Picking procurement processes

In last month’s edition of School of Business, the pervasive subject of cash flow took centre stage. In asset-heavy businesses like commercial road transport operations, investing in new vehicles can tie up significant resources, so it is of the utmost importance to choose the right vehicles to ensure adequate finance is maintained. One company that says it has worked out its procurement process is international freight forwarder, VISA Global Logistics.

Though it was financial institution Visa that used the slogan ‘Everywhere you want to be’, the phrase may equally apply to similarly titled business, VISA Global Logistics. Sharing a name and an ideology, though, is where the similarities end. VISA Global Logistics began operations in 1982 as an international freight forwarder and acquired its first truck in 1985. Today, its international freight operations cover 15 countries with container transport operating in Australia & New Zealand.

The last two years in particular have seen substantial growth, explains Managing Director, Simon Hardwidge. The fleet has grown to 130 trucks and 400 trailers in various combinations that carry out the final segment of VISA’s end-to-end supply chain offering. When it comes to vehicle procurement, Simon says he has four hard-and-fast rules he lives by. “For VISA the critical factors are: whole of life cost, technology, after sales support and relationship, with all being equally important,” he says.
“We need to be satisfied that a supplier will deliver strongly on all four factors, before we will purchase.”

There are three reasons why VISA will begin the procurement process, he adds, one of which is to replace existing vehicles in the fleet. VISA operates a strict seven-year life cycle on its prime movers, with mirrored seven-year maintenance contracts. The second procurement prompter Simon identifies is changing work characteristics, such as changes to Performance-Based Standards (PBS) access (see breakout box on page 34).
The third reason is to facilitate business growth, which led VISA to investigate the Scania range of prime movers in October last year. Though the freight forwarder hadn’t purchased the Swedish truck brand before, Simon says Scania ticked his four critical factors. “Scania is a new brand for VISA, with us taking delivery of the first of our current 19 Scania trucks in October 2016,” he says. “We have another 10 on order for delivery over the next three months, mainly a mix of G480 and R560 B-double specification trucks.”

Simon says the four critical factors are more to consider than upfront costs, as the purchase price is only a small part of the whole of life cost of a truck. “It’s important to consider all cost variables when making purchasing decisions,” he says. In this sense, procuring a truck is the easy part. The challenge is to assess the Total Operating Economy and buy a vehicle that provides adequate economical benefits to continue its operation. In line with this, experts agree that it is important to choose a vehicle based on the application and ensuring a vehicle is not over- or under-spec’ed.

In an industry that is fuelled by passion, buying from the heart or choosing to invest in a vehicle based on historical buying patterns, presentation or a general ‘feel’ for the truck does happen. However, Simon advises that those who purchase purely on historical grounds risk losing their competitive position. “At VISA we are focused on only the best outcome for the business,” he says. “Our loyalty to a brand comes from a brand continuing to deliver on our four key purchasing factors.”

As VISA hadn’t used the Scania product in the fleet before, Simon says it ensures prime mover candidates will be up to the task by putting them through a month or so of in-field evaluation before making a purchasing decision. Think of it like a pair of shoes – people don’t just buy the biggest pair on the shelf, they buy a pair that fits the feet. In this case, buying the vehicle that suits the application. “We mainly run container transport, which can vary from the very heavy end of the scale to carting light and empty containers,” he says. “Over the next three months we will also be taking delivery of some P370 4×2 specification prime movers for a new light and empty container application.”

Simon says the new light container application is part of the company’s continued drive to lower operating costs. “As with many industries, our sector is very competitive,” he says. “While our integrated solutions offer us a competitive edge in many of the markets we operate in, we need to continue to find ways to lower our operating cost base to ensure we also remain price competitive.

While VISA has seen substantial growth over the last two years, Simon says he believes there are good growth opportunities looking forward. “Our growth has come from the commitment and hard work of our people and VISA’s ongoing product and systems development to support our customers in such a fast changing and disruptive marketplace,”he says. “With this in mind VISA will open two additional intermodal transport facilities in 2018, while continuing to add new country operations for our international freight forwarding business.”

With each expansion, Simon says he takes great care to follow his four procurement rules and consider the total operating economy of the vehicles before they join the ever-growing fleet. In the words of billionaire, Warren Buffett: “Price is what you pay, value is what you get”.

Fast Fact
Prime Mover’s new monthly series, School of Business, investigates the secrets to business success, delving into five core areas with the help of Australia’s leading fleets. Keep an eye out for the Aftersales special in the December edition. 

Fast Fact
In September 2017, the NSW road network extended for more Performance-Based Standards (PBS) Level 2B container operators to apply for access permits to transport containers in and out of Port Botany using high productivity 30m A-double and Super B-double combinations.

Economic Values
According to 2012 bestseller, ‘The Personal MBA’, there are nine economic values that people typically consider when evaluating a potential purchase.

1. Efficacy – how well does it work?
2. Speed – how quickly does it work?
3. Reliability – can I depend on it to do what I want?
4. Ease of use – how much effort does it require?
5. Flexibility – how many things does it do?
6. Status – how does this affect the way others perceive me?

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