How to Stop Cost Creep Becoming a Horror Story

22 Mar How to Stop Cost Creep Becoming a Horror Story

At Fleetworx we are obsessed with our forensic approach to cost management. Last week I wrote about “knowing your numbers”, and adopting a data analysis approach to company car fleet management. I described how not having control of your numbers and data can be an unintended consequence of outsourcing a company car fleet. Well, a lack of data intelligence can also lead to another significant unintended consequence – cost creep.

As part of our obsession with numbers and knowing exactly how much is being spent across the whole car fleet, we mine every piece of cost data from across the entire supply chain. That’s a lot of data. To control it we place it in cost categories and then work with it to understand spend and savings opportunities. Because we do this daily we are used to it. But when you actually stop and take a step back, the number of different cost codes is very surprising. We did a little exercise to review the categories so we could establish the optimum means of managing the data. We removed some, merged some, created some new ones and at the end of the exercise we had 60 cost codes, sitting across 16 categories.

Now this may seem a little excessive, but it does mean complete control over spend and minimal cost creep.

Cost creep is a very common issue in supply chains. And within company car fleet supply chains it can become a big problem. When a company decides to outsource its company car fleet it will benefit from short-term savings. At this point new suppliers are on their very best behaviour, cutting deals and slashing cost. The client will enjoy some pretty substantial cost savings during the first couple of years. However, and here’s the rub, as the contract matures and becomes less visible to the client, costs begin to slowly creep up until, if remaining unchecked, they can accelerate back to pre-outsourcing levels.

They do this because of what I mentioned earlier. The 60 cost codes that provide 60 opportunities for suppliers to add margin.

Our cost categories cover areas such as accident charge, end of contract charge, servicing, management fee and insurance. Whereas our codes cover costs such as third party claims payment, loss on sale fee, vehicle movement costs and accident management fee. Being very detailed is key to keeping the creep under control.

It may not be widely appreciated, but only about 20% of a leasing providers revenue will be from declared management fees. The remainder comes from margin applied to the myriad costs associated with running a large car fleet.

This is why we are fanatical about the numbers. It is why we capture every little invoice and statement and place it in its rightful place. Because only then can we interrogate each cost code and ensure the cost is correct, that it is being applied to the correct vehicle, and any margin is within contract.

For further detail about cost creep and how to avoid the unintended consequences of outsourcing your company car fleet download our whitepaper