23 Feb 23

10 tips to beat fleet inflation

With demand outstripping supply for new vehicles, replacement parts and diesel, procurement executives must assess which products and services are essential, which can be delayed or cancelled, and which suppliers are prepared to work as partners to minimise increases in expenditure.

1. Work as a team

Solving increases in fleet costs requires a whole company approach. McKinsey & Co recommends the establishment of a ‘procurement nerve centre’ that brings together executives from purchasing, planning, finance, operations, sales and engineering to identify solutions. 

2. Review prices regularly

The prices of fleet products and services are changing so rapidly that traditional annual reviews of pricing are no longer appropriate. Weekly meetings may be required, especially if constant increases in costs threaten to undermine business cases and total cost of ownership models.

3. Maximise current contracts

Take full advantage of any low-priced contracts that are still active, and defend their terms. If cashflow allows, it may be worthwhile to ‘stockpile’ products before prices rise again.

4. Bundle products and services

Explore the opportunity to boost purchasing power by combining allied categories of spend - such as fuel, AdBlue and fuel card services – with a single supplier, offering a greater volume of spend in return for enhanced terms.

5. Expand the supplier base

In the face of demand-led inflation, increasing the number of suppliers provides useful pricing benchmarks and may lead to more competitive terms from a new supplier.

6. Focus on TCO

Depreciation is typically one of the highest cost factors in TCO, so concentrate on the difference between acquisition price and residual value, rather than purchase price. Similarly, work with leasing and fleet management companies to identify vehicles with best-in-class reliability.

Running vehicles for longer offers a way to amortise today’s high purchase prices over a greater period. Electric vehicles are proving to be reliable in years four and five, when ICEs  start to see an upwards spike in maintenance costs.

7. Take advantage of grants and tax breaks

With national governments keen to support the uptake of zero emission vehicles, capitalise on the subsidies and tax breaks available. These can help offset the higher purchase cost. EVs can also deliver TCOs lower than those for ICEs.

8. Understand suppliers’ costs

Inflation does not impact all the elements of a product or service equally. A leasing company may experience cost increases of V% in vehicle prices, W% in vehicle delivery costs, X% in interest rates, Y% in service and maintenance and Z% in staff wages. Smart procurement teams will negotiate how much of these individual costs a supplier can pass on and how much the pain will be shared.

9. Address each area of expenditure

Fleets may have limited power to resist price increases in some areas, such as vehicles, but there is scope to negotiate in others. Lower traffic volumes due to hybrid working practices after Covid-19, for example, mean vehicle accident rates are lower, presenting an opportunity to reduce insurance premiums. Alternatively, deciding to take more insurance risk by increasing the size of deductible (excess) will also lower insurance premiums.

10. Form partnerships

Smart suppliers and wise procurement executives will use current crises to build partnerships with a long-term goal, competitive pricing agreements, sharing insights, advice and best practice to create a win-win arrangement