Fleet policy
Transactionally, sole supply is straightforward to administer and manage but almost always is not financially advantageous.
That’s the view of Ross Jackson, managing director of fleet management consultancy Fleet Operations, who says that the efficient management of a range of suppliers is the secret to cutting costs and not reliance on sole supply arrangements.
But with procurement departments increasingly involved in fleet purchasing decisions, it is often the company delivering the lowest price that comes with sole supply that will win the deal rather than the organisation offering the best value.
He explains: “A vehicle manufacturer may increase list prices by 4% and a contract hire company may pass that on entirely in a monthly rate increase. However, residual value movement and other factors may indicate that the real rate increase should only be 2.5%. As a result, fleet decision-makers who are less switched on will lose out with the supplier making additional profit.”
Pointing out that good account management is the key to managing fleet policy costs, Jackson says: “Fleets that opt for dual or multi-supply in terms of vehicles and other services limit the ability for suppliers to profiteer. As soon as one supplier becomes uncompetitive they will start to lose business.
“On average we have identified and delivered cost savings of around 10% by questioning the logic of relying on a sole supplier. No matter how tight a contract is worded, fleets that have sole supply arrangements are at the mercy of those providers.”
With regards to vehicle replacement strategy, four-year policies are increasingly becoming the norm, according to Jackson, with 100,000 miles remaining a not-to-be-crossed benchmark figure.
Recently, fleets have typically moved from a three to a four-year cycle and by switching have been able to achieve a saving in operating costs of 8-10% while also ensuring employees are able to continue to have the same choice of cars despite manufacturer price rises.
But, says Jackson: “What happens in three or four years’ time I don’t know. But currently it is a way of underpinning costs and keeping the cost base in the same place.”
He is also detecting a movement by fleets back towards a more restrictive wholelife cost-based vehicle choice list that often may extend to one volume and one prestige manufacturer as businesses seek to leverage discounts.
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