Virtually every industry has been affected, and many are looking toward organizations that have not only weathered a supply chain storm but have come out stronger on the other side. Companies with large fleets that have dealt with these limitations can teach businesses across all industries how to manage the problem better.
Embrace Variability
Companies managing large fleets tend to focus on long-term goals: If you have a fleet size of 10,000 vehicles year-round, the most optimal way to source those vehicles is by ordering them directly from the manufacturer and then financing them over the anticipated service life. While that strategy may work best under normal market conditions, during economic downturns or periods where inventory is in short supply, flexible and variable strategies tend to produce better results. Consider the fact that fleets can often be segmented into two parts:
Fixed Fleet: Vehicles that serve a steady, year-round and predictable businessVariable Fleet: Assets that serve the “fluid” part of the business, which adapt to times of seasonal use, rapid surges, uncertainty or downturns in business
For variable fleets, alternative solutions like long-term rentals or short-term leasing can be considered and help the firm reduce waste and operating cost leakage. When the supply chain is constrained, creating inventory shortages and significantly elongating lead times, long-term renting or short-term leasing can be leveraged as a tool that enables rapid acquisition of vehicles that the firm may otherwise be rationed to (such as instances where allocations granted by manufacturers are limited).
Bringing this strategy into your own business might mean exploring different service contract options. It also might mean evaluating alternative suppliers that have the inventory you need.
Review Your Cycles
Fleet managers regularly conduct cost-benefit analyses to decide which vehicles to keep in service and which to retire. However, supply chain issues are disrupting the best-laid plans and forcing them to be more surgical. When vehicle availability is limited and lead times are longer than expected, companies can’t replace vehicles they had planned to and are forced to extend the life of the vehicle, resulting in un-budgeted maintenance expenses, uncaptured opportunities with fuel efficiencies and unplanned downtime.
Sophisticated fleet managers are now more intentional about making real-time replacement decisions. They include additional factors when considering replacement candidates, such as vehicle-specific recent maintenance investments, vehicle utilization and mileage trends (addressing highest-mileage units first) and a finer degree of forecasting with business units to rationalize and prioritize the greatest need first.
Diversify and Be Flexible
It is not uncommon for companies to try to achieve as much uniformity across their fleets as possible. This strategy allows them to obtain excellent efficiency and predictability that assists in decision-making. It keeps processes, budgeting and suppliers consistent and is important for scalability.
With tighter supply chains, however, fleet managers have been forced to select and integrate alternatives, such as using multiple original equipment manufacturers (OEMs) and/or specifications for upfit parts (customized accessories or augmentations). Forward-thinking leaders are making the tough decisions to relax standardization requirements or compromise some convenience aspects of the vehicle to ensure they can still source the necessary volume in the current climate. They are adjusting their cycle policies, advancing budget requests to ensure funds are already approved upon the opening of order banks and staging their orders in advance to ensure they are at the front of the line when production begins.
To ensure vehicles don’t sit idle at the installer site awaiting the arrival of the necessary upfit parts, fleet managers are ordering these parts on speculation. Sourcing more vehicles from alternative sources of inventory and integrating short-term solutions also bridge the gap between the scheduled retirement of a vehicle and the receipt of the replacement vehicle.
When considering your options, start by asking these questions:
Is there someone else you could partner with to source supplemental inventory?Can you relax vehicle specifications or other requirements?Can you order upfit parts in advance to ensure they arrive on or before the day the vehicle does?Do you have a diversification of suppliers?
Be Proactive About Budgeting
Diligent companies regularly factor inflation into their budgets. They tack the percentage of increase into their financial forecasts and use it to decide whether to make changes to inventory, processes or staff.
The difference now is that, with inflation so high, the stakes also are higher. Failing to calculate inflation into a budget can translate to serious short- and long-term financial ramifications. Anticipating increases enables leaders to have purchase leeway, even when costs go up, so they can respond in real time to active market conditions. It also prevents them from fighting for supplemental approvals or defending their cost center when budgets are blown.
Supply chain issues were not created overnight, so it is unreasonable to expect them to be corrected rapidly. Rather, it is more likely that there will be a several-year tail to the challenges created by constraints in the chain. Business leaders shouldn’t expect an immediate rebound on either inventory availability or inflation and should be adjusting their strategies and budgets accordingly.
Preparation Is Everything
The pandemic has resulted in disruption on a global scale, with multiple problems all happening at once. With such a massive scope of supply chain disruption in front of them, successful fleets are embracing increased flexibility. They are being more proactive, too, moving well in advance to keep processes smooth and avoid financial loss. Look to their playbook, because the returns on great preparation can make all the difference in where you end up in the market.
