Avoiding Silofication – Lease vs. Purchase

This year more than ever before, uncertainty throughout the entire supply chain is forcing most businesses to adjust their annual ordering and budget planning process. While these disruptions certainly present a number of challenges, many proactive organizations are viewing this unfortunate situation as an opportunity to reevaluate their acquisition strategy. And often the conversation begins with this complex question: Should we lease, finance, or purchase, our vehicles?

To begin to answer this long-standing question, here are a few important considerations to keep in mind, as well as some initial conversation starters to help guide your decision-making process.

Separate facts from myths

For many organizations, there’s always been a perceived fear of leasing; a myth that you would end up paying more in terms of total cost of ownership (TCO) as compared to owning a vehicle outright. Fortunately, advanced analytics are helping to change that perception by transforming your fleet data into actionable insights that highlight the true TCO for each acquisition scenario.

Today, leasing, purchasing, and financing are all viable options when it comes to acquiring vehicles for your fleet.

For some companies, purchasing or financing vehicles may be the best way to invest capital directly back into your business, but this can also restrict cash flow. For others, leasing may be a more attractive option, as lower payments allow you to maintain liquidity and retain capital for other investment opportunities. And in many scenarios, a hybrid solution comprised of both purchasing and leasing vehicles may provide significant benefits for your organization.

As you decide to lease, finance, or purchase your vehicles, don’t be fooled by myths. Trust the facts (i.e., data), ignore the myths, and treat your fleet just as you would any other strategic business asset to determine which option(s) delivers the most value for your organization.

What’s best for your business? 

Remember, there’s no one-size-fits-all approach for vehicle acquisitions. Your business is unique which makes every acquisition-related decision just as distinctive. Leasing, financing, or purchasing vehicles impact your company’s fiscal future in different ways. You’ll need to carefully weigh the pros and cons of each when developing your acquisition strategy.

As you work to determine what’s best for your organization, answering these key questions will help to guide your decision-making process:

  1. Do I have any potential budget constraints or other financial limitations to navigate?
  2. How will our acquisition strategy impact our business’ cash flow or operating capital?
  3. Are there any rules, regulations, or credit challenges that may limit our options?
  4. What are the operating conditions of our vehicles (miles driven, wear and tear, etc.)?
  5. How does our acquisition strategy align with and support the overarching goals of our business? 

You’ll also want to be sure to consider how important vehicle reliability is to your business. If uptime and productivity are of paramount importance, your fleet will likely benefit from shorter lifecycles which tends to favor leasing. While acquisition costs will likely be slightly higher, the lower operating costs often associated with newer units will help to offset this initial investment.

On the other hand, if your fleet includes a number of costly, highly-specialized vehicles, you may be best served spreading this capital investment over an extended lifecycle which may favor purchasing/financing. But there are certainly additional factors to consider. Most notably, you’ll likely incur higher operating costs and lower productivity as the unit ages, making proper preventative maintenance much more vital to maximizing reliability.

Break out of the silos

Perhaps more than ever before, there are a number of stakeholders from across your entire organization – budgeting, procurement, operations, etc. – who influence your organization’s acquisition strategy. As you reassess your strategy, ask yourself: Are all these stakeholders on the same page or are they operating in isolation, blind to how their actions impact the overall process?

This is silofication, and if you let these blind spots linger, you risk exposing your fleet to a number of hidden flaws that will reduce productivity, increase costs, and hamper your acquisition strategy. Instead, take this opportunity to align all stakeholders, eliminate the silos, and embrace a holistic solution that addresses the entire lifecycle – buy, drive, service, and sell.

And as always, remember, we’re here to help you navigate these challenges, understand the variables, and help you determine the best strategy to keep your business moving forward.

Be sure to watch this video to learn more about avoiding silofication and eliminating hidden flaws in your supply chain.