Although many fleets are broadly managed in a similar fashion, and encounter the same day-to-day issues, each fleet manager will no doubt appreciate that their fleet is unique in some way. Some organisations manage everything in-house, while others outsource almost every aspect of the fleet operation to external contractors or service providers.
Although not all fleet managers are directly involved in deciding which operational methods to adopt, it is of course vital that they have an understanding of the underlying principles involved.
The basics of fleet operations
Firstly, it is necessary to understand what the fleet is for. For a small number of organisations the fleet is the core of the business, for example couriers, chauffeur services, or daily rentals companies. For others, the fleet exists almost purely to enhance remuneration, a way to provide a form of non-cash payment, with virtually no business requirement to use the car at all.
However, for the majority of businesses the fleet is used to meet both these needs. Essentially it is an easy way to provide mobility for day-to-day business travel, conveniently packaged to meet the private motoring needs of the employee, and members of their household.
Knowing why an organisation has decided to run a fleet helps the fleet manager to focus on the best way to manage the fleet. But whatever the reasons, these should include areas such as:
- Service and maintenance;
- Fuel; and
Doing it yourself
Many fleets still do almost everything in-house, working to a prescribed fleet policy and processes agreed with management and HR, for which the fleet manager should have overall responsibility. Within the scope of their responsibility the fleet manager may have to liaise regularly with other department heads, such as purchasing, finance or HR to ensure the smooth operation of the fleet, which should work broadly as follows:
- the fleet manager ensures employees have a clearly defined transport policy and that it is fully understood and complied with;
- the fleet manager or purchasing manager identifies the vehicles required, arranges the acquisition and ensures the cash or finance is available to pay for them;
- the business insures the vehicles;
- the employer or employee makes the necessary arrangements to have the vehicles maintained;
- the business ensures the necessary maintenance is carried out on each vehicle;
- the business keeps the Vehicle Excise Duty up to date.
A process is agreed for the return or exchange of a car by the employee at the end of the agreed period and its disposal by the employer, who would also ensure processes are in place to deal with unforeseen circumstances such as illness or accident.
Most of these actions require little more than a reasonable amount of common sense and basic business acumen to deal with. Experience soon builds, but it is important that the necessary tasks are completed as agreed. Establishing and subsequently following the correct systems and processes when initially taking responsibility for the running of a fleet, should ensure the smooth management of a fleet.
If an employer does not meet its obligation to provide a duty of care, by for instance not ensuring a vehicle has the agreed regular maintenance, it may be held liable if that vehicle is involved in a road traffic accident. Or if the lead time for the replacement of a car is not built into the process it may cause complications for both the company and the driver.
Where large numbers of vehicles are involved, it will almost certainly be economically viable to employ someone with appropriate skills as a ‘fleet manager’. For an owned fleet some technical/ mechanical knowledge is useful, though not essential. Good project management skills, people skills, organisational, numeracy and IT skills are essential for a good fleet manager with responsibility for running a fleet in-house.
The fleet manager should consider that they may be tasked with communicating with a board of directors, a group of employees, manufacturer/main dealer representatives and the finance director in any one day. They may for example hold regular meetings with other department heads to ensure that opportunities to perhaps move towards a more fuel-efficient fleet. Whilst on everyone’s agenda information regarding drivers’ who consistently fail to reach reasonable fuel consumption levels should be shared. These may not be matters that the fleet manager can influence or change but an awareness at least provides the opportunity to be proactive.
Bodies like ACFO (the Association of Car Fleet Operators:www.acfo.org) offer networking opportunities so that groups of people performing a similar task, such as fleet managers can come together and share experience and techniques in a non-competitive setting. Many dealers also offer the occasional get-together for groups of customers (often at the launch of a new model) and these offer similar networking opportunities.
Outsourcing Outsourcing leapt to prominence in the fleet market in the early 90s, but, in reality, the term ‘outsourcing’ refers to a philosophy which has been used by fleet managers for many different parts of the fleet operation, for a long time.
The concept is simple. The company/ fleet operator, passes most or all responsibility for the running of the fleet to an external supplier which has the expertise and resource to deal with it. In return the party who provides the outsourcing will charge a set fee which reflects all the probable costs, or a management-only service where the charges are based on the actual costs incurred by the specialist supplier, plus their fee.
Maintenance can be handled by external service providers, who are generally specialist businesses, employing technically qualified maintenance engineers. Economies of scale and the exercise of purchasing power can help to bring down the costs of maintenance including replacement tyres, roadside breakdown services and other functions that are less frequently required, and which may therefore be outside the scope of the in-house manager of a smaller fleet. Generally work is controlled by purchase orders, and invoices.
Accident repairs can similarly be outsourced to specialist operators who focus on just this function – and have the time and resources to act efficiently.
Although there are many variations to suit individual needs, management packages can generally be broken down into major product groups:
Fleet Management: This is the concentration of a range of vehicle-based skills into various packages of ‘expertise and assistance’. Specialist fleet management companies offer comprehensive services to fleet operators, ranging from facilitating the acquisition to facilitating the disposal of vehicles.
Fleet management companies do not offer finance directly, nor do they accept any of the risks, such as the projected residual value; this would still rest with the company/fleet operator as would any major decisions regarding the fleet. The fleet management company would however offer their advice and expertise as and when required.
Contract Hire: This is a comprehensive finance package via which most of the operational aspects and risks are outsourced to an external specialist provider. The process is based on an operating lease, but with many additional facilities.
Under Contract Hire the supplier will normally provide a complete management service, including the acquisition, service and disposal of all vehicles for a fixed rental.
Contract terms are usually for fixed periods and agreed mileages. As long as the vehicle is operated ‘reasonably’ by the company and its employees within the contracted terms; and the rentals are paid on time, the costs to the company are fixed, and all the risks rest with the supplier.
If the contract terms are breached additional costs may become due. For instance, if the mileage limit is exceeded, an excess mileage charge (usually in pence-per-mile) may be applied, or if the vehicle is returned before the end of the contract period an early termination charge may be imposed. A clear understanding of these potential costs is an essential pre-requisite of entering into a contract hire (or any funding) agreement.
The major difference in these packages is in the flexibility versus fixed costs, and where the risks lie.
Fleet Management and Contract Hire should both include comprehensive administration, processes which should also include the regular supply of data to the fleet operator. Outsourcing using either of these methods may save costs as these outside organisations will already have the systems and experience in place to run and maintain a fleet smoothly and efficiently. An essential part of any good outsourcing arrangement is a set of clear service level agreements. These should detail the contractual obligations of the fleet manager and should also provide for some form of financial penalty should the fleet manager fail to meet them, under reasonable circumstances.
There should also be a clear intention by the service provider to seek ‘continuous improvement’.
The fleet operator though cannot assume that signing any level of outsourcing agreement negates of all their fleet responsibility. It may transfer the operational running of the fleet but the overall responsibility always comes back to the fleet operator.
Before making a decision about the placement of fleet management or any service provision, detailed cost analysis should be carried out for each option. It is essential that all costs for each option are included in any comparison, and that costs are measured and projected as accurately as possible to avoid making the wrong decision and incurring potentially excessive costs.
- In-house: It is vital to include all the relevant and potential costs related to managing a fleet in-house. Among other costs a realistic assessment of the labour costs for the administration involved is crucial, as this could be significant.
- Outsourcing: For calculating the total cost of outsourcing the management of a fleet the fleet operator must ensure all costs are included, and be fully aware of any potential hidden costs. A true comparison of the options available must include any ‘small print’ costs, and should also take into account any financial penalties for which the fleet manager should be liable in the event of the terms or conditions of the contract or service level agreement being breached.
At first glance, outsourcing may seem the more expensive option, but this may not be the case and it is important for the fleet operator to include all potential in-house costs in order to reach the right decision. It should also be taken into account that the right decision may be that the cheaper option is not the best option for the business.