Everything fleet does revolves around money: asset acquisition, fuel to operate assets, maintenance to keep assets operational, and myriad other miscellaneous, incidental expenses ranging from tolls, parking tickets, and waste disposal fees to taxes.
Cost management is a constant, never-ending struggle because there never seems to be enough money to go around, especially as company management continues to demand more cuts. This is why spend management and analytics are crucial. Accountability is key if you want to operate a best-in-class fleet, and accountability starts with you. It is a fleet manager’s leadership that defines the culture of a fleet operation.
It’s estimated an average fleet wastes between 5% and 10% of its annual budget dollars due to unmanaged spend, inefficient asset acquisition and operations, and less-than-optimal depreciation strategies. Some challenge me on this estimate, saying it is too low, and they may be right, which makes it even more imperative to address this issue.
The greatest amount of waste in operating costs occur with the fuel budget. If up to 30% of a vehicle’s fuel efficiency is impacted by driver behavior, you need to address this inefficient use of corporate assets. How much money is wasted in unnecessary over-spec’ing of vehicles? Ask yourself, are you maximizing the resale potential for all assets? Or, are your remarketing practices wastefully leaving money on the table?
In terms of unmanaged spend, procurement studies reveal that 20% or more of total corporate spend is for purchases that could have been acquired at a lower cost. A key contributor is rogue spending, which is defined as not following corporate procurement policies when acquiring goods or services, such as making unauthorized purchases or buying from higher priced non-preferred suppliers.
Controlling P-Card Expenditures
Fleet purchases are typically made via a purchase order, a P-card, or a national account program. An ongoing headache for fleet managers is dealing with employees who do not follow established procurement policies.
Purchasing goods or services out of contract or from non-preferred suppliers means the company isn’t benefitting from negotiated price discounts from preferred suppliers. Rogue spending occurs at all corporate functions, and fleet operations is no exception, especially when managing dispersed assets operated by multiple field locations. Rogue spending is common at companies that are growing through acquisition, or have a large number of remote operational locations, or experience high employee turnover.
A key enabler of rogue spending is the corporate P-card, which field personnel use to buy unauthorized goods and services that are approved with a wink by their immediate management because it resolves a pressing operational need. Often, this type of rogue spending does not get discovered unless there is an audit. These unauthorized purchases are often done under the philosophy that it is easier to ask for forgiveness than permission. In other cases, these expenditures are embedded into a G/L account deliberately concealing rogue expenditures by miscoding them.
Many times, employees do not know they are not authorized to make expenditures, because procurement guidelines were not communicated to them. Even when purchasing policies are communicated company-wide, there is no guarantee the message will reach all employees, especially when there is a high turnover and employees join the workforce subsequent to these communications.
This is especially true at larger fleets, which have many layers of management or numerous field operations. This can be remedied by mandating that expenditure requests go through a formal approval process, and placing restrictions as to who can issue a purchase order. However, the approval process must be a streamlined procedure. A common justification for rogue spending is the desire to bypass a lengthy approval process to expedite emergency purchases.
Using Fleet Policy as a Cost-Control Mechanism
Rather than asking for additional budget dollars, your No. 1 priority should be to first stop the wasteful spending of existing dollars. Fleet policy provides the mechanism to curb money-wasting behaviors and it must be a crucial part of a company’s overall fleet cost-control strategy.
It seems like I’ve said this a million times, but the best time to control waste is before it occurs. The way to do this is by establishing policies and procedures that inhibit unnecessary and avoidable spending.
Let me know what you think.
Originally posted on Automotive Fleet