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Simple yet effective measures for cutting cost

By / 6 years ago / Features / No Comments

In fact, cost control frequently dominates the list of pressing priorities for fleets, along with the environment and road risk management.

In response, there are many innovative solutions arising from all areas of the fleet sector to help fleets deal with these priorities.

This includes the many tools provided by the contract hire and leasing sector. As a lynchpin of the UK fleet industry, the leasing marketplace is renowned across the world for its high level of sophistication and the launch of new cutting-edge advice and solutions to aid fleet managers and is in a prime position to help fleets get to grips with cost cutting.

A WLC methodology is key to understanding costs

As one of the UK’s leading independent leasing, fleet management and vehicle outsourcing businesses, Zenith strongly recommends the adoption of a whole-life cost (WLC) strategy, with the firm advising fleets that their ability to measure, control and decrease the whole-life cost of operating their company vehicles will form a fundamental part of any successful fleet strategy.

Typically the largest cost of running a fleet is funding the vehicles, representing approximately 45% of total costs, according to Zenith. However, there are other key areas that should also be considered, such as fuel cost, vehicle maintenance, National Insurance (NI) and vehicle insurance. The challenge for the fleet operator is to combine the skills and knowledge from a multitude of different functions within their business such as Finance, HR, Procurement, CSR, Health & Safety and operate their fleet taking into account all of these potential costs.

Adopting a true WLC methodology enables you to understand the actual cost of running a vehicle over its life. The purchase price, depreciation, tax rates (including NI), fuel, maintenance and repair costs, disposal costs and insurance all need to be considered rather than just the “on the road” price or monthly rental. A vehicle with a higher purchase or rental price can actually cost significantly less than a “cheaper” model over the course of its life. Other factors such as CO2 emissions are important as these determine how much Benefit in Kind tax is payable by the employee and how much Class 1A National Insurance is payable by the employer. The WACC rate, which is the weighted average cost of capital, is also taken into account.

Utilising the WLC methodology assists in cutting costs by facilitating an accurate comparison of funding methods as well as helping to establish appropriate vehicle choice lists and grade boundaries. It also ensures that upcoming changes to tax rates including Benefit in Kind tax, VAT rate and Corporation Tax are taken into account. Carrying out a whole life cost model can result in substantial savings for a company. It can also enable employees to drive more expensive cars within their grade than they may otherwise be eligible for.

So what should fleets do next? Zenith says you should look to take advantage of a consultancy service provided by an experienced leasing company. They should be able to review the total cost of your fleet and recommend any changes to funding methods, vehicle choices lists and vehicle policy to maximise efficiencies, improve fleet performance and reduce costs.¡

Save time & money with competitive tendering:

One of the key ways to help generate savings is through using a competitive tendering solution, according to Inchcape Fleet Solutions.

The firm, part of the FTSE 250 global automotive company Inchcape plc, has highlighted the issues when it comes to seeking the right contract hire deal at the right price, with the range of differing contract hire prices for the same vehicle being as wide as the array of funders, with huge variations between funders that change every day.

The traditional model of tendering for a fleet can help to select the provider who is cheapest over the period of the tender process, but does nothing to select the cheapest price once a fleet is locked into a multi-year contract. The alternative of submitting every vehicle for a “mini-tender” has required a labour-intensive process of interacting with each provider individually, adding to costs whether in-house or outsourced.

In fact, according to an independent survey of fleet key decision makers commissioned by Inchcape Fleet Solutions, 94% of respondents confirmed that price is important or very important in sourcing vehicles, yet over a third of those polled requested quotes from only one or two companies. Less than a quarter of respondents improved their chances of securing the best price by comparing quotes from four or more companies.

With the time pressures that fleet managers and procurement professionals are under (particularly those who combine fleet management with other roles) it is unsurprising to see that over half of respondents (56%) spent less than two hours per month in obtaining quotes for their business.

In the internet age, with the abundance of price comparison websites for insurance, broadband, energy and travel, it is not surprising that 70% of respondents to the survey would be interested in an online system that gave them instant competing contract hire quotes.

In response to this clear gap in the market, Inchcape Fleet Solutions has developed the revolutionary product, Inchcape Fleet AutoBid. In under five minutes, customers can receive a real-time quote from a panel of market- leading funders, saving valuable time. This makes it practical to create a “mini-tender” on every vehicle in your fleet.

The huge benefit is that, for a 300 car fleet, the savings from competitive tendering for each vehicle could exceed £100,000 over a three year contract. Inchcape Fleet Solutions manages the whole process seamlessly so that you have one point of contact for your fleet regardless of the funder. This provides all the benefits of having one trusted long-term fleet management partner, coupled with the savings of obtaining competitive pricing on every vehicle.

Achieve long-lasting savings by improving efficiencies:

Cost reduction isn’t about simply finding the cheapest fleet supplier, according to Venson. Indeed, that approach can often lead to false economies. Instead, the real way to achieve actual long-lasting savings is to look at improving efficiencies at the same time as reducing unnecessary expenditure. We believe that this can be achieved via a number of avenues.

1. Challenge your fleet supplier

There’s no need to fear challenging the established order, in fact shaking things up can be mutually beneficial for both parties. The sign of a genuinely effective fleet supplier is one that works with you to ensure your fleet policy is the most appropriate for your needs. Question “hidden” costs from your supplier – how transparent are they on administration, maintenance, tyres and windscreen recharges?

2. Review company vehicle policy

Vehicle whole life costs are one of the least considered but most important factors when it comes to selecting vehicles for a fleet policy. It may seem simple but having a fleet supplier that provides information that takes into account all aspects of running a vehicle means you can look at two models with an identical list price but be able to choose the one that is most cost effective for your fleet over the vehicle’s life.

3. Fuel costs

Fuel bills can be tackled with a variety of tactics. Ensuring vehicles are properly maintained, regularly serviced, with tyre pressures checked. If not, it can add 5% to 10% to a fuel bill. Telematics can also help in reducing fuel costs, with suggested savings of c.10%.

4. Driver training

Most drivers will feel that they don’t require training, but 22% of crashes are caused by driver inattention or distraction – a driver who performs a secondary task while at the wheel is up to three times more likely to crash*. A driver risk assessment programme coupled with either classroom or in-vehicle training will not only see incident rates fall but with it associated accident costs.

Venson added that these tips are just a flavour of what can be achieved. Our key advice: know what you are getting from your fleet supplier. On the surface some providers can look to be delivering the cheaper option, but then too far down the line companies realise the “paper savings” are not translating into tangible or real savings.

* Department for Transport 2010 Road Traffic Statistics

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