Parts Operation: In-House or Outsource

A fleet’s parts inventory is critical to keeping its maintenance and repair process moving forward — and keeping units on the road. Several critical elements to consider are discussed from both the in-house and outsourced perspectives.

May 2011, Government Fleet - Cover Story

by Shelley Mika - Also by this author

The City of Denton, Texas, is able to get parts on demand without investing up front.
The City of Denton, Texas, is able to get parts on demand without investing up front.

The mission of a fleet parts room is to provide maintenance and repair of fleet units with the right part at the right price at the right time. However, there are two schools of thought when it comes to parts management. One is that keeping the operation in-house offers control over inventory and the quality of the parts. The other is that outsourcing the operation can keep fleets focused on keeping their units on the road rather than the investment and business of inventory.

At A Glance
Fleets should consider the following elements for running parts operations:
  • Have a reliable software system in place.
  • Reduce inventory investment.
  • Remove outdated parts from the shelf.
  • Keep fast-moving parts on the shelf.
  • Manage vendors.

Regardless of which side you're on, both the in-house and outsourced perspectives rely on a few critical elements to running a successful parts operation. Here's a look at how each works, and some of the critical elements that make fleet operations a success.

Snapshot: In-House vs. Outsourced

Sam Lamerato, CPFP, superintendent of Fleet Maintenance for the City of Troy, Mich., manages his parts operation in-house using fleet management software. It works like this: First, minimums and maximums are set for every part in their operation. Then, every morning at 8 a.m., the system generates a reorder report for the City's two parts rooms, the reorder sheet is faxed to the supplier, and they ship the parts immediately. By 8:30 a.m., all parts below the reorder point are ordered and usually arrive the same day or the following morning.

The fleet's parts are all purchased through warehouse distributors at highly reasonable prices - typically wholesale or well below wholesale. The City chooses distributors by soliciting and reviewing bid sheets from them, then awarding blanket purchase orders for a length of two or three years for successful bidders.

"A few of the things we like about keeping parts management in-house include having control of inventory and staff to ensure parts are available to make repairs on our fleet. It also helps with timely replacements of parts and the quality of parts we choose to use on vehicles," Lamerato said. "We like having control over which manufacturers and suppliers we deal with, as it helps us make sure we get quality parts."

Mike Ellis, fleet services superintendent for the City of Denton, Texas, takes the other perspective, partnering with NAPA Integrated Business Solutions (IBS), an on-site parts store specializing in customized solutions, to manage the City's parts operation. The City chose to outsource because it relies on a high percentage of on-demand part availability to efficiently run its operation. Turnaround time is critical, and it found NAPA can provide the parts as needed.

Ellis has been outsourcing parts management in some capacity for more than 20 years. The City made the choice for a number of reasons. For one, there are no inventory costs other than taxes, and capital dollars are not tied up on inventory but rather are available for other purposes. Liability is also reduced; the City doesn't own the inventory, so shrinkage and parts obsolescence are the vendor's responsibility.

"The best thing we have going with our vendor is the close working relationship we have developed with its managers and staff. We work as a team and treat them as part of the fleet family," Ellis said. "Both sides look at continuous process improvement and are always bouncing ideas back and forth to make the operation more efficient and effective. The impact to the City of Denton on the soft cost alone is $275,000 per year and an additional savings in parts cost of $176,000." 

When making the decision of whether to keep parts management in-house or to outsource, Jett Kuntz, national director for NAPA IBS offers this maxim: "When keeping downtime to a minimum and keeping your fleet rolling is a priority, managing a parts room may only be a function of your core business strategy. Parts outsourcing may be an option to help you focus on your core business."  

Critical Elements Every Parts Operation Should Have

Whether outsourcing, keeping in-house, or debating between which is best, considering the following critical elements can help:

Have a system in place - and choose it wisely. From the in-house perspective, having reliable software is key, according to Lamerato. "You have to have excellent parts management software to even think about having a successful parts room," he said. "The days of pencils and index cards are long gone - especially with multiple locations and long part numbers."

One reason Lamerato chose the fleet management program is because of its detailed parts management module. The system's capability to track parts, issue valuable tracking reports, and automatically reorder parts replaces the pencil and paper and reduces labor hours. The system also has barcoding capabilities that reduce human error when issuing parts.

"Anyone looking to purchase a fleet management program should take a hard look at parts management and asset management, not just fleet management," Lamerato said. "We depend very heavily on our parts software to make our operation a success. It helps us keep vehicles on the road, parts ordered on a timely basis, and provide timely maintenance and repair."

From the outsourced perspective, finding a partner is a balance between cost and quality. The City of Denton chose its partner through an RFP process, where several key performance criteria were compared with overall costs.

"The most important aspect to consider is working with the right people to form a true partnership that facilitates cost-saving initiatives and efficiencies," Ellis said. "The key to successful outsourcing is people. I cannot stress enough the importance of finding the right 'fit' in terms of personnel, from the manager to the driver. Developing an agreeable contract that meets the needs of both entities is also critical."

 With NAPA as its partner, the City of Denton also uses fleet software and NAPA's TAMS inventory management system - the same system it uses in stores to manage inventory - on site. "It's a tremendous tool to help fleets run better," Kuntz said. "We know fleets have invested a lot in their fleet management systems, so we don't replace that - instead, we integrate with those systems to reduce transaction costs."

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