Maintenance

Saving Money by Taking Back Outsourced Work

November 2014, Government Fleet - Feature

by Stephane Babcock - Also by this author

Photo courtesy of iStock.
Photo courtesy of iStock.

When it comes to running a fleet, a handful of things can bring a smile to your face: a nod from your superiors or some well-deserved respect from your peers. For Scott Bingham, fleet manager for the State of Utah, that came from a very impressive number — 19.

“We are actually pushing 21% now,” corrected Bingham from his office in the division of fleet operations, the number being the amount his division has been able to reduce in costs since the beginning of the year, which jumped from 19% to 21% in the last month.

Where It Began

For years, Bingham and his staff worked with a service provider when it came to maintaining and repairing the more than 4,500 light-duty cars and trucks overseen by the division. The service provider handled the maintenance management of the vehicles, including negotiating pricing for parts and service. The pool of vehicles ranges from sedans to some Class 6-8 trucks, and specialty vehicles such as brushland fire trucks for the forestry and fire agencies.

“In all, we service vehicles for 38 state agencies,” said Bingham. “We work very closely with our customers and vendor network, so they know what is expected for these vehicles.” When servicing certain vehicles, Bingham must be aware of each requirement pertaining to the class or vehicle.

“Obviously, there are some specs that our public safety [department] wants, like [original equipment] brakes only. That can put a bit of a hiccup in the process, but that’s something we can handle and accommodate very quickly,” Bingham added.

Improving the Process

About six years ago, Bingham approached his service provider with data that showed it wasn’t negotiating like it should have been, both on labor and parts.

“We realized our contractor could not negotiate like we could,” said Bingham. “We approached them and pointed out some serious problems in their data.”

When it came to repairs, Bingham had set up a $1,000 threshold, meaning that if any repair exceeded that amount, the service provider would have to contact his office for approval. But it was the less expensive repair work that became a concern. For example, in the past a windshield repair generally cost $150 for most vehicles. In some instances, if the costs exceeded $200, it would raise a red flag, unless the windshield was for a larger truck or more specialized vehicle.

“We worked with them for years on cleaning up that information, and we saw a 42% cost reduction since we began working with them closely,” said Bingham. “We got quite a ways with them, but we got to the point where we felt that it was as far as the service provider could go.”

That’s when Bingham and his staff decided to take matters into their own hands with the creation of the vehicle service center, a call center that handles all service-related issues for the vehicles of the Beehive State.

“When a vehicle needs repairs, it goes into a pre-approved shop, the vendor contacts us, and we negotiate that maintenance and repair,” explained Bingham, who again touted the 21% reduction in costs since the program took effect in January 2014. 

The repair price management system, or RPM system as his office likes to call it, can build a completed work order in approximately two minutes. It was developed by staff in the fleet division. The system is automatically fed information that has been input by the department’s staff on pricing for specific repairs, parts, or components.

The RPM system pulls information from our systems based on what we have paid for that same year, make, and model of vehicle and repair or maintenance procedure.  It then displays the results for the Vehicle Services Center technicians. The techs don’t have to guess; they know how much the vendor across the street or across town had done the job for in the recent past,” Bingham said.

This has helped bring the department’s costs down significantly. Before the first work order was created, Bingham and his employees had already negotiated parts and labor agreements with the shops in the state’s vendor network.

“Where our service provider was comfortable with $100 an hour, we’re a lot closer to $70-$75. For parts we pay cost plus 25-30%, where the service provider was comfortable with full list,” he explained.

More than 600 automotive shops from around the state are a part of the vendor program, which benefits not only the fleet division, but the shops as well.

“It’s a win-win for everybody. We have a great relationship with our vendor network because we consistently pay our bills and consistently have cars there for them to work on,” Bingham said. “And, it’s not going to be a headache for them to get authorization to start the work. I can have a purchase order to a vendor in two minutes. It is that quick. With our service provider, there were significant wait times.”

Defending the Decision

Before making the change, there was a concern that bringing this service back in-house would increase the department’s costs on the administrative side. But, when adding the service provider’s maintenance and repair costs, which included close to $6 per vehicle/per month, the cost of staff to handle the threshold requests, as well as the staff to monitor the reports and push back on any overcharges in the vendor network, the total costs added up to $8.34 per vehicle, per month. “Under the new system, we are closer to $7.70,” reported Bingham, “and we’re hoping to get it under $7 soon.”

When dissecting the numbers even further, the $0.0785 per mile for maintenance and repair has been reduced to as low as $0.057 cents, more than 2.1 cents per mile lower than with the department’s past service provider.

“When you’re traveling 66 million miles, that adds up quickly,” said Bingham. “It’s pushing $1 million in savings.”

While the reduction in costs has been more than enough to prove that Bingham’s decision was a good one, there are other ways to measure it as well. He recently learned his department has been selected as the recipient of the 2014 National Conference of State Fleet Administrators (NCSFA) Fleet Efficiency Award.

“It’s been an amazing success,” Bingham said. “Sure, there are hiccups and some bumps in the road, but we take those bumps and we smooth them out. We’re continually pushing to improve this.” 

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