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Monthly Archives: September 2017

Are you getting the best possible value from your car fleet? (part 3) – 6 more essential questions

Are you getting the best possible value from your car fleet? (part 3) – 6 more essential questions

As we learnt from part 1 in this mini-series, knowledge imbalance is a common by-product of outsourcing a company car fleet. This series of blogs covers the questions that must be asked of the supply chain to ensure they are delivering best value.

Part 1 dealt with the issue of transparency and cost control, whilst part 2 covers the subject of policy and best practice/value.

The third and final series of questions concern the provision of management info and how it helps you make decisions.

  1. What is our trend on pence per mile per vehicle spend and why?

Your supplier should have the reporting infrastructure to advise on your pence per mile per vehicle spend. A more accurate picture can be built using a TCO approach, but this will require a more sophisticated reporting system. To correctly analyse your spend and make strategically sound decisions, it is essential that you have a clear and accurate understanding of your entire supply chain, and all its associated costs. Your suppliers should be able to provide you with a detailed analysis of your spending and explain its direction.

  1. How do our costs compare with those of our peer group?

Understanding your company car benefit program in the context of your peer group is essential for effective recruitment and retention. Company car benefit is a highly visible component of a reward package and is an effective recruitment tool. Your supplier should have appropriate data systems which can collate and analyse all your spend categories. They should then be able to lay this against that of your peer group and advise on your position within your sector. Having this intelligence ensures your company car benefit design is working to your advantage.

  1. What are the key risks for increased costs for the future?

Transparency and insight to your cost structure will help you understand your areas of risk going forward. Your suppliers should have the ability to categorise your spending and interrogate it thoroughly to analyse the potential ramifications of category cost increases. They should then offer strategic advice on how to avoid cost creep.

  1. Do we have total visibility on all areas of company car fleet spend? If not how do we incorporate the missing areas of spend. (e.g. capture trading up and trading down payments and voluntary flex payments or receipts)

Visibility on all areas of spend is essential for controlling the company car fleet supply chain. A generalist who has been allocated the responsibility of managing a businesses company car fleet may assume the only spend to manage is the monthly lease rental cost. Naturally this cost is important, but it is only one of many cost lines that need to be managed. If a company car benefit program is correctly managed, it is quite possible for it to have up to 60 cost lines allocated to over 15 cost categories. A cost centre such as Finance Lease may contain 10 different cost lines, only one of which relates to the monthly lease cost. Others will be:

  • Excess mileage charge
  • Early termination
  • Trade-down driver payment

Collating the detail and allocating it to the correct cost centre, is the only way that the total investment in the company car fleet can be understood. It is very important to maintain tight control on all the spend lines as they are so broad that they can easily be incorrectly allocated, undermining the actual true value of the investment. For example, if a policy allows an employee to trade-up their car for a more expensive model the system must ensure the appropriate contribution is collected and allocated. Whereas conversely if an employee wishes to trade-down, the correct payment must be made to that employee via payroll.

  1. Does our management information give us sufficient detail on our strengths, opportunities etc

Company car benefit design is a dynamic and complex process, with many variables at play. Consolidating these influences to help strategise about the direction the company car benefit should take is very important to maintaining its profile and share of voice within the business. Having the intelligence to help strategic decision-making is vital and having a management information system that can interrogate the company car program and translate its intricacies into discernable management information is of great value. Any fleet stakeholder should be able to use the management information system to outline a SWOT analysis of the program. It could uncover strengths such as advantageous fixed terms with manufacturers providing good value for money and contributing to accurate forecasting.

It could identify weaknesses such as high overall C02 emissions, contributing negatively to the companies ESOS position. Or it might expose threats such as a large amount of unplanned spend (accident damage, insurance claims, hire car costs etc) which, if unchallenged, could become an increasing cost burden.

It could also show opportunities by identifying how a series of smart policies could improve the perceived value of the company car selection policy without increasing cost: a valuable tool for recruitment and retention.

An increasing priority for many fleet stakeholders is having detailed management information, the raw data for which sits with the various suppliers. The challenge facing fleet owners, however, is creating systems to extract and analyse the data and provide sensible reporting that adds value to the decision making process. Such systems are only of value when they are external to the supply chain, as only then can the data be verified and independently analysed. Fleetworx provide this independent, accurate management information, ultimately helping the supply chain work better for everyone through a combination of data analytics, technology and expertise.

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Are you getting the best possible value from your car fleet? (part 2) – 5 more essential questions

Are you getting the best possible value from your car fleet? (part 2) – 5 more essential questions

As we learnt from part 1 in this mini-series, knowledge imbalance is a common by-product of outsourcing a company car fleet. When a company removes the internal fleet specialist and moves the responsibility to generalist stakeholders, this creates a power shift to the supply chain. As the generalists usually don’t have the benefit of previous fleet experience, the supply chain now knows more about the provision of car fleet than the company they supply. In order to redress that imbalance there are a number of questions that should be asked of the supply chain to ensure they are delivering best value. Part 1 dealt with the issue of transparency and cost control. Part 2 covers the subject of policy and best practice/value.

Remember these are all questions that you are perfectly entitled to ask.

  1. What areas of our policy would not be considered best practice?

It is important to ensure your company car benefit design is kept reflective of current market requirements. It also needs to be benchmarked to ensure it is providing a competitive framework within which to operate. Your supplier should be completely abreast of market needs and understand the compliance issues at stake. Requesting them to analyse your policies will focus attention on those areas that are potentially compromising the efficacy of the design.  

  1. Considering the mileage covered by our drivers, is our replacement strategy delivering the best value?

Many organisations operating a company car fleet do so with a replacement cycle of 3 years. This has been the norm for many years and is usually the expectation of the employee. The opportunity does exist, however, to realise some extra value from the investment in the company car fleet by reviewing the replacement cycle. Under a 3-year replacement cycle a driver with an average mileage of 20,000 miles per annum would be expected to have covered only around 60,000 miles, if not fewer, before they would change their vehicle. Indeed the average number of miles covered by business users is falling year on year, as factors such as the relative expense of travel, challenging traffic conditions and technological advances such as video conferencing all discourage travel. This reduction in the amount of miles travelled makes increasing the replacement cycle to 4 years much more attractive: less miles means less wear and tear on the vehicle. A 4-year replacement cycle is becoming increasingly popular within the UK and can deliver quite significant cost savings. Alternatively, this cost saving could be re-invested in the fleet to deliver a higher value car at the same base cost: a useful reward and retention tool in an increasingly competitive employment market. For example changing the replacement cycle from 3 to 4 years could upgrade a BMW 318i SE 4Dr Auto to a 320i SE 4Dr Auto for the same cost. This ebook is a great guide to the smart policies which can build on a replacement cycle change and deliver some real incremental change in the cars you can offer.

  1. Are the cars we are offering our employees appropriate for our industry, how do they compare with our peers and are they set at the right value?

This is a question to your suppliers that you should be asking regularly. Understanding your company car benefit in the context of your peer group is essential to developing a competitive employment proposition. Sectors such as Technology, Pharmaceuticals and Healthcare can all experience rapid growth and an increasingly competitive employment landscape. Niche providers in these sectors are known to pursue aggressive recruitment and retention models, and use company cars as an important ingredient in differentiating their position. Their company car offer will often sit in the higher percentile of the industry, making it very difficult for mid-market businesses to compete for key talent when their company car benefit is only of an average value. Therefore, knowing what you are competing against will give you the intelligence required to develop a company car benefit programme that is of value but can also act as a differentiator in an aggressive employment market. 

4.Are we using the best selection methodology to ensure that we are delivering a consistent benefit level whilst containing costs.

There are several selection methods for allocating company cars. It is very important that the chosen selection method reflects the objectives of the business and delivers vehicles which are right for your fleet. A common approach is using rental bands. These can be based on basic rental or effective rental, which includes non-recoverable VAT. Some companies also use a benchmarking approach, where a benchmark vehicle is chosen for each band and others cars within that band need to be similar. Although these allow a basic comparison of the vehicle cost and help create vehicle bands, they do not accurately illustrate the total costs of running that vehicle. An increasingly popular approach for vehicle selection is the Total Cost of Ownership (TCO) method. TCO ensures that all fixed and variable costs associated with that vehicle are considered when making the selection. Costs such as fuel, insurance ,non-recoverable VAT and employers NI are added to the rental costs to determine the total cost of running each vehicle. The addition of fuel to the calculation means TCO takes into account the fuel efficiency of the vehicle. Whilst the CO2 emissions drive the corporate and benefit-in-kind tax efficiency of the vehicle, making more fuel efficient cars an attractive option for both the company and the employee.

The nature of the TCO selection method, means the least costly vehicle choice is much easier to illustrate. This helps a company manage their fleet costs much more closely. It can also highlight fuel-efficient premium models as having a lower cost than averagely efficient volume models: allowing a more attractive company car policy at a lower cost to the company. 

  1. Is the car selection policy appropriate to brand image, whilst still allowing suitable reallocation?

Company car allocation policy can be varied, ranging from free choice to no choice. The most popular policy is usually somewhere in the middle ground, the offer of choice from a designated range. The benefit of this is that the cost can be controlled much more tightly and the TCO of each vehicle can be budgeted more effectively. A broad range can usually satisfy the aspirations of an employee, but offering a range that is too broad can lead to fewer manufacturer discounts, and consequently a more expensive program. It can also lead to re-allocation challenges when a free-choice vehicle or a vehicle chosen from the margins of a broad selection policy needs to be re-distributed among the team. Not everyone would be comfortable in a 2-seater sports vehicle, running 25mpg!

Correct policy construction is an essential part of negotiating an appropriate supply structure. Whilst challenging your supply chain may be necessary to ensure the policies are working to the advantage of you and your drivers. The next and final part of this mini-series will look at management information and how this helps with strategic choice.

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Are you getting the best possible value from your car fleet? (part 1) – 5 essential questions

Are you getting the best possible value from your car fleet? (part 1) – 5 essential questions

Appointing an external fleet management company to oversee car fleet is becoming an increasingly common practice. As businesses look to reduce headcount and out-source non-core activity, removing the fleet department and handing responsibility to HR, Procurement and/or Finance is a very familiar picture across UK and pan-European companies. A 2014 industry report found this practice in 40% of their surveyed companies. It also showed that growth in fleet size increases the likelihood of outsourcing, with 62% of companies with over 2000 vehicles being managed externally.

There are 5 unintended consequences of losing the internal specialist and outsourcing a company car fleet, see this whitepaper to learn more: one of which is knowledge imbalance. Once the strategic specialism of car fleet management is lost to the business it creates a knowledge void. The internal teams that take on responsibility for fleet are typically generalists who may not have the benefit of previous experience in fleet. Subsequently they become reliant on the supply chain to provide insight and strategic direction. This power shift results in the supply chain knowing more than the business they supply, and the potential for them to feed only sanitised information back to the client. Not an ideal situation for creating a challenging supply environment.

We have created a mini-series of articles highlighting the questions to be asked of the supply chain in order to redress the knowledge imbalance.

This first article is looking at the area of transparency and cost control. The next article will look at policy and best practice/value and the third will cover management information.

So here we go. Remember these are questions that you have every right to ask your leasing company

  1. Where are the greatest levels of unplanned, in-life spend within our car fleet supply chain?

If it remains unchecked, in-life spend can drastically increase the overall cost of your company car program. A company car programme can expect to incur 5% of the annual driver cost in unplanned , in-life costs. Consequently a company running 1500 cars at an average driver cost of £9,000 pa can expect to be faced with an additional £675,000. Unplanned spend can come from accident costs, repair and maintenance costs and end-of-contract charges and can add significantly to the total cost of ownership. The supply chain should have systems to monitor these areas of spend and offer advice on how to reduce their impact. For example, experience shows that drivers who take the risk on damage liability show a reduction of low-speed impact incidents of up to 70%, subsequently reducing the amount of insurance and repair costs.

  1. Where are your areas of margin in the products you supply our business?

If you are employing an outsourced fleet provider you may be surprised to learn that about only 20% of their revenue is from the management fee they charge you. The rest consists of opaque margins and rebates. These revenues are broad and varied and consist of, among others, interest margin, contract adjustment margin, maintenance network rebates, repair network rebates. If your contract has been written with transparency in mind, these revenues will be visible and accountable. As the client you have every right to challenge and negotiate the value of these margins and decide who takes the benefit.

  1. What discounts are you getting from manufacturers and how are they built into our costs?

Suppliers who take a partnership approach to your relationship should be willing to share information about manufacturer discounts. Manufacturer discounts can be substantial and they should be made transparent to all stakeholders. Suppliers should be asked how the discounts are awarded and how they are distributed between themselves and their clients.

  1. How does our maintenance spend compare with the maintenance spend in the budgets?

This question is vital for setting and managing accurate budgets. Suppliers should have the ability to report on different spend categories, highlighting overspends and re-directing savings. Understanding the maintenance spend category helps advise on the strategic direction of maintenance contracts and supports effective decision-making.

  1. How much are we paying in end-of-contract charges?

End of contract charges is a spend category which will often go unobserved. Charges are frequently applied without being challenged and can lead to unplanned costs in tens of thousands of pounds. End-of-contract charges are made up of excess mileage claims, damage costs and late-hire charges. Close interrogation of all invoices related to these charges should be a standard and your supplier should have systems in place to deal with and report on these costs.

Dealing with the knowledge imbalance provides valuable intelligence that the maturing relationship with the supplier has gradually eroded. Recapturing some of that knowledge will help foster a challenging supply environment, drive efficiencies and avoid cost. Next time we will look at questions about policy and best practice; making sure the policies are working to the advantage of you and your drivers.

For an informal discussion about how you can get the best possible value from your car fleet drop us an email or give us a call. 

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