Timing of vehicle replacement essential to control a fleet's TCO

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Addtional fleet vehicle.jpgThe timing of vehicle replacement can have a massive impact on an organisation’s fleet costs and ultimately the total cost of ownership (TCO) of the fleet, Ashleigh Young, General Manager at FleetCube tells SmartProcurement.

As we head ever deeper into this recession, many organisations are scrambling to institute action plans to control overheads and costs. They are quickly realising that cost control is a process and not an event, that actions organisations did or did not take a few years ago are now having a serious impact.

“One of the areas that constantly effects fleet costs is poorly timed vehicle purchases. This is usually due to bad planning, which is a result of a lack of knowledge and understanding of how purchase price will affect a vehicle’s TCO and the total costs of operating a fleet”, notes Young. “Organisations are now feeling the effects of poorly planned vehicle purchases made four years ago, but must ensure that they take action to correct these past mistakes as quickly as possible”.

The timing of a vehicle’s purchase significantly influences its resale value as well as the discount that can be negotiated from a dealer. “FleetCube often finds that due to poor communication and bad planning at an organisational level, organisations are forced into making vehicle purchases on an ad-hoc basis throughout the course of the year. For example, we often see a breakdown in communication between Human Resources and the Procurement/Fleet Manager when it comes to hiring staff”, says Young.

Usually, the Procurement/Fleet Manager is advised that a new staff member has been hired and that they require a vehicle, but only after the appointment has been made. The Procurement/Fleet Manager must then source a new vehicle for the employee for delivery either just before or shortly after he or she arrives. The problem with this, explains Young, is that it is very seldom that employees are hired on the spur of the moment; the increase in staff headcount and costs would have been accounted for in annual budgets, at which time HR and Finance would have known about it, but neglected to inform the Procurement/Fleet Manager.

This reactive approach to purchasing negatively affects the Procurement/Fleet Manager’s ability to negotiate the best price for the vehicle, which in turn impacts on the vehicle’s TCO. It also does not take into consideration the impact that the timing of the purchase has on the vehicle’s life time costs. “For example, if a vehicle is acquired in the last quarter of the year, then another full model year’s worth of depreciation will be incurred on the vehicle, for less than three months of usage. The result will be a higher TCO for the vehicle, which could be avoided through proper purchase planning”, explains Young.

However, what really concerns Young is the fact that in many cases the Procurement/Fleet Manager is not even aware of the impact that the timing of a purchase can have on costs or even the various discounts available. “Fleet costs are the second largest expense item in most organisations, next to staff costs, and all too often we see this important function being controlled by people who have not been properly trained to do so. Organisations would never dream of allowing their finances to be controlled by an untrained person, but are happy to do this with their fleet. We strongly advise that organisations up-skill responsible personnel to ensure that they have the knowledge and skills to control their organisation’s fleet in a planned and controlled manner.

Fleetcube offers a number of courses designed to provide comprehensive training to those people tasked with managing their organisation’s fleet. These courses range from basic fleet management through to targeting specific issues such as vehicle utilization and fleet financing. Fleetcube can assist in a consultancy role where organisations find challenges too large to handle internally.

Ashleigh Young can be contacted on 011 782 9211 or at ashleigh@fleetcube.com

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