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Category Archives: Supply Chain

What Can Be Negotiated in Car Fleet Sourcing Deals?

What Can Be Negotiated in Car Fleet Sourcing Deals?

Car fleet sourcing projects can become complex, lengthy and relatively challenging. To justify the effort it is essential that the outcome delivers a favourable return – the best possible return with no stone left unnegotiated, as it were!

When considering a sourcing project it is not entirely apparent how much opportunity for negotiation there will be. Viewing a project with a birds eye view does not suggest many areas beyond the normal, but when contracts are reviewed in granular detail it is very surprising how many opportunities there actually are.

We took the opportunity to look deep into the costing structure of a major client who operated over 2000 vehicles across 20 countries. It became apparent that almost 1 in every 4 euros spent on the fleet was outside of the original contract terms. It is an understandable misconception that fleet lessors revenue model is driven by their management fee and the margin they apply on the interest rate. However, there are 4 other cost categories used by lessors to generate significant levels of income; all of which can be negotiated with the right level of skill and knowledge.

  1. Network Rebates

This is a key area for negotiation as, unless monitoring systems are introduced, the difference between the actual spend and the collected budget is generally left unsupervised. It should be assumed that most maintenance contracts end in a profit, which can be returned, shared or, most likely, retained by the lessor.

These rebates can cover:

  • Repair maintenance
  • Maintenance network
  • Tyres and glass
  • Movement, storage and refurbishment.

This category carries a number of risks for the client:

  • Budget maintenance costs can be overestimated, so any surplus not returned can result in excessive costs
  • Even if there is a share or return of this surplus it may not reflect the true cost if supply chain rebates are not factored in.

For recommended interventions see the Fleetworx EBook – Fleet Contracts: Avoiding Commercial Trapdoors.

  1. Contract Deviation

If a vehicle deviates from its contracted mileage and/or term it can trigger a series of contact adjustments, often with punitive charges.

This category carries a number of risks for the supplier

  • Contact resets triggered by a vehicle running outside its pre-set mileage/term gives the supplier an opportunity to raise additional revenue through unfair recalculation.
  • It is difficult to measure and challenge pricing unless a clearly defined, auditable mechanism is in place
  • A poorly constructed excess mileage agreement can be expensive
  • Proposed agreements are nearly always stacked in favour on the lessor

For recommended interventions see Fleet Contracts: Avoiding Commercial Trapdoors.

  1. Gain on Sale

Vehicle rentals are calculated using a combination of residual value (RV) and capital cost. At term end the vehicle is sold and can generate profit for the lessor if the RV has been underestimated.

This category carries a number of risks for the supplier:

  • Lessor sets the RV at an artificially high level to reduce the rental and win business
  • Lessor could make significant profit on vehicle resale unless this is shared or returned to the client
  • Costs of sale are typically deducted from sales proceed at an unreasonable level

For recommended interventions see Fleet Contracts: Avoiding Commercial Trapdoors.

  1. Maintenance Spend

It is typical for lessors to set generous maintenance budgets that allow for worst case scenarios; creating a surplus.

The risk associated with this category:

  • An unmonitored approach to budget setting means the client invariably pays too much across the term of the contract.

For recommended interventions see Fleet Contracts: Avoiding Commercial Trapdoors.

Now Go Negotiate
If you need to negotiate better terms it is essential to enter your fleet negotiations in a position of strength. Understanding the opportunities to eliminate cost from the four categories listed above is one way to place yourself in a very strong position. But what other techniques and negotiating tactics can you employ to ensure your position is not weakened?

The Fleetworx insight whitepaper “Negotiating Skills and Tactics to Drive Cost From Your Car Fleet Category” is an essential read for anyone who has car fleet responsibility and needs to remove cost. Download for an insight into the nuances of fleet negotiation and ways you can negotiate your way to the best possible outcome.

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Transitioning Car Fleet Supply – Get The Reward You Deserve

Transitioning Car Fleet Supply – Get The Reward You Deserve

Out with the Old, in with the New

Tendering for new fleet suppliers is a necessary process for most larger organisations and can deliver substantial savings opportunities.

Most procurement professionals tasked with going to market for leasing services will have had their eyes on a substantial prize at some point, whether it be through direct lease cost savings, new business incentives or even just a more focused supply chain.

Sometimes the challenges come not from getting the deal on the table, but from what to do about getting this deal accepted and then, importantly, delivered across the business.

Internally, instinct will be telling the key stakeholders that this will mean a whole lot of work for them and their teams as they will have to manage more relationships, educate a new supplier in the workings and the culture of the business and deal with additional sets of management information.

Additional complexity is a difficult sell in modern businesses whose natural instinct is to focus on core activities.

Be Careful: There’s Knives Around

The other key challenge comes with managing in the new and managing out the old supplier(s).

The core issue is that with vehicle leases, you are tied to that supplier until the lease ends, which could be 4 years hence.

It’s like getting divorced but sharing the kitchen with your ex for the next 4 years; it’s going to be sometimes less than helpful, pretty tense and you’ve got to be careful, because there are knives around!

The ‘knives’ in this case are the variable cost factors that will be brought into play to ‘max out’ the profit opportunities for the outgoing supplier(s).

The new supplier will be excited to get up and running with your new business and will undoubtedly resource the implementation, and provide a plan and personnel to support process integration.

Unfortunately there is little they can do to support the removal of the old supplier –  it’s like introducing your new spouse in the kitchen scenario – basic compliance is the best that can be expected but it’s likely to end up in tears!

It would be fair to say that the broader the reach of the fleet and the more entrenched the supply chain, the greater the pain of change that will be experienced.

This is particularly true of ‘outsourced’ solutions where little or no internal resource retains responsibilities for daily activities – where it becomes difficult to merely lift away activities from the outgoing supplier through transition.

Let us Ease the Pain of Change

It is not uncommon for fleet tendering projects to fail to result in change.

This is not because substantial savings could not be achieved or service vastly improved, but because the anticipated ‘Pain of Change’ was not palatable to key stakeholders in the business, or those stakeholders could not perceive how the roll-out could happen without severe business disruption.

Fleetworx can significantly reduce that pain of change through a carefully managed fleet transition process.

We provide expertise, systems and resource at the right point and in the right amount throughout the transition period, until such time as a full handover to the new supply chain can be achieved.

For more information about how Fleetwox can support your car fleet transition programme download the free ebook “Transitioning Car Fleet Supply. Get the reward you were promised”

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Company Car Fleets – Single or Multi Supply? You Decide.

Company Car Fleets – Single or Multi Supply? You Decide.

When considering a company car fleet supply process, fleet stakeholders are often in conflict over the type of process with which to engage.

Some departments are often in favour of a single supply agreement so they can build relationships with one supplier, whilst other departments encourage a dual or multi-supply so they can “horse-trade” the leasing cost and “bank” a saving.

Choosing between single supply or dual/multi-supply is central to a company’s fleet model, and making the correct choice at the beginning of a supply term is essential; as the wrong choice could have a significant impact on the overall fleet cost.

But what are the relative merits of the two supply choices and which will be better for your business? Read on or download our simple infographic outlining the differences.

SINGLE SUPPLY – PRO’S

  1. Contact Leverage

The leverage generated by putting all the business with one supplier can provide the following benefits:

  • It develops a strong negotiating position which can help eliminate contract re-writes;
  • It can help remove any profiteering by the lessor on end-of-contract charges for damages, and restricts the charges to the actual costs to the lessor and no more;
  • It can help protect against high 2nd tier supplier costs with large lessor rebates;
  • The client will be able to negotiate greater transparency.
  1. Budget Accuracy

As legacy suppliers disappear, only one PO will be required per supplier. This will inevitably produce more accurate budgeting.

  1. Relationship Management

Relationships only need to be maintained with one supplier, resulting in slicker processes that reduce the administrative burden of managing multiple suppliers.

  1. Realistic Pricing

Although still needing to be competitive, the headline lease pricing of a single supplier will tend to be more realistic and more reflective of total cost than that of a dual or multi-supply arrangement.

SINGLE SUPPLY – CON’S

  1. Complex Savings Calculations

True savings gained form commercially advantageous terms are more complex to determine than those from directly competing lessors.

Very often, the final savings cannot be determined until individual contacts have matured.

  1. Detailed Contract Component Knowledge

A detailed knowledge of the contract components is required to understand the competitiveness of the supplier. This detailed knowledge is also important when managing the pricing structure and avoiding cost creep.

  1. Governance Need

Resource needs to be applied to governance processes within the client, as the single lessor cannot be expected to “sign off” their own invoices.

DUAL/MULTI SUPPLY – PRO’S

  1. Savings Transparency

Competitive bidding for each individual car can demonstrate accountable savings.

Although it should be noted that these are theoretical savings and may not reflect the whole life cost of the vehicle.

  1. Reduced Governance Burden

Some of the administrative burden of running multi-supply can be allocated to fee-charging external multi-bidder intermediaries. These are also ideally placed to conduct local governance tasks.

DUAL/MULTI SUPPLY CON’S

  1. Cost/Resource Burden

The client may need to pay fees to an intermediary company to transact the multi-bidding or resource it internally.

  1. Risk of Contract Deviation

The competitive nature of the rental is only maintained so long as the contract runs to the original deal. As contract parameters can change, the headline price can be theoretical, which means the contract may not produce the cheapest option.

  1. Supplier Selection

Suppliers must be churned regularly to exploit the opportunities of multi-bid, otherwise savings may only be theoretical as the suppliers may be the most expensive on the market.

For a simple infographic of supply options click here. This article is one in a mini-series featuring the complexities and challenges of managing fleet supply contracts. Visit www.fleetworx.com for other resources such as our ebook explaining how to Avoid Fleet Commercial Contract Trapdoors

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