Driving Insight - Industry Views
Putting the true cost of fleet on the boardroom table Ian McKenzie, group business development director
Linking fleet performance improvement to business success
Business performance improvement (BPI) is firmly on the corporate agenda. In today’s complex and competitive market (which is no longer local, but global), survival and growth require an increasingly sophisticated approach. Lowering costs to protect margins has its place; however, it is no longer enough. When all your competitors are doing it too, where is your edge? And if you want to retain market share, how do you protect your price point?
FMG Support believes, and can demonstrate, that fleet can make a significant contribution to delivering against BPI objectives – providing fleet is no longer treated as a stand-alone entity, but is introduced into the overall BPI strategy.
Savvy businesses know that BPI requires a smarter approach. Innovative approaches to capturing new business, protecting customer relationships, careful brand management, and adding value are just a few aspects of the multi-faceted approach required. However, truly effective BPI also looks at every area within the business, including those which are often overlooked, or where it is felt that no further improvements can be made.
Independent research commissioned by FMG Support clearly highlights that fleet is commonly ignored; yet it is typically the second-largest cost to an organisation, after payroll.
Following interviews with more than 20 of Europe’s major leasing and insurance companies, and businesses operating fleets of over 500 vehicles, FMG Support found that over 90% of senior decision-makers do not consider fleet management likely to make a significant contribution to BPI objectives. Additionally, more than half of individuals in fleet do not fully appreciate the impact that it can have on the overall business’ commercial success. This is driven by three major factors:
- The absence of a robust evaluation method for the ongoing reporting, measurement and analysis of fleet performance, which is standard across the industry.
- Limited appreciation within the fleet industry of the real significance of fleet for BPI.
- An inherent weakness amongst those with responsibility for managing fleets in communicating its potential contribution to profitability and growth.
The funding of fleets has traditionally been the financial director’s decision. Whilst in practice this is understandable, fleet (by its very nature facilitating the transfer of people, goods and services) touches many other areas of a business. This includes HR, operations, production, procurement, legal, sales and marketing.
The legislative and environmental significance of fleet is also an important consideration for health and safety policy, as it impacts on exposure to risk and therefore to the business’ reputation. FMG Support’s research demonstrates that whilst these are day-to-day issues for those directly involved in fleet management, the full implications have not been made clear to senior decision-makers – and very few companies place fleet on the boardroom agenda.
Fleet is still viewed by many as an inevitable, often costly, non-core element of running a business. However, FMG Support believes, and can demonstrate, that fleet can make a significant contribution to delivering against BPI objectives – providing fleet is no longer treated as a stand-alone entity, but is introduced into the overall BPI strategy. The emphasis needs to change; away from fleet as a cost of business towards allowing it strategic capability.
Fleet performance improvement can realise significant savings. However, as stated, cost-cutting is not the whole story.
Intelligent fleet solutions also examine why costs arise, and then eliminate or mitigate those causes. They look at how fleet can add value to both internal and external service delivery. Crucially, the way in which a company’s fleet is managed can often impact not only on the business’ own performance and profitability, but on its customers’. It can also influence the long-term retention of clients, employees and key suppliers.
FMG Support has developed a model which helps businesses integrate fleet within overall BPI objectives. Entitled the BPI/FPI Operational Process Model, it lays down a process for translating board-agreed BPI objectives into operational goals for all areas of the business, including fleet. FMG Support has also developed a four-stage process which comprehensively audits the performance capabilities of fleet, and provides a clear action plan, from analysis and diagnosis to implementation and ongoing evaluation.
Measurement is essential to the delivery of clear results; the ammunition which will prove the direct link between fleet and business performance improvement. However, the industry currently lacks a robust model for measuring and evaluating fleet performance. FMG Support’s research respondents cited examples of fleet cost analysis such as vehicle price, depreciation, fuel consumption, maintenance, repair costs, vehicle downtime, cost of incidents and driver training. But there was no real consistency in the way that these costs are apportioned or how they are calculated, or their impact on the business. Without this critical data, the true cost of fleet and its potential contribution to BPI can never be realised.
A practical model which clearly demonstrates return on investment (ROI) will help bring the issue of fleet onto the boardroom table. However, none of the research respondents were aware of such methodology; more significantly, they believed that measuring ROI from fleet is impossible, and therefore don’t attempt to do it.
While the development of ROI measures for fleet may seem like a significant and difficult advancement for the industry, it will further communicate the commercial importance of fleet and blow a clear path to the boardroom door. In the meantime, individuals must also take responsibility for communicating the message that managing the fleet has an important role to play in achieving overall BPI objectives.
