When to buy and when to DIY
In the last couple of decades, contract hire firms in the UK have evolved into not only one of the most cost-effective providers of vehicles but also the most comprehensive providers of everything a fleet needs, from management of drivers, rental supply to collecting parking fines.
But do you really need to take all or even any of these services? Should you split them between different suppliers to get the best deal? Or could you just take care of your day-today operational fleet requirements more cost-effectively and time-efficiently if you went for the DIY option?
Roddy Graham, commercial director of Leasedrive, says that the decision on which services to outsource comes down largely to the size of the company – but also its own business culture.
He comments: ‘This is horses for courses. There’s sometimes a culture within an organisation and it’s an ownership culture and sometimes there’s a usership culture. More and more you see organisations saying, “Let’s outsource non-core activities because someone else can do it better than we can.”’
He continues: ‘If you’re an SME with a dozen or 20 vehicles or something like that, for the managing director it [fleet management] is almost a hobby. It’s almost like, “I’ll go out and buy the cars because I’m the managing director and people in the local area know me.”
‘In the middle market, they [company cars] move from just being funded to being a pain in the backside; that’s sort of 50 vehicles up to a thousand-odd vehicles. It’s that sort of market where outsourcing is hugely valued because you’re a big organisation but you’re not big enough to justify having separate departments to do everything you do.
‘Once you get over a couple of thousand vehicles, like large utility companies, that’s when they will do in-house fleet management. So most of these huge fleets will have aspects that they control themselves but some parts they’ll say, “Well, I would be better to get the maintenance controlled by, say, Leasedrive because they’ve got a better network and I can just be the supply chain manager for that part.”’
He adds one very salient point: ‘But everyone outsources something, whether it’s roadside membership – because I don’t know anyone who does that themselves – or short-term rental requirements.’
Liz Hollands, fleet & facilities manager at the Freight Transport Association (FTA), agrees that outsourcing decisions very much depend on the size of the fleet, and the other duties to be managed – but warns that the DIY option can often be labour intensive and can come at a cost.
She comments: ‘My overall preference is for dual leasing supply – to achieve best buying power – but that makes for a lot more work producing reports. At the FTA I also run Facilities and there are simply not enough hours in the day, so we have to pay a bit of a premium for the benefit of one provider doing almost everything for us. If I were to keep everything in-house I would need the right expertise to manage all the different elements efficiently, and am unlikely to be able to match the buying power of the last providers.
‘When I was first working in fleet I very quickly realised the benefit of appointing an accident management provider who would deal with claims and uninsured loss recovery. I reckoned I was spending 15% of my time on that alone, and still not doing it to best effect.
‘I know there are fleets who don’t take a complete package, and who outsource various elements. For instance, one used to outsource its finance because they could obtain better rates than the incumbent provider. I might be able to save money by arranging our own maintenance – but then I’d have to manage all the suppliers; and know I was being correctly charged, and pay them, and deal with warranty claims with a manufacturer. Frankly, I’d rather use outside expertise and pay a regular budgeted amount, with a profit share arrangement at the end of the contract.
‘It’s another of those areas where one size does not fit all and there is no right answer.’
Damian James, who also speaks from the in-house fleet manager’s perspective from his role of head of operations at Bracknell Forest Council, agrees that outsourcing decisions really depend on individual set-ups within organisations. But he does advise fleets to farm out different services to different suppliers.
He comments: ‘My experience has been that usually I have not taken additional services on top of general fleet management as I have staff here who can cover these aspects as part of their more general role. They have the local knowledge and unique understanding of my fleet to be able to react quickly, cost effectively and in the best interest of the vehicle user. As a small fleet my experience of external suppliers is that I don't always get the reaction time and urgency that is required.’
However, he continues: ‘If I was to source additional services I would always shop around rather than keep everything with one organisation and make sure services are regularly benchmarked.’
THE CONTRACT HIRE COMPANIES' VIEWS
Certainly Tusker – a specialist in salary sacrifice car schemes, which have seen a sharp rise in popularity as an additional new service in recent years – says salary sacrifice schemes are complementary to traditional contract hire and do not need to come from the same supplier.
Tusker’s CEO, David Hosking, comments: ‘We believe the “traditional” company car fleet and salary sacrifice car schemes are complementary and not mutually exclusive, as we provide vehicles for both. However, it is by no means unusual to have one supplier for contract hire and a totally different one for a salary sacrifice car scheme.’
However, speak to the contract hire firms about their overall provision of services and they are at pains to point out the benefits you stand to gain from using a broad spectrum of their services.
Gary Killeen, fleet services commercial leader for GE Capital UK, says: ‘The important point to remember is that add-on services increasingly form part of an entire consultative service of which contract hire or any other form of leasing is simply the funding element.
‘Businesses enter into relationships with full-service vehicle leasing organisations like ourselves because they want to tap into our in-depth expertise, operational scale and proven processes in order to create an entire fleet solution and infrastructure that not only meets the customer’s long-term needs but is proactively monitored and managed to take account of any alterations that changing circumstances demand.’
And Ian Hughes, commercial director at Zenith, explains the benefits of having a full suite of products and services delivered from one central platform: ‘It makes sense to choose a provider that offers a range of additional services, rather than utilising another third-party provider or adopting administratively heavy and not necessarily accurate offline processes.
‘Reporting can be centralised and data shared so that, for example, whole-life cost analysis includes fuel and ancillary spend to deliver the true cost of the fleet, a risk management matrix includes accident statistics. Using isolated software from different providers or managing these processes in-house can mean that the full capabilities of data management and analysis are not realised and that unnecessary time, risk and cost is incurred. Benefits can include improved reporting, reduced administration, reduced costs and legislative compliance.’
For fleets that still wish to go down the route of using different providers for different services, Gary Killeen has this advice: ‘In circumstances where a fleet manager has the time, capacity and resource to look at sourcing services from multiple providers then this should be reviewed holistically as part of a comprehensive fleet policy review and benchmarking exercise based on an in-depth tender process assessing the full fleet provision.
‘However, in our experience, the time and expertise required to assess the benefits of sourcing services separately nearly always proves for a single source of supply where economies of scale, a single point of contact, reduced administration resource, contractual and service level simplicity coupled with integrated process controls and the considerable advantage of consolidated reporting provides customers with a very compelling argument to source all elements of a leasing solution from their full service leasing provider.’
Ultimately the decision on whether and what to outsource will depend on the size, nature and inherent culture of your business, as well as the prevailing economic climate.
But the final word on what contract hire companies have to offer in the way of fleet management and other services goes to Leasedrive’s Roddy Graham, who says: ‘It would be really sad if as an industry we have wasted all the millions of pounds that we’ve spent in developing technology and products and services. We’ve come through the worst recession in living memory and there haven’t been any high-profile liquidations or receiverships within the contract hire and fleet management industry. And our customers should look at that and say that it is a resilient industry.’