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Fleet to be Impacted by Broader Procurement Trends

February 6, 2017, by Mike Antich - Also by this author

Fleet is only one subset of the much broader category of indirect procurement, which involves purchasing services or goods required to keep a business operating on a day-by-day basis. (Direct procurement, on the other hand, is the acquisition of raw materials and goods that allow companies to manufacture their products and create revenue.)

Other indirect procurement categories include, but are not limited to: capital goods (plants and machinery), IT-related services, travel management, etc.

A study by Fortune magazine revealed that indirect procurement, on average, is a significant proportion of a company’s purchases, in some cases up to 50%. Consequently, indirect spend, such as fleet operations, attracts much focus during cost reduction initiatives.

Disruptive Forces in Procurement

Just as with fleet management, there will be many changes occurring in procurement in the near-future, much of it technologically driven. Many of these procurement changes will impact how fleet sourcing decisions will be made in the future.

In the coming years, it is anticipated that procurement’s involvement in fleet will become even deeper due to enhanced technological capabilities.

Technology is reshaping the way business is done. In the procurement function, new technology will enhance market coordination, take supplier relationship management to the next level, enable better compliance and control, increase turnaround speed, minimize risk, and increase trust by removing human error.

Proponents argue that these advancements will not only enhance the performance of the buyer’s organization, but also enhance the performance of suppliers by helping to improve the buyer-supplier relationship and collaboration.

In addition, it is anticipated that these new procurement technology tools will allow companies to manage and control a much larger percentage of indirect spend.

Universally, cost containment is the No. 1 priority facing all fleet managers. Over the past two decades, there has been a shift in the type of decision makers influencing fleet policy and practice toward procurement. In the past, procurement would do its “sourcing task” and then step away from fleet. Now, procurement is staying involved with fleet after the contract process to ensure the company “gets what it bought” from its fleet OEMs and suppliers. Procurement’s involvement with fleet has grown deeper and its scope of responsibility has expanded. Currently, 28% of all fleet managers in the U.S. work in the procurement area or report up through procurement.

Procurement’s involvement in fleet has generated positive outcomes such as standardizing processes, aggregating market intelligence on supplier management, and facilitating the evolution of a more integrated supply chain.

Traditionally, procurement departments work together with internal stakeholders, such as fleet, to contribute to the final contract and price negotiations. But, the trend with some companies is to get involved in earlier stages of the sourcing process, such as defining the best solutions for the services and goods that needs to be sourced.

Procurement and fleet management teams at some multinational companies are recognizing the need for central leadership to drive a global strategy, while ensuring engagement is locally driven.

Over the years, procurement has gained a greater voice in operational considerations.  At times, there is friction between savings, cash flow, and other financial targets and operational imperatives. Invariably, there are interdepartmental conflicts, typically driven by the challenge of balancing HR/driver requirements versus finance/accounting department requirements that are often at odds with one another. Ultimately, it is more important to have one voice and one direction.

In addition, among procurement professionals, especially at multinational companies, there is new geopolitical uncertainty following the Brexit vote requiring the UK to exit from the European Union and the Trump Adminstration’s agenda to revisit international trade agreements, which has caused exchange rate fluctuations. When managing a global fleet, foreign exchange rates are extremely important.

Procurement Predictive Analytics

Technology trends poised to have a significant impact on the profession are predictive analytics, the Internet of Things (IoT), cloud-based computing, and Big Data advanced analytics.

Procurement professionals believe that predictive analytics will have the biggest overall impact.

Predictive analytics tracks purchasing patterns over time and to help forecast future purchasing patterns. This information allows teams to anticipate issues and react proactively.

Another technology trend that will impact procurement is IoT, which according to the technology research firm Gartner, will “significantly alter how the supply chain operates.” IoT will enhance how supply chain leaders access information. According to Gartner, IoT will further allow enterprise resource planning (ERP) and supply chain management to work together by connecting people, processes, data, and assets via devices and sensors.

Cloud-Based Procurement

In the light of new technology driving procurement performance, professionals are slowly moving away from complex ERP-systems to more user friendly cloud-based platforms, which offer a wide range of benefits, such as global implementations, cost efficiency, ease of sharing data across teams, and improved collaborations. A cloud-based network facilitates buyer-supplier collaboration to streamline ordering processes and provides a single view to manage global transportation.

According to some procurement professionals, data breaches will change the terms of supplier contracts. One concern to a cloud-based system is security. If the cloud-based technology platform does not follow adequate security protocols, sensitive organizational data can be at risk of a data breach.

In addition, certain SaaS (software as a service) software has become very inexpensive compared to prior years. This means that sourcing groups in some cases can implement quick reverse auctions on solutions that just a year or two ago would have required complex RFPs. One negative to this trend, from a fleet manager’s perspective, is that most of the time, when procurement uses an automated online tool to publish and retrieve the RFP, such as Ariba or SAP, the fleet manager is not the central point of contact. Procurement, as the owner of the tool is the point of contact, not fleet.   

Power of Big Data

As Big Data increasingly influences corporate decision-making processes, best-in-class procurement organizations will employ greater utilization of advanced data mining and analytics techniques. Procurement has always been data-driven, but, in the near-future, data access will be elevated to real-time updates on transactions and financial activities across a wide spectrum of the organization.

Editor’s Note: The 2017 Global Fleet Conference will feature in-depth discussions about the impact on fleet management of technology-driven changes in the management of indirect procurement. Visit www.globalfleetconference.com.

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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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