Procurement’s involvement with fleet has grown deeper and its scope of responsibility in fleet management has expanded. Currently, 28% of all fleet managers in the U.S. work in procurement or report up through procurement with the anticipation that this percentage will grow in the coming years. Looking ahead, how will procurement and fleet evolve in the future? My prediction is there will be market forces (both internal and external), along with technological enhancements, that will facilitate a much closer collaboration between the two disciplines using a combination of in-house and outsourced expertise.
When making predictions, if you want to know where we are going, it is critical to understand from where we came. Corporate purchasing departments have been involved in fleet vehicle acquisition and supplier selection prior to the advent of strategic sourcing. Many fleets prior to the 1980s were company owned and it was logical for these operations to be managed by the department that bought the vehicles, namely purchasing.
Today, procurement occupies a pre-eminent position in the corporate hierarchy; however, this wasn’t always the case. As recently as the 1980s, purchasing departments were dismissively viewed at many corporations as “order placers” and “order takers.” But, over the past three decades, the purchasing function has evolved into a sophisticated procurement process known as strategic sourcing, which continuously improves and re-evaluates both direct and indirect procurement. When strategic sourcing proliferated in the 1990s, it rapidly transformed corporate purchasing at many companies by reexamining all “spend” categories, including fleet.
There were a number of factors that elevated procurement to be viewed by senior management as a strategic business process. A watershed realization occurred when General Motors put Ignacio Lopez, an engineer from the company’s European operations, in charge of procurement. Lopez literally threw out existing supplier contracts and demanded drastic reductions in prices.
This drama played out on the pages of Automotive News almost like a weekly soap opera. But, in the course of a year, Lopez and his procurement teams added a billion dollars to the bottom line of General Motors. This got everyone’s attention. Without selling one additional car, Lopez generated a billion dollars in profit by using a strategic sourcing process to renegotiate contracts with Tier One suppliers. Shortly thereafter other major corporations transformed their purchasing departments into strategic procurement teams. In short order, major strategic sourcing initiatives were emulated at other companies, such as Sears, American Honda, American Airlines, FedEx, and Staples.
In the fleet world, pharmaceutical companies were in the vanguard of fleets employing strategic sourcing initiatives. The earliest to implement strategic sourcing initiatives were Pfizer, Bristol-Myers, and Eli Lilly. Another watershed moment occurred in the mid-1990s after the telecommunication industry was deregulated and AT&T was broken up into Baby Bell companies. One of the Baby Bells was Bell Atlantic, which, through a strategic sourcing initiative, implemented a dramatic procurement-driven transformation of its massive fleet operations.
During the current decade, procurement has evolved beyond sourcing by expanding its operational oversight of fleet management supplier relationships using service level agreements (SLA) that are enforced by non-compliance penalties. As a result, procurement has gained a greater voice in operational considerations. In many cases, the sourcing organization even gained actual “ownership” of the fleet management process.
A Data-Driven Fleet and Procurement Synergy
Any discussion about the future of procurement and fleet management must include the role data analytics and “Big Data” will play. In many respects, these technology initiatives will facilitate a closer convergence of both of our data-driven disciplines.
As Big Data and Big Data Analytics increasingly influences the corporate decision-making process, best-in-class procurement organizations will employ greater utilization of advanced data mining and analytics techniques to increase visibility, transparency, and compliance.
Similarly, advanced analytics will play a significant role in fleet management decision-making. (Advanced analytics is the analysis of fleet data using exploratory and predictive data mining to produce actionable data.) Just like procurement, fleet professionals believe predictive and prescriptive analytics will revolutionize fleet management. In procurement, predictive analytics tracks purchasing patterns over time and helps forecast future purchasing patterns. This information allows teams to anticipate issues and react proactively. Similarly, fleet analytics will be the cornerstone in cost containment, safety management, and productivity initiatives. For both fleet and procurement, Big Data analytics will provide the ability to examine large data sets to uncover previously unrecognized patterns and interconnections, along with other actionable information.
These market forces are also coalescing the mindset of forward thinking procurement and fleet professionals. For instance, at some multinational companies, procurement and fleet management teams now recognize the need for central leadership to drive a global strategy, while ensuring engagement is locally driven.
My prediction is that the adoption of integrated technology functionality and changing mindsets will even further intertwine fleet and procurement by creating a much deeper data-driven synergistic relationship.
Let me know what you think.
Originally posted on Automotive Fleet