Is Strategic Sourcing a Threat to Fleet Managers?
Leveraging fleet purchasing power via strategic sourcing has become increasingly popular, as companies look to reduce fleet expense. Some fleet managers see this process as threatening.
It goes by any number of different names: shared services, strategic sourcing, or simply leverage. Whatever you call it, taking full advantage of the volume your company can bring to bear on the fleet marketplace is good business.
Making such volume discounts and centralized programs available to smaller business units, or negotiating global fleet programs, both can result in substantial savings, as well as a more streamlined (and thus easier to manage) fleet process.
Some fleet managers, however, view strategic sourcing warily; they often feel left out of the process and wonder if implementing that process can be a prelude to cutting back in-house fleet operations. Actually, however, strategic sourcing cannot be successful without some in-house fleet expertise, particularly on a "go-forward" basis.
What is 'Strategic Sourcing'?
To address such concerns, let's first define strategic sourcing. Put simply, strategy is the "what," and tactics are the "how." Strategic sourcing uses the full buying power of a company to determine what kinds of purchasing, programs, and pricing will result. For some time, it was considered wise to "push" decision-making down to a level as close to the customer as possible; de-centralization became popular.
Strategic sourcing, however, can draw a balance between the benefits of centralized sourcing and de-centralized decision-making. Fleet management, particularly in a global environment, has always been a good candidate for this process. Individual business units simply cannot achieve the savings available through strategic sourcing; at the same time, centralization of administration cannot achieve the efficiencies that local, day-to-day control does. Strategic sourcing, properly handled, can combine the savings of centralized sourcing with the efficiencies of de-centralized administration.
Fleet Managers May Be Wary
Fleet managers often are wary of any process that smacks of outsourcing or makes them feel as if they are somehow being left out. Unfortunately, sometimes they are, or at least their input is underutilized. This is a foolish notion. No one in the company is better equipped to lead a strategic sourcing initiative than a fleet manager, and upper management should recognize this.
The emergence of the purchasing function as a major player in strategic sourcing can sometimes add to the confusion regarding the ultimate goals of the process. Communication, as always, is key to making the best use of available resources in constructing a strategic sourcing process, as well as clearly defining the roles of all parties involved.
What Functions Can Be Sourced?
What are the functions in fleet management that can best be strategically sourced? First, let's look at what the primary functions are, then determine whether or not they are candidates.
The acquisition, via leasing or purchase, of fleet vehicles is the single area best served via strategic sourcing, particularly in a company with multiple business units. Two primary vehicle acquisition issues can be addressed:
Lease/purchase. For example, a company with five business units totaling 1,000 vehicles may have five different requirements for their vehicles, i.e., trucks, vans, upfitting, sales, or service cars, etc. Although the missions may differ, opting for one, or two, manufacturers that can provide vehicles suitable for each mission can result in real savings.
Centralized negotiations with a manufacturer, offering several hundred orders each model year, will provide each division with savings it would not realize individually. Once completed, the business units can then proceed to choose the vehicle in the manufacturer's offerings that best fits the mission.
Lessors will also negotiate based upon volume, particularly if fee-based services are included in the program (maintenance management, accident management, fuel, etc.). Although today little can be negotiated out of money cost factors, both capitalization schedules and administrative fees can be substantially lower for the combined volume of a strategically sourced program.
Administrative services include registration renewal, title/tax programs, and other day-to-day clerical and administrative functions. Usually fee-based, they do not necessarily relate to the management of the fleet, but rather to the routine requirements of administration. In a strategically sourced fleet, individual business units may have different administrative requirements that can usually be addressed with a master agreement, broken out into different accounts.
Although different vehicles with different missions may be used in each business unit, a strategic sourcing program can combine all vehicles into an overall corporate program. The key factor is the fee structure; per-vehicle, per-month fees for a master program will undoubtedly be lower than they would for the units individually.
The development, implementation, and execution of an overall fleet policy are generally not fertile subjects for a strategic sourcing initiative. First, such policy lies at the core of a fleet program's success or failure, and thus is best not left to others.
Second, policy interpretation and exceptions are needed nearly every day; this is also a basic requirement for effective fleet management. Inserting a third party between drivers and the fleet function will merely slow the overall process, as any outsource vendor will need to obtain any exceptions or interpretations from the fleet manager anyway.
Why A Threat?
That said, why is strategic sourcing sometimes viewed as a threat by fleet managers? There are several reasons. Outsourcing has for some time been perceived as a loss of control of staff and resources, and in extreme cases, loss of employment; and in some cases, these fears have been proven accurate.
Outsourcing, at times, has been used incorrectly as a means to reduce headcount when senior managers accept the idea that vendors can do externally what their fleet managers have been doing internally. However, strategic sourcing, though it involves outsourcing, is less an exercise in head count reduction than it is the leveraging of buying power to the benefit of all. Properly handled, strategic sourcing need not be such a threat, providing fleet managers communicate to senior management timely about regular information on the value of an in-house fleet function.
Indeed, with the leverage that strategic sourcing can provide, it can be a welcome relief to in-house fleet functions hungry for cost savings. Lower lease rates, reduced service fees, better purchase prices are only a few of the overall benefits, none of which jeopardize the fleet manager's standing in the company as a valuable contributor. To make certain that strategic sourcing is implemented in collaboration with fleet, executives should follow some simple steps when considering such an initiative.
Involve all relevant disciplines in the decision, including fleet, human resources, purchasing, legal, sales/service, and risk management. Strategic sourcing, especially on a global level, requires input from any and all parties.
Learn the fleet mission of your various business functions and how it is currently addressed.
Maintain full flexibility in how the initiative is implemented.
Do not expect to outsource all fleet functions. Your business units operate locally, and their requirements can be very different from each another. Expect, indeed insist, upon keeping local control in areas of policy and administration.
Maintain management control in-house, both at the corporate and business unit levels. No one outside the company can manage your resources better than an employee. The ultimate goal of strategic sourcing is cost savings, both in hard as well as soft dollars. Leveraging purchasing power, while at the same time maintaining internal control, can result in substantial dollars on the bottom line.