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Market Trends

Procurement and Fleet Don't Speak the Same 'Language'

February 23, 2015, by Mike Antich - Also by this author

Until the emergence of strategic sourcing in the 1990s, procurement did not hold the same prominence within corporations as it does today. Nowadays, procurement plays a pivotal strategic role that would amaze the traditional purchasing managers of yesteryear. Procurement is now the new engine of change in fleet management, which has resulted in dramatic changes in the fleet purchasing and supplier selection process.

However, procurement continues to fall short in cross-collaboration with other corporate spend categories, such as fleet management, logistics, and supply-chain management.

Today, procurement is very influential in vendor selection, contract negotiations, service-level agreements, and ongoing supplier management. Prior to the ascendency of procurement, most fleet managers were the primary negotiators of vehicle-sourcing decisions and vendor contracts, which were later submitted for senior management approval. As procurement was brought into the fleet purchasing and supplier selection process, fleet managers were confronted with a different set of decision-making requirements, often viewed as incompatible with effective fleet management.

Consequences of Fleet Reporting to Procurement

The ongoing trend to have the corporate fleet function report to procurement has resulted in the following challenges:

Diminished In-House Fleet Expertise

At some companies, the fleet is managed by personnel with limited or no fleet background. Vehicle selection is often focused more on cost reduction and increased standardization rather than the fleet application.

Creation of New Layers of Management

When fleet managers work in procurement there are often multiple layers of management above them, sometimes without an open-door policy. In worst-case scenarios, fleet managers complain that procurement VPs without fleet expertise discuss fleet strategy with upper management with the sole purpose to “break” the existing program so they can “fix” it, making themselves look good in the process. With multiple management layers, a fleet manager cannot be heard, especially if the immediate manager ignores their advice.

Short-Term Focus

In a procurement environment, a penny saved trumps quality of service and a short-term gain is viewed as more important than a long-term partnership.

Constant Management Turnover

Procurement is a tough business, especially if the promised cost savings do not materialize. As a result, there is a revolving door of managers within procurement, with new managers appearing every two or three years. Whatever fleet education occurred with the previous manager is out the door, and the new managers tend to have the same procurement mindset of viewing fleet as just another commodity.

Single Focused on Cost Reduction

In a procurement environment, the emphasis is on cost control. The price versus service proposition swings sharply to the price side, unduly influencing the acquisition of vehicles and services. Often, personnel unfamiliar with fleet management will perform analyses and make recommendations without consulting the in-house fleet expert. This forces the fleet subject-matter expert to spend an inordinate amount of time correcting misguided recommendations.

Another common refrain heard from fleet managers is that purchasing departments seek to make themselves look good to management by demanding the lowest cost from suppliers, but then it is up to the fleet department to pick up the pieces when the inevitable service problems develop. Similarly, since vehicles are highly configurable, model classes do not match up identically between manufacturers. Procurement tends to view fleet vehicles as commodities and is resistant to understanding the implications when they do not share common option packages or configurations.

Quantifying Fleet Needs into Cost Savings

Often, procurement does not understand the subtleties and nuances involved in the service relationship between the corporate fleet department and its partner fleet suppliers. Although procurement may bring a fresh perspective to managing the fleet spend, they tend to lack real-world expertise of fleet requirements, which can sometimes lead to wrong and, perhaps, very costly decisions.

The “fleet” perspective must be given a voice on how procurement and supplier selection decisions may impact the corporation as a whole. But, to be effective, fleet needs must be translated into procurement’s language (cost). Do not expect procurement to learn the intricacies of fleet. When dealing with intangibles, such as service, quality, and innovation a fleet supplier can provide, it is more effective to quantify these costs/savings and express them in cents per mile, dollars per month, or lifecycle expense. In the final analysis, a fleet manager must focus on the best interests of user departments and their drivers despite strong internal pressure for year-over-year cost savings, which may not always be possible.

The Trend Toward Progressive Procurement

While fleet and procurement have tended to have an adversarial relationship, there is the emergence of what is generically referred to as progressive procurement, which does not lump fleet in the “commoditized spend” category. This trend has already been occurring for the past decade in the European fleet management market with the emergence of category managers who specialize in specific areas such as travel, IT, or fleet.

In the case of fleet, these category managers are the in-house experts in the procurement area who leverage their fleet expertise to provide a balance between sourcing and operational needs. These category managers partner with the internal stakeholders in the field to cost effectively acquire best-in-class assets that fulfill fleet application requirements. This procurement practice works in Europe and there is no reason to believe that it couldn’t work in the U.S.

Let me know what you think.

[email protected]

Comments

  1. 1. Tim King [ February 23, 2015 @ 11:35AM ]

    Mike, this is an excellent point. And, it's not limited to Procurement. It's a real hazard with working with many groups.

    My experience was with Accounting and retiring equipment. I got a first-hand education on the importance of learning the what "retiring" assets meant, both from an Accounting and Regulatory perspective.

    Your previous article on safety and saving lives also "nailed it" as far as I was concerned.

  2. 2. Allen Mitchell [ February 25, 2015 @ 05:05PM ]

    (Procurement and Fleet). There is a need to be in close communications with Procurement and Finance to be successful. The customer departments need also to communicate clearly and effectively to Fleet in order for smooth relations to exist.
    I do not support Fleet reporting to the same organization as Procurement because separate chains of command tend to offset each other when disagreements arise. Often Procurement reports to the Finance Director while Fleet reports to the Public Works or Transportation Dept. Director. This produces checks and balances and avoids conflicts of interest in both parties.

  3. 3. Barry Steel [ March 09, 2015 @ 01:08AM ]

    The concept of progressive procurement does exist in the U.S. It is the best of both disciplines, and if you are a quality vendor, you should not be afraid of these “hybrid” specialists. What these professionals do best, is evaluate the entire supply chain, not just one specific vendor or program strategy. You mostly see this in a formal way in larger companies, but the reality is that smaller businesses run their fleets more effectively on per vehicle basis than the larger fleets do. The focus is still too much on the lowest interest rate and teh biggest manufacturer incentive. There are many hidden costs that make this kind of “rate quoting” irrelevant. Smaller companies need to be focused on these hidden costs to stay competitive in their industry’s against “the big guys”.

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Mike Antich

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Mike has covered fleet management and remarketing for more than 20 years and entered the Fleet Hall of Fame in 2010.

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