OUTSOURCING AND ORGANIZATIONAL STRUCTURE OF THE FLEET MANAGEMENT

OUTSOURCING AND ORGANIZATIONAL STRUCTURE OF THE FLEET MANAGEMENT 

Outsourcing is to externalize parts of the organization’s productive process and/or activities to a third party. It’s done by every organization in several industries due to diverse reasons.

Currently, in the vehicle fleet management market there are several third party companies to whom are outsourced most of the activities and/or processes like acquisition, control and monitor, sales of vehicles or managing auxiliary services.

The organization has to establish certain criteria and guidelines for outsourcing several activities of the value chain to third parties, and which are done by the own company, just like establishing a period to review these criteria and guidelines.

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There is vast scientific literature on outsourcing. Following will be explained the advantages and the most important reasons for vehicle fleet management.

  • Focusing on the activities with higher added value: outsourcing those activities of lower added value makes it possible for the organization to focus their most valuable resources in those activities of higher added value in order to develop higher abilities and knowledge. This gives to the organization an advantage in the market and generates more value for the clients/users, creating an entrance barrier against potential entrances in the industry.
  • Flexibility to adapt to the market: the activities of the value chain increase their modularity, and the hierarchized or vertical structures of the organization become more horizontal. In addition, it requires fewer resources like staff and circulating capital causing an increase in the organizational flexibility, which is understood as the organization’s ability to adapt quickly to demand and opportunities in the market.
  • Costs: costs are a main factor for outsourcing, because of the scales economies, the outsourced providers can do a service and/or activity to a lower cost than if they were done by the organization.
  • Abilities and knowledge of human capital: aside from the labor costs, outsourcing is done to add more value to the final product or service through knowledge and abilities of the third party organization’s human capital.
  • Mutual trust and shared values: relationships based in mutual trust, shared values, performing similar services or making similar products, working in the same market, using the same productive service, similar supplying chain and similar technologies, create competitive advantages for both organizations due to the positive impact in their abilities to adapt to the market, to solve problems that show up when they work together, and to eliminate the opportunistic behaviors.
  • Co-specialization and mutual learning: outsourcing creates knowledge, abilities and a mutual experience with third parties, generating co-specialization and co-knowledge that are beneficial for the partners, allowing them to create products/services with a higher added value in a fast and flexible way and it’s also a strong potential for competitive advantages. To establish a lasting and stable relationship in time, frequently organizations do strategic alliances, joint venues and other type of relationships between organizations and specialized suppliers.

Outsourcing with specialized suppliers has the following main costs: searching for suppliers, negotiating, designing the contracts, follow-up of the agreements, follow-up of the goals that are reached and the disagreements if there were any. These costs can increase considerably if the organization is working in a foreign country.

The activities of higher added value in the vehicle fleet management are: designing and implementing policies, calculating the optimal number of vehicles, vehicles acquisition, vehicles operation, scoreboard, and data analysis.

Aside from the previous advantages and costs, outsourcing requires considering the following aspects in order to outsource some activities in the value chain:

  • The main activity of the value chain: an organization which has fleet management as their main activity for the value chain, will manage the activities with higher added value already mentioned and can outsource the rest of the activities to a third party. On the contrary, if for the organization fleet management is an auxiliary activity from the main one in the value chain, they could outsource all of the fleet management activities.
  • External organizations existence: It could happen that some activities or processes are too specialized to be outsourced because there’s no external organization that does them, or because in the country there’s no organization that offers the service and therefore the organization would have to do the activity internally.
  • External organizations ownership: an obstacle to outsource some activities would be if the third party organizations belong to companies that are competition to the organization, and it needs to be studied if it can compensate this option.
  • Fleet’s operative: a fleet that has a complicated management will outsource fewer activities than a fleet that’s easy to manage in order to have the control of it. A fleet with planned routes will outsource fewer activities than a fleet with sales associate.
  • Fleet size: a fleet with many vehicles and/or work centers is more difficult to manage than those with few vehicles and/or work centers, and for this reason, we need to focus on the activities with higher added value and outsource those activities with lower added value.

In order to outsource some activities and/or processes, there needs to be met two prerequisites.

  • The coordination between the different activities in the value chain has to be simplified through the reduction of the relations of interdependence between them. To do this, they need to be modularized and sequentialized in order to be clearly differentiated and independent. The coordination difficulties between the different stages of the value chain incentivize vertical integration. The activities that are part of the fleet’s management shown in the graphic 1, meet this prerequisite since they’re independent and sequential.
  • The exchanged information among the different value chain activities needs to be standardized; this means, it needs to be universally understandable, easy to specify and transmitted in a way that information asymmetry is decreased or eliminated. Creating standard formats to define the activities and processes is needed, since it replaces the way each organization has to describe and define them, because of this, there needs to be a standard for information in syntax and grammar, so the communication is effective inside the organization and with the external company. The information that is exchanged in the vehicle fleet management is easily understandable and standardizing it is easy to do.

ORGANIZATIONAL STRUCTURE OF THE VEHICLE FLEET

The organization has to design and establish the organizational structure of the fleet management such as the departments, the job profiles, the internal activities to do, and which ones to outsource, the processes, the controls, and the needed software and hardware, and depend on the following aspects.

  • Fleet size to manage: a large fleet with several work centers requires more processes, sources, controls and staff than a small fleet with a work center.
  • Available resources: an organization with a great financial capacity could acquire fleet management software, have a large scoreboard, hire staff for managing the auxiliary activities, have one or several fleet managers, have their own workshops, or have a department for the fleet management.
  • Activities to do: the more complex are the activities to do, the more processes, resources, controls and specialized staff are needed.
  • Importance of the vehicle fleet: if the fleet management is, the main activity in the value chain of the organization, specialized staff can do the activities, and there will be one/some fleet manager/s. On the contrary, if the fleet management is a support activity of the main activity of the organization, several workers and/or departments of the organization could do the fleet management activities.
  • Who does the activities: the activities could be done between several workers or by one/some fleet manager/s in charge of all activities.
  • Outsourcing activities: some activities of the fleet management can be outsource to third party companies.

Depending on the already mentioned aspects, there are several organizational combinations and solutions for the fleet management. Because of this, each organization will have a solution that adapts better to their necessities, characteristics and goals.

AUXILARY SERVICES OF THE FLEET

The organization has to design and implement the policy for the auxiliary services, which are those support activities of fleet management, and its main goal is to comply with the current laws in the country where the fleet operates.

The auxiliary services are the activities with the lowest added value in fleet management and are the following.

  • Insurance: hiring and managing the insurance of the vehicles like choosing a company and type of insurance.
  • Accidents: managing and working with the insurance company and third-parties in traffic accidents.
  • Fuel cards: managing the fuel cards like controlling them and choosing the provider.
  • Traffic tickets/fines: managing traffic tickets/fines like payment, claims, drivers identification, etc. it needs to be established in which cases the organization or the driver pays said tickets.
  • Vehicles technical inspection: controlling and managing the technical inspections, with the goal of getting the vehicles their inspection in time.
  • Current laws: complying with current laws that apply to the fleet management, from the acquisition and operation, to the disposal, as well as the technical specifications of the vehicles.
  • Technical modifications of the vehicles: manage all the certificates and relevant procedures with third-parties so the modifications made to the vehicles comply with the relevant law and the vehicles inspection.

The management of these auxiliary activities could be outsourced to third-parties, and it depends on some aspects that we have remarked on the previous epigraph.

CONTROL AND MONITOR OF THE VEHICLE FLEET

The organization has to design and implement what information and level of detail is registered for control, monitor, traceability and history of the vehicle such as the technical specifications, acquisition cost, acquisition date, delivery date, disposal date, sales date,   sales price, who’s in charge of the vehicle, who’s the vehicle’s driver, or what workplace has assigned the vehicle. Some of these information can be collected from other departments like accounting and/or financing.

The information and level of detail to register depend on several aspects like the following:

  • The financial capacity of the organization: The more information to collect, the more resources needs, and the higher the cost.
  • The fleet size and number of work centers: The higher the number of vehicles and/or centers, the more complex is the information collecting, the more sources consumed, and the higher the cost.
  • The information usage: it needs to be consider if the collected information is useful for decision making such as the average period of delivery for the vehicles, the average period of use of the vehicle, the average period of sales of the vehicle, the average of drivers that use the vehicle, the average acquisition price, the average sales price, the average time to sell the vehicle, identify the driver or what centers have an misuse of the vehicle or are not following the general rules of the fleet management organization.
  • Importance of the vehicle fleet: if the fleet’s management supports the main activity of the organization it needs to have a deeper control, monitor, traceability and history of the vehicle, than if the fleet’s management is a secondary activity for the organization.
  • If the organization is useful for other departments of the organization, like accounting or the assets control.

INFORMATION TO REGISTER OF THE VEHICLE FLEET

In order to have control, monitor, traceability and history of the vehicle, it’s recommended to register the following basic information in the information system

  • Acquisition price of the vehicle.
  • Acquisition date of the vehicle.
  • Delivery date of the vehicle.
  • Vehicle’s supplier.
  • Brand and model of the vehicle.
  • Vehicle’s equipment.
  • Contamination emissions of the vehicle.
  • Documentation of the vehicle in PDF format or copy of the original ones (technical sheet, circulation permission, insurance, etc).
  • Technical specifications of the vehicle (information hold in the technical sheet).
  • Date of last technical inspection.
  • Assigned working center.
  • Assigned driver or person in charge of the vehicle.
  • Sales price of the vehicle.
  • Date of the vehicle’s disposal.
  • Date of the vehicle’s sale.
  • Sales price of the vehicle.

Some of this information can be included in the scoreboard, like acquisition and sales price, and the date when these took place.

JMFI´m a Fleet Management expert, and the manager of Advanced Fleet Management Consulting, that provides Fleet Management Consultancy Services.