Fleet Management

Profit Is Hiding In Dark Places

September 2016, TruckingInfo.com - WebXclusive

by Denise Rondini, Aftermarket Contributing Editor - Also by this author

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Most fleets are operating on thin margins and that is not likely to change anytime soon.

Yet many of them are missing an opportunity to add to their bottom line because they don’t have complete control over their procurement process. If managed efficiently, the procurement process — what is purchased, how it is purchased, who makes the purchasing decisions — impacts profitability.

Purchasing sounds pretty straightforward, but in reality, for many fleets it is surrounded by a great deal of confusion.

In a recent survey conducted by AmeriQuest Business Services, 2,000 respondents who were responsible for managing or influencing their company’s procurement process shed light on why this process so often falls short of its potential:

20.4 percent of the companies had no procurement process in place;

13.3 percent had no idea if their company did, or did not have, a procurement process in place;

Less than a quarter of the survey respondents indicated that procurement was viewed as a strategic business partner;

Another 25 percent noted that procurement is simply seen as a function of accounts receivables/account payables;

Fifteen percent of the survey respondents didn’t know which department managed their company’s procurement, even though they were directly involved in the process.

Dr. Reggie Peterson, Director of Indirect Programs at AmeriQuest Business Services, has dubbed this phenomena “dark purchasing.” Basically, that refers to a fleet’s inability to track where its expenditures are going. According to the survey, employees often do not know the best way to make a purchase especially when it comes to items that are categorized as indirect spend — categories of goods and services that are necessary to support a fleet’s operation. In other words, everyday items like MRO supplies, office supplies, cleaning products, etc.

Yet it is often the little things that when added together end up costing more than imagined or anticipated. As Peterson says, “You will scrutinize large expenditures but may not pay too much attention to a bill for $6. But of you have 1,000 people spending $6 with no oversight, it adds up quickly.”

Estimates are that 15–40 percent of a company’s overall operating costs fall in the indirect spend category.

Dark purchasing usually involves the purchasing of goods and services outside of established procurement practices and often means purchasing from unapproved suppliers and redundant or unnecessary purchases.

Unfortunately, dark purchasing also applies to larger ticket items like trucks. There can be hidden costs in the purchase of trucks that are best found by conducting a total- cost-of-ownership analysis. A good TCO analysis includes depreciation interest on your loan, taxes and fees, insurance premiums, fuel costs, maintenance, repairs, resale value, etc.

To make sure your fleet’s asset purchases are not happening in the dark, always include operations and maintenance people in the asset purchase process, Peterson advises.

And whether the purchase is large or small, a consistent procurement process managed by an indirect spend program can help you maintain full visibility on all your purchase transactions.

Comments

  1. 1. Vlademir De Santi [ September 27, 2016 @ 07:20AM ]

    the profit is on the brokers pocket, there is not money in the market at this time, and you are correct.. it is mostlikely to staty like this, unless we stand to the industry and demand higher rates! I dont remember the last time we made money, and everyday... i wake up with my bank account negative!

  2. 2. Nick Goodell [ September 28, 2016 @ 04:49AM ]

    Great points and I would add that many fleets begin the purchase process without clear goals for the outcome. Technology purchases, in particular, require research, planning, process mapping and project management. I have seen too many fleets who have wasted lots of resources thinking they can just buy something to fix the symptom of a problem. On the other hand professionally managed fleets aren't the ones complaining of low margins, high driver turnover, and the other common gripes. All ships rise and fall with the same tide so the best built ships will always fair best.

 

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