Common Packages Common Packages
Although the UK fleet supply chain provides this enormous range of individual packages, they can generally be broken down into major product groups:
- "Fleet Management" - is the concentration of a range of vehicle-based skills into packages of 'expertise and assistance' which is sold to businesses using vehicles. There is no direct involvement of the funding for the vehicles, since the fleet management company manages various forms of expenditure on vehicles using its accumulated expertise and purchasing muscle, and passes these actual costs on to its clients, with the service fee.
- While the professional techniques of large-scale vehicle management are available externally, the risks always stay with the Fleet operator. So do many of the decisions rest there, as a factor of the risks. The statistics on the cost breakdown and the performance of the fleet are summarised on computer reports - often now available through on-line facilities. These reports need to be studied by the operator to ensure that the information being provided by the external Fleet Management company is actually applied to control and contain costs.
- Many Fleet Management companies provide other support such as customised (from templates) policies and handbooks.
- "Contract Hire" - this is a comprehensive package which outsources most of the operational aspects - and risks to the service provider. The process is based on a specialised form of lease funding, but with many additional facilities.
- Under Contract Hire the supplier will normally provide the complete interface with the whole of the motor industry: buying the car or van from preferred dealerships; projecting - and taking the risks and rewards of - future residual value; arranging the lease package; arranging the full maintenance package and budget for the contracted period and mileage; supplying Vehicle Excise Duty for the full period; and monitoring the performance of the vehicles with large-scale IT - all in exchange for a fixed rental.
- Contract terms are usually fixed (unlike Fleet Management) with 36 months/ 60,000 miles being one of the most common cycles. So long as the car or van is operated "reasonably" by the client (and the drivers) within the contracted terms; and the rentals are paid on time, the costs to the client are fixed, and all at the supplier's risk.
- If the contract terms are breached, then additional costs may become due. If the mileage limit is exceeded, an excess mileage charge (usually in pence-per-mile) may be applied. If the vehicle is returned before the end of the contract period, then an early termination charge may be imposed. A clear understanding of these potential costs is an essential prerequisite of signing up for such an agreement.
Both Fleet Management and Contract Hire can be taken as relatively basic packages relating only to the vehicles. However, they can also be extended into other areas such as fuel and accident management. The major difference in these packages is in flexibility versus fixed costs, and where the cost risks fall.
Generally there are few facilities to outsource just the necessary administration - but both Fleet Management and Contract Hire should include comprehensive administration processes to supply as much data as the fleet manager and senior management want, as a fundamental part of the whole package.
The ability to pass "fleet management" across to an external expert, who knows all the angles, is clearly attractive - at least in principle. However the outsourcing concept changes several things. Some of the risk, most of the administration, and virtually all of the management reporting are delegated to the outside Agency for the range of fleet areas handed over to them. Their highvolume efficiencies in all these areas should produce cost reductions. For most driver contact, there is a 24 hour access, able to deal direct with virtually all types of fleet enquiry. So far, so good.
These benefits are real enough. But they need to be considered along with other factors. The whole nature of "managing the fleet" shifts - and becomes "managing the contract". This requires very different skills, and these need to be understood. So instead of understanding how dealers work and how best to get the deal you need; or how to get a good price at auction, you need to understand the service delivery contract and how to ensure the service provider meets - or ideally exceeds - all the contracted terms and conditions of the deal.
And the one thing that cannot be allowed to happen is for the fleet operator to assume that signing any level of outsourcing deal simply gets rid of all the fleet problems. For sure it transfers the operational aspects to where they can be managed - but the overall responsibility always comes back in one way or another to the fleet operator.
One key area where this is essential is in the periodic reviews. Unless there are clear objectives set out first, and careful study of the review reports, the outsourcing agency can become judge, jury and executioner all in one. In the vast majority of cases, the suppliers are ethical and the risks of abuse or increasing costs are tiny. But this cannot be taken for granted.
An essential part of any good outsourcing arrangement is a set of clear service level agreements. Not only will these say what is to be done, when and for how much: they should also provide for some form of financial penalty if the supplier fails to meet them (under reasonable circumstances).There should also be a clear intention to seek "continuous improvement" so that there is no real opportunity for the service provider to rest on their laurels.