Fleet procurement: How to build relationships with suppliers

During this year, of all years, the strength of partnerships between fleets and their suppliers has been tested like never before. The need for flexibility, whether postponing orders, extending contracts or rapidly upscaling deliveries to meet urgent demand at a time of disrupted supply, has tested relationships to the maximum. Moreover, the fact that communication during these high pressure months has largely been virtual rather than face-to-face has added even more strain to the links that bond provider to client.

If traditional purchasing was driven by a focus on cutting costs and boosting short-term profits, today’s strategic procurement is shifting the emphasis from transaction to relationship, concentrating instead on securing longer term value. 

It’s a development that is forcing fleet decision-makers to decide which products and services can be treated as ‘widgets’ and bought for the cheapest price; and which are so mission-critical that the quality of service makes a material difference to their operations. 

Supplier delusion

On the other side of the negotiating table, suppliers are having to take into account much more profoundly how their performance is being measured by clients – is it on price alone or a balance of cost and quality of service? In a much cited academic paper, Professor Lynette Ryals from Cranfield University, identified ‘supplier delusion’, in which providers have a much higher opinion of the quality of their relationship with a client than the client does.

“Salesperson or account manager feedback is notoriously bad as an indicator of customer satisfaction,” says Ryals. “Customers tend to give overly-flattering reports about their suppliers. Still worse, satisfaction is a poor indicator of repurchase; customer loyalty is only 75% even at the highest levels of satisfaction.”

She suggests that customers are much more likely to receive world-class service if they behave like world-class customers.

The Chartered Institute of Procurement & Supply (CIPS) says building a trusted relationship with suppliers is a critical skill for procurement and supply chain specialists, and one that needs nurturing – all the way down the supply chain.

While CIPS accepts that products of low value may be a ‘catalogue’ transaction, a simple buy and sell, it advises that for core, strategic items, the relationship must be much closer.

“Face-to-face communication, regular site visits and regular performance reviews will keep conversation flowing, but it cuts both ways,” says a CIPS spokesperson.

“Beating down suppliers is not ethical or responsible procurement and it stores up problems further down the line. Business models can change and develop and that’s why soft skills are becoming increasingly important in procurement and supply chain professionals if supply also has to change.”

The importance of good communication was highlighted by all of the fleet decision-makers contacted for this article. 

This extends from honest day-to-day conversations between operational fleet teams and their supplier counterparts to strategic review meetings, but it also encompasses candid “off the record” discussions between fleet chiefs and their opposite numbers at providers to iron out problems that risk escalating into more serious issues. As more than one fleet chief mentioned, if they have to resort to the terms and conditions of a contract to get what they want, the relationship is probably doomed beyond recovery. 

Building on solid foundations

Business relationships that have survived the constraints and pressures of the pandemic will have been built on solid foundations, with the first stones laid before any contracts were signed.

CIPS recommends developing supply agreements jointly, with transparency to the fore as both sides disclose their issues and challenges.

“Sharing company objectives, policies and direction with critical suppliers can support both parties to form a win:win relationship and both parties benefit,” says the CIPS spokesperson.

At British Gas, one of the UK’s largest fleets, the relationship with suppliers has been a key focus for Steve Winter, head of fleet, heavily influencing his choice of providers. 

He adds innovation as a specification in many supply contracts, and is looking for evidence of where a supplier adds value to elevate its product or service above those of competitors. A supplier that simply delivers the basic terms of an agreement will find British Gas returning to the market at the end of the contract.

“We like to measure people during a contract to ask: ‘Where are you going to innovate? Where are you going to add value?’” says Winter. “Where has a supplier added so much value that it’s great news for us to renew the contract?”

He is particularly keen to forge these relationships throughout the supply chain, not simply with British Gas’s primary providers, and the utility’s use of recycled vehicle parts offers a prime example of how uniting suppliers has delivered efficiencies and cost savings.

“We recycle our vans. So, if we have the misfortune to write one off, we recycle it,” says Winter. “A salvage agent takes it and we buy those parts back. We have got a fleet management company that buys the mechanical parts and an accident management company that buys body parts. This has significantly reduced our downtime – if we have an accident and need a new door we can buy a secondhand door that is already painted in our blue and has our livery on it and we can have it the next day, so the van goes back on the road quickly. It saves us cash, but reducing the downtime is the key.”

He also acknowledges the role that British Gas has to play in building and sustaining these relationships, beyond paying invoices. In a similar three-way initiative, the fleet has worked with both a manufacturer and leasing company to deliver on its objective of converting to zero emission vehicles as soon as possible. 

His openness about British Gas’s electrification intentions saw the company test drive the new Vauxhall e-Vivaro at the turn of this year and secure first place in the queue for supply when the van became available – placing an order for 1,000 of the zero emission vans, kickstarting Vauxhall’s sales. 

Winter also makes no secret that he has a business plan approved and funds ready to buy a large electric panel van as soon as a suitable vehicle is available.

In return, he expects suppliers to be open and honest in how they assess their own performance at review meetings.

“We’ll encourage the supplier to give us a warts and all on that performance." 

"‘Where do you think you should have done better? Where have you learnt that you could have done something differently?’ Ultimately, that period has gone so what I’m interested in is what is going to happen in the next six months or a year. ‘Where do you see this developing? Have you got a proposal ready for your contract renewal?’ I’m more interested in what is going to happen in the future,” says Winter.

Suppliers represent the fleet 

Abandoning adversarial relationships, decision-makers at large fleets are highly aware of how the performance of a supplier can reflect on their own departments.

Stewart Lightbody, deputy chairman of the Association of Fleet Professionals (AFP), says: “I want to work with suppliers who understand me and what my organisation is trying to achieve and who buy into the same thing. Some of my best and longest relationships I have seen as extensions to my own team because what they do can impact directly and indirectly on how my internal customers see me and my team’s performance.”

Key to this is seeing past the sales pitch and trying to establish an accurate appraisal of how the supplier will actually manage the account. With a number of suppliers operating the ‘hunter-farmer’ approach, where one team wins the business and a second team delivers it, the risk of over-promise and under-delivery is acute.

“What I try to do when the supplier comes in to present, and I’ve even put it in my tender documentation, is to ask who the account manager will be, assuming they are successful,” says Lightbody. “That way I know that they have already thought about who we are, what we do, what kind of customer we are likely to be, and they have aligned their internal service provision in advance. What works really well is when they bring the account manager into the pitch.” 

At fleet consultancy VS360, director Chris Joyce (right) says the critical element of a hunter-farmer approach is implementation.

“Your new business person has to have an implementation team that works with them, takes the customer on, and becomes part of the glue that hands the customer over to the operational team and relationship manager who will look after the customer going forward,” he says.

Win:win is vital

But, adds Joyce, a supply agreement only succeeds if it works for both parties.  

“It’s beholden on everyone involved to put themselves in the other person’s shoes, to understand what each party is trying to get out of the relationship, and to make sure that each party is getting enough out of it,” he says.

Nailing a supplier down on price, for example, may reduce the scope for flexibility further down the line if circumstances change. As the pandemic has illustrated, flexibility in extending contracts, delaying new orders and even suspending payments can be extremely useful.

“You might not factor flexibility for pooled mileages or fees for changing contracts into your decisions up front, but, after 2020, fleets might take these into account,” says Joyce. 

“If you have really pushed the price to the limit is that supplier going to be putting itself out for you?”

A more open, trust-built relationship, however, would allow a fleet to share its objectives and disclose its budgetary constraints, so both parties can “put their heads together to work out how to deliver a service that meets the customer’s needs within the budget that’s affordable”, adds Joyce.

This style of transparency is very much the strategy of Countryside Properties, where Chris Connors, head of facilities and fleet, says drivers, the internal fleet team and the service provider should all be considered as stakeholders in the relationship, with the car viewed as a shared asset between all parties involved.

“We don’t want to be seen as just a client, we want to be seen as if we’re in it together.”

He adds: “We try to understand the provider’s business, how they want to operate, what schemes and mechanisms they use, and how they make their money. So we can then try to work out how we can get some shared objectives.”

This involves treating cost and value as two separate entities in the decision-making process, and attributing a similar weight to both.

“The key driver for us is employee experience; we don’t want them to feel like they’re dealing with a computer,” says Connors. “Our company is very good at supporting its employees, so we don’t have to worry about cost as the only driver, it is about quality of service.”

Establishing the value of good service is difficult, he adds, but “is getting slightly easier with more data being available. We are starting to be able to measure performance in an evidence-based, fact-based way, rather than just gut feel”.

Adopting a positive mindset, Connors says Countryside Properties is trying to establish service level agreements that evidence good service, such as speed of response to vehicle breakdowns, and minimising vehicle downtime, “because if a vehicle is off the road it means the driver is in a courtesy car, so they’re not going to be happy, or we’re incurring costs for a temporary vehicle”.

Public sector partnerships

Moving beyond a transactional relationship to a genuine partnership would appear to be more difficult for public sector fleets that source vehicles and related services through centrally-negotiated Crown Commercial Service (CCS) frameworks. In addition, the demand for absolute probity when spending taxpayers’ money means there’s no scope for prejudice or unconscious bias in selecting or ruling out a supplier from a tender, even if the provider has previously let down the fleet.

There is, however, scope for public sector fleets to get involved in the development of CCS frameworks and abundant opportunity to forge partnerships once contracts are signed, says Dale Eynon, director, Defra Group Fleet Services.

He explains that the frameworks, effectively, save fleets the first two steps of a tender process by pre-qualifying potential suppliers: Are they fit and proper? Are their finances sound? – and by laying basic ground rules. A leasing framework, for instance, might establish terms for early termination fees or wear and tear charges. 

“When you go to market you can send a tender to whomever is on the framework, but then negotiate beyond the framework. It’s the starting point or bare minimum,” he says.

“We will tell them our vision for the next five years and what our operational or financial constraints might be, and look to the supplier to see if they can help us get to that place. It might be working in a different way, having a different finance model to service it, or even looking at profit share.”

In common with all of the fleet decision-makers interviewed for this article, Eynon is happy to accept that suppliers are not volunteers and that they need to make a profit. His remit is to ensure this profit is clear, transparent and reasonable, and not disguised or hidden in another area of the contract.

“If suppliers want to provide us with some additional services, and it’s a benefit to us, then we’ll do it. It’s about making sure they are getting something out of what they are delivering. We want to see what they can do above and beyond what’s written in the contract,” he says. 

With vehicle supply, for example, this might involve how quickly manufacturers can supply demonstrators, whether they can hold stock, and whether they will prioritise Defra in the supply of vehicles that are in short supply, a pressing industry issue with high demand and limited availability of electric vehicles.

But, inevitably, there are also in-contract incidents where the strength of the relationship gets tested. A vehicle recall, for example, could see an entire batch of vehicles grounded, at which point a supportive manufacturer would step up and provide temporary replacement vehicles while they deal with the issue.

Defra is also looking to build relationships with businesses that align comfortably with its own strategic corporate aims in areas such as sustainability, diversity, equality and inclusion. 

“What can they do to prove to us that they are doing all they can to support sustainability within their own business? What are their plans to green their own fleet?” asks Eynon.

Having supplier partners that share your company’s brand values will help both organisations achieve their business goals with a long-term relationship.

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Relationship building

The Chartered Institute of Procurement & Supply (CIPS) explains how to build and maintain a successful partnership between fleet and supplier:

1 Pre-contract – meet up and visit a supplier’s premises and develop the agreement together, honestly and with transparency in mind, where both sides share their issues and challenges too.

2 Establish a clear commitment from both parties on what is expected from each side at the start of the relationship to avoid subsequent misunderstandings. Draw up a clear, concise and realistic contract.

3 Organisations seeking differentiation in the market will want to look for true value across the supply chain, not just cost. Beating down suppliers on price is not ethical or responsible procurement and stores up problems further down the line.

4 Maintain regular contact: face-to-face communication, regular site visits and frequent performance reviews will keep conversation flowing.

5 Keep reviewing service levels on a regular basis.

6 Share data; it’s an important aspect of transparency and supporting each other.

7 Work collaboratively – have open discussions about where savings could be made without compromising on quality or other important aspects of the partnership.

8 Try to understand each other so well that one side can predict how the other will react to a particular challenge, creating a symbiotic relationship.