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FLEET SOFTWARE MONTH: Why vendor financial models matter for route planning viability

960 640 Stuart O'Brien

Most distribution companies keep their route planning solution for 15 – 20 years before replacing it. Today, more so than ever before, within that timeframe businesses, industries, economies and technologies undergo significant change. Distribution business models need to ensure they change in step, which in turn means their route planning solutions need to evolve and grow in the same direction. 

However, the financial models of many route planning vendors are not designed to foster that seamless evolution, innovation and growth over time. Instead, many solutions become operational liabilities because of changes brought upon by vendor financial models that disrupt product innovation. Gary Taylor VP Fleet Solution in EMEA at Descartes, outlines three vendor financial models that can be high risk for long-term evolution and growth of their route planning solutions…

Private equity owned vendors.

Private equity firms have two guiding principles that significantly and negatively impact the evolution and growth of the once-successful route planning solutions they acquired. First, they need to make the route planning business more profitable to pay themselves and service any debt they may have used to finance the purchase. Second, they need to get the business in a financial position to sell the company at a profit to generate a return for their investors – typically within a five to seven-year timeframe.

With the clock ticking, private equity firms focus first on cutting costs: all non-revenue generating roles such as development and support are subject to extreme scrutiny. Combined with the consequential “brain drain” that occurs as leading employees become disillusioned with the cost reduction focus means product innovation and attention to customer issues begin to diminish. Over time, what was an industry leading solution becomes an “also ran” as the product does not keep pace with new capabilities required by customers or industries, leverage the latest technological advances or highly evolving cyber security requirements.

Key questions to ask to ascertain future product and support direction of a PE owned route planning solution:

  • What future product plans does the business have for the product and support organisations? Are they growing or shrinking in headcount?
  • What similar or complementary companies does the PE firm own and what are their plans for integration?
  • How many years has the PE firm held the route planning vendor and when does it anticipate selling that company?

Consolidator-owned vendor

Industry consolidators are acquisition-based technology companies. They look for companies whose founders are looking to sell or distressed companies’ shareholders who are trying to get some level of return. Industry consolidators are similar to private equity firms in that they focus on improving the profitability of the acquired company and do it through cost cutting. The difference is that an industry consolidator maintains ownership indefinitely. However, industry consolidator owned companies suffer the same fate as private equity owned ones – product innovation, evolution, growth and support diminish over time.

Key questions to determine future product and support direction of an industry consolidator owned route planning solution:

  • What future product plans does the industry consolidator have for the product and support organisations? Are they growing or shrinking in headcount?
  • How have those acquired companies grown their solution capabilities and support since being acquired?
  • What similar or complementary companies does the industry consolidator own?
  • Are there plans for integration of those companies?

Venture-backed vendors

A number of route planning companies were started in the early to mid-2010s powered by low interest rates and the ability of venture capital (VC) firms to easily raise money. With a growing economy, that accelerated after the initial impact of the pandemic. VC firms were happy to have their portfolio route planning companies prioritise market-share growth over profitability. Capital for investing was cheap and the ability to borrow money was easily available. This aggressive ‘growth without regard to cost’ business model does have some upside. It allows more capacity for innovation and risk-taking; however, growth without profitability is not sustainable in the long-run and few companies grow their way out of unprofitable operating models.

The global economic downturn has, in recent years, meant that VC-backed route planning vendors have had to shift focus towards profitability. This shift in strategy puts extreme pressure on their growth-first operating models, the maintenance of higher levels of product innovation and support, and possibly even the outcome of the company.

Many VC-backed companies have been forced to restructure, cutting resources across the company to reduce or eliminate their cash burn. The impacts have been significant in terms of the reduction in sales, development, support and other parts of the company. In some cases, route planning vendors have left major geographic markets.

Key questions to determine future product and support direction of an industry consolidator owned route planning solution:

  • Is your company profitable and is the most recent financial statement available for review?
  • Have you had to restructure recently because of a tougher economy or less access to capital?
  • How many years into your last VC investment round is your company?
  • If you are VC-backed what is their timing for closing and liquidating your funding round?
  • Do you anticipate needing additional funding to operate in the next 2 years and how do you plan to obtain it?

Conclusion

Route planning solutions are foundational to any logistical fleet operation and the company’s success.  This is why it is so important to understand the financial model of the route planning solution vendor and the role that outside funding resources play in the growth, innovation and evolution of the company and its products. This can tell you much about your existing route planning solution vendor, its time to replace them, and whether a potential new vendor will have the wherewithal to meet your needs today and in the future.

FLEET SOFTWARE MONTH: How the latest solutions are driving efficiencies across multiple sectors

960 640 Stuart O'Brien

Specialist fleet management software solutions offer a comprehensive suite of tools to optimise vehicle operations, reduce costs, and improve driver safety – benefits that translate seamlessly across private and public sectors. Let’s explore how fleet management software can be deployed and leveraged to achieve optimal results…

Private Sector Applications

  • Delivery and Logistics Companies: Real-time vehicle tracking allows dispatchers to monitor driver location and optimise delivery routes, ensuring timely deliveries and efficient route planning. Data on fuel consumption and driver behaviour can be used to identify areas for improvement and reduce overall operating costs.
  • Construction and Trade Businesses: Scheduling tools can optimise technician dispatch by automatically assigning the closest available vehicle to each job location. The software can also streamline maintenance management by sending automated alerts for upcoming service intervals and managing spare parts inventory.
  • Rental Car Companies: Software can automate vehicle assignment and rental agreements, streamlining the customer experience. Real-time GPS tracking allows for precise vehicle location and recovery in case of theft, minimising downtime and financial losses.

Public Sector Applications

  • Emergency Services: Real-time vehicle tracking and dispatch software can ensure emergency vehicles reach critical incidents efficiently. Communication features allow for better coordination between multiple responders, potentially saving lives. Data on driver behaviour can be used to identify areas for improvement in safe driving practices.
  • Local Authorities: Fleet management software can be used to track and manage vehicles used by council workers for tasks like waste collection, street cleaning, and park maintenance. Optimised routing reduces fuel consumption and emissions, contributing to sustainability goals. The software can also track working hours and ensure vehicles are used efficiently.
  • Public Transport Authorities: Bus and tram operators can utilize software to monitor vehicle locations and arrival times, providing real-time passenger information and improving service reliability. Automated maintenance scheduling ensures vehicles are kept in top condition, minimising breakdowns and service disruptions.

Leveraging the Power of Data

Modern fleet management software goes beyond simple tracking. Here’s how data analysis empowers fleet managers:

  • Fuel Efficiency Monitoring: Identify routes with excessive fuel consumption and encourage fuel-saving practices amongst drivers.
  • Predictive Maintenance: Schedule maintenance based on actual vehicle usage and data from onboard diagnostics, preventing breakdowns and extending vehicle lifespan.
  • Driver Behaviour Analysis: Identify areas for improvement in driver behaviour, such as harsh braking or speeding, to promote road safety and reduce insurance costs.

The Future of Fleet Management

The future of fleet management software is brimming with possibilities:

  • Integration with Telematics and AI: Advanced telematics data and artificial intelligence (AI) will provide deeper insights into driver behaviour and vehicle performance, leading to further efficiency gains and predictive maintenance enhancements.
  • The Rise of Connected Vehicles: As vehicles become increasingly connected, fleet management software will integrate seamlessly with in-car systems, providing real-time data on everything from tyre pressure to engine diagnostics.
  • Focus on Sustainability: Software will be used to monitor emissions data and optimise routes to reduce fuel consumption and CO2 footprint, aligning with environmental sustainability goals.

Steering Towards Efficiency

Specialist fleet management software is no longer a luxury, but an essential tool for fleet managers in both private and public sectors. By leveraging real-time tracking, data analysis, and advanced features, fleet managers can optimise operations, reduce costs, improve driver safety, and contribute to sustainability goals. As technology evolves, so too will fleet management software, offering even greater control and efficiency for managing vehicles on the road.

Remember, in today’s competitive environment, efficiency is paramount. Fleet management software empowers businesses and public institutions to get the most out of their fleets, ensuring smooth operations and a safer driving experience for all.

Are you searching for Fleet Management Software solutions for your organisation? The Fleet Summit can help!

Lightfoot driver technology helps Tesco Grocery Home Shopping slash vehicle emissions across UK and ROI

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By Lightfoot

The Tesco Home Delivery Fleet had it all – nearly 50 driver trainers, advanced telematics and in-cab cameras. After a trial they chose Lightfoot and the results have blown them away.

Creating a culture of rewarding better driving has worked for Tesco, could it work for you?

Read on here…