Fleet management - The overwhelming trend among both small and large companies is towards greater external management of fleets, finds Vaughan Freeman.
We've all done it - dashed back to a multi-storey the size of Swindon, only to realise you haven't a clue where you parked your car. Then you have to traipse through car-park levels one to eight, wishing for a chauffeur, a personal-car manager, anyone, to put you right. If managing one car is a problem, pity the company that manages thousands - and misplaces dozens at a time.
David Knight, managing director of PHH Vehicle Management Services, Britain's biggest company-vehicle fleet-management specialist, is unruffled by such apparent carelessness: 'From time to time when we take on a really big fleet, there is difficulty in actually arriving at the right figure for the whole fleet. Often the client simply will not know how many vehicles they should have, and you end up with a few more or a few less than expected. Sometimes it is never satisfactorily sorted out.' At least Knight knows the people in the fleets he manages have a right to be behind the wheel. Brian Scholey of KPMG Peat Marwick recently told an Institute of Directors conference on company-car outsourcing: 'One company was issuing cars without even checking licences. One driver didn't even have a licence, another hadn't driven since passing his test seven years before. Most companies do not have the resources to deal with these problems.' Which is why putting out a contract on your fleet might sound like Hollywood gangster-speak, but it is catching on and 'outsource' is this year's buzz word in the company-car industry.
The Hertz Leasing company car report shows 44% of companies include contract hire, in which the fleet is administered by the contract hire company, among the methods by which they acquire cars, compared with 35% two years ago.
Little and large firms are following the outsourcing path. Peter Cooke, director for the Centre for Automotive Management Research at Henley Management College, reports in his 'Vision of Fleet' review for Vauxhall Motors (May 1994) that: 'Larger companies are taking on fleet management contracts to have their vehicles managed and so avoid the need to recruit staff for non-core business. At the other end of the spectrum, medium and smaller companies are still actively moving into contract hire to be able to use the extra credit line and to free staff for other duties.' Len Clayton, general manager of Swan National Leasing, says his company's contract-hire business is up 12%, adding: 'Companies are realising that buying a car and running it as part of a fleet is a professional job and, as with many things, they are outsourcing their vehicle supply.' This year's Monks Partnership/Lease Plan UK Company Car Policy UK survey of 1,717 companies illustrates the move away from in-house management of direct purchased fleets. The survey found that, of firms planning to change their company-car strategy in 1994, two were moving to contract purchase, five to contract hire, two to leasing, and only three going the other way back to outright purchase.
Knight says: 'The main reasons for outsourcing are two-fold: to reduce the head count and to reduce operating costs. Within the past few years, the overriding trend has been a move towards greater external management of fleets. This frees businesses of costly administration and other distractions, and allows them to concentrate on their core activities.' Outsourcing can include anything from engaging external experts in the field to initial purchase and/or lease of your vehicles, through to day-to-day management, to replacement of batteries, tyres and exhausts, even arranging the fuel.
It is not a corporate cure-all, says David Atkins of Monks Partnership: 'Before a company goes for outsourcing, it has to get its policy right. If you have got a mess in your own organisation don't expect somebody else to be able to come in and sort it out for you. You have got to hand over something that is well managed and well worked out.
'We believe the primary drive for many firms to outsource is the head count. In general, particularly in personnel and human resource departments, keeping the number of heads down to a reasonable size is very important, and fleet management is one area where staff can be reduced.' The main savings in outsourcing are in administration, though a company that has traditionally bought its company fleet from Fred's garage down the road can also benefit from the bulk-buying power of an outsource expert. Motor manufacturers selling direct to big fleet firms regularly grant discounts of up to 30%, a level no small dealer can be expected to match consistently.
PHH Vehicle Management Services reports substantial savings for a major food industry client with a fleet of 250 vehicles. During 1993, taking fleet management fees into account, the client was saved £60,000 in fleet maintenance costs, more than half of which, £33,570, was saved on invoice processing and administration costs.
Handing over the corporate car keys willy-nilly does not guarantee Utopia though. The wrong long-term arrangement can lose the company crucial control over a large element of its operation, with dire consequences. A firm used to doing everything in-house should never contract out its fleet as a first step into outsourcing, warns Colin Grant-Wilson, managing director of Lease Plan UK.
'From the company standpoint,' says Grant-Wilson, 'there has to be an outsourcing culture in areas such as printing, information technology or catering. It is very high risk to go into outsourcing for the first time with the company car.
'The customer must also look for a supplier with a long-term commitment to business, and a history of working with relationships, rather than transactions. Outsourcing is the antithesis of the transaction mentality, of getting the Mondeo for the best daily rate, of price, price, price.'
To consider outsourcing its fleet, he suggests that a firm set up a study team drawn from the firm's existing fleet management, personnel, finance and purchasing departments, and perhaps also call in an independent consultant.
Three main areas should be considered, he believes: the strategic decisions (which cars to run, diesel or petrol, and which employees get which vehicles); day-to-day operations (accident management, insurance, administration, fleet analysis); and audit and control (review of suppliers, procurement).
'I would say categorically that no company should outsource choice of policy, procurement or supplier,' warns Grant-Wilson. 'Also, audit and control has got to be retained by the customer. You can outsource everything thereafter.
'The real heart of outsourcing is not the strategic considerations, but the day-to-day operations, accident management, fuel cards, pool cars, driver records, tax reporting, budget input, fleet analysis, invoicing and cost allocation, vehicle allocation and administration.' Every firm, says PHH's Knight, can and does take a different route to outsourcing: 'There are several transitionary routes to true outsourcing. Some companies operate implants, with the external specialist represented by an on-site employee responsible for supervising fleet-management details. Others allow their drivers to deal directly with the fleet management or contract hire company, to source the vehicles of their choice within agreed parameters. True outsourcing, however, takes these processes a stage further with all fleet operations being managed externally.' There are perceived drawbacks to outsourcing says Knight: 'There is a fear of loss of control, that it is difficult for an outsider to be able to relate to your staff drivers, and the worry that no outsider can know the needs of the company as well as those on the inside.' It means, he says, that a careful and considered approach to outsourcing is vital: with more and more businesses opting for external feet management in the future, one adage should never be forgotten: 'Buyer, beware.'.