11 Jun What supplier models are available for outsourced fleet management?

1. Multi-Bid (competitive in market)

What is involved?

This involves setting up at least 2, but preferably 3, competitive supply sources in each market; each competing for every car order that you intend to place.

The supply chain will consist of preferably 3 lessors, a ‘multi-bid’ resource, that will manage the car configuration and the competitive bidding process. It may also have separate suppliers for fuel supply and Insurance and Accident services to produce a similar ‘Driver Experience’ for all employees.

What are the Pro’s and Con’s of the multi-bid model?

On the plus side, this is often considered to be an easy win in procurement terms, because the competitive process always delivers a ‘cost saving’ between the highest lease rental quoted and the lowest lease rental quoted – easy to identify a ‘Win’.

On the downside, there are clearly fees involved in operating the multi-bid process, involving many fixed costs (facility set-up, policy management and configurator etc.); fees that can significantly erode the savings made by picking the lowest bidder for each car.

Additionally, you will have a significantly more complex supply chain as a result, necessitating contract negotiations, supplier management and accounts payable complexity for your business. Also, to maintain a long-term competitive environment, you will have to be prepared to ‘churn’ the least competitive suppliers from time to time, potentially creating a lengthy ‘legacy tail’ of fleet suppliers to manage and pay.

Where does it work best?

Generally, where a single market operates a very large fleet, the fees can be suitably competitive which means that an overall saving can be achieved. This is dependent on the competing suppliers remaining ‘competing’ over the longer term and, if one becomes consistently uncompetitive, a new supplier is onboarded.

2. Single supply (best by market)

Sometimes referred to as Local Heroes, for smaller fleets and where policies and management systems remain localised, this supplier model can deliver on cost but might primarily be considered for delivering on service levels.

Broadly, this is better suited to those businesses who operate with local market autonomy, where local teams make the decisions about the management of their business processes, have decentralised functions, and have full responsibility for their bottom line.

You are unlikely to leverage substantial savings with this model, similarly, your business processes and, importantly, information flows, may remain disparate, making obtaining good Management Information more of a challenge.

What are the Pro’s and Con’s of the local model?

On the plus side, theoretically there should be a larger pool of suppliers to choose from and suppliers can be evaluated on service levels; some of which may offer some bespoke services to satisfy local market needs and requirements.

On the downside, opportunities to leverage the greater fleet size and ‘customer importance’ to improve commercial terms and conditions and ultimately ‘cost’ are lost. Plus, it can be more difficult to roll out wider market, strategic requirements, such as policy changes, extended payment terms and new management models, where all of the relationships are local.

3. Single Supplier (across all markets)

The third model involves engaging with a single supplier to provide new leases across multiple markets, negotiating centrally with a regional team, the commercial terms and conditions that will apply to all markets. It is, however, perhaps the most ‘misunderstood’ in terms of its practical application, with many myths and assumptions being made by client stakeholders.

Firstly, many believe that when engaging with a single lessor across multiple markets, it will negate the requirement for local contracts and that all contracts will operate in identical fashion with the same T’s and C’s.

This is simply not true, and whereas you will have the ability to sign up to ‘Master Terms’ which can apply some general principles of consistency across all markets, local agreements will most definitely be required, and, in many cases, local regulations will determine the operation of your commercial terms. The biggest mistake that we witness in this regard, is the ‘Assumption’ that the Master Terms are the only contracts that require scrutiny and negotiation, and that subsequent local terms will always be created to match – this is very much not the case in our experience, so be prepared!

Notwithstanding this, there are opportunities to deliver significant savings and cost benefits through the implementation of a single supplier, if you are prepared to measure and monitor the delivery of those negotiated commercials. It is not always the case that the local teams at the supplier delivery end are quite so aligned with the central teams negotiating the terms, and execution can and does sometimes fail.

In summary, the Single Supplier model can deliver considerable savings in resources and deliver significant savings for your business but beware all those who think that the supplier will adequately manage themselves to deliver to the contract. The lessors’ international teams are not generally designed to closely monitor local market delivery and deviation can and will happen if not managed closely in our experience.

Contact Graham Rees to discuss the supplier options for your car fleet