Tendering: Inviting success?
01 July 2020
Author: Sean Keywood
What do fleets need to consider when going out to tender for external services? Sean Keywood investigates.
When a fleet needs to find a new supplier, going out to tender might seem like an attractive approach - you get to set out exactly what you are looking for, and then make the suppliers do the hard work to impress you. But is this really how it works in practice, and what are the pitfalls with the process fleet managers need to watch out for, both when dealing with the suppliers and within their own organisation?
Association of Fleet Professionals (AFP) co-chair Paul Hollick says that the main services for which fleets go out to tender are vehicle leasing and fuel cards, since these account for the vast majority of most fleets' operational expenditure.
Discussing what research fleets should do when starting a tender, Hollick says: "They need to make sure they include not just the existing players but the new entrants to the market, and potentially suppliers that are not necessarily known for doing that particular piece of work but could do that piece of work as well because they have started to diversify a bit.
"But they really need to do their research in terms of the key market players, who the other people in the market are using, who other people on the market would recommend, and then create a longlist, then narrow that down probably to a shortlist, depending on how many people you want to go out to - maximum normally 12 - and then they would go out and get the responses back."
Danielle Tilley, business development director at Venson Automotive Solutions, suggests that fleets ask for customer case studies and references from prospective suppliers, take the time to speak to someone who is already receiving the service, and research customer service performance.
She says: "Poor service can decrease efficiency, increase vehicle downtime and use up valuable working hours when problems are not managed effectively.
"If possible, visit each supplier and meet the people who'll be looking after your fleet and see how they'd manage your contract day-to-day."
Paul Holland, MD for UK fuel at fuel card firm Fleetcor, says that the critical thing for fleets to understand when they are tendering for fuel cards is their network requirements.
"You need to understand where your vehicles operate, and the profile of fuel network that you might need to support your operations. If you have got drivers going off-route to refuel, driving a couple of miles off their primary route, burning time and burning fuel to get there, it is a hidden cost.
"So, I would say understanding what your fuel requirements are, from a geographic standpoint, is key."
When asked what his firm likes to see in an invitation to tender, John Webb, principal consultant at Lex Autolease, says: "A successful tender process involves all stakeholders, from human resources through to operations. It should also include robust research and planning, setting out clear roles and responsibilities.
"Questions should be unambiguous and we'd recommend a process is in place to clarify questions. The whole exercise should be open and transparent. Not only does this ensure the best possible solution is reached, but it also eliminates unnecessary delays due to confusion or misinterpretation.
"Finally, putting realistic timelines in place is also important so expectations can be managed."
Effective communication is key to many aspects of fleet management, and tendering is no exception.
Hollick says: "A successful partnership with a customer and supplier works if there's good communication flow, a good level of understanding, and people truly work in a partnership, reacting to each other's needs and requirements and supporting each other as well.
"My view, and it is shared by the majority of the industry but not everybody, is that people should be collecting suppliers based on culture, their DNA, their ability to be able to react, and their ability to innovate not just at the moment, because fleets evolve and change.
"When you lease a vehicle it is for between three and five years, and you are going to end up working with that partner for that period of time at least, and possibly longer, so therefore it is about understanding the culture and making sure that you have selected the partner that feels right, and the costs feel right. Chasing the cheap dollar is not the way to tender."
Venson's Tilley agrees that fleets should be looking for suppliers they can get along with well: "There needs to be a cultural fit between the parties. This soft aspect is so often overlooked, but it is so important that the right 'feel' exists from day one of what will often be a long-term relationship."
While communication is clearly important between a fleet operator and a supplier, it is also essential within the customer organisation itself, where a common pitfall, according to Fleetcor's Holland, is tendering processes being run by a procurement team that operates separately from the fleet department.
He says: "We see this periodically where a procurement team would create a tender document and they would challenge us to come up with a solution that actually doesn't work fully for the fleet operator, and then you get into a process to kind of unpick the thing, and try to get it back into shape.
"So the best advice I would say to anybody going out to tender would be to make sure that the fleet team - the people that actually run the operation and the vehicles - are absolutely in sync and parallel with the requirements, because you save so much time as you get down the road, and operational disruption too."
The AFP's Hollick also warns of the potential dangers that can arise from a fleet team focused on operational aspects teaming up for a tender with a procurement team focused on cost savings.
"For us at the AFP it is all about understanding your topic, and making sure you go out to the market as a fleet operator understanding what you are looking for, and understanding how things get built and how people make money in the right way, and if you understand all that you are going to have a good tendering exercise.
"And the suppliers would be the same as well. They do not want to sell product to people who are ill-educated because it is fundamentally distracting and annoying.
"It makes it really difficult to have a progressive, professional process when you are dealing with somebody that doesn't get it and is concentrated on the cheapest price in that category."
Hollick says it is important to understand how suppliers make money, and avoid a basic fixation on upfront costs.
"For me it is making sure you really understand how your supplier makes money. I don't mean that in a bizarre way, but I have seen regularly that people have done tenders and just concentrated and fixated on one particular element of service: the price of that service.
"Which is fine, but then that is only potentially 10% of the overall cost for using that supplier. They really need to think holistically about all of the charges that come in."
For Tilley, fleets tendering for vehicles should employ a 'balanced, scorecard approach'. She explains: "This means assessing and weighing up each aspect of the contract and scoring it individually, then going on to produce a final score to compare with other providers.
"The criteria should be judged on risk, service levels, financial stability, corporate social responsibility, value for money and also price."
Tilley says that price should not be given too much weight, instead accounting for only 25-40% of the scorecard. She adds: "Consider a rate creep in your calculations - how monthly lease rates can rise due to the numerous variables that affect rental terms.
"Do not forget to include other costs in calculations: end-of-contract charges, early termination charges, and damage waiver fees to name a few."
Lex Autolease's Webb says: "When looking at price, it's not just the upfront outlay that must be considered. The whole-life cost of a particular vehicle can have a far greater bearing on a business over its operating cycle.
"There is a huge range of makes, models and derivatives on offer, together with service, maintenance and repair packages to consider. Making the correct choice can be a complex challenge for the fleet buyer."
Fleetcor's Holland says that fleets should also consider their drivers' views when choosing a preferred supplier: "I think it is always helpful to listen to drivers, and to understand what drivers are saying, and sometimes fleets and their drivers can be quite disconnected.
"If you have got drivers out and about in their vehicles all day, they might want particular refuelling facilities, they might want specific services available to them. I wouldn't ignore it because all of that impacts driver morale, driver motivation, and efficiency, so it is always worth listening to that kind of informal feedback."
As for how long the tendering process should last, Hollick says this will be driven by circumstances.
"If a supplier has gone bust or into administration, they are going to sort it out quicker than they would do if it's just part of a regular two-year tendering process and they're quite happy with their incumbent.
"So it is all about management resource and demand. If they have got a burning issue and they need to create a new supplier for whatever reason they will do it quickly. If it is part of a routine, then it will probably be a three to four-month process."
Like everything else right now, tendering also has to be considered in the light of the coronavirus outbreak, associated lockdown measures, and the subsequent economic impact, and Hollick says this is bound to have an effect.
He says: "The statistics that I've seen, and the comments I've had from members, are that tendering will probably be on a bit of a back foot, and the only reason to retender is chasing cost savings, if the company is in need of cost savings, rather than needing to change the supply chain over. If you were supposed to be tendering your fleet or your fuel cards, at the moment you probably delay that for a year.
"Whenever you change anything over there is a lot of pain in changing from one to another, and it requires resource, and it requires project management and dedication, and organisations particularly at the moment are in short supply of resource.
"It will be a far more pinpointed approach to their supply chain this year than any year since 2007/08. It will be more I think about working with their current supply chain to generate savings."
Tilley says Venson is not seeing any impact on tendering processes, and that it has received tenders during lockdown, but adds there may still be issues with vehicle supply.
"The impact is going to be on when procurement takes place - for example, due to uncertainty with vehicle availability impacted by manufacturers closing factories.
"Organisations that were due to tender may have taken the decision to extend their existing contracts in order to mitigate risk and the potential of increased costs if vehicle orders are delayed."
Lex's Webb says: "The current pandemic crisis has created an interesting dynamic in fleet procurement as social distancing and remote working has put a stop to activities like site visits.
"While some companies coming to the end of their contracts are choosing to renew or extend, others will certainly look to improve cash flow through tendering. We are already seeing an increase in tenders as the UK gets back to work."