Managing a fleet of company vehicles is a complex (and rewarding) profession. It takes an unusually broad range of skills and experience, and, in today’s economy of reduced headcounts and budget cuts, it takes smart, careful choices in outsourcing.
Today, fleet management companies (FMCs) can provide services to cover any and every process or need a fleet manager has, and, when fleet managers have limited staffs (or none at all), these programs are life savers. That said, however, outsourcing now brings a new responsibility to the fleet management table: managing suppliers. Doing so can leverage the fleet manager’s effectiveness substantially.
Determining What to Outsource
Before developing strategies to manage an FMC, fleet managers need to break down the various processes in the department and determine what should — and should not — be outsourced. The ultimate goal in outsourcing should be to bring in expertise and resources the fleet manager lacks, while at the same time maintaining control.
There are two broad categories of activity in fleet management: clerical/administrative and management.
Distinguishing between the two is the first step in determining what can, and should, be outsourced. Clerical/administrative activity includes:
● Communication. Not what is to be communicated, but the actual form of communication itself. This includes e-mail, company Intranet, telephone, and hard copy (“snail mail”) distribution of information.
● Paper flow. Registration renewals, title transfers, payment of fines and violations, new-vehicle order placement, and any activity that involves the completion of forms or other paperwork (not necessarily paper, but including online forms, etc.).
● Data capture and access. Most FMCs provide tools that capture critical cost data, which the fleet manager can access.
The aforementioned activities don’t require any specific fleet management expertise or decision making. They don’t involve how company resources are used on a day-to-day basis; they are only tools used to do so.
Management activity, on the other hand, would include:
● Determining policy, such as who qualifies for a company vehicle, what
vehicles are provided (selector), and how long they remain in service.
● Deciding when to repair and when to replace damaged vehicles.
● What repairs should and should not be done (i.e., setting limits on
mechanical or body repairs and authorizations).
Put simply, administrative and clerical activities encompass how things are done, and management activities are about what is to be done. Anything that involves the allocation of company resources — time, people, money — should not be outsourced (over and above an established minimum level).
Identifying the Four Functions
Although fleet management involves myriad activities, there are four overall functions that are generally fodder for outsourcing:
● Acquisition/disposal: either in company ownership or leasing.
● Maintenance, repair, and tires: keeping vehicles properly maintained,
repairing them when they are damaged, and purchasing tires when needed.
● Accidents: reporting accidents, arranging for repairs, and recovering
funds via subrogation.
● Fuel: the purchase of fuel.
These are only the four primary service programs FMCs offer, but they cover the bulk of what occurs on a day-to-day basis. Most FMCs can provide all four via a single, master contract and fleet managers must manage suppliers via that document.
Acknowledging the Partnership
The stories are legion — customers “beating up” suppliers, whether on pricing, delivery of service, or a simple mistake — and it is unfortunate that there are fleet managers who believe they must have an adversarial relationship with suppliers.
The fleet and fleet supplier connection is a partnership, and any successful partnership requires input and work from both parties. Fleet is no exception. Here are some ways that can help a fleet manager ensure successful supplier programs:
Be honest. Sounds obvious, but sometimes, when there is a problem, a customer (or the supplier) will insist upon pointing fingers. This only accomplishes a drawn-out event, with bad feelings on both sides. If information wasn’t sent, the wrong color vehicle was ordered, or an e-mail was neglected, admit it — quickly. Expect the same honesty from suppliers, too.
Henry Ford had a saying: “Don’t find fault, find a remedy.” Never waste time pointing fingers. When a supplier errs, big or small, don’t spend time and resources trying to prove their culpability, or find out exactly who messed up. Solve the problem and figure out how to avoid it happening again.
● Don’t focus exclusively on what a supplier has to offer; work together to determine what can be done for each other. While keeping in mind that suppliers enjoy standardization, make suggestions they might be able to use, not only on a company account, but on others as well. An idea that reduces everyone’s costs might even pop up.
● Make room for both minor exceptions as well as major contingencies. For example, good fleet managers can have a “Plan B” for build out, rather than getting stuck with orders that can’t be filled. Communicate those plans to suppliers.
● Share information with suppliers regularly. Information is the grease that makes a fleet/supplier relationship run smoothly. This helps both the fleet and the vendor to move quickly.
● Share the relationship with both sides of senior management. Meet the supplier’s leadership, and try to arrange for them to meet yours.
Remember, the fleet/supplier relationship isn’t just a matter of getting the lowest price possible, or the supplier doing as little as possible for that price. Successful relationships involve work on both sides, and the recognition that both sides can, and should, contribute to success.
Negotiating the Contract
The basic document that should govern the fleet-supplier relationship is the master agreement. Whether it contains only a lease, services, or both, it is the master contract that, if the fleet manager negotiates it carefully, will make managing the vendor much easier.
On the lease side, the master agreement contains these key provisions:
● Basis for determining the capitalized cost of vehicles leased.
● The structure of the lease rate factor, including amortization rate, cost of funds, and lease/administrative fee.
● Minimum lease term.
● Terms for selling off-lease vehicles.
There are other terms and conditions, but these are the factors that will determine the cost of a vehicle leased under the contract, and the terms it is leased and disposed of. So, what is it, then, that a fleet manager needs to “manage” as it pertains to leasing?
● Amortization rates. Don’t accept “standard” rates; match rates to anticipated use and mileage.
● Keep an eye on the application of resale proceeds. Do a spot audit each month, and make certain that, when vehicles are sold, the proceeds are applied and the vehicle is taken off the billing promptly.
● Remain flexible. Circumstances change, including vehicle types, replacement policy, territory realignments, and job functions. Fleet managers need to be nimble, and make changes whenever and wherever needed.
The master agreement can also include services, such as the four core fleet management programs. Provisions in the contract primarily cover program fees, including:
● Per-vehicle monthly fee for maintenance management.
● Per-occurrence fees for accident management.
● Subrogation recovery fee; usually a percentage of the recovered funds.
● Rebates/discounts for maintenance and fuel program activity.
Such fees (and rebates or discounts), once negotiated into the contract, don’t require “managing,” other than normal audit activity. But, there are areas where a fleet manager can manage the supplier, both tactically and strategically.
● Account setup: This is the most critical element of program success. Setting up the procedures, authorization levels, and work flow will govern how the program works. Keep in mind the difference between management and clerical/administrative activity when setting up programs, and also know that account setup can, and should, be an ongoing process.
● Follow up: Suppliers should have a follow-up process, so drivers are able to provide feedback to the supplier on how each transaction was handled and whether they are satisfied. The results of these comments should then be discussed with the supplier, and remedies implemented, if necessary.
● Account reviews: Most FMCs have a standard account review process, and it is usually fairly comprehensive. Ask to see it, and don’t be shy about asking for some customization based upon your company’s specific needs. And, don’t merely accept an annual review; twice a year is better — quarterly is best.
● Negotiate performance standards into the contract: Most suppliers will have little or no problem doing so. When competing for business, fleet suppliers will make claims of savings, cost reductions, and other benefits they believe set them apart from the competition. Note these claims carefully when they are presented, and make them part of the contract standards. This will provide an excellent baseline to evaluate performance.
Build a Job Description
Bringing on a fleet supplier is not all that different from hiring staff. When hiring an individual, companies look for experience, personal and business skills, and offer compensation. The fleet manager, human resources department, or both will build a job description, which will outline the employee’s responsibilities and levels of authority.
“Hiring” a fleet management supplier is not all that different. Build a job description, which makes clear to suppliers exactly what is expected of them, what experience and capabilities they need, and how their performance will be assessed.
Also, keep in mind that account reviews should be much like employee reviews, in that both parties will sit down and go over what was expected, how performance measures up to goals, and what both can do to get the job done better. Be neither overly critical nor soft; suppliers, like employees, would prefer an honest assessment of their performance.
Don’t Get Too Close
In the movie Moneyball, a baseball player asks the club’s young assistant general manager why the GM doesn’t travel with the team. The assistant responds that the GM doesn’t want to get too close to the players. The player asks, “Is that supposed to make us easier to cut?”
That anecdote can be applied to the proper management of a fleet supplier. Most suppliers provide ongoing client relations, personnel in the field whose job it is to meet regularly with their customers, make certain the program(s) are working smoothly, handle problems, and help build the relationship. This is a very important part of the partnership; however, it can lead to difficulty if it isn’t managed properly.
Going to lunch, even playing a round of golf when a client relations rep calls, isn’t a problem. Most companies permit such “de minimis” entertainment. But, when a lunch turns into an expensive dinner or gift, or a week-long fishing trip, a fleet manager is flirting not only with a violation of the company’s policy, but with getting too close to an individual that, as the ball player put it, the fleet manager might one day have to “cut.” It is difficult to properly manage a supplier when the personal relationship is too close to the individual or individuals who handle the company account.
“De minimis” has different meanings for different companies. Use proper judgement. Going to lunch, playing a round of golf, or attending a ball game is generally considered to be de minimis. If in doubt, ask a supervisor or the human resources department for guidance.
What all of the above is geared toward is managing expectations; what you expect from a supplier, and what that supplier can expect from you. Doing this up front can help to avoid problems down the road.
● Know what, and what not, to outsource. No supplier will be as careful with your company’s resources as you will. Retain those management functions and responsibilities in-house.
● Negotiate contracts carefully. Make certain that, beyond typical boilerplate language, you know what your company is paying, and what they’ll get for their money. Build in performance metrics, based on what the supplier said it can do, and track them regularly.
● Don’t just sign a contract, build a relationship. Communicate regularly. Plan for contingencies. Share information. Look for ways the supplier can do a better job for your company.
● Build a job description. Hiring an outside vendor/fleet supplier is similar to how internal staff is hired. Make sure suppliers know what is expected from them.
● Build a relationship, but don’t get too close. Check with your company to determine what you can accept and what you cannot. Expensive gifts, or cash, should be avoided.
Managing suppliers is every bit as important, if not more so, as managing staff. Ultimately, a well-managed fleet program will benefit your drivers, and enable them to do their jobs more efficiently and successfully. If the fleet manager, however, doesn’t manage suppliers well, those same drivers will suffer the consequences. FF