Experts are warning that businesses face greater risks from complex service supply arrangements than they may realise. The issue isn’t confined to manufacturing: these days, almost everything from payroll processing to company cars reaches the end-user business at the end of an intricate supply chain.
Everyone wants last-minute ordering and delivery because minimising slack means lower costs, greater flexibility and faster growth.
In the same way that technologies such as Teflon and anti-scratch lens coatings migrated from aerospace applications to everyday life, just-in-time capability has widely infiltrated business expectations.
Even getting your staff to work is a complex, last-minute operation that depends on elaborate public and private transport networks to transport people across cities, counties and regions.
In the 19th century, employers had to build whole towns like Bourneville and Port Sunlight if they wanted to have their workforce on the doorstep at opening time.
But there is also a downside to complex systems with very little slack in them. Small, far-away failures can rapidly escalate into costly problems.
When Iceland’s Eyjafjallajökull volcano erupted in 2010, for example, two factories in Japan were shut down within days because critical Irish-made electronic components were grounded at Dublin airport.
More recently, drivers have seen their car orders cancelled or modified because the only sources of certain paint pigments and electronic parts were destroyed in the Japanese earthquake and tsunami.
While it’s true that no amount of planning and preparation can forestall a catastrophic natural disaster, business advisors including Lloyds and Deloitte have drawn attention to businesses’ growing reliance on technology-driven and energy-hungry supply chains.
Take your car fleet. How do you procure the basic ingredients of the fleet mix: your fuel, finance and cars? Is any redundancy built into your arrangements?
The answer is probably “no”. After all, why would you need it? As long as the world is functioning smoothly, it makes no sense to hold expensive stocks of unused fuel, cash and vehicles against the possibility of a supply disruption.
Even so, many companies suddenly found themselves scrambling to find funds for replacement vehicles following the 2008 financial crash, when a number of major finance suppliers suddenly pulled back from the fleet market.
And last month [June], a report by Deloitte warned about the UK’s growing dependence on oil imports. Road fuels (including electricity) will soon become even more expensive, it said.
High pump prices are already changing behaviours, and not always for the better.
One motoring organisation recently reported that more car owners are skimping on necessary repairs to save money. That has worrying Duty of Care implications for businesses that rely on grey fleet travel to any degree.
It also illustrates how a straightforward cost issue – fuel prices – can quickly feed through to another area – legal liability – which could ultimately end up with a director going to jail.
Today’s almost friction-free supply chains transfer peripheral risks and costs to the centre all-too efficiently. For example, thousands of small bodyshops have gone out of business in recent years, leaving the repair industry increasingly short of capacity.
The result is longer waiting times and more expensive repairs for any fleet that doesn’t have access to specialised systems and expertise to hold down bills and get their vehicles to the front of the queue.
For fleet operators, who are at the top of very long and intricate supply chains, it’s hard to keep an eye on every remote issue that might potentially arrive on their doorstep as a magnified cost or legal risk.
Indeed, how far down the chain should fleet operators have to look? What they want, after all, is for someone to manage peripheral risks while they are still out on the periphery.
One solution that’s increasingly finding favour is to appoint a key fleet management supplier to manage all of their fleet service chains on their behalf.
After all, fuel, vehicles, maintenance, accidents and grey fleet can only be managed successfully if the underlying issues are well understood and continually kept under review.
In today’s highly interconnected fleet marketplace, a fleet management company is usually better-placed to do that than the end user.
Of course, the fleet management firm will depend in turn on its own suppliers and networks. The more resilient those relationships are, the better the fleet management company can serve your business as a whole.
Even the best fleet management company won’t stop an earthquake or a volcanic eruption. But it will allow your business to focus both on its core activities and on managing one key fleet relationship.
And if “unforeseen” problems on the periphery of the fleet market keep arriving at the fleet management company’s doorstep rather than yours, well, that’s their headache and it’s their job to sort them out for you.
In the end, that’s what smart supply chain management is all about.
Matt Sutherland is Chief Operating Officer, of multi-marque car leasing and fleet management company Alphabet.
One Response
Car Policies
I’d hate to rain on Matt’s parade (if I do), and I don’t deny out-sourcing of many incidental services can make a great deal of sense – including cars for business purposes. But despite my seperate post here on reimbursing employees a fair proportion of the costs for running their own cars on business in ‘Any Answers’, I find that companies running fleets of company cars for their employees (not trucks and lorries) are really not for today’s lean economy.
If you run a company car scheme, you will know well the agonies, petty-jealousies and complete waste of management time this absorbs in managing the policies attached.
Senior managers who don’t need a company car at all get given one of right as a status symbol – and are heavily taxed accordingly so it is hardly a benefit worth having. Middle managers bicker over whether they should have one or not, whether necessary or otherwise. Those who do need a car to travel frequently on business want a little bit extra to ‘best’ their peers. And few see a company car for the real full cost to their employer, and many treat (and drive) it accordingly. Which in turn means that there have to be petty squabbles over whch car different ‘grades’ of employees can have, how often their car should be renewed, whether it is well kept, clean and tidy, if private mileage is being used sensibly (I once managed one Sales Manager whom I found using his company car as a private, professional taxi-service!), and whether high accident-rate drivers should pay privately for a higher corporate insurance premium.
Company car schemes surely belong to the era when the UK had a British-owned car industry, to visit customers who may have been in that supply chain, and when far fewer employees had the wherewithal to find finance for their own vehical. About 25+ years and many generations ago?
So do give your employees a cash-in-lieu-of-company-car scheme, with frameworks of suitability of car, age and reimbursement for use by all means, and let them take personal responsibility for them? I have found with many companies (including my own) that this almost entirely eliminates the policy-squabbles and wasted admin, gives individuals the freedom to be the individuals they are in making sensible purchasing decisions and taking responsibility for them – including their driving styles, and considerably conserves company cash, whether on or off the balance sheet.
You can still do Group Supply deals; but you needn’t corporately be vexated that Japanese car companies have suddenly run out of paint or parts for your preferred model (as they did earlier this year), or that a car ferry has sunk bringing BMWs into the country (as I was nearly a victim of personally a few years ago – but not corporately), or that Bill has had three accidents this year and just raised the corporate insurance premium by a massive percentage; and if your colleagues buy fuel at the nearest convenient station rather than the most economical, let that be their decision and not yours!