Managing the Financial Side of Commercial Fleets

Centralizing vs. Decentralizing Fleet Responsibility

January 2018, by Bob Stanton

Photo courtesy of Getty Images.
Photo courtesy of Getty Images.

The strategic imperative of “divide and conquer” may be perfectly appropriate as a military objective for the fleet management function, however, segmenting that responsibility may not be the most effective strategy.

Fleet operators, especially those whose efficient vehicle operation is not a core function or necessarily critical to operational success, may not fully understand the term “fleet management.”

Consequently, they may not fully understand the opportunities available from exploiting the varied segments of managing their fleet for their benefit. When fleet clients ask for assistance from consultants, they often seek help implementing a telematics solution or in managing the vast array of data from a telematics solution. They don’t often consider aspects beyond this as being in any way related to fleet management.

The Scope of Fleet

Fleet management has become a complex discipline encompassing every aspect of commercial operation. In today’s world, the varied aspects of fleet vehicle management and operation extend to finance, personnel, facilities, sustainability, and risk management.

Together with the time-honored functions typically attached to fleet operations of vehicle maintenance and fuel, the expanded scope of true fleet management has morphed the fleet managers’ function to a whole new level of significance. Commercial operations that fail to recognize how complex and multi-faceted fleet has become do so at their own peril.

Being the lead mechanic in the shop is no longer a routine career path to fleet management. Such advances to the fleet executive suite are rare. The best fleet skill set includes disciplines that were once upon a time foreign to fleet management but are now essential to success.

At a Glance

When choosing between a centralized and decentralized fleet operation, consider:

  • The success of decentralized fleet responsibilities can only occur when accountability for the performance of the fleet as a whole is held within one entity.
  • Outsourcing the fleet management function does not represent an outcome nor does it absolve the corporation from their responsibility to deliver efficiency.

Considering Decentralized Fleets

In the past, decentralizing fleet management, that is, spreading the responsibilities of fleet to either several departments or to separate geographic locations may have made evolutionary sense once upon a time perhaps.

As companies expanded and grew, it made sense for local managers to handle local fleet requirements. Individual managers and staff were given the opportunity and the control necessary to utilize their assigned vehicles and staff in ways that suited their immediate and daily needs. This practice, primarily because it lacked oversight and leadership, also led to mismanagement, poor asset allocation, or both.

To put this into perspective, many years ago (in my own experience) shop mechanics assigned to public works were sometimes used as flag holders or equipment operators on road construction sites when staffing needs required temporary “repurposing.” The thought of utilizing such highly paid and skilled individuals as technicians today for these “other” purposes seems ludicrous; but that was a different day.

In an instance more closely related to fleet, a national retail chain decentralized fleet responsibility to individual distribution center managers (DCM’s) throughout their nationwide network of regional distribution centers. In some cases, the DCM’s took their fleet roles seriously prioritizing fleet productivity and efficiency, thus enhancing overall operating performance for the center. However, other DCM’s abused their fleet roles in ways that at first were masked by unrelated cost reductions. The abuses went undisclosed due to a lack of fleet oversight at the top and only came to light during a third-party review of the overall operation.

Today, the success of decentralized fleet responsibilities can only occur when accountability for the performance of the fleet as a whole is held within one entity and successful only when the decentralized responsibilities are discharged by skilled fleet professionals, a rare commodity in business today. Consequently, if only due to the shortage of skilled fleet professionals, centralized fleet control is the best way forward for most entities.

Better Understanding Your Fleet

The challenge facing any business in which vehicles are an essential tool for success is the recognition of the true and broad impact vehicle cost can have on any business. Many cost factors go completely unrecognized, and, without a professional available, the opportunities go the same way.

A typical example lies in risk management. Many business fleets operate under the opinion that accidents happen; they represent a cost of doing business and there really is nothing that can change that truism. Consequently, accident management, by default, falls to a risk manager or risk department with their own multi-faceted agenda. As a result, the risk group acts simply as a funding conduit to handle whatever costs may have accrued from vehicle crashes. Meanwhile, the individuals and departments involved in the actual accident events get an accountability pass. See the lapse in judgement here?

Fleet managers know that the best way to reduce accident costs is not to have any accidents. Consequently, drivers and driver managers should be given the opportunity to enact both preventive and punitive measures to assure that accountability for accidents is properly shared and that budgetary incentives and penalties accrue to managers and/or departments that proactively manage their risk responsibilities.

Unless the corporate staff recognizes this as truly an opportunity, it will pass without impact. Without a fleet professional given corporate influence and oversight, such opportunities and others like it will suffer that result.

A Case for the Centralized Fleet

An immediate example highlighting the necessity for centralized fleet oversight is the current Electronic Logging Device (ELD) regulation for which the deadline for most fleets passed in December. The selection, installation, proper use, deployment, driver and staff training, and operational changes resulting from the use of this technology all cry out for expert and objective oversight.

A holistic approach to the implementation of this technology will not be successful without collective “buy-in” from all stakeholders and the leadership from a staff member who possesses the objectivity to assure a satisfactory result. Many firms are learning this now the hard way.

In today’s complex environment, the fleet manager should have a “seat at the grown-up table” in any organization. If the operational complexities are not convincing enough, put a pencil to the cost factors involved in operating your vehicle fleet. In doing this evaluation, remember to include all cost factors including capital, vehicle maintenance, fuel, facilities, tires, risk, environmental, personnel, administration, interest, benefits, insurance, and litigation. All are valid factors that should not be ignored.

Having done that math, now consider the other side of the ledger from the benefits possible through achieving opportunity costs from economies of scale, warranty recovery, policy adjustments, insurance rate reduction incentives, used-vehicle proceeds, telematics benefits from driver behavior modification, idle reduction, accident cost reductions, and much more.

The Importance of Stabilizing Fleet

If your organization is not employing any of the aforementioned strategic fleet initiatives, consider getting some help. Many corporations, recognizing their lack of expertise, rightly turn to outsourcing their fleet management role to private firms whose core business is fleet management. Outsourcing the fleet management function represents a major step, typically involving long-term contracts, company-wide education and training and often signals a cultural shift when embarking on this strategy initially requiring careful and thorough staff indoctrination.

Some firms making this courageous decision to outsource do so for all the right reasons but then administer the fleet management contract poorly by assigning that role to mid or low level clerical staff that lack experience or who now share this new role with their existing responsibilities. Outsourcing the fleet management function does not represent an outcome nor does it absolve the corporation from their responsibility to deliver efficiency in that function.

Only a skilled management professional recognizes when operational, technological change or other opportunities arise that may mean amending or changing the outsourcing agreement for the corporation’s benefit. Contract management remains a key element for outsourcing success.

Knowing When to Outsource Fleet

The best objective in selecting an outsourced solution is to find a corporation willing to accept your firm as a business partner rather than simply as a customer. That partnership must, by design, be open to change, adjustment, modification and the acceptance that expertise rests on both sides of the table.

Centralizing fleet management into one entity or department is an important step. Sometimes wresting control from departments becomes an exercise in “turf despair” with no recognition of the long-term benefits. Deploying fleet responsibility centrally frees departments and functional managers whose core purpose is not in fleet, to concentrate their efforts in areas where they are truly the experts and to allow the fleet experts to handle fleet.

In a corporate or government setting, it is essential that the fleet manager has a “seat at the grown-up table,” and that should be further reinforced by said manager having a clear and direct line of authority by reporting to the chief executive level staff. That line should be denoted by the organization structure making it clear where the “buck stops.”

Centralized Fleet Accountability

In the private sector, the fleet management professional is most effective when fleet responsibilities are centralized within the corporate hierarchy and the reporting relationship extends directly to the chief executive or the chief finance officer. In this way, the fleet manager becomes an extension of the most influential members of the organization. That authority promotes compliance with fleet related policies and processes without fear of rejection, favoritism, or departmental bias to delay or thwart implementation.

Fleet staff must always understand their core objective is to provide excellence in service to the operating functions.

It should be noted that centralizing fleet accountability should in no way, be an exercise in control or seen as a power trip for anyone. Instead, centralizing fleet accountability should be empowering to staff members on both sides of the table. Fleet staff should feel empowered by the freedom to do their jobs without fear of retribution or animosity and for the staff that is freed from the transfer of fleet responsibility; they should feel unencumbered and empowered to perform functions that are more aligned with their skills and abilities.

A final factor in centralizing or unifying control of the fleet management function is the consistency such brings to the organization. Inconsistent handling of an accident, lawsuit, or employment matter can land an organization in an uncomfortable and unjustifiable situation, even if the previous decisions were made for all the right reasons.

Actions involving vehicles increase the visibility of an organization and impact the organization’s reputation positively or negatively. Most entities, regardless public or private, seek to be highly regarded. One look at the impact of comedian Tracy Morgan’s tragic accident in 2014 should make any CEO cringe and think they would do “anything” not to be in that retailer’s position at that time.

A fleet manager’s main thrust is to protect the vehicular asset base of the organization. That base typically touches the entire organization in many ways. By having unfettered access to all departments, all users, and all vehicle related activities, the fleet manager can assure that “protection” is equally applied across the organization and the benefits accrued are equally shared.

About the Author: Bob Stanton is a retired government fleet director who now operates his own fleet consulting firm for public and private sector fleets.

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