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Delivering your company’s goods. Invest in your own fleet or outsource?

Should you invest in your own fleet or outsource? These are the key pros and cons of companies owning and operating their own fleet of delivery vehicles.

One of the key questions manufacturing and distribution companies face is whether to invest in their own delivery vehicles to delivery their products; or to outsource their deliveries to independent truckers. As is the case for many competing options we face in life, there are advantages and disadvantages for each.  These are the key pros and cons of companies owning and operating their own fleet of delivery vehicles.

Advantages

Control over delivery management

This is often the most important reason companies decide to invest in and operate their own fleet of delivery vehicles.  They have full control of the availability and use of the delivery vehicles and their delivery personnel, and therefore can better influence the timeliness of deliveries and the service quality they provide to their customers.  These factors are among the most important to customers and therefore serve as compelling reasons for companies deciding to own their own fleets.

Opportunities to use vehicles as moving billboards

The surface areas on the sides and rear of delivery vehicles are clearly visible to persons that the vehicles drive close to while making deliveries.  So, they are ideal to be used for outdoor advertising by the companies.  Since the companies already own the vehicles, there is no recurring cost to place the advertising on these vehicles.  Therefore, apart from production costs, advertising on their vehicles is essentially free for the companies.

Disadvantages

Cost of capital

There are two types of costs I am referring to here: a) the actual cost to finance the purchase and operation of the delivery vehicles, and b) the opportunity cost of not deploying that capital for other assets that can provide a higher return for the company.

For instance, a manufacturing company in an aggressive growth phase may choose to invest in additional production equipment to meet growing demand for its products, as opposed to invest in buying delivery vehicles to operate themselves.  The company would instead outsource its delivery service or lease the additional delivery vehicles.

Likewise, it may be better for a fast-growing distribution company to invest in increasing its working capital so that it can increase the supply and inventory of its products to fulfill the increasing demand for them as opposed to tying up that capital in delivery vehicles.  Again, the company would likely be better off outsourcing deliveries or leasing the vehicles.

Indifferent drivers causing higher maintenance costs

This is a challenge many fleet-owning companies grapple with.  The truth is the average driver is less inclined to take the greatest care of the company’s vehicles unless there is an effective system in place that makes it in his interest to do so.  And indifferent drivers tend to cause more damage to vehicles thereby driving up costs for repairs and maintenance.  This is especially likely if multiple drivers can drive any given vehicle without the vehicle being checked for damages before or after each trip. In such systems, drivers are not accountable for what happens to the vehicle while they are driving it.  Therefore, if vehicles are being driven by multiple drivers, it is important that the company put in place a system that requires the vehicles to be inspected and signed for by drivers before and after each trip. 

Some companies even go as far as restricting each vehicle to be used by a single driver.  This ensures accountability without needing the administrative system of trip-by-trip inspections.  However, it can result in needed vehicles not being available when drivers are absent from work.

However, the first line of defense for companies against higher maintenance charges is to hire drivers who have an extended good driving record.  But this is easier said than done since such drivers are hard to find.  In any event, companies should properly vet drivers before hiring them.  They should check candidates’ driving records (the company’s insurance provider can check the driver’s history of motor vehicle accidents), check references from previous employers, and have the drivers do a road test with the type of vehicles the drivers are most likely to drive.  As we say in Jamaica, “the best way to win domino game is to draw good hand.”

Even companies that choose to lease their vehicles face this issue. Under such lease contracts, the lessee is normally responsible for hiring the drivers and is required to pay for all repairs and maintenance.

So, many companies avoid the headache altogether by outsourcing their delivery operations.  

Fleet management can be a costly distraction

As shown earlier, effective fleet management is needed to mitigate against the risks companies face in owning their own fleets.  And effective fleet management often requires a dedicated and capable team.  However, some companies are not able to afford a dedicated team and instead they have the fleet management tasks handled by employees in other departments – usually operations and warehouse management.  But this can divert those employees’ focus from the core business of the company thereby potentially hurting the companies’ business performance.

Companies for which this is a concern are more likely to outsource their delivery operations.  

Pilferage of fuel and other supplies

This is the dark side of fleet management.  Unfortunately, the cases of drivers and others colluding to steal fuel, tyres and other supplies (such as engine oil) from the company are not uncommon. In many instances, rogue drivers pump out fuel from their trucks’ fuel tanks while making delivery trips.  I also know of a case of a driver colluding with a service station attendant to divert some of the fuel meant for his truck to a five-gallon container every time that driver went to that service station to use the company-issued fuel card to refuel his truck.  This was several years ago though.  With practically every service station having surveillance cameras showing all pumps, this would be much harder to pull off undetected.

Of course, if sufficient control and security measures are not put in place, the costs of these losses are usually significant.  However, these security measures also carry a cost.

One simple but effective system of minimizing fuel theft is to continually measure the fuel consumption of each truck and compare it to the established average fuel consumption. The established fuel consumption is determined by dividing the distance driven between two consecutive refills by the amount of fuel needed for the second refill.  Of course, both refills should be observed by trusted persons. And actual fuel consumption is measured the same way and is best done at least monthly for each delivery vehicle.  These can be determined remotely by using data from fuel card providers and reports from GPS tracking devices.

Just the knowledge that there is an ongoing process of measuring fuel consumption is usually enough to deter rogue drivers from attempting to steal fuel.

The Bottom Line

I started by framing this as a choice between owning and operating your own fleet, and outsourcing your delivery services.  However, in fact, this is a false choice. Many companies use both options – each serving as a hedge against the other.  Many prefer to operate a fleet that is large enough to cover all or most of their base demand and rely on outsourced truckers to handle deliveries above that volume.  Also, in recent years, larger companies have been leasing ‘their’ fleet vehicles and outsourcing their maintenance to the lease provider.  And although this option tends to be more costly than outsourcing to independent truckers, it allows companies to have full control of and access to the leased vehicles and to display advertisements on them.

So, the bottom line is that companies can choose to go with a blend of options depending on what their needs and preferences are. I recommend that each company carefully assess its delivery needs, weigh the pros and cons of each option (and run the numbers!), and choose how much of its foreseeable delivery demand to allocate to each option based on how well each meets the company’s needs.  Of course, as the company grows and its customers’ needs evolve, those choices may need to change.  So, companies should do such assessments as part of their annual strategic planning and budgeting exercise.

Roger Williams
CEO, Will Deliver Limited

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