Simon Staton, Client Management Director, Venson Automotive Solutions explains why monitoring matters in managing supplier performance
In life, you generally get what you pay for and fleet procurement is no exception. Whether tendering for contract hire or fleet management, fleet operators are making a significant financial commitment, meaning the stakes are high when selecting a new partner. So, choosing the right supplier is about far more than comparing prices.
A successful tender process starts with clearly defining business requirements and bringing together the right stakeholders, from fleet, finance and HR to legal and procurement. While robust governance is essential, however, nothing replaces practical fleet experience when it comes to identifying the nitty gritty of contractual details that can have a big impact on long-term costs and operational performance.
Unlike buying office equipment, procuring fleet services isn’t a straightforward commodity purchase. A contract covers far more than the vehicles themselves, from maintenance and repairs to vehicle downtime and end of contract charges. In an environment where cost control is paramount, these elements can quickly become expensive. That’s why securing the right agreement from the outset, and actively managing supplier performance throughout the contract, is just as important as negotiating the initial price.
Keeping a rein on charges
For example, what seemed like a competitive contract with a vehicle supplier can become more expensive when it comes to end of contract charges. Milage and damage charges for instance, are an easy way for vehicle suppliers to levy significant fees so asking for examples up front of how it is managed is key. When negotiating a contract, fleet operators should understand how damage is assessed and repaired. Transparent repair processes and adherence to recognised fair wear and tear standards will help ensure best value.
Similarly early termination charges can prove to be a lucrative revenue earner for some suppliers if not fully understood, tightly negotiated and then monitored throughout the duration of the supplier contract.
Managing downtime
Unfortunately, vehicles will break down, and downtime is an inevitable part of fleet management. The knock-on effects on business efficiency can be significant, and the financial and reputational costs hard to bear, especially when that downtime is unscheduled.
Understanding how the supplier will manage and report on downtime are key. Ask the question ‘at what point does downtime start being measured’, so that when comparing suppliers, it is on a like for like basis.
What does ‘with maintenance’ mean?
Semantics are important when it comes to defining maintenance in a contract. For example, contract hire with maintenance at its most minimal involves the supply of a vehicle and drivers booking their own car or van in for a service, which takes time. However, contract hire with maintenance can be much more, so it is critical to define your requirements so that there is a clear understanding on both sides of what ‘with maintenance’ looks like. For example, does it include service scheduling, service due reminders and vehicle collection and delivery?
Poor customer service costs
Poor customer service carries a real cost. Every minute that the fleet team or drivers spend waiting on hold or chasing updates is time lost to more productive work. While these costs may seem small in isolation, when multiplied across hundreds of vehicles and thousands of interactions over the life of a fleet contract, they can have a significant impact on the total cost of fleet operations. Negotiating Service Level Agreements and ensuring there is a dedicated account management team should be key components of a contract.
Weighing up SMR costs
The debate around the cost of using a franchise dealer versus an independent garage is almost as old as the fleet industry itself.
While independent garages often offer lower labour rates than franchised dealers, labour cost alone should not determine where vehicles are serviced. Fleet operators should consider the total cost of repair, including vehicle downtime, workshop opening hours, parts quality, warranty implications and operational disruption. In many cases, a higher labour rate may be offset by faster turnaround times and reduced impact on fleet operations.
There is so much for businesses to consider when taking on a new provider, it is always worth remembering that the procurement team is negotiating a living contract. By actively monitoring performance during the length of the contract fleet operators will help minimise additional costs, build supplier relationships that add real value to their organisation and importantly achieve their operational and financial objectives.