AM Flashcards
1
Q
According to the experts what is the definition of strategic sourcing?
A
Strategic sourcing is an organizational procurement and supply management process used to locate, develop, qualify, and employ suppliers that add maximum value to the buyer’s products or services.
2
Q
What is the main objective of Strategic Sourcing?
A
The main objective of strategic sourcing is to locate and form relationships with those suppliers that best promote the strategic and operational goals of your organization.
3
Q
How can Strategic Sourcing be used as an approach to supply chain management?
A
Strategic sourcing is also an approach to supply chain management that formalizes the way information is gathered and used so that an organization can leverage its consolidated purchasing power to find the best values in the marketplace.
4
Q
Why might you want to limit the amount of suppliers to your Fleet?
A
This allows you to gain leverage and purchasing power for the procurement of quality vehicles at the best price. Limited vehicle providers may yield a number of benefits including lower prices for paying in bulk. Bulk purchasing may increase your leverage over a dealer to discuss favorable pricing and other concessions. Volume purchases benefit both the vendor and the purchaser in that they can concentrate efforts on fewer relationships. For the buyer, consolidating the number of suppliers means you become a more desirable customer by making larger purchases and dealing repeatedly with the same buyer.
5
Q
Describe the differences between traditional sourcing and strategic sourcing.
A
Traditional sourcing focuses on cost and strategic focuses on competence, long term relationships, few suppliers, trust, shared risk, specific activities, global playing field, network approach
6
Q
What are the benefits of Strategic Sourcing?
A
Limited number of suppliers, lower prices from bulk purchasing, larger purchases for vendor, concentrate of fewer relationships, reverse logistics for defective products etc. Consolidating products or services with one supplier is a timesaver and a money saver. Other terms such as delivery, warranty and service may also be points of negotiation in a strategic partnership. Improved communication .Strategic sourcing may also lead to long term savings as well as cost effectiveness by leading to fewer defects and mistakes by suppliers. Strategic sourcing may also lead to long term savings as well as cost effectiveness by leading to fewer defects and mistakes by suppliers.
7
Q
How can Strategic Sourcing generate benefits to the Fleet department?
A
Warranty
On-Time Delivery
Speedy Delivery
Order Accuracy
Service/Product Defects
Location
Employee Diversity
Long-term Goals
Sustainability Practices
Supplier Market Position
Financial Risk Profile
Supplier Ownership
8
Q
Why is it important to measure Supplier Performance?
A
Having a system to measure supplier performance in these areas can lead to better decisions when it is time to decide between acquiring a new supplier or staying with the current one. Transparency in decision-making is also positively affected when you have objective reasons that are supported by data.
9
Q
How does Strategic Sourcing benefit Suppliers?
A
Larger purchases and more orders improved communication and not having to juggle multiple small contracts with a vast array of customers. This allows for communication in real time which can help eliminate costly errors such as overproduction, underproduction and late shipments, and improve the ability for the supplier to order materials in a timely manner. Strategic sourcing may also lead to long term savings as well as cost effectiveness by leading to fewer defects and mistakes by suppliers.
10
Q
What Risks are involved with Strategic Sourcing?
A
overpaying initial costs, takes more time to execute, supplier requirements may be too narrow, and potential disruptions to supply chain if supplier is affected
11
Q
Describe some of the costs involved with Strategic Sourcing.
A
lifecycle and total cost of ownership
12
Q
Why is Strategic Sourcing time consuming?
A
Strategic sourcing takes much more time to execute than traditional sourcing activities because it is more complicated, and requires more knowledgeable and skilled personnel. Also, your organization’s sourcing and purchasing work flows may need to be restructured. Ensure that your organization properly performs all strategic sourcing components by starting early enough to meet deadlines and having the right staff available.
13
Q
What are the four steps in the Strategic Sourcing Process?
A
understand the spend, assess potential suppliers, create a strategy, select a supplier, cultivate a relationship
14
Q
What should your purchasing team do during the first phase of the Strategic Sourcing Process?
A
identify their purchasing and price constraints, the time and money it takes for the supplier to acquire the assets, as well as the historic purchases in asset categories
15
Q
What do you want in a Strategic Sourcing partner?
A
competent, trustworthy, communicative, and those that offer deals that are fairly priced
16
Q
How can you create a strategy for Strategic Sourcing?
A
identify how competitive the marketplace is, ensure other departments are on board with supplier choices
17
Q
What tool is discussed in order to help select Suppliers?
A
balance scorecard to objectively measure and compare offers
18
Q
What are Performance Improvement Requirements and how are they used?
A
Performance improvements are crucial to keeping the buying and selling processes a positive experience. Some ways to accomplish this are by improving the cycle time, cost, quality, and delivery performance. This can be done both internally with your fleet and by the suppliers.
19
Q
What type of teams should be created in order to help select suppliers?
A
cross functional sourcing teams. teams of subject matter experts that will organize, evaluate, select, develop, and manage suppliers
20
Q
What systems should be developed and how can they help the organization?
A
By developing purchasing systems there will be a notable increase in the emphasis of links between external systems along with networking between purchasing sites with suppliers. Developing systems will also lead to an increase in useful technology and information systems. Some systems, like electronic data interchange systems allow companies to communicate in real time with suppliers as well as manage a centralized location for data to be accessed.
21
Q
What are team member purchasing responsibilities?
A
Assign members of the team to be points of contact with specific suppliers and to research new potential suppliers.
22
Q
What is a cross functional sourcing team?
A
comprised of a group of individuals who are maintaining relationships with the fleet suppliers and identifying the sourcing needs of the fleet
23
Q
What is the Fleet Managers role in the cross functional sourcing team?
A
The manager’s role will be to oversee this cross functional team in thoroughly examining fleet purchasing activities and supplier selection. Fleet managers are the individuals responsible for making the final say in finding new sources and developing those lasting relationships between vehicle supplier and buyer
24
Q
What is the focus of many purchasing groups and what are the fleet managers’ responsibilities?
A
finding the lowest cost and this provides many benefits, but fleet managers are responsible for voicing concerns when non-fleet members of the forcing team focus only on low cost suppliers without taking other fleet related concerns into mind. On the other side of things however non-fleet members often bring new and fresh ideas to the table that fleet employees may not have considered. Both of these factors contribute to the benefits and disadvantages of assembling cross functional teams.
25
What is rightsizing the Fleet?
determine correct customer service levels for internal service and rental fleets as well as understanding the vehicles task suitability
26
What is the Advertising cost on a vehicle invoice?
A percent of MSRP (typically 1%) or a flat dollar amount set by the factory.
27
Define the term Bid Assistance.
Additional negotiated rebates that may replace or be in addition to the national fleet rebates. Maybe targeted to specific model, region or other group. Government price concessions, Rifle Shot programs, Competitive Price Allowance (CPA)
28
What is the Dealer Invoice price and how is it calculated?
factory invoice The invoice amount the dealer pays the manufacturer for a specific vehicle. Not be confused with the dealer’s “actual” cost for the vehicle. “Actual” dealer invoice cost can only be determined by deducting manufacturer-provided holdback allowances, incentives, rebates, bonuses and other discounts from dealer invoice.
29
What are Factory to Dealer incentives?
Factory cash, Factory money, Cash in the trunk, Backdoor money. This is money paid to the dealer by the manufacturer to sell specific models. These incentives can come and go, according to market conditions. (e.g., a hot selling model most likely would have no incentives; a slow selling model may have a large incentive).
30
What is meant by the term financing on a Dealer invoice?
floor plan, floor plan assistance program, Supplemental floor plan assist program -flat dollar amount included in factory invoice as a finance charge to the vehicle
31
What are Fleet incentives and who funds them?
National fleet incentives, Commercial fleet credits. This is money given by a vehicle manufacturer to a fleet as an added incentive
for buying their product. Usually funded 100% by the factory.
32
What is Factory Holdback?
typically 2-3% of MSRP paid back to dealer. An amount paid by the factory to the dealer after the car has been sold, usually on a quarterly basis. Most manufacturers will pay dealers an amount equal to between 2% and 3% of either the invoice cost or the MSRP. The holdback is one of the reasons that “invoice cost” is not net cost to the dealer. The other reason is “factory to dealer incentives.”
33
Define the term MSRP.
manufacturer suggested retail price
34
What is triple net invoice?
Manufacturer-to-dealer invoice price less holdback less advertising & financing. Dealer break even price, don't always want to buy at this price because then dealer doesn't make a profit
35
What is the most important document in a vehicle purchase?
factory invoice - the price the dealer pays the manufacturer for the vehicle, generally not t he net cost, which is influenced by the holdback and any factory to dealer incentives
36
What information do you need to know in order to get the lowest possible price for a vehicle?
what the dealer has actually paid for the vehicle - the dealer cost
37
What is a good starting price to use for negotiating with a vehicle supplier?
invoice price. True cost or triple net price
38
What type of information is contained on a standard factory invoice?
price, features and details regarding the purchase and delivery of the vehicle - also include destination and delivery charge / freight charge. Near the end of the invoice there may be a section detailing the invoice total, holdback, incentive programs and cost categories. will also include "ordering dealership" and "ship to" fields and the VIN
39
What is the most important strategy to use when considering multiple vehicles?
be consistent in evaluating each invoice and use the same starting point for each negotiation
40
What is the Formulae for Triple Net?
Invoice – Holdback – Advertising – Financing = Triple Net Cost
41
How can Fleet sales benefit a car dealer?
HIgher volume of sales. Typically, it takes dealers months to sell the same number of vehicles that it would sell to an organization at one time through a fleet purchase. If the dealer sells vehicles to a fleet, the potential also exists that the dealer will be able to sell the organization a contract to service the fleet, which brings in more income for the dealer
42
What are some of the vehicle manufacturer’s requirements for Fleet pricing?
can vary - purchase 5 or more vehicles, maybe be larger, may also be a term basis such as leasing 15 veh a year as well as purchasing/leasing 5 new vehicles each year
43
What are some of the advantages of purchasing vehicles in bulk?
price, save money, good deals on service of veciles, and get good price on trade ins, further cost savings with standardization
44
Why would an organization want standard vehicle specifications?
save money
45
What are the best practices for lowering costs using standard vehicle specifications?
centralize fleet management, distinguish needs from wants, conduct specification reviews, develop standards based on vehile role and location
46
Why is it important to centralize Fleet Management?
Organizations need to allow only the leader of the organization to be the decision maker when purchasing vehicles, instead of allowing each division of an organization to order vehicles for their own purposes. An organization may need a manager with enough confidence to say, “I understand that each of you has your own concerns about how your vehicle is used, but we need to move to thinking about the impact of vehicle selection globally and not just locally.”
47
What are potential areas to save costs when identifying needs and wants?
Cloth or vinyl seats instead of leather
Bench seats instead of buckets
Two-wheel instead of four-wheel drive
Gasoline instead of diesel
Four-cylinder engine instead of six or eight cylinders
Standard length pickup box instead of extended
48
Describe the two categories of pricing incentives.
National Fleet Incentives and Competitive Pricing Assistance (CPAs). If a company owns 10-15 vehicles it can receive a Fleet Identification Number and be entitled to a fleet discount from the manufacturer. However, if a Fleet Manager works with the manufacturer and negotiates an individual incentive instead of the national fleet incentive, often they can find a lower price through
CPA. Keep in mind that CPAs often can depend on the vehicle volume commitment, and whatever is agreed upon will be noted on the factory invoice.
49
What is a good indicator of the true vehicle cost?
total cost of ownership
50
What warranty considerations does the Fleet manager have to keep in mind during the purchasing process?
have a prediction of a vehicle’s expected life and how it adds to the warranty you will be paying for.
51
Who can a Fleet manager contact at the dealership for information on the
manufacturers Fleet programs?
commercial or government sales person at the dealership
52
What does a Fleet manager need in order to receive Fleet discounts?
fleet identification number
53
What is a volume rebate and how can the Fleet manager obtain it?
discount for purchasing multiple purchases at once, even if not taking deliery of all at one time
54
List the advantages of ordering vehicles from the factory.
Personalized customization
Can specify the vehicle to fit specific needs
Better pricing offered by the dealer
Opportunities to add or delete options that are not available in a retail sale
55
What are some of the disadvantages of ordering vehicles from the factory?
Longer wait time
Incentives may be lost during the wait period
Production windows may close unexpectedly and the factory may reject the order
Some options or popular models may not be available for fleet orders
56
Why might ordering from the factory be cheaper than ordering from stock?
When a dealer places a fleet order to the factory, the dealer does not have to worry about the vehicle sitting on the lot or trying to find a buyer. Instead the buyer is already setup and ready to go as soon as the vehicle is delivered. This helps the dealer cash flow and limits exposure to finance charges
57
What might make ordering from the dealership cheaper?
May lose dealer incentives while vehicle being built in the factory
58
What is the basic rule for negotiating vehicle price?
ensure you use the same terms and same starting point as the dealer.
59
What should the Fleet manager do in order to get the best price?
consolidate volume whenever possible since prices are are often tiered on order volume and order early to help manufacturer fill productions slots
60
What are the two approaches to negotiating?
start at dealer invoice and work down and start at triple net and work up
61
What is an alternative to negotiating vehicle prices?
bidding process
62
What is a Vehicle selector list?
predetermined list of vehicles that drivers can choose from to meet their vehicle requirements
63
What are some questions that managers should address in order to help them in the vehicle selection process?
How many choices of vehicles exist?
What is important to management?
How much input do drivers have?
Can drivers purchase options?
Philosophy – work or perk?
64
Why can offering too many choices be a disadvantage?
greater administrative burden, prevent bulk discounts
65
List some of the factors a Fleet Manager may consider in the vehicle selection process.
function, warranties, safety, cost, disposal, availability, morale, image, maintainability, environment
66
How can a Fleet manager get driver input and what information should they ask for?
annual survey or feelt steering committee. Ask about color, vehicle model, and options such as entertainment, style upgrade, GPS and towing capabilities
67
What are some considerations to be made when deciding whether the vehicle should be work or perk oriented?
organization philosphy, driver's responsibilities, and HR
68
Why is it important to select the right vehicle?
The upfront cost is significant and a suboptimal vehicle will probably have to wait until the next time the vehicle is replaced.
69
What are some important vehicle selection considerations for both Government and Private Fleets?
gov is more cost conscious and more likely to purchase lower trim levels with fewer options and corporate are more concerned with image and more likely to use vehcile as incentive to retain staff
70
Why is it important to select vehicles that meet company needs?
determine vehicle function to determine which vehicles will be most appropriate for specific tasks
71
What vehicle selection input should be solicited from management?
insight into organizational priorities, cost considerations, work vs perk, exterior graphci designs, and environmental concerns
72
What are some concerns of stakeholders in the organization when developing selection criteria?
HR - relation concerns, leadership - cost concerns, driver - safety, sales management - reliability
73
List the four steps in the selector development process.
identify selection critera, rank criteria, assign a weight, conduct a trial vehicle selection
74
What stakeholders should the Fleet manager seek feedback from?
drivers, staff, customers, and organization leadership
75
List some factors that might impact the vehicle selection criteria.
terrain, vehicle duty cycle (8, 10, 12 hour days), environmental factors (snow, heat,dust), cost of purchase, vheicle lifecycle costs, and safety
76
What are quantifiable and non-quantifiable factors?
quanitfiable - cost, warranty, maintenance, environment. Non-quant - safety, image, morale
77
What should the Fleet Manager keep in mind while ranking selection criteria?
keep big picture in mind and rank by what is important to the organization and what will return the most value
78
What should the Fleet Manager consider while assigning a weight to the selection criteria?
consider the criteria and quantify how much more important each successive factor is to the fleet. See what is equally important and assign the same weights. If all equally important, no need to assign weight
79
How does the Fleet Manager test vehicle options against the selection criteria?
conduct a trial comparison by gaterhing necessary information and then evaluate 2-3 vehicles (minimum), score the vehicles and review the results
80
How does the Fleet Manager determine a points total in the selection process?
The fleet manager then scores each vehicle from 1 to 3 in each of the selection criteria and multiplies that score by the applicable weight to determine a point total.
81
How can the Fleet Manager manipulate the results of a selection matrix?
changing weights and ranking
82
Who should be included in a user input group and what are the responsibilities of the group?
drivers, managers, supervisors, and maintenace workers. Evaluate new products and options while keeping clear records of their notes in order to summarize and present for consideration
83
How should the Fleet Manager treat the input provided by several input groups?
take it seriuosly and consider it fully but don't treat them as decision makers
84
Who makes the final decision on which vehicle to purchase?
fleet manager
85
What should be done once the final decision on vehicle selection has been made?
reconnect with the group that provided the input and explain final decisoin to ensure group knows their imput was used
86
What is Lifecycle Cost Analysis?
technique used primarily to evaluate bids on a basis other than low purchase cost
87
How is Lifecycle Cost Calculated?
Initial Cost + Operating & Maintenance Costs – Salvage Value = LIFE CYCLE COST
88
What is the major advantage of Lifecycle Cost Analysis?
accounts for the operating costs of owneership and salvage values which gives a better picture of ture cost of owndership
89
How are contracts awarded in the public and private sectors?
competitive bidding process
90
What is an organization legally bound to do when beginning the competitive procurement process?
fully disclose all info that would influence a bidder, treat all bidders fairly and equally, avoid all undisclosed preferances and potential conflicts of interest, act in good faith, reject any bid which is substantially non compliant, negotiate no changes to scope of work without offering every other bidder the same opportunitiy
91
What is the FASB and what do they do?
organization that regulates the financial accounting nd reporting aspects of a transaction. Provide standards that investors and financial report uses rely upon to help in decision making, publishes rules relating to how vehicle pruchases and leases are reported on financial statements
92
What do lease accounting standards require the leaser to do?
Currently lease accounting standards require leasers to classify the lease as a sales type lease, direct financing lease, leveraged lease, or operating lease. Lease payments are an expense, and depreciation is split between a finance charge and reduction of outstanding liability
93
What is the critical first step in the selection process?
Determine what is needed
94
What two objectives must be balanced during the selection process?
acquire vehicles that meet operational needs at the lowest lifecycle cost
95
What questions should the Fleet Manager ask in order to help determine vehicle requirements?
what tasks will be performed? Will they need to carry backseat passengers? What sort of cargo? What distances will it travel?
96
What tools can the Fleet Manager use in order to save time in identifying vehicle requirements?
survey, personally interview drivers, vehcile test drive with key users
97
What is the role of the Fleet Manager in the decision on vehicle specifications?
ultimate decision when deciding what specifications each vehicle entering the fleet must have using input from others
98
What are some common errors that are made while purchasing specialty vehicles?
working out of order (start with the body tand then the chassis then the powertrain), duplicating old units, guessing
99
What are the common terms for solicitation styles used by organizations in order to procure goods and services from vendors?
RFQ, RFP, RFI (request for information), cooperative purchasing contracts
100
What is an RFQ and when should it be used?
reconnect with the group that provided the input and explain final decisoin to ensure group knows their imput was used
101
What information is required in an RFQ?
request for quote - when minimum requirements are clear and vendor innovation is not desired
102
What is an RFP and when should it be used?
request for proposal - when relative qualitative requirements will be evaluated and vendor innovation is desired
103
List the typical components of an RFP.
statement and scope of work, specifications, schedules, contract type, data requirements, terms and conditions, description of goods/services, general criteria used in eval, spcial contractual requirements, technical goals, instructions for preparation of technical, management, and/or cost proposals
104
What are some of the criteria used to evaluate a response to an RFP?
suitability, function, design aesthetics
105
What is an RFI and when should it be used?
request for information - to develop a prequaliftied vendor list where there are many potential bidders
106
What is an RFT and when should it be used?
request for tenders - expected to conform to some legally standardized structure designed to ensure impartiality, it is specific to each org
107
What are cooperative purchasing contracts?
established by one of the processes above and allows other organizations to buy from it without a re-bid (e.g., County buying off a State contract).
108
What are the three types of specifications and what do they have in common?
performance, design, and proprietary (name brand) - all descrive the minimum acceptable characteristics of vehicle or equipment
109
What do good specifications need?
to have enough detail to avoid confusion but not be overly complicated
110
What are performance specifications? List some examples.
Tell vendors what the unit must be able to accomplish and they determine the product and configuration to meet those requirements. Gross weight, speed, acceleration, minimum grade able to negotiate, passenger/weight/volume carrying capacity, fuel economy, emissions levels, axle loads and distribution, and compliance with industrial or governmental standards and/or statutes such as SAE, OSHA, or DOT.
111
What is the advantage to using performance specifications?
likely result in the most competition of the three types of as vendors ar efree to select and configure product able to meet the min operating requirement as lowest cost of those criteria
112
What are Design specifications? Give some examples.
Tell the vendor how the unit is to be configured to be able to accomplish what is needed. description of vehicle's physical dimensions, structural properties, or other engineering parameters and performance (power or torque), exact size and placement and mounting method for ancillary equipment like a winch or storage shelving
113
When are design specifications used?
specialty/custom vehicles (e.g., fire apparatus) and vehicles built in multiple stages where a body and ancillary equipment are mounted on a cab and chassis (e.g., mass transit bus, dump truck).
114
What are proprietary specifications? List some examples.
tell vendors what make/models of unit or specific components are acceptable. Defined brands when there is already a fleet standard
115
What are some advantages and disadvantages of proprietary specifications?
easiest to write but most difficult to evaluage for award is the "or equal" provision is included to allow compeition against the known commodity
116
What is the Hybrid approach to specification writing?
combine features of all 3 types of specifications
117
What role does lifecycle cost play in the decision making process?
lowest cost isn't just purchase price, but value of money spent using lifecycle cost factors
118
What is the ABA model procurement code?
recommended wording to promote transparency, fairness and competitiveness
119
What are Fleet Standardization provisions?
Standardization on makes/models may reduce costs for maintenance (e.g., diagnostic software, specialty tools, technician training) and driver training.
120
What benefits can be achieved by standardizing your fleet procurement specifications?
may reduce costs for maintenance (e.g., diagnostic software, specialty tools, technician training) and driver training.
121
What are some of the advantages of standardization?
improved maintenance efficiency, fewer diagonistic and speciality tools, smaller parts and bulk fluid inventory, increased operational efficiency and safety, closer vendor relations, proven reliability, reduced time spent on specifications and bid evals, fewer contracts and invoices,
122
What are the disadvantages of standardizing procurement?
potential loss of competition, missed innovation, risk of lemons (lack of diversity/design flaw has bigger impact), appearance of collusion
123
What are some considerations for standardizing the “right way”?
everything must be open and in full view of stakeholders, potential vendors need to be included in the process when evaluation rules are established and their concenrs addressed, formal pre-bid conference is helpful. DO one segement of the fleet at a time. Should be based on demonstratable savings in the life cycle costs. Establish multi year procurement
124
What is a multi-year procurement agreement and why should your organization establish one?
simplifies the standardization process - A multi-year agreement would include a cost escalation clause, take advantage of all new incentives, and have an easy-out provision for both parties.
125
What are pre-bid meetings and what steps should be taken to ensure that they are successful?
they are for reviewing specification etc with potential bidder. Have someone take notes, set up a time and place for bid opening, create an attendance record for all attendees. Purchasing officer will facilitate
126
Why is it beneficial to visit a vendor before purchasing the vehicle?
This gives you an opportunity to really understand the source of your purchase as well as getting a real feel for the vehicle. When at the site you will be able to inspect the manufacturing plant or sale lot to identify if the vendor will be able to meet your future needs for vehicle purchases. It also gives you the opportunity to test drive the vehicles.
127
Describe the post-bid evaluation process.
prepare a bid evaluation report and spell out reasons for rejecting each bid you did not take. Reason for rejection such as non repsonsive, late etc
128
What is a performance bond?
financial guarantee up front protecting the buyer from vendor non-compliance
129
What items are included in most specifications?
Cab, Engine & Transmission, Electrical, Fuel, Brake System, Axles, Tires and Wheels, General (safety standards, cylinder removal process, vehicle camera), Body Dimensions,Body Construction, Hopper, Packing/Ejecting Mechanism, Lifting Arms, Controls, Hydraulics, Paint, Mounting, Warranty, and Optional Equipment
130
What are two different types of plans for employee reimbursement?
non accountable and accountable plans (cents per mile etc)
131
Why is an Accountable reimbursement plan beneficial to both the employer and employee?
excluded from gross income and not reported on W2
132
What three rules must be followed in order to have an accountable reimbursement
plan?
must have business connection, must provide adequate accounting of their expenses within a reasonable period, excess paymenets must be returned
133
List three examples of accountable plans.
flat rate (driver gets $800 to cover expense, drive has to return what isn't needed), cents per mile, qualifying fixed and variable rate plan
134
What are non-accountable reimbursement plans? Give an example.
plans that don't meet criteria required to be a tax free reimbursement. Most common is flat rate, what we think of as a typical vehicle allowance and do not require substantiation
135
What are the pros and cons of a cents-per-mile reimbursement program?
easy to administer, tax free, is government approve rate. Cons are not geographically sensitive, does not properly account for mileage, underpays low mileage drivers, over pays high mileage drivers, prvides incentive to report miles, lags marketplace by a year, not intended as accurate reimbursement for business use of a personal vehicle
136
What is the IRS rate and why do many organizations use it?
optional standard mileage rate for business -used because it is easy to determine because government publishes it each year
137
Under which circumstances is it preferable to have employees provide their own
vehicles?
temporary or intermittent requirements, low mileage drivers, lack of infrastructure to support an employer provided pool, strong employee preferance
138
In what situations should employee provided vehicles not be considered?
The type of vehicle required is other than those normally owned by employees. For example, the requirement for off-road travel or transportation of heavy or oversized loads would usually preclude the use of employee provided vehicles. Seeing employees taking the vehicles they use for business home at night would negatively impact public perception and the image of the organization.
139
How can temporary or intermittent vehicle requirements be met?
rental, loaner from a pool, or driver reimbursement
140
Under what circumstances can employee reimbursement be preferred even when employer provided vehicles are less expensive?
organization has limited funds available for purchase and doesn't want to lease, public perception may prevent and org from allowing employees to commute with employer provided vehciles, parking space or overight security restructions, strong employee preference
141
When might a Fleet Manager consider renting a vehicle?
short term demand increases
142
What are some of the requirements of vehicle purchasing?
considerable capital outlay, extra focus on managing the acquisition, initial licensing and renewals, personal property tax payments, title retention and remarketing of vehicles.
143
What are some advantages of vehicle ownership?
tax relief on depreciation, pricing leverage with dealers, and maximization of resale proceeds. Retaining the salvage value is one of the key advantages of ownership.
144
When might it be preferable to order vehicles from the dealers stock?
based on the timing of the need of the vehicle
145
What are some advantages and disadvantages to purchasing from dealer stock?
maybe more perks that come with the vehicle such as heated seats, satellite radios, and unneeded warranty and maintenacne packages
146
What capital considerations should the Fleet Manager make?
availablity of capital, would it be better invested in other assets such as hiring staff, advertising, or paying down debt
147
How does Return on Investment affect the purchase decision for both public and private fleets?
for a public entity, the comparision should be between the rate of return and the cost of capital, if rate of return is greater than cost of capital, then borrow the money. For private, the comparison should be based on the profit margin.If profit margin greeater than cost of capital then use internal funds to generate additional
revenue and borrow the money for vehicles.
148
What is the true cost of capital?
The cost of capital is dependent on how the organization finances its assets. Organizations may use both debt and internal capital to finance their fleet, in which case their overall cost of capital is a weighted average of all sources. Since an organization must onsider its overall ROI, it must consider which method will provide the greater return. Influences on this decision are operating vailable internal capital, investments, rate of return, history, credit worthiness, bond rating, etc. The organizations true cost of capital is based on the weighted average of these costs.
149
What are the Sales tax implications of both purchasing and leasing vehicles?
when purchasing a vehicle any sales tax must be paid at the time of the sale. When leasing most states charge sales tax on the monthly lease payment. So you are only paying tax on the value of the lease payment, not the entire vehicle value. Over the life of the lease this will be lower than tax payment on a purchase.
150
What are some of the more common funding sources?
internal funds, borrowing, leasing, grants
151
How can the Fleet Manager get funding from Federal Agencies?
grants, monitor agency websites, network with State Clean Cities Coalistions, and listen to vendors
152
How can the Fleet Manager secure funding from the state?
National Association of State Energy Officials (NASEO) releases a directory of State Energy Offices (SEOs) but there may be more
153
How can liens affect Fleet Managers who finance their vehicles?
The vehicle can't be sold until the lender is paid and lien released. Liens can also result from lawsuits, bankruptcy, or back taxes.
154
What are some administrative issues that arise from unpaid tickets?
Some states block registration for vehicles that have unpaid tickets
155
Define the term Lease.
A lease is a rental that, by contract, is clearly defined as to length, cost and stipulations
156
What is the difference in cost between leasing and purchasing vehicles?
It is clear that purchasing is typically less expensive in the long-term than leasing. However, leasing companies can provide many ervices that would otherwise need to be performed in house. As leasing companies manage thousands of vehicles they may be able to perform these services less expensive than hiring someone in your own organization. Additionally, staff at leasing companies become experts in their function and that is all they do. In-house staff may not perform these functions enough to
be experts.
157
What are the four questions to ask in order to classify a lease?
Does the ownership (title) transfer at the end of the lease?
Does the lease contain an option to purchase the asset at a bargain price?
Is the term of the lease at least 75% of the estimated economic life of the asset?
Is the present value of the future minimum lease payments at least 90% of the fair market value of the asset?
158
What is an operating lease? List some of the benefits it provides.
the leased asset is not considered an asset of the lessee, the lessee records the asset as an operating expense. An operating lease is particularly attractive to organizations that continually update or replace equipment, want to use equipment without owner-ship and want to return equipment at lease-end to avoid technological obsolescence. An operating lease usually results in the lowest payment of any financing alternative and is an excellent strategy for bypassing capital budgeting restraints. This qualification for off-balance sheet treatment can result in improved return on asset (ROA or ROI) due to a lower asset base. It can also result in higher reported earnings in the early years of the lease.
159
Who bears the risk in open-end and closed-end operating leases?
Open end leases the borrower bears the risk of the residual value and the owner (lessor) bears the risk in a closed end lease
160
What is a Capital lease?
A capital lease is classified and accounted for by the lessee as a purchase and by the lessor as a sale or financing transaction.
161
Define the two types of Capital leases.
Finance leases are full-payout, non-cancellable agreements in which the lessee is responsible for vehicle maintenance, taxes and insurance. Direct Financing Lease (Direct Lease) – A non-leveraged lease by a lessor in which the lease meets any of the defined criteria of a capital lease, plus certain additional criteria. A direct lease is a financial arrangement and contract through which the lessor (a financial institution, a leasing company or similar entity other than a manufacturer or dealer) agrees to furnish, and the lessee agrees to hold assets for a set period of time, at an agreed upon price, and in accordance with specified terms and conditions.
162
What is a closed-end lease?
Closed-end leases are based on the concept that the number of miles driven annually is fairly predictable and that its value at the end of the lease (the residual) is therefore somewhat predictable. Closed-end leases are written for a fixed term, perhaps three years, providing for a flat monthly payment, a predetermined mileage limit and set penalties for exceeding the mileage limit, and for any excessive wear and tear.
163
Describe an open-end lease.
Open-end leases account for 95% of all leases used in fleet acquisitions. The open-end lease usually has a short minimum term of one to two years and continues thereafter on a month-to-month basis until the agreement is terminated. Open-end leases are often erroneously referred to as a “finance lease”. However, it is a financing method in which the amount owed at the end of the lease term is based on the difference between the leased unit’s residual value (resale value) and its realized value (depreciation.) Open-end lease costs are generally lower than closed-end leases because, unlike the closed-end lease, the lessee accepts the risk for the residual value of a vehicle when sold at lease termination. Similar to closed-end lease arrangements, the organization does not take ownership of the vehicle when the lease terminates. Most open-end leases contain a “step-down” payment scheduled wherein payments decline annually with no limits on mileage or wear and tear.
164
What is a Terminal Rental Adjustment Clause ?
Most open-end leases also contain what is known as a TRAC clause that ties the lessee to whatever difference may exist between the book and selling values of the unit upon remarketing. TRAC leases are an Internal Revenue Code defined variation on traditional open-end leases, combining all the advantages of leasing while keeping the option to purchase the equipment at the end of the lease term at a price set according to the amortization schedule when the lease term began. The primary difference between TRAC and most open-end leases is how the differ-ence between the projected residual value and the actual sale pro-ceeds may be treated. In a traditional open-end lease this difference is shown as a loss or gain to the lessee. In a TRAC lease this difference may be used to adjust the lease rate, ensuring any variation from the projected residual value is accounted for as an operating expense. This type of open-end lease may have significant tax advantages for non-public lessees.
165
How can the Fleet Manager determine the mileage criterion to be used in the leasing agreement?
base mileage off a similar vehicle doing a similar job
166
What are the differences between a floating and fixed financing rate?
floating - base rate set each billing cycle, based on prevailing rates at the time. Fixed - interest rate set at the ince[tion of the lease and does not vary
167
What is the difference between on and off the balance sheet accounting?
With on balance sheet accounting the organization is depre-ciating the asset and the asset holds a residual value (it could be sold to raise capital). With off balance sheet accounting, the asset is recorded as an operating expense and has the potential for an improved return-on-investment due to fewer owned assets.
168
List some of the Leasing fees that the Fleet Manager should be aware of.
Administrative Fee
Interest Markup
Issuance Fees
Interest Rounding
Interim Interest
Interim Rent – Front end of lease
Interim Rent – Back end of lease
Fully depreciated lease admin fee – generally a flat dollar amount that is billed as long as the asset remains on the books, after it has been fully depreciated.
Variable interest rates based on conditions that may have nothing to do with leasing (for example, lease rates may spike if you cancel use of a maintenance program).
169
What is vehicle commissioning?
Receiving, licensing, decaling, entering in FMIS - putting the vehicle into working order
170
Describe some of the common activities involved with commissioning a vehicle.
licensing, titling, decaling, Information System input, asset tagging, inspection, warranty registration
171
What are some of the unique requirements that are common to government fleets?
environemental testing, licensing
172
What are some of the unique requirements that are common to leased private sector vehicles?
driver assignment, up front fees, inspections, customized invoices, fuel management
173
What additional activities are required when commissioning a utility fleet?
permits, regulatory compliance
174
What are some of the unique requirements that are common to law enforcement fleets?
lifecycle specific equipment, upfitting, specific department needs, vehcile codes, license plates
175
What is vehicle upfitting?
Upfitting is the process of optimizing vehicle design for the most effective overall productivity and cost.
176
How can the Fleet Manager determine what upfitting is required on a certain vehicle?
determine the intended application of the vehicle. Upfit decision and analysis to ensure the upfit required will fit the selected vehicle, research specifics and metrics for the requirements of the upfitting equipment
177
What resale considerations should be made before the vehicle is upfitted?
where holes will be drilled and installation of radios, brackets, light and other equipment should be done to minimize visible damage
178
What are some common errors that are made in the upfitting process?
wrgon specs for the chassis making it too tall, a van has the wrong shelving system and doesn't meet driver requirements, liftgate installed with a platform too small to safely handle the load
179
What should the Fleet Manager do after purchasing upfitted vehicles?
set an early alert system ro recognize problems in upfitting. After arrival, inpector needs to ensure the upfit items have been installed, installed correctly, and they are operational. Check quality of installation such as wires bundled correctly, spliced to perform as specificed, routed away from exhausts, are hydraulic lines routed to prevent kinkds and are metal hydraulic lines secured to prevent vibration, are there any leaks, etc
180
What are the two aspects of Fleet rightsizing?
utiliation and size of the vehicle (is the engine large enough, can the task be accomplished with 2 wheel drive versus 4 wheel, etc) upfitting the vehicle to the the job but no more
181
What are utilization thresholds and how are they used?
threshold to determine if a vehicle is needed. Fleet utilization can be measured in miles or hours or days or trips completed or jobs completed, or any combination of these measurements. Additionally the fleet manager must keep in mind productivity. A plumber who drives 200 miles each day, but is actually on the job site 3 hours a day is not productive, even though the vehicle provides the illusion it is highly utilized. Likewise, a plumber who drives 20 miles each day, and is on the job site 7 hours a day can be considered productive, but the vehicle gives the illusion it is not utilized.
Utilization thresholds should be designed around the vehicle's mission. Be it transporting plumber’s tools to a job site, or transporting a pharmaceutical rep to multiple sales appointments. An understanding of the organization objectives is necessary in developing utilization minimums and maximums.
182
What are the effects of over-utilizing and under-utilizing assets?
over utilization may require early replacment and under utilization can mean that the asset may be reassigned or remarketed and proceeds renvested into something more productive
183
Under what circumstances might the Fleet Manager consider pooling resources?
when the org needs a vechile for a specific job that is not frequently done. Temporary need or low frequency need
184
What is an alternative to acquisition for a temporary need or low frequency job?
create an employee pool/sharing program
185
How can a Fleet Manager control access to a fleet pool?
create a schedule for useage and put controls into place to establish guidelines for maintenance and inspection to ensure proper upkeep and safety checks
186
How can the Fleet Manager monitor the usage of the fleet pool?
mileage logs, online reporting, GPS, wifi data loffers, fuel records, and maintenace records
187
What should the Fleet Manager consider while designing the layout of the fleets
facilities?
consider the layout’s ability to handle alternative fuels; pay attention to exterior location, ventilation, spacing, fire codes and other regulations before building
188
What should the Fleet Manager consider while deciding the location of fleet facilities?
must be large enough but not too far removed from commonly used roads or cities.
189
What is the Fleet Managers role in managing equipment?
uphold safety plans and training, proper training of employees on the use of cleaning supplies, signage, and personal protective equipment
190
What checks should the Fleet Manager do when hiring new drivers?
motor vehicle record
191
What can the Fleet Manager do to help manage risk?
hire qualified and defensive drivers and ensure proper and complete driver training. Allow proper time between hiring and beginning fleet duties for the driver to be on-board and evaluated regarding your fleet’s specific driving practices and efficiencies. Lastly, ensure that your driver has the appropriate license before beginning work.
192
What responsibilities in the Fleet department fall under HR?
staffing, recruitment, and reward systems and incentives
193
Describe the steps involved in proper fleet staffing.
having the right tools (employees) to fill your toolbox - what taks need completion and how many people and skills are needed. Next, advertise truly and effectively. Employee retention is the final step, set-up a reward system that allows employees to benefit and be recognized for good work they are doing
194
What are the considerations when evaluating extending a vehicle lifecycle?
depreciation expenses can be put off but this can also be balanced by higher maintance and repair costs, may take longer to switch to new technologies, company image and employee morale
195
What 6 activities are common when decommissioning a vehicle from the fleet?
title transfer, equipment removal, fuel system adapted to local fuel pumps must be removed, certification for disposal requirements must be met, inspection to make sure vehicle is in safe operating condidion and to see if there has been driver negelect or abuse, update information system to reflect latest information and remove vehcile from active in database
196
What are some considerations that should be made when decommissioning a vehicle from a public fleet?
public image - remove decals, plates and other markings; liability - gov has a legal and moral obligation to use care in identifying assest that should not be resold to the public and should be sold for salvage or destroyed
197
What are some considerations that should be made when decommissioning a vehicle from a private fleet?
(1) Vehicles being decommissioned may be dropped off at the dealer delivering the new vehicle. This dealer is being paid a nominal fee by the leasing company to accept the vehicle (with the fee being passed on to the fleet).
(2) The vehicle being decommissioned will go through an inspection process by the driver of the vehicle on behalf of the disposing entity. Using a preprinted checklist, the driver will record the condition of the unit so that any discrepancies the driver notes in the condition can be compared to a similar visual inspection completed by the dealer. Once this inspection is completed, the disposing entity will be able to ascertain what the vehicle is likely to bring at auction or other means of sale.
(3) Many times, the decommissioned vehicle may be dropped directly at an auction by the driver, with the same visual inspections being completed.
(4) Decommissioned vehicles may go through a detailing (to clean the vehicle for sale) or small repairs may be completed if the repair itself is not too expensive and will bring the vehicle a higher resale price than without the repair.
(5) Decommissioned vehicles may be offered for sale by the disposal entity to the driver of the vehicle. This would be an arm’s-length transaction not involving the fleet and may result in a faster turn- around time if the driver is interested in purchasing the vehicle. All other steps involved in the decommissioning will still apply.
198
What are some considerations that should be made when decommissioning a vehicle from a utility fleet?
(1) Testing. Vehicles with aerial devices should be tested to ensure compliance with Federal, State and Provincial standards. Vehicles not meeting these standards should be repaired before disposal or destroyed and not resold.
(2) Maintenance records. On decommissioning, maintenance records of the vehicle should be copied and stored to prove that all necessary maintenance was performed during the life of the vehicle.
(3) Warning labels. A final check should be done during decommissioning to ensure that adequate warning labels are still affixed to any vehicles being remarketed.
199
What are some considerations that should be made when decommissioning a vehicle from a law enforcement fleet?
equipment may be able to be resued, decide what to strip from the vehcile and if it will be done inhouse or outource, remove decals, remove license plates, preparation for discposal by reinstalling factory equipment and marking to preclude the appearnce of an active police vehicle
200
What is vehicle reconditioning?
anything from washing the car to performing major mechanical and body work
201
What rule should be followed when deciding whether or not to invest in reconditioning a vehicle?
must return 3 times the cost of reconditioning
202
What should a remarketing policy contain concerning the sale of vehicles to employees?
address pricing, sales to employee's immediate family, approval of repairs for a certain period prior to sale, time to pick up after sale, and other entity specific things
203
What is the Employee remarketing method and what are the benefits of using it?
sell to employees, least expensive option
204
What is the Auction remarketing method and what are the benefits of using it?
off site may reduce fleet managers liability for hosint onsite, but increases risk and effort moving to another location, virtual is easier way of listing but may be more expensive listing fees
205
What is the trade remarketing method and what are the benefits of using it?
trade into dealer - use of space is minimized and transaction time is short
206
What is the retail remarketing method and what are the benefits of using it?
retail can allow for higher proceeds, prices can be raised and negotiated. Takes a lot of time
207
What is the direct remarketing method and what are the benefits of using it?
Direct sales involves finding a certain target whether it be an organization, demographic, or individual. It is important to develop a list of target markets and then begin directly selling vehicles to these targets.
208
What is the third party remarketing method and what are the benefits of using it?
Third party is one of the easiest ways of selling vehicles however it may give the lowest return. A third party will do all of the work from collecting the vehicles, filing the paperwork, and finding buyers for the vehicles. Selling through a third party is the best option when vehicles need to be moved quickly or you do not have time to sell them.
209
What is the Internet remarketing method and what are the benefits of using it?
internet sales can be done easily. List on your website, spearate website, or another sales medium. Can be used in conjunction with other methods. Market is expanded globally. Specailaized vehicles benefit from this the most
210
What is upstream remarketing and what are the benefits of using it?
This involves selling vehicles as a dealer or while still in service. This method requires coordination and the vehicle needs to be in similar condition when removed from service or when the upstream buyer agrees to purchase it.
211
What is the difference between effective depreciation and book depreciation?
effective depreciation is the actual value of the vechile conumed in use is the difference btween the net acquistion cost and the net resale value. Book is the estimated residual value at replacement subtracted from the total acquisition cost
212
What is the goal of a fleet manager when selecting a vehicle?
buy a vehicle that does the job, has highest resale value, and lowest operating cost
213
What are the two factors that dictate effective depreciation?
expected useful life and the approx market value at lease end
214
In general, what are the differences in planned vehicle life between government fleets, private fleets, executive fleets and leased fleets?
private fleets are shorter than government. Exec is 36 or 40 mo lease and private owned is 36 mo
215
What should be considered when deciding to sell a vehicle in order to minimize effective depreciation?
age, mileage, condition, time of year, regional differences
216
Know how sale price volatility can affect various vehicle classes.
compact cars have wider seasonal swing than mid size. Luxury has most stablity, vans/minivans weakest segment
