Profit from outsourcing

December 15, 2010
by Kara Kuryllowicz

PURCHASINGB2B MAGAZINE, OCTOBER 2010: After more than three decades, outsourcing remains a hot topic. Private, public and government organizations are consistently assessing their fleet composition, culture and in-house resources when deciding how much of their fleet operations will be handled in-house and at what cost.

Due to the ever-increasing complexity of fleet operations, the required expertise and associated costs are key considerations, but organizations are also committed to strategically leveraging their human resources to better manufacture and deliver their products and/or services to their customers. As a result, Bayer Inc in Toronto and Imperial Tobacco Canada in Montreal, have respectively outsourced the bulk of their daily fleet operations to Transportaction Lease Systems Inc of Toronto and Automotive Resources International (ARI) in Mississauga, Ontario and reallocated the fleet duties that are handled internally.

“Pharmaceuticals are Bayer’s core competency, not fleet management, which requires an extensive, highly specialized skill-set that is hard to find in one person,” says Paula Moore, director financial services at Bayer. She spends 15 to 20 percent of her time on fleet, while fleet coordinator Ket Cole is dedicated to the approximately 400 drivers (executives and sales) and their vehicles. “We do what we do best and let Transportaction handle the rest.”

Transportaction, like many fleet management and leasing companies, provides what are typically the most fleet-specific, routine and time-consuming fleet-related services, including vehicle selectors and ordering, annual license-plate renewals, driver abstracts, fuel and maintenance management, taxable benefits calculations, insurance, repairs and accident reporting, remarketing of vehicles and driver calls.

Outsourcing for expertise
“I’m a generalist who uses commonsense to manage Imperial Tobacco Canada’s many outside providers, from fleet operations to our mailroom and cafeteria services,” says Gary Houghton, associate fleet and office services with Imperial Tobacco Canada in Montreal. The company runs about 385 passenger vehicles and staffed its own cafeteria and mailroom until just a decade ago. “I’m responsible for the budgets, the service levels and daily operations, but ARI is the expert that gets things done every day.”

Of course, customers absolutely expect to benefit from their fleet management company’s economies of scale and volume discounts. As well, a fleet management firm’s vast customer pool can also be leveraged to provide vital benchmarking data.

“That level of service could be provided in-house, but the cost would be astronomical,” says Moore. “They develop their technology, systems and reporting based on the needs of multiple clients, who then share the cost of that investment and reap the rewards of the accumulated information.”

Transportaction’s expertise and experience as well as their ability to take on the daily operations allow Moore and Cole to focus on the big-picture financial implications, the interpretation and adaptation of Bayer’s global fleet policy across Canada, and of course, the selector.

“Transportaction runs Bayer’s fleet, but ultimately, we control it,” says Moore.

While outsourcing makes good sense for Bayer and Imperial Tobacco of Canada, it is a less obvious choice for firms that offer specialized services and require more unique vehicles to deliver them.

“If your vehicles and equipment are integral to the service you provide, for example a courier company, or a municipality, it’s more likely it will be managed in-house, particularly in certain political and organizational cultures,” says Shirley Fernandes, manager, TotalFleet for Transportaction in Toronto.

For instance, Purolator Courier Ltd and the City of Hamilton, which demand highly specialized, vehicle-related expertise and control, handle the majority of fleet-related activities and services internally and outsource just a few.

“We’re constantly comparing the internal versus the external costs of the fleet management required to provide the on-time delivery our customers demand and confirming that it makes financial sense to keep it in-house, with the exception of some maintenance in remote areas,” says Serge Viola, fleet director for Purolator Courier in Mississauga, which runs 5,000 vehicles Canada-wide and outsources only some maintenance in remote areas.

“To make the eight to 12 stops per hour that are essential to Purolator’s productivity model, our drivers rely on our highly customized, curbside vehicles that combine a Utilimaster body and a Ford chassis. Downtime is not an option…so Purolator needs its own maintenance facilities.”

Similarly, to properly operate and maintain the City of Hamilton, its fleet division’s core mission is to acquire, maintain, repair and finally dispose of specialized, medium- and heavy-duty equipment. To that end, the 56 employees of the city’s fleet division include 36 maintenance technicians, about 15 administrators (who handle vehicle and equipment acquisition, sourcing and purchasing parts, materials management, driver training and abstracts) and five managers and supervisors. In Hamilton, where employment is a particularly sensitive issue, maintaining those jobs is also of paramount importance.

“We are very aware of the political implications around those jobs, but we also believe that we’d have to rely on a variety of providers to outsource our fleet, which reduces or eliminates the potential for cost, control and efficiency gains,” says Chris Hill, past chair of the Ontario Chapter of the National Association of Fleet Administrators and manager, central fleet for the Public Works Department-Transportation, Energy & Facilities Division at the City of Hamilton, which also operates 23 fuel sites across Hamilton.

About half of Hamilton’s highly diverse, 1,350-vehicle fleet is considered equipment, including its ice-resurfacers, oversize mowers, garbage trucks, street sweepers, snow plows and front-end loaders. There are also 300 pickup trucks, 98 hybrid Ford Escape SUVs, 100 cargo vans and about 40 cars. The city has about 1,600 drivers in its database with most vehicles being rotated through 30 to 40 drivers annually. About 75 percent of the maintenance is handled in the city’s own shop, with the remainder outsourced.

“The City of Hamilton just can’t compete with the likes of Jiffy Lube when it comes to our passenger vehicles and we’re more comfortable with the hybrid Escapes going back to Ford for regular maintenance and repairs,” says Hill, who relies on the Avantis fleet management software to track assets and inventory and manage work orders.

After considering their fleet’s impact on the delivery of the company’s core services as well as its unique culture, those who decide to outsource can ask the following questions as they reserach fleet management service providers.

Questions to ask
When shopping for a fleet leasing/management provider, ask:

1) Can you provide all of the services we require at a reasonable cost? According to Transportaction’s Fernandes, outsourcing the fleet costs about one-third what it would cost to do it internally with an employee who dedicates just 50 percent of his/her time to fleet, while the return on the cost of outsourcing fuel and maintenance is in the double-digits.

“Ultimately, outsourcing is about managing and reducing cost, so make sure that’s a significant part of the package,” says Houghton. “It allows us to focus on our core competency while controlling the headcount.”

2) Are you one-size fits all or can we cherry-pick your services? “We recently went through the RFP process and discovered that some providers were more flexible than others, which is important as we recognize that our needs will change over time,” says Moore.

3) Is there an extra cost for consultation? “Transportaction shares its knowledge as part of its service package, but others charge additional fees, which could really accumulate over time,” Moore says.

4) What is your current technology platform? What technology do you have in the pipeline and what’s the timeline on that? Is it user-friendly? This is incredibly important because the technology moves and evolves so quickly. For example, Bayer’s field employees want mobile technology applications, for example, being able to update mileage on their Blackberries. The technology must be incredibly quick and easy to use because typically, an organization’s field employees are not IT experts.

“For Bayer, the technology was the deal-breaker with several potential providers,” says Moore.

5) Can you provide the same level of service in French and English? National firms, such as Bayer, demand fully bilingual services, across technology applications, communications (ie call centres, websites, informational packages) to ensure employees have the necessary comfort level.

“Most employees speak some English, but making everything available in their first language is a courtesy and a convenience,” Moore says. “We assumed bilingual services would be a given and discovered that wasn’t the case with all providers.”

6) Do you operate Canada-wide and understand the many provincial variations? Whether your firm has employees and vehicles across the country or only in a few provinces, your fleet provider must grasp the many legislative differences that apply to everything from driver and vehicle licensing to the laws around driving under the influence.

7) What is your employee turnover rate? Do you provide a dedicated account executive or representative, or are we dealing with your call centre?

“We’ve won RFPs because the average tenure in my department is 10 years,” says Fernandes. Longevity is important to firms like Bayer whose employees appreciate the provider’s deep knowledge of their company.

“Our customer service rep has been with Transportaction and subsequently, Bayer, for 12 years-that provides a real sense of comfort and ease,” says Moore. In fact, another Transportaction rep has been handling one client’s fleet for 18 years, so it’s no surprise the drivers think she’s employed by the same company as they are.

Once you commit to a fleet services provider, certain strategies ensure your company, its bottom line and its drivers are fully benefiting from the relationship.

Managing your fleet services provider
1) Get regular reports, assessments and meetings. No one cares more about your bottom line than you do, so consistently monitor your provider’s costs. “Don’t just turn it over to your provider and forget about it,” says Fernandes. “Oversee your fleet even if you’re doing it at a very high level.”

Meet with your provider (at least annually, if not quarterly or more frequently) to do cost comparisons, while seeking their guidance on how to achieve targets. “It’s a dialogue,” says Moore. “As an ISO-certified firm, we’re continuously measuring and assessing so we demand transparency and detailed tracking,” says Viola, who outsources only maintenance.

2) Stay hands-on. Be actively involved to personally feel your fleet’s pulse beyond the financial implications. At Bayer, Cole and Moore not only drive the company’s national fleet policy, they meet with the OEMs and research their selectors before stacking them against Transportaction’s recommendations, although Transportaction places the orders.

“We want to make sure that all fleet activities are in compliance with company policies and meet company priorities, such as safety, green and employee satisfaction,” says Cole, who double-checks all taxable benefits so that the reissue of T4s is minimized.

3) Go the RFP route, but be sure you’re comparing apples to apples. “There are service level and cost variations, so look closely,” says Fernandes. Even if you have an outstanding relationship with your provider, prove they’re competitive by going through the RFP process, says Moore, who did that recently and confirmed that their provider is competitive in terms of price as well as services offered, in particular, information technology enhancements.