By John Hall | My Purchasing Center
Sourcing fleet management services can be one of the more challenging parts of managing an indirect spend.
How do you stay abreast of all the rapid technological changes going on inside new vehicles? How do you filter between the bells and whistles, and the essentials? How can you sleep well at night entrusting millions of dollars of product to drivers without assurances their needs are addressed? How do you track fleet inventory, whether it’s being utilized most efficiently or know when the best time is to replace it? Is there a bottom line other than just price?
Sourcing this high level of indirect spend is part science and part art, and it’s become far more sophisticated than ever before.
Des Plaines, Ill.-based Wheels, Inc., which pioneered the vehicle leasing concept, recently marked its 75th year in the business. My Purchasing Center sat down to talk about fleet sourcing and procurement with Norman Din, Vice President of Sales and Business Development. Din joined Wheels in 2004 after prior management roles at Brigade Corporation, PricewaterhouseCoopers, PwC Consulting and Mesirow Stein Real Estate, Inc. He also co-founded an integrated marketing and communications firm, Din & Pangrazio, Inc., which grew to become an Inc. 500 company in the 1980s.
How significant is fleet management as an indirect spend category?
For the vast majority of Wheels clients, fleet is certainly in the top five indirect spend categories and often as high as first or second. As a result, sourcing organizations have taken a keen interest in understanding, managing and controlling this large and dynamic category. And as sourcing has continued to grow as an important management discipline, Wheels has embraced partnerships with sourcing so that we jointly identify, track and deliver value to the stakeholders.
Our sourcing clients have driven greater efficiency, streamlined processes, lowered risks and delivered significant cost savings for their organizations. Most have also reduced the number of suppliers in their chain. This means that each supplier becomes more important. Today, more people in sourcing are realizing the importance of partnerships. It’s no longer just rhetoric and it’s a great thing to see. If there’s been a major shift during the past few years, it’s that many of our colleagues in sourcing find that intangibles such as innovation, collaboration, ethics, financial stability – characteristics you want in a great partner – are extremely important in the creation of a successful supplier community for their companies.
What’s been your personal experience with this at Wheels?
We have always been a value-focused company and understand that we must compete with pricing that’s at market if not better. But frankly, that’s not how we win or keep business. We transformed our approach about eight years ago with the realization that sourcing wasn’t just the buyer, sourcing was our customer. Back when I ran our client relations organization in North America we did a study of our client group to identify how we could best serve sourcing’s needs.
What did you discover?
We started out asking “Who does fleet report to?” It used to be a stand-alone organization in many companies. Some fleet managers reported into finance, some to HR and others to the sales organization. Over time, we’ve found that an increasing number of fleets now report directly into sourcing. As a result, there’s been a shift in client emphasis from “manage the work” to “manage the supplier who manages the work.” This hasn’t changed the work we do to ensure that drivers are productive, fleets are optimized and compliance is achieved. But it does change our role and accountability to deliver results and not activity. We have shifted our focus and sourcing has found it to be a very welcome change.
What kinds of challenges do procurement people face today with this category?
Sourcing drives value through reduced risk, continuous efficiency gains and cost reduction. So the first challenge is that there are a lot of things on sourcing’s plate. In general, I think that sourcing finds it a challenge to gain and maintain institutional credibility with some internal stakeholders and corporate business partners. The fleet category isn’t any different. Sourcing relies on cooperation and influence to succeed, because they often have limited control over the people who spend the money or manage compliance.
How has fleet management in general, or Wheels, Inc., responded to changes in the dynamics of sourcing?
Today, we aspire to be sourcing’s preferred supplier in the fleet category. It starts with how we think and collaborate. In addition to the rigorous methods we have to manage and audit spend, we have developed tools to tell the fleet story to others so that our sourcing clients can inform stakeholders how we control spend on their behalf, how we have improved operations, and track the results we’re delivering. So instead of just saying to a client “Here’s what you need to do,” we take on the accountability for doing it, which is what sourcing wants in managing our relationship. We are also sensitive to sourcing’s need to communicate to others in managing the fleet spend, so we’ve dedicated resources and have best-in-class tools to help manage stakeholder interests. Because sourcing will either get the credit or the blame when things work or don’t work, information must be accessible, and packaged in an easily digestible way to share internally.
How have current economic conditions challenged you?
While not a challenge in the conventional sense, the boom in the energy sector is an economic condition that has been a terrific growth area for Wheels. We’ve successfully added numerous new clients in virtually every segment of the energy industry – exploration, extraction, processing, distribution and retail. There’s also a lot of private equity money chasing deals right now. Unfortunately, too often the acquired companies become highly levered and disclose less information about their financial condition. These two factors make it a challenge to rationalize the rather substantial credit investment we make in our clients. There’s been considerable consolidation in the pharmaceutical business, which continues to be one of our strongest verticals. While we have been fortunate in retaining clients as they’ve acquired companies or divested operations, these reorganizations can significantly reduce the number of vehicles in service. That said, we have successfully met these challenges by making our clients’ best interests the priority as we’ve rationalized their fleet operations to meet the needs of the go-forward organization. That’s how you keep customers.
What are procurement/sourcing people looking for in a fleet management company today?
For companies that operate large fleets, sustainable improvements in cost and operating efficiency drive the agenda. That’s why innovation and collaboration are critical, as are technology solutions, relevant experience and accountability for results. Not surprisingly, sourcing also looks to reduce cost. And if you’re really looking to reduce cost, you can’t allow yourself to be distracted by fleet management fees which typically amount to less than 3% of our clients’ spend. The secret to long-term, sustainable cost and operating improvement, comes from how well you manage the 97%. That’s the magic. We show potential customers what we do to favorably impact that 97%.
What advice would you give procurement professionals interested in sourcing fleet management for their company?
The first bit of advice shouldn’t be a surprise – understand what’s core to your business and what’s not. Stay focused on your core business and allow others to manage non-core business processes. The next thing to consider is who is best qualified to do non-core functions. Given a shrinking supply chain, and supplier consolidation, every link of the supply chain is more important than ever. Procurement folks would do well to think less about specific product or service offerings, and ask of every potential vendor, “How do you think? Show me how you arrived at this solution or answer?” If you find someone who’s thinking proactively and forward-facing rather than responding to the last fire drill, that will give you a partner that will improve your supply chain over time. Moreover, state-of-the art is only current so long; and so sourcing people need to get under the covers to understand what companies think about, where they’re going, how they innovate and how they collaborate. These are the skills that help generate long-term, enduring partners.