The outsourcing of fleet functions has increased in recent years, but what can be outsourced and how do you get the most out of suppliers?
Outsourcing is often viewed by fleet managers as a double-edged sword.
On one hand, it can have a positive impact by freeing them up from performing complicated, time-consuming tasks to allow them to concentrate on other, often more strategic, areas.
On the other, however, in recent times many dedicated fleet managers have lost their jobs when their employer has decided to completely outsource the fleet function to a third party, moving responsibility within the company to either procurement or perhaps HR.
So how should a fleet manager view outsourcing – pro or anti? “They should accept it as helping them to do their role better,” says Richard Hipkiss, managing director of Fleet Operations. “But I guess the uncertainty is in large organisations where you have got half-a-dozen people in a fleet team managed by a fleet manager.
“If you take half-a-dozen people away and outsource the administration, then clearly there would be an element of nervousness about where the business is going next.
“So, although it is understandable that fleet managers potentially regard it as a threat, actually from a fleet management perspective, they should see it as an avenue to really drive their fleet forward. This is because they are outsourcing to a business and a team of experts that essentially do the administration element that they may not want to do, anyway.”
In this special guide we look at why and what functions fleets can outsource, and how they can get the best out of their suppliers. So, first we ask ...
Why do fleets outsource?
Outsourcing can address a mixture of objectives such as reduction of operational costs, increasing company focus on core activities, utilising and maximising expert external resources, freeing internal resources for other purposes and streamlining and increasing efficiency of fleet processes, says Shaun Sadlier, head of consulting at Arval (pictured).
“If there are clear reasons and objectives to outsource the fleet operation, then the risk is that, by not outsourcing, those company objectives will not be achieved,” he adds.
TCH Leasing has found that the two main reasons fleets outsource functions are shortfalls in expertise and/or headcount, says Ken Buckley, head of sales at the company.
“I’ve been in the industry for 40-odd years and when I started, responsibility for the fleet was allocated to a fleet manager and it was their primary function,” he says.
“Nowadays, there are fewer fleet managers around and in most cases fleets are run by one or two people as part of a wider job. So, generally, I find the expertise isn’t there across the board. That isn’t a criticism, that’s just a fact.”
Many day-to-day tasks involving fleets are also time-consuming and becoming more complicated, he says, and fleet departments frequently do not have the manpower to perform them effectively.
Hipkiss adds: “Often the employee with responsibility for fleet may be somebody who has come in through a procurement channel, at which point they will want the day-to-day administration and so on to be outsourced.”
Outsourcing to specialists with expertise and experience of the market also gives fleets access to “industry best practice and cutting-edge technology”, says Rob Wentworth-James, corporate sales director at Fleet Alliance.
“The increasing complexity of modern fleet management with the need for on-demand and bespoke systems, real-time reporting, carbon footprint evaluation, fleet analysis, driver support, licence checking, accident and risk management and other related issues means that it has become a role for the expert rather than the part-timer,” he adds.
“This enables the business to benefit from the outsourcing company’s economies of scale and investment in highly-trained staff while it concentrates on core business
There are risks, according to fleet managers with outsourcing experience, particularly if opting for a leasing partner.
The main ones are price and cost: lease prices could edge up if there is no internal manager studying them, end-of-lease costs could be inflated if not challenged and other third party costs such as maintenance and repair bills could escalate if not tightly controlled.
As one Fleet News Award-winning fleet manager said: “Outsourcing partners won’t look after the pennies like a fleet manager will.”
Nevertheless, one trend Hipkiss has seen in recent years is an increase in the number of small- to medium-sized enterprises (SMEs) outsourcing fleet management.
Often they have someone trying to manage the fleet in what could be 10% or 20% of their role.
“They are not a fleet specialist,” Hipkiss says. “They may be an HR manager, or PA to an MD, and, as they are not running a few hundred vehicles-plus, that company wouldn’t have the budget or requirement for a dedicated fleet manager, so they want to outsource to a specialist.”
An example of this is uPVC window, door and conservatory manufacturer and distributor Eurocell Building Plastics.
It had traditionally managed its fleet internally, but as it grew to its current size – 200 cars and 200 Mercedes-Benz vans – it felt the management of its vehicles had become too time-consuming and too great a drain on resources.
“At that point we decided to call in an outsource specialist,” says Adam Morey, procurement manager at Eurocell. It appointed Fleet Alliance.
Other fleets outsource through changing circumstances, whether that’s prompted by the retirement of an existing fleet manager, the re-direction of their duties, or redundancies.
Midlands-based social housing provider Longhurst Housing, for example, decided to outsource the management of its vehicles after fleet manager, Paula Longhurst, switched to part-time working.
Is outsourcing right for your fleet?
Fleet management and leasing companies will obviously extol the benefits of outsourcing, but there are many organisations which find they operate more efficiently by keeping all fleet functions in-house.
Construction group Rydon, for example, does not outsource anything because “we know how the business would like to operate and I don’t think a third party could do that to the level we do”, says fleet manager Simon Watts.
“We take the call if something goes wrong any time day or night. Ultimately we are a service provider to our own business; our staff are our customers as well as our colleagues.”
Rydon’s fleet team of three is positioned within the HR department and Watts reports to the HR director “so we are close to the top,” he says.
“We’ve got a voice that’s heard at a very high level which is important as the fleet is the second biggest cost after salaries,” adds Watts.
Gareth Wilsher, fleet manager at AT&T, agrees the increased knowledge of internal and future requirements of a business an in-house operator has, compared to an outsourced supplier, gives their employer a huge advantage.
“An outsourced company will not have full knowledge of the company culture to be able to manage the fleet in the right way and in the direction that the company wants to go,” he says.
However, John Kelly, managing director of CLM Fleet Management, says one of the key risks of keeping fleet management processes in-house is the fast-moving pace of change within the UK fleet market and the risk of becoming outdated very quickly.
“By retaining the fleet management function in-house, this increases the chance of missing out on the latest changes in the marketplace in terms of new vehicles, the latest legislation, new technologies and new working practices,” he says, although this overlooks the support fleet decision-makers get from trade associations such as ACFO, trade publications such as Fleet News and their leasing partners. Or, indeed, their own research given that it’s their job.
What can you outsource?
“There are many fleet-related functions that can successfully be outsourced to a fleet management specialist, including of course the whole fleet management function, in order to cut costs, create efficiencies, streamline operations and bring in new expertise,” says Fleet Alliance’s Wentworth-James.
These include vehicle sourcing and purchasing, funding management, maintenance (either scheduled or pay-as-you-go), all fleet admin, legislative compliance such as P11D and P46 reporting, fuel management including the provision of fuel cards, accident management and, for fleets which outright purchase their vehicles, vehicle disposal.
“There are also a number of driver services which can be outsourced including licence checking, mileage recording and grey fleet management for employees who use their own cars on company business,” adds Kelly.
Maintenance is one of the most popular functions to outsource because companies can find it a very difficult area, says Buckley of TCH Leasing.
“Businesses sometimes just want to outsource the maintenance control because it’s probably partly done by somebody in accounts and partly done by somebody who orders the vehicles, neither of whom has got any idea within reason what they should be paying for labour or parts,” he adds. “They don’t know whether they should have any discount, what’s covered by the warranty and what’s goodwill and what isn’t.
“If they outsource maintenance, then immediately that fleet gets some professional eyes working on their behalf to manage their costs and make sure they are only paying what they should be.”
How can you decide what you should outsource?
A fleet manager should clearly set out their objectives to help identify which areas of vehicle operation they should look to outsource, says Arval’s Sadlier.
“Importantly, if there are any parts of the process that they would like to keep in-house, then they should challenge themselves as to whether this supports their overall objectives,” he says.
“Keeping some processes in-house may, inadvertently, build in a layer of complexity for them and their supplier.”
Sadlier says a full review should be undertaken for all fleet processes, ensuring all touchpoints are included.
This will mean the involvement of departments such as finance, HR, insurance and facilities, alongside the fleet management team and its drivers.
“Companies should consider the time taken on fleet matters per day, or per week, for all these touchpoints across all fleet processes to provide a monetary cost and the level, in hours or days, of resource involved,” he adds.
Greentomatocars wanted to improve its procedures in the event of a collision, so appointed accident management company Kindertons.
“If a driver has an accident, rather than go through their driver handbook to find out who to call, they can now click on a smartphone app,” says James Rowe, finance director and head of fleet for the private hire company.
“This will alert Kindertons to the fact that something has happened, it will then call the driver and talk them through what to do. This helps us look after the driver a little bit more and also reduces our downtime by allowing Kindertons to manage the process and sort out a replacement car as soon as possible.”
What is the likely return on investment?
Kelly says the return on investment (ROI) can vary from 2:1 to as much as 8:1 or even 10:1 on a three- or four-year contract, dependent on the fleet and the circumstances involved.
This can be calculated by benchmarking and monitoring all spend, from the biggest costs such as vehicle leasing and fuel, to the smallest.
“Only by accurately measuring the existing spend will it be possible to quantify any cost savings that outsourcing can generate,” adds Kelly. “The old adage of ‘if you can’t measure it, you can’t manage it’ certainly applies here.”
ROI from any outsource agreement is usually calculated by the ratio of outsourcing costs to cost savings generated across the operation of the fleet, including fleet funding, maintenance and associated services such as fuel and accident management, says Wentworth-James.
“However, other less easily measurable returns could include generating a higher profile for the business, improving credibility, better processing capability, fewer errors or greater speed to market,” he says.
Sadlier adds: “Outsourcing is not just about cutting costs and saving money. It is also about how to do things more quickly and more efficiently, maximising internal resources to add value and concentrate on core activities, and having access to qualified fleet experts and leading-edge processes.
“By considering the above and their original objectives, the company can determine whether outsourcing brings the required benefits that were originally set out.”
How can you manage suppliers?
Fleets should put in place specific service level agreements (SLAs) and meaningful and measurable key performance indicators (KPIs) to counter any concerns of handing over key business functions, says Wentworth-James of Fleet Alliance. “An SLA can be used in any supplier contract where a business’s ability to meet its customer requirements is dependent on the supplier,” he adds.
“They cover all aspects of the outsourced work. They define the service that the supplier must provide, the level of service to be delivered and set out responsibilities and priorities.”
The SLAs will differ dependent on what functions are outsourced. For example, Hipkiss says that if a fleet outsources accident management, then it may be looking at KPIs surrounding vehicle off-road time, repair time and labour rates.
Short-term rental KPIs would cover areas such as availability of vehicles, he adds.
“Fleet functions are very different and very complex, so you could end up with 10 categories outsourced with an SLA that technically applies to all, which is why simplicity around it is key,” adds Hipkiss.
Wentworth-James says SLAs should be well defined and typically cover:
■ The service provided
■ The standards of service
■ The delivery timetable
■ Responsibilities of supplier and customer
■ Provisions for legal and regulatory compliance
■ Mechanisms for monitoring and reporting of service
■ Payment terms
■ How disputes will be resolved, between a fleet, the supplier and any managed suppliers
■ Confidentiality and non-disclosure provisions
■ Termination conditions
TCH Leasing’s Buckley adds: “The reason a client has outsourced is invariably because they don’t have the manpower or internal expertise to manage a process effectively.
“Likewise, if you make the SLAs too complicated, they won’t have the manpower internally to sit and spend hours going through them.
“It should be an overview: the stuff that really matters. I would say that if you’ve got 10-15 key things on there, then that’ll be more than enough.”
Buckley feels that as well as regular reports, face-to-face meetings are vital to get the most out of a fleet-outsourcing supplier partnership.
“They are absolutely essential,” he says. “We would recommend they take place at least every three months.”
Computacenter outsources a number of fleet functions to its leasing company, Lex Autolease, and they make regular calls and hold frequent meetings.
“We keep a very clear watch on them,” says Computacenter deputy financial controller Keith Cook. “I have two excellent fleet administrators keeping an eye on our provider which reduces the possibility of it running away with costs.”
Each quarter, every contract is independently benchmarked by a fleet consultant to make sure it is market competitive.
“If you’ve got sole supply, I think having someone independently benchmark is absolutely of value,” says Cook.
What happens if SLAs aren’t met?
“If service providers fail to meet agreed levels of service, SLAs should provide for some form of compensation,” says Wentworth-James.
“The outsource agreement should identify the most critical components of the deal and build periodic performance reviews into the SLA.”
Building penalty clauses into an outsourcing agreement is an effective way to compensate fleets for service which falls below that included in the SLAs, says Buckley.
“If the performance is affecting our clients’ customers, then, by rights, there should be penalty clauses,” he says.
“I don’t think there is much value in putting penalty clauses in for the sake of it. They should be for a very good reason.
“If their business is having some deterioration because of the level of services we are providing – because perhaps our suppliers have let us down – a penalty is more than acceptable in my eyes.
“That’s a motivator for us to make sure it doesn’t happen, or when it does happen, and we have no control over it, we make sure that it’s put right as quickly as possible.
“You can’t just pay lip service to a problem when you are paying penalty clauses.”