Outsourcing – FML and Telematics
There is a continuing and growing trend in the use of outsourcing. The objectives of which are cost savings and /or the provision of resources, services or skills which are not readily available to the business, to enable it to focus and expand its core business.
Sounds great but why are there occasions of failure.
Let’s keep this conversation to fleet management services where the predominant outsourced service is financial and operating services such as telematics.
The predominant financial service is Full Maintenance Leasing (FML) where a vehicle including maintenance is provided for a pre-agreed fixed time and Kms allowance. The costing of an FML requires that the supplier sets a residual (resale) value and maintenance allowance commensurate to that time and Kms allowance. Exceed these limits and there is exposure to additional costs which the supplier recovers in excess Kms charges and condition requirements.
It is my experience that these time and Kms allowances are not fully managed by the customer. There are many instances of missed services, vehicles not returned on due dates, Kms limits substantially exceeded, poor repair of accident damage and poor vehicle condition. The cost implication of these issues exposes the supplier to excessive cost and risk which is ultimately transferred to the customer as penalties.
The customer cries foul saying my expectation of fixed known costs has not been achieved and it would have been cheaper if I did it myself.
How then do we make this outsourced service work for its customers?
- Agree a time and Kms limit that is correct for the business. It may vary for each vehicle.
- Understand you operating conditions. Recognise tough conditions and pre-agree them.
- Strictly manage time and Kms usage. Formally extend or adjust each vehicle’s agreement to reflect actual usage.
- Do not use vehicles beyond their agreed return date. Ad hoc extensions are expensive and expose the customer to the worst of internal risks.
- Do not be aggressively chase price as it is achieved by raising residual values and decreasing maintenance allowances, this creates increased risk for the customer. Rather participate in profit sharing at termination.
This method of finance provides the customer with access to the best fleet management resources in terms of buying, selling and maintenance management.
Another frequently outsourced service is Tracking and Telematics technologies. These systems are expensive but use correctly and it provides the single best resource to manage vehicle utilisation and driver behaviour. All of which contribute significantly to cost savings.
What then is required to manage and gain benefit from Telematics;
- Ensure that they are fully functional at all times. Repair damaged units and recalibrate if necessary
- Identify utilisation reports that are of benefit to you. Identify and review excessive, under and out of policy usage (after hours, weekends) and act on exceptions.
- Utilise the movement measurement facilities to assist in accident reporting, traffic fines management, fuel management, activity management and trip routing.
- Monitor driver behaviour using the incorporated driver scoring systems. Use it as an incentive.
There is little cost benefit if the system is used to only identify a driver’s whereabouts.The cost benefits are gained when the whole system is used daily and exceptions are managed.
Evaluating these 2 specific areas of outsourcing demonstrates that unless you as the customer extract the best possible benefits from your outsourced service, manage identified exceptions and importantly act on your obligations as a customer, outsourcing will be seen to be expensive and of little benefit. Manage the services as a partner.
Have a question?
Contact Nigel Webb - Latitude Fleet Services - nigelw@latitudefleet.co.za