One way to illustrate the disconnect between fleet managers and procurement fleet category managers is to ask two questions:
- Do you believe fleet spend is best controlled as a procurement category utilizing procurement and negotiation expertise or is deep knowledge of fleet operational requirements an under-utilized element in category management when making asset acquisition choices and supplier selection?
- Second, are fleet vehicles best acquired using an aggressive commodity pricing strategy or should work vehicles be viewed as specialized assets requiring minimum equipment specifications that predefine expense parameters both from a fixed and operating cost perspective?
How you answer these two questions gets to the heart of the disconnect between in-house fleet managers and procurement fleet category managers. Most in procurement take the position that fleet’s primary responsibility is to buy assets and services, which annually can range from millions to tens of millions of dollars in expenditures. This amount of corporate spend requires it be managed by someone with superb negotiation skills and proven procurement acumen. But why isn’t this true for all spend categories?
There are other corporate functions that do not have procurement category managers. For instance, HR buys or outsources many services, but, typically, there is no HR procurement category manager. Similarly, the finance department purchases accounting and auditing services, but these expenditures are not delegated to a procurement category manager. Likewise, many corporations have a financial relationship with let’s say a Merrill Lynch type of company that manages its 401(k) accounts or with a company like PwC that provides tax services, auditing, and consulting.
There is no procurement category manager managing these expenditures. How are these business relationships different than a relationship with an FMC or OEM? Why does fleet merit the creation of procurement category manager position while the others do not? Or, why does fleet trigger an RFP process every three years regardless of the metrics, while other functions may require an RFP only if metrics decline? One reason for the regularity of fleet RFPs is it keeps pricing market competitive, but there also is a concern among some that an in-house fleet manager can become biased toward a vendor if a close working relationship evolves, especially if the metrics used to measure a supplier’s performance are based on intangibles, such as service levels.
The Value of Operational Expertise
Cynics sometimes view fleet as a subjective management style, while category management is viewed as more objective and analytical. But, to put the two disciples in perspective, fleet management is the more mature profession that has been honed into a science over the past 80 years. Category management is a relatively new disciple developed in the late 1980s by Brian F. Harris, a former university professor at the University of Southern California (USC). The concept of category management originated in grocery retailing, and expanded to other retail sectors. In the past several decades, category management migrated into indirect procurement areas, such as fleet management.
Category management examines the range of products and services purchased by an organization and categorizes them into groups of similar or related products, known as product categories. In the world of fleet management this encompasses vehicle acquisition and fleet supplier selection, such as FMCs, fuel management vendors, and accident management/safety companies. Procurement proponents say that by assigning responsibility for this category of spend to a specific manager it will allow them to gain an expertise and in-depth market focus to fully leverage their procurement skills. Procurement often erroneously views fleet managers as being primarily tactical in their orientation and better suited to focus on operational excellence.
In reality, fleet managers have both a tactical and strategic skillset that they practice 365 days a year. As a result, a fleet manager has a deep understanding of the fleet category, which minimizes the risk of acquiring assets that cost less but are not optimal to fulfilling the fleet application. This is especially critical at companies that operate complex fleets with assets that are upfitted with specialized auxiliary equipment. By not fully understanding the operational intricacies of fleet vehicles, it increases the potential of acquiring assets or equipment that are not optimal for a work application or, conversely, which are over-spec’ed based on want vs. need input from field employees. Or, another risk is acquiring assets solely on upfront costs and not taking into consideration residual values, whose savings may not be realized until years later.
Procurement is often driven by achieving short-term goals, but when making fleet procurements a longer perspective must be taken. Typically, the assessment of the job performance of most procurement specialists is based on the attainment of upfront savings, but as lifecycle costing analytics can attest this is not always the best acquisition strategy. Another disconnect is that procurement sometimes has difficulty quantifying service capability and does not give it sufficient weight because it is viewed as an intangible. While a procurement group is very good at buying, it sometimes doesn’t appreciate the importance and subtleties involved in service relationships, which are difficult to quantify and benchmark.
To minimize the disconnect between the two groups, procurement goals must align to support fleet’s strategic goals, which in turn will align with the overall corporate mission. Procurement should not solely fixate on upfront cost reduction/avoidance, but expand its perspective to support the wider strategic goals of fleet and look to long-term ROI. This will require tapping into the fleet industry market expertise and institutional knowledge that resides with the resident in-house fleet manager. Both fleet and procurement need to expand their collaboration to ensure the company is making the best asset acquisition choices and supplier selection.
Let me know what you think.
Originally posted on Automotive Fleet