Fleet procurement for multinational companies is evolving. It used to be about Technical Purchasing, and now it is focused on Strategic Sourcing. But the future is called Category Management, says James Jin. The Global Fleet Procurement and Operation Director at Merck gave an inspiring presentation on the subject at the Global Fleet Conference 2017 in Miami.
Merck has 8,700 vehicles in EMEA, 6,000 in North America, 3,600 in Asia and 3,400 in Latin America. Which means that James Jin, pictured, is responsible for a global fleet of more than 20,000 vehicles. And that he knows first-hand of what he speaks. Including when he speaks of Category Management as the new paradigm for global fleet management and procurement: “Category Management has been accepted as the norm within multinationals now.”
In the beginning, fleet procurement was about Technical Purchasing. The focus was on the invoice, meaning on the immediate cost. This left the fleet manager with little influence or power. Then, fleet procurement evolved towards Strategic Sourcing. “Integrating Strategic Sourcing into the purchasing side of the business, as in fleet, followed from a simple sales reflection. Companies realised: On the sales side, we have a plan and a strategy to optimise our performance as best as we can. Why don’t we do that on the purchasing side as well?”
In Strategic Sourcing, the focus was extended from the invoice to the TCO. “What can we do to reduce cost? The answer is to use the TCO concept as a basis, using it as a yardstick for decisions, and as the crucial element in contracts. This means setting up projects with a clear start and finish, and preparing well in advance in order to rally the market and negotiate the best possible deal.”
Multinational companies today have understood that this is not enough. In a lot of markets, especially the more mature ones, the deals already are as good as they will get. What needs to be done now is to go after hidden costs – the high-hanging fruit, so to speak – and thus help to improve the company’s entire value chain.
How? For instance, by gathering together those activities and/or commodities with similar characteristics into a single category – for instance, Travel and Fleet – and then to apply Category Management.
“The transformation into Category Management has already happened”, says James Jin. “What is ongoing now is the continuous improvement of and within Category Management, even better to respond to and satisfy the business needs of the company”.
To perform Category Management up to a standard of excellence, you must learn to deal with a lot more stakeholders, to understand all the business needs involved, and to make decisions that are supported by the entire business.
In order to make sure all business needs with regard to fleet are satisfied, James Jin has ranked a number of conditions for suppliers in order of importance:
1. The Assurance of Supply: the supplier needs to have the capacity to deliver, whatever the volume, time or geography involved;
2. Quality: the supplier needs to offer a product that meets the customer’s expectations of quality, with very little variation over time;
3. Service: the supplier must not only guarantee standard levels of product delivery but also of the services associated with it;
4. Cost: although much attention is focused on cost, and despite the fact that it is an essential element, most multinational organisations are well equipped to manage spend, making this less of an issue.
5. Innovation: the supplier must support and inform the customer on which innovations to implement and how to perform better over time.
Pieces of advice
“We treat our suppliers, including our fleet management and leasing providers, like we do our own employees – they are an extension of our own fleet team”, says James Jin, who had two pieces of advice for suppliers:
- Fleet Management is really about Data Management. Through technology and connectivity, data is becoming available in ever greater abundance. The crucial improvement is in how this data is used: “I’m hopeful that suppliers in the near future will come to us with directions for improvement, based on data and data analytics from our own fleet, and from comparing our fleet with those of other customers of theirs”.
- The tools and solutions need to be deployed globally. OEMs, leasing companies and other suppliers are globalizing and expanding their coverage. It is recommended that they deploy the solutions they have developed for mature markets in emerging and new countries as well: “Our people in Asia know what our people in Europe and the U.S. use, and they want the same solutions, as we are working with the same suppliers. So making these solutions globally available and accessible is a must”.
Image: Global Fleet