How to establish a sustainable cost control strategy for vehicle fleets

By Richard Hipkiss, Managing Director, Fleet Operations
Published: 21 July 2017

Finance professionals need little reminder of the impact the corporate vehicle fleet can have on the business bottom line.

Cost control, however, can present a significant challenge. Procurement and operational strategies must successfully balance cost management with efficient business operations and service delivery.

Invariably, this can be thwarted by both a lack of joined-up decision-making and a lack of expertise across critical fleet areas. Furthermore, this situation is being exacerbated by the gradual erosion of the traditional role of the fleet manager. Across UK businesses, we’re increasingly seeing the role subsumed under the disparate remits of finance, procurement, human resources and operations.

As a consequence, financial prudence will frequently give way to convenience, posturing as pragmatism. Vehicle acquisition, for example, may typically be undertaken through a sole-supply contract hire agreement under which core services, from maintenance and fuel management to accident and risk management, are wrapped up together.

This makes it difficult to identify and optimise cost savings. The visibility that comes with the management of direct contracts with all suppliers enables benchmarking to take place for every item of spend. On a typical four-year lease, for example, an average of more than £1,000 per vehicle can be saved through multi-supplier procurement.

Investing in the requisite, internal or external, resource can consequently result in significant returns. Furthermore, where the process is outsourced, organisations can benefit from the same minimal resource demands they get with a sole supplier – and in some cases, enjoy an ROI of as high as eight-to-one.

Working with a fleet partner
The considerable financial benefits that can be realised by outsourcing fleet services are drawn into particularly sharp focus for those businesses that lack specialist expertise.

The first step in establishing the outsourcing business case, however, is to determine the extent to which their in-house expertise, and resources, are insufficient to effectively manage the key areas of procurement, operation, financial reporting and wider administration.

It should be remembered that a business need not outsource the whole fleet operation to realise the strategic benefit of outsourced services. It is entirely dependent upon the individual business need – and companies can be selective. The areas that can be outsourced cover a wide range of different skill sets, from procurement and vehicle selection to driver support, risk and accident management.

In many cases, companies may have a strong fleet policy providing for good vehicle choice and low whole-life costs, but will be inadequately applying the policy with a lack of control in some of the key areas such as fuel spend, cost approvals, expense processes and risk management. In many cases, finance departments will not be best-placed to step in and effectively oversee this specialist and labour-intensive task.

Furthermore, in an era of ‘big data’, the quantities of information produced by a vehicle fleet can be considerable. This includes data from risk assessments, driver and vehicle checks, insurance, accident management and telematics. These wide-ranging data streams feed into different aspects of a business and have significant potential for delivering meaningful change, whether in reducing costs, improving risk profile or boosting productivity.

Individual driver reports, for example, may be helpful to team managers, who can use them to address specific areas of concern with employees. Department heads, meanwhile, will only need to see an overview of those data streams that are relevant to them – finance will want to see trends in areas such as fuel spend or total cost of ownership (TCO).

A knowledgeable and experienced fleet partner should be able to provide a ‘best in class’ service for every area of the fleet and take ownership of all resource-intensive administration. With visibility of cost and performance data, meaningful KPIs can be set, informed, cost control procedures can be initiated and strategic decisions taken to help drive bottom line savings.

From the biggest costs, such as vehicle leasing, to smaller costs, such as spend on replacement tyres, all spend should be benchmarked and monitored. Service levels and KPIs can then be effectively built around service delivery to drivers and stakeholders.

Taking strategic control of fleet operations today will ultimately unlock the door to sustainable cost control and sound financial risk management to help protect tomorrow’s bottom line.