Should you consider outsourcing
The use of outsourcing in the fleet management environment is fairly common but what factors should be addressed before committing.
The reasons to utilise an outsourced fleet management service can be many;
- We need access to additional funding
- We want to reduce our operating costs
- We lack certain skills and resources and wish to focus on our core business
Let’s address each of these requirements and identify available services.
- Outsourced funding can come in the form of a Full Maintenance Lease where a vehicle is supplied inclusive of maintenance with a fixed time and Kms allowance. The all-inclusive rental certainly removes vehicle procurement, disposal, relicensing and maintenance from the customer but it requires strict management of usage and condition to eliminate exposure to cost penalties. FML is often considered to be a source of off balance sheet funding but with the 2019 introduction of IFRS 16 that will change.
- Reducing operating costs, this is where the fleet management companies offer substantial benefits.
- The Managed Maintenance service uses the resources of the service provider to pre-authorise and pay for all maintenance expenditure. The resources of systems, technical skill and supplier relationships will undoubtedly save you money and administration time, to offset a small admin fee.
- Fuel Management, which in these times of escalating fuel prices has the potential to generate significant savings. The application of consumption benchmarks and analysis of fuel fills will provide you with the tools to identify and manage policy variances.
- Accident management is in many ways similar to managed maintenance where accident costs are subjected to the same technical and cost scrutiny. Driver support forms an important part of this service.
- Lacking Fleet Management skills. The outsourced services of a fleet management company can certainly remove the need for infrastructure, skills and resources. It will however require that an internal management resource is available to manage the interface, ensure that exceptions are identified and managed and that your obligations to your suppliers are met.
Excepting finance most services attract a monthly service fee. The justification for all outsourced services is largely cost based. This simple, but theoretical, cost benefit analysis table quantifies the benefits of utilising an outsourced maintenance or fuel management system. It does not address the administrative and qualitative benefits that are enjoyed.
Should you consider using FML, a similar but more complex cost benefit analysis incorporating tax benefits and a discounted cash flow analysis will validate the use of outsourced financial services?
Outsourcing may impact on your staff structure which is an important consideration and of course don’t forget that they do not know your business and its customer expectations as you do.
Importantly outsourcing will not work if the assumption is made that it is self-managing. All agreements transfer some risk and obligation to the customer. This is vital to manage.
Have a question?
Contact Nigel Webb - Latitude Fleet Services - nigelw@latitudefleet.co.za