Should You Outsource the Management of the Fleet?

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Provided by Expense Reduction Analysts

On a scale of 1 to 10, how would you rate the current effectiveness of running your fleet of vehicles? For most companies, fleet management is in the top 5 of costs for running their business, and in most cases, [is] number 3.

A company with 30 vehicles has a million dollar investment in its car park. This is an investment that will normally lose 50% of its value over a 3-year period. On top of that, there are maintenance and operating costs to consider.

Company fleets are often made up of vehicles that may be a “tool of trade”, salaried vehicles provided as part of a remuneration package, or employee-owned vehicles occasionally used for company purposes (grey fleets). Company leases are arranged between the company and vehicle supplier, whilst novated leases are a 3-way arrangement between the employer, employee and vehicle supplier.

A Principal Consultant at Expense Reduction Analysts, Tom Debney, recommends that after the initial financial burden of sourcing a fleet of vehicles through purchase or leasing, the next consideration are the costs of running the fleet. “In recent years, the cost of fuel has been steadily increasing, becoming one of the major areas of financial impact. The price of fuel is dependent on many external factors; therefore companies must investigate internal controls to ensure that the provision of fuel is cost effective,” Tom says.

Maintenance is another area where fleet managers should ensure that vehicle servicing is being performed to specifications and that [the] rates being charged are market competitive.

Twenty years ago, 6 cylinder fleets were serviced twice a year, proving to be an expensive proposition. Drivers knew how to check the oil and fluids and did it if they wanted their vehicle to be reliable. In today’s sophisticated market with computer chips and electronics, the dipstick is hard to find, and many young drivers have never been shown. Changing a tyre is complex for them and there may not be a spare. Maintenance and regular service is an O.H.&S. risk and needs to take place in accordance with the maintenance schedule issued by the OEM. 

With the increasing importance of OH&S in all Australian states, the company holds an OH&S responsibility to protect the company drivers, by ensuring the fleet is adequately maintained at all times. This extends to the “grey fleet” and so just maintaining the records to check vehicles are serviced and safe can be complex. Managing fleet is about managing risk. Motor vehicle policy needs to be reviewed and updated and cover areas such as driver fatigue, use of mobile phones, engagement of learner drivers and alcohol abstinence to mention just a few.

Should you outsource the management of the fleet? Another Principal Consultant at ERA, Brett Hay affirms that many companies choose to outsource fleet management, as it can be a complex and time-consuming task. “Outsourcing fleet management provides access to both economies of scale and industry expertise. However, it is critical to conduct regular reviews to ensure you are receiving the best possible solution and price,” Brett advises.

Sourcing the cheapest option is not always the right solution as any savings can quickly be offset by incurring higher maintenance and service costs. The key is to manage the fleet by considering the full cost of the investment over the term of the investment. Once vehicles become older the risk of exposure to higher repair costs increases. One size usually does not fit all and it is important to consistently select the most cost effective solution for each specific application. This may be by varying the length of the lease or the maximum kms. The customising of the arrangement  can prove to be very emotive in managing salary packaging, with choice of 4 cylinder versus 6 cylinder, vehicle type (e.g. SUV, etc.) being important points to manage with the driver.

Expense Reduction Analysts is a global leader in cost reduction focused on helping companies create extra profit through realising optimum value from purchase and supplier management. ERA has highly experienced industry experts who monitor market trends and can perform fleet reviews and provide guidance on the best option for either outsourcing or insourcing the management of your fleet.

If you would like to know more about fleet management or ERA’s other services, please contact [email protected]