Outsourcing: is it a good move?

All fleets outsource if they use contract hire as a funding method.

Many outright purchase fleets also outsource elements of management. However, the degree to which they outsource varies considerably.

It largely depends on company culture – is fleet seen as a core activity or not – and the employment of a fleet manager.

But it can also be affected by the economic climate; a downturn or recession can encourage businesses to consider outsourcing as a way to cut costs.

Large organisations in particular are keen to exploit the expertise of leasing and fleet management companies and bring efficiencies to their fleet.

Fleet Logistics has helped Wolseley cut operating costs by 10% on its 2,150 car fleet over the past two years and has now taken on the management of its van fleet.

It is responsible for every element of fleet management, although Wolseley also employs a procurement manager to oversee fleet strategy.

Fraikin, which specialises in fleet management of commercial vehicles, has taken on more than 8,000 vehicles in the past 12 months.

Contract wins include Scottish Power’s 2,842 commercial vehicles, auxiliary equipment and cars, and 220 home delivery vans for Sainsbury’s in the south east.

Neither company employs an out-and-out fleet manager, although, like Wolseley, a senior member of staff is responsible for setting strategy and managing the relationship with Fraikin, which carries out all the operational day-to-day elements of fleet management.

Some police forces are also turning to outsourcing with Lincolnshire Police recently appointing G4S to help it achieve savings of more than £20 million over the next four years, imposed by the Government’s Comprehensive Spending Review (Fleet News, April 12).

Ten other police authorities have indicated interest in the Lincolnshire initiative by signing a framework agreement.

Fleet management provider CLM also reports significant contract wins since 2009.

Robert Wentworth-James, head of sales and marketing at CLM, says that in the past some companies preferred to manage their own internal activity, but the recession has meant many have “reversed” their views.

“Perceptions of outsourcing have changed,” he says. “It doesn’t have to be rigid. You don’t have to outsource everything.”

However, around 75% of CLM’s clients opt for ‘total fleet outsourcing’.

This includes vehicle policy administration and supply, in-life management, vehicle storage and disposal.

Services such as daily rental and ‘mini-lease’ arrangements, driver training, duty of care and vehicle reallocation can all be included.

Fleet management companies claim they can achieve significant cost savings.

One of the key ways is by going out to a number of leasing companies – typically three – for quotes on a vehicle.

One of CLM’s clients with a fleet of 350 vehicles made savings of 8-10% as a result of competitive tendering.

Savings can also be achieved by managing maintenance on a pay-as-you-go basis rather than opting for contract hire with maintenance.

Wentworth-James says leasing companies recognise there is an opportunity for profit with maintenance contracts.

“You may be paying a leasing company £60 a month for maintenance, for example, but the vehicle doesn’t have any repairs in the first six months,” he explains.

“Most of the maintenance is in years three and four.”

With pay-as-you-go there is a cash flow benefit, although some companies prefer contract hire with maintenance for budgeting purposes.

However, none of these initiatives and services are exclusive to a fleet management company: a fleet manager can achieve similar savings for their company.

Note the approach taken by David Bamber at Independent Group, who reduced costs by around 20% by setting up his own pay-as-you-go service and maintenance scheme.

But for those companies without the in-house expertise, savings in areas such as multi-bidding on vehicle orders, invoice validation and contract management become difficult.