tried and tested partners in all the key areas of operation.

Managing risk

One of the key essentials of fleet management is the management of the risk associated with running the vehicle fleet.

Any company owes a duty of care to its employees who drive on business and should ensure that the vehicles supplied are fit for purpose, and that the drivers are legally entitled to use them and have received some form of training or advice in their use.

There is also a wider duty of care to the public at large in that they are not put at risk through the use of unsuitable or poorly maintained vehicles.

Managing the grey fleet

The term ‘grey fleet’ usually refers to those vehicles which are owned by employees but used regularly on company business. They may be acquired via company-provided cash allowances by drivers who qualify for a company car but who opt to take a cash alternative instead.

Grey fleet risk remains one of the most pressing concerns for fleet managers. There are ways, however, of minimising this risk and managing it more effectively.

Current health and safety regulations stipulate that organisations need robust policies and procedures in place to ensure that every grey fleet car is fit for purpose, has a valid MoT, is insured for appropriate business use and that the employee has a valid driving licence.

If a grey fleet driver is involved in an accident and is found to have an invalid licence or incorrect insurance, a company could be held liable if the vehicle involved had not been kept in a roadworthy condition.

More details about managing grey fleet risk are available here.

If you’d like to find out more about the essentials of fleet management, then please get in touch.