Working as a fleet manager in South-East Asia
Having worked in the Asian fleet management environment now for quite a while, regional and global fleet managers sometimes ask me for advice; usually very practical questions, such as “Which are the good suppliers in Vietnam?” or “What is the standard car for a sales person in Indonesia?”. I’m always happy to answer, but in reality, these are not the most relevant topics for the Asian Fleet Manager.
Before going out and starting to source for a leasing company, it’s crucial to understand how the Asian or, specifically for this opinion piece, the South-East Asian market works. Here are a couple of tips and tricks that should get you going.Forget your global aspirations
With my apologies for the shortcut, but fleet life in Europe or the US is easier to manage. You’ve got a couple of large, professional leasing companies that cover at least a big part of the region. Their service levels are usually very decent, their price settings are within an acceptable range due to the competition between the players, and it’s pretty easy to reach out to them as they’re eager for business.
No so in South-East Asia. The supply chain hasn’t gone through the consolidation phase that we’ve seen happening in other continents. Suppliers are local – sometimes, as is the case in Vietnam, city based. This means that you’ll need to select your lease suppliers locally, implying that you’ll be working with at least one contact person per supplier.
And what about Orix and Sumitomo? It’s true, both of the Japanese leasing companies are represented in most of the important markets in South-East Asia. Unfortunately, their headquarters don’t operate as a LeasePlan, ALD or ARVAL. They’re not truly regionally organised. It’s not possible to have a regional framework agreement, the concept of sign-on bonuses or volume rebates doesn’t exist and – even more surprising – they don’t work on the same systems as the Japanese mother company and they don’t propose similar products. Therefore, first lesson : make sure that your organisation can deal with very localised contracts and suppliers.Selecting a supplier
So, how would you select a supplier in South-East Asia? At the risk of upsetting the procurement function, forget about pricing. This will come later – much later. It’s all about checking the contract and the operational capacities of your future supplier. Let’s discuss the operational capacities first.
Most of the leasing companies in SEA have a dedicated network of service and repair centres. This doesn’t come as a surprise to anyone – it makes complete sense from an economic point of view (it’s a source of revenue) and from a quality point of view (the leasing companies – at least, most of them - want to make sure that repairs are well executed). The difference however is the extend of that network. Take Indonesia for example. It’s a huge country, with some major islands (Sumatra, Java, Kalimantan, Sulawesi) and about 13.000 other, smaller islands. If you’re fleet is all over the country, which is the case for e.g. the agro-chemical and tobacco fleet owner, your choice is limited. Not that many suppliers cover even all of the major islands. So you might have to consider multiple suppliers, only to make sure that your employees are able to have their cars serviced. Lesson 1, once again.
Secondly, go and visit your potential supplier. Many leasing companies in the region are a “side business” for their owners, who are usually importers, dealer groups, repair centres or investment companies. They have often underestimated the complexity of running a leasing business, which is a problem : I’ve seen systems that are based on Microsoft Access, reports that are copied manually into a spreadsheet – but that’s not the worse part. It’s often impossible to receive a mileage report because mileage data are not captured (more about this later). Also, (in many cases) forget about having cost centres on your invoice or receiving these invoices in a format that you can upload in your ERP tools. Here’s lesson number 2 : you’ll need someone to do it inside your company. It won’t come from the supplier
Thirdly, go and visit your potential supplier. Check the call centre. Don’t just visit – look at the systems they use to track your emails and phone calls, ask for stats on the response time, talk to the people who are behind the screens. As the networks are less well organised in comparison to Europe, there are also a lot more interactions between driver, supplier and service/maintenance/tyre centres. A lot more things can go wrong as well. I like to look at the ratio between the total number of cars managed by the leasing company and the number of staff operating the helpdesk. It all depends on the tools that they have at their availability, but, lesson number 3, make sure the vehicle to staff ratio sounds reasonable.
So now you’ve found some suppliers that are professional, have a decent system, a good network and enough staff. Time has come to talk contracts. Not yet pricing – that’s still not on the radar. Your contracts are crucial: the standard contracts proposed by the leasing supplier will not cover the essentials.
Let’s start with the setup of the contracts. Batch ordering is the rule in South-East Asia. In other words, you’ll replace a big chunk of your fleet in one go. Each of these batches will have a separate contract rather than being a big order under an existing framework agreement.
The contracts themselves most often focus on payment & repossession, early returns of vehicles as well as legal terms and conditions. You won’t find many details about the service scope. My recommendation here is to propose your own clauses (SLA) regarding the services and how you want them to be delivered. Another recommendation is to add KPI’s to the contract : you need to measure the quality of your supplier and foresee penalties in case the quality is not achieved.
Mileage. My biggest surprise when starting to work in South-East Asia is that many leasing companies don’t quote on a duration / mileage basis. I’ve heard senior account managers tell me that “mileage is not relevant”. This is a crucial misunderstanding and a true danger. It can mean 2 things : OR that the supplier doesn’t understand the mechanics of residual value OR that the client doesn’t understand how a leasing company works. After some digging (insisting on understanding how many maintenances and tyres are within provision), it turns out that most of the contracts are calculated on an excessively high mileage, which is rarely reached by any driver. The client is therefore overpaying. So, make sure you negotiate at least a debit/credit mileage clause or try to have mileage included in your quotation.
Pricing, finally. Roughly, the calculation of the pricing should be : (retail price minus discount minus residual value) divided by the number of months, plus interests and the cost of the services on monthly basis. Let’s start with retail price and discount
You won’t have many regional OEM deals in place in South-East Asia. Toyota, the number one OEM, is not regionally organised, so you’ll have to talk with the local reps. And this is what they’ll tell you : the leasing company has better deals than you’ll ever get. For most manufacturers, the pricing model is simple : the leasing company buys more cars than the client, so they get better discounts. How much of that discount goes to the client? No one knows…
Some manufacturers, such as Nissan (not surprisingly supported by the alliance with Renault) however, are capable of offering regional deals. In addition, they have a well-trained, English speaking corporate sales department and are easy to find and work with.
Open book / Closed book calculation. Most contracts are closed book although the sales pitches sound a bit like an open book rationale. This is how an Indonesian leasing company explained it to me : “We don’t have mileage in our contracts – anyways, some cars drive more, others drive less. It’s balanced out.” Not exactly true; all contracts overshoot the mileage.
Consequently, recalculations are rare & so are end of contract settlements for undermileage.
Lesson number 4 : make sure you negotiate your service scope & find a solution for the mileage question
Day-to day management
There will be lots of hiccups and operational hassle. You will need to spend a lot of time checking the invoices. You will need to monitor the KPI’s on a monthly basis. You will be talking to your account manager regularly – actually, I recommend that you get acquainted with as many supplier representatives as possible, especially with the operations people.
Lesson number 5 : make sure that you have the necessary support in your local organisation to take care of the company cars. Make sure these people are well connected with the HR function to make sure that the links between car and driver are always up-to-date & give them the necessary leverage to be able to talk to functional leaders. Driver complaints are important and need to be dealt with not only with the supplier, but also on management level.
Most of the fleet functions in Asia involve – not surprisingly - the procurement function. As I’ve tried to explain here however, looking for a supplier is complex and pricing is almost irrelevant in the early stages of the sourcing process. So here’s the last lesson : give your procurement colleagues as much support as possible by providing expertise and guidance and don’t forget to involve functional leaders and HR in the sourcing project.
No one likes bad news and I’m aware that I’ve painted a pretty horrible picture of the leasing market. The message however is simple : if the supply chain is difficult to manage, it’s also because the client is not pushing it to become more mature and better. I’ve met some fleet managers who were fully aware of this and have done an amazing job in Asia, to the benefit of their company car drivers and their suppliers. They have spent time and effort in finding the right supplier, negotiating the right contracts and selecting the right cars. It’s an investment with a high return : there’s a huge opportunity to save money, much more than you’ll be able to save on your European or American fleets.