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Supplier Contract Fragility

Supplier Contract Fragility

Fleetworx have worked with a number of clients to review and renegotiate complex supplier contracts, which otherwise would have remained unchallenged, costing the client unnecessarily.


Client A , a pharmaceutical company, had negotiated a highly competitive hire car tariff with its incumbent lease supplier. During a review of the clients contracts, Fleetworx identified an incorrect tariff being applied by the supplier for 8 months. This resulted in an immediate credit of £36,000, and removed the risk of an annual £54,000 overcharge had it not been identified.


The supplier to Client B, a technology business, proposed contract re-writes to revised rentals for mileage adjustments both up and down. After a contract review by Fleetworx, we discovered that the average credit rate for under mileage was less than half the supplemental charge for over mileage. This was in conflict with the supplier contract terms. As a result, Client B, avoided an additional charge of £300,000, which was approx. 10% of the annual spend with the supplier at that point.


Fleetworx worked on invoice control and management for Client C, a technology business. During the course of our review processes we identified a significant overcharge. Over a 4 month period, the supplier had continued to charge for 11 cars that had been off-hired under a novation agreement. As we examine every supplier invoice we identified this overcharge and pursued the supplier for a credit of £24,640.


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Global Pharmaceutical Company

Global Pharmaceutical Company

The Client
Fleetworx have been working with this particular client since 2008. They are a global pharmaceutical company with a UK fleet in excess of 1000 cars with over 600 cash allowances. They have a total category spend of $13.5m.


Objective
Fleetworx were appointed as company car fleet management experts with a brief to advise on potential critical savings from the fleet category in excess of 10% in an already highly leveraged fleet.


The Solution
Fleetworx completed an extensive audit of the clients’ fleet structure and supply chain and identified a number of solutions:

  1. Reviewed and assessed the entire company car fleet supply chain and worked with the various suppliers to construct a market leading consolidated car policy.
  2. Produced a fully costed plan for the reduction of business use car grades from 5 to 2.
  3. Established optimum number of vehicles for each grade without compromising safety or functionality
  4. The cost and human impact of the changes were anticipated via the provision of fully evaluated scenarios for all the outcomes.
  5. A complete road-map to implementation was developed, including stakeholder engagement and communications.

Results
The proposal of the 2-tier car grading structure anticipated a huge impact on the efficiencies of the company car fleet policy. The new policy suggested savings of £1.07m per year, whereas additional manufacturer leverage would deliver a further £480k over 4 years. The planned improved reallocation of vehicles also helped reduce the days in the car pool by 70%.


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US Software Company

US Software Company

The Client
Fleetworx have been working with this US software provider since 2009. They have a disparate European structure with 600 cars and 1200 car allowances in 18 countries around the EMEA region. They have a total annual category spend of $24.6m.


Objective
Fleetworx were appointed to deliver a number of objectives:

  1. Design and deliver a pan-European choice and operational car policy.
  2. Reduce TCO by 15% through leverage, internal resource optimisation and streamlined, consistent processes.
  3. Measure improvements and report costs internally by developing a centralised management reporting platform for all fleet related costs and dynamics.

The Solution
Fleetworx worked with the company and its supply chain to implement a number of strategies:

  1. The creation of a pan-European car policy which was applied across all markets
  2. The renegotiation of supply terms with key lessors and manufacturers
  3. A review and implementation of a pan-European insurance strategy
  4. The implementation of an outsourced invoice management and order approval process

The Results
Since the implementation of the processes outlined above, Fleetworx have delivered validated savings of $3.5m.


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UK Pharmaceutical Company

UK Pharmaceutical Company

The Client
A UK based pharmaceutical company operating a fleet of 1000 vehicles. Of these, approx. 280 were returned for replacement each year.


The Challenge
It became apparent that the legacy lessor was applying a significant number of end of contract recharges, totalling approx. £125,000 pa. Fleetworxs’ experience of managing multiple large fleet contracts meant we were able to benchmark this cost against other similar contracts, subsequently flagging potential over-charges.


Our Solution
Fleetworx reviewed each end-of-contact recharge and compared them to BVRLA standards. Where a charge appeared unreasonable the lessor was challenged to justify the cost. Typically these challenges included minor damage which we deemed to be in keeping with fair wear and tear, and areas of damage where proof could not be provided. We also challenged inflated charges that were considered excessive for the repair involved.


2013 Results
During 2013 there were 270 vehicle returns, 65% (176 vehicles) of which incurred an end-of-contract damage charge.

Fleetworx were concerned that this number was very high, so we looked into the detail of the charges and decided to challenge 60% (105) of them.

Of these 105 challenges, we were successful in 76 cases, resulting in an overall credit of £24,387.


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US Technology Company

US Technology Company

The Client
A US Technology business operating company cars across 19 countries within EMEA. The business structure comprises a UK regional office and overseas satellite offices responsible for the company car provision of that particular country. There are 1800 vehicles being provided across the EMEA region with an annual spend of $32m.


Objective
The business approached Fleetworx to help them reduce the costs of their company car benefits programme by 10%. As a means of achieving this they also required a more controlled and leverage company car supply chain across the EMEA region.


The Solution
Fleetworx implemented a number of steps to deliver cost reduction and deliver best practice across the region:

  1. The first step was to review the company car policies being used across the member countries. This large scale review discovered massive variances in polices between countries which necessitated the design of a new and consistent EMEA car policy. This policy was constructed to align the company car rewards package across the region, but remained flexible enough to allow for regional and cultural variances.
  2. Fleetworx then conducted a review of the OEM suppliers, providing a client-side perspective on their contribution and value: ultimately leveraging the clients’ position to drive best value and reduce cost.
  3. Product choice was then reviewed to introduce a best practice policy that would provide customer benefit and long-term cost containment.
  4. Data relating to the whole supply chain was collated and reviewed, allowing a thorough analysis of the supply structure. The supply chain was then consolidated to provide the slickest and most effective company car provision, whilst allowing for market and cultural variances.
  5. Once the revisions to the structure and policies were introduced, Fleetworx implemented a thorough policy and supply chain performance monitoring process to ensure close management of the new systems.

The Results

Fleetworx conducted the solution across a period of 24 months, whilst continuing to manage the day-to-day requirement of the company car programme.

The revised programme resulted in a robust and disciplined car policy with few inflationary pressures. It drove the evolution of best-in-class suppliers operating under a tight cost controlled system.

The Fleetworx intervention delivered savings of $3.9m over the 24 month period.


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