Fleet Management – How to DRIVE Your Dollars Further

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Fleet Management – How to DRIVE Your Dollars Further

October 6, 2020
By Narta
The relationship between company fleet vehicles and procurement is an interesting one. In some instances there are entire teams dedicated to managing fleet spend, in other cases companies leave fleet completely unmanaged, or use a third party to manage select aspects (or all of) fleet-related activities. Fleet is an area in procurement where significant value opportunities lie, but the knowledge of how to obtain those cost savings and how to evaluate fleet spend is often based on experience. Organisations can typically break overall Fleet spend down into a handful of sub-categories. This will make things easier to digest when starting a Fleet Assessment: finance, maintenance, fuel, administration and licensing are good places to start. Of course, there are other ancillary sub-categories such as insurance, but these typically encompass the most insignificant spend categories.

Finance of fleet units and the financial strategy behind acquisition is at the core of fleet management. To buy or to lease is the first question that organisations should answer. Or, even further, a novated lease or an operating lease? What depreciation schedule should you use? In general, it is important to understand how your company’s accounting and finance strategy impacts vehicle financing, and which methodology is most beneficial when accounting for the assets from a tax perspective. When developing a financial strategy, it is important to bring together both Finance/Accounting and Operations (or tool of trade committee if you have one) to collaborate during the assessment.

The most obvious cost driver in relation to vehicle acquisition is deciding which vehicles you should buy. This is where Operations takes the lead. What is the purpose of the vehicle? Are they sedans or utes for regional/remote activities? Are they heavy duty trucks for logistics or utilities needs? Overall, the use of the vehicle needs to be properly aligned with the specifications. You wouldn’t want to buy a diesel twin cab ute due to fuel mileage and high acquisition costs unnecessarily. Extreme examples aside, rationalising your fleet vehicles for the specific vehicle application and ensuring things such as fuel mileage and add-on specs line up with what you need versus what drivers or fleet managers prefer.

Maintenance is another area to evaluate for cost savings. You can have the best buying strategy and perfect mix of fleet vehicles for your application, but if they continuously break down it will cancel out any cost savings you earned through acquisition or other areas. Evaluating the fleet maintenance policy, by vehicle type, is the first step. Does the maintenance plan line up with manufacturer recommendations? Are maintenance costs surging in older vehicles? And, possibly the most important question, are drivers complying with your established maintenance policies? A mis-managed maintenance program can destroy fleet budgets and put drivers in danger. NARTA can support members in this way by providing TCO analysis on their specific needs and budgets. Once visibility is obtained, then decisions can be made.

Fuel often presents overlooked cost savings opportunities. But there are many configurations and programs you can employ. First, you need to evaluate what return you are getting, via discount per litre, on your fuel card spend. What your in-network petrol stations look like and, which ones are considered out of network, and do they line up with the routes your fleet drivers are travelling.

Licensing and Administrative fees include a broad array of fees that can add up over time both in terms of the burden on your internal staff to manage them (if handled in-house) and the cost to fulfil them. This spend category includes anything from managing the Title and Insurance documents to managing the lease and financing documentation. Record retention of driver information and vehicle information provides key visibility and enables compliance with Transport Services and other financial requirements. You may have internal resources where their sole responsibility is to manage this aspect of the Fleet Program, or you may outsource this function to a fleet management company. Either way, there are significant costs associated with managing all the documentation related to a Fleet Program.

When looking into the total cost to manage and run a fleet of vehicles there are many cost drivers involved. It is important to take an all-encompassing approach starting with the largest cost drivers (acquisition) before working your way down to re-marketing and administrative fees. Done in this order, it will enable a streamlined and comprehensive evaluation.

NARTA has engaged the market to support members in delivering cost savings in this category. For more information on this project please contact Angie Feldman at angela.feldman@narta.com.au.