Maintenance

Evaluating Parts Outsourcing by the Numbers

May 2016, Government Fleet - Cover Story

by Shelley Ernst - Also by this author

Using NAPA IBS, Sarasota County, Fla., has a higher parts stock rate, allowing technicians to perform services faster. Photo courtesy of Sarasota County
Using NAPA IBS, Sarasota County, Fla., has a higher parts stock rate, allowing technicians to perform services faster. Photo courtesy of Sarasota County

The parts room is the unsung hero of a fleet’s shop. How well it operates has a direct correlation with how quickly technicians can get the materials they need and how swiftly they can get vehicles out the door and back on the road. When it’s not working efficiently, technicians aren’t working efficiently, and downtime rises.

At a Glance

Fleets that have outsourced parts rooms for a few years have seen the following results:

  • Improved fill rate
  • Improved technician productivity
  • Lower parts prices for some fleets
  • Reduced work tracking inventory
  • Reduced work in purchasing and contract maintenance.

Knowing how important the parts room is, would you hand management of it off to a third party? That’s the question some fleets have asked themselves as they’ve considered parts outsourcing.

Parts outsourcing means a fleet contracts with another company to step in and run its parts room. That includes buying and ordering the parts, monitoring inventory, managing the invoicing process, and staffing.

Often, fleets opt for outsourcing their parts operations to reduce the time technicians spend on the parts ordering process, leverage the buying power of their parts provider, reduce administrative time spent on purchase order processing and invoice tracking, and improve the cost and availability of parts.

Ultimately, the goal is to help the parts room run more efficiently while operating at a lower cost than when managed in house.

But outsourcing the parts room can be a sticky subject. If a fleet outsources this work, what will happen to the staff currently running the parts room?

Bringing in a third party to a fleet’s shop can affect technician morale, too. With fears about losing their jobs — and the implication they’ve failed at parts management — it’s possible staff members will resent the parts vendor.

Hiring a vendor to run the parts room also means paying them management fees, and fleets must place trust in their vendor to properly honor their contracts and responsibly manage expenses. Further, will the parts supplier provide quality parts? Will it balance cost with that quality? 

And ultimately, will the costs really be lower?

A few years following their decision to outsource, three fleets share their experiences — and the numbers they saw as a result of their choices.

Sarasota County: Reducing the Wait for Parts

Sarasota County, Fla., operates three shops, each with its own parts room. When parts management was done in house, the fleet encountered challenges related to inventory, audits, staffing problems, proper separation of duties, obsolete parts, pricing of parts, parts availability, and parts delivery times. “Our parts inventory was huge due to the vast variety of assets supported,” said ­Gregory ­Morris, CEM, fleet manager. “Assets were down awaiting parts for too long, and manpower to operate the parts room — two each per parts room — was a constant problem.”

So in September 2011, the county hired NAPA IBS to manage the parts for its nearly 1,600-unit fleet of vehicles and equipment. NAPA now owns the county’s inventory, and a NAPA IBS parts manager operates out of the main shop.

Within three months of the transition, the county’s expectations had been met. “We’re understanding of each other’s responsibilities, and they are familiar with the assets we maintain and the parts required. Plus, they implement constant process improvements; for example, when we order a new asset, the NAPA representative is informed of what is being ordered,” Morris said. “We are exceeding the 80% ‘first-time’ goal at the counter. The shops all agree it was a great decision and do not want to convert back to in-house.”

City of Dublin: Improving Technician Productivity

For the City of Dublin, Ohio, it’s been more than two years since the parts room was outsourced to NAPA IBS. Prior to outsourcing, managing parts for the 400-unit fleet was a shared duty between the technicians on the floor and their supervisor. That meant valuable technician time was being spent managing parts — and productivity suffered as a result.

When outsourcing became a consideration, the fleet saw a chance to keep technicians focused on their core roles on the shop floor. “We wanted to see an improvement in technician productivity and a reduction in invoices that we were processing,” said J. Darryl Syler, fleet manager. “We have seen a savings of over $60,000 by having someone from IBS on hand and not losing the technician time spent picking up parts. We’ve also seen a reduction in the amount of invoices the staff has to process.”

Dublin’s parts provider also bought back stock that was obsolete to the fleet and replaced it with relevant inventory at the same value.

Syler said outsourcing has been a good choice for the fleet, but noted it may not be a fit for every fleet. “For us, it was a good decision. It may vary with other organizations, though; they will have to do a cost analysis to see if it would fit their needs,” he said. “We are a small fleet, but we do a lot of work. It works for us. At this time, I would leave it the way it is.”

Palm Beach County: Reducing the Budget, Increasing Efficiency

Parts outsourcing began in October of 2012 for Palm Beach County, Fla., which operates three repair facilities — one large central site and two satellite facilities.   

The first step in the county’s agreement with NAPA IBS was for the company to purchase its inventory, which totaled $370,960. “In the start-up phase, NAPA had several employees at our operation for about a month before the official change-over happened, ­getting our information system to sync with theirs, learning our operation, and getting their staff trained and ready to go,” said Douglas Weichman, CAFM, director, Fleet Management Division. “They now own all the parts inventory at all our facilities and what we keep on our shop trucks.” NAPA also provides the staff needed to manage parts at all three shops.

When Palm Beach County first considered outsourcing parts management, the county was exploring ways to increase efficiencies and reduce its budget — but without disrupting service or impacting employees. “We had good employees and a well-run parts room compared to any government operation similar to ours,” he said. “It was the system and process of government purchasing that really led to outsourcing the parts room.”

The county was also looking to increase the available parts on hand and cut out administrative time maintaining and taking responsibility for inventory and shrinkage, core charges, or applying for parts rebates. The county also hoped to reduce purchase and delivery time without having to maintain nearly 60 contracts related to parts and service purchases. This would prove to be especially helpful, as sometimes the county didn’t have current contracts in place for specific parts, which resulted in additional time and manpower to establish contracts and acquire parts. By cutting out so many administrative tasks, the county aimed to increase technician productivity as well.    

Now, NAPA operates like an on-site parts store. When a technician needs a part, he or she simply makes the request. The team also approves the inventory NAPA has on hand each month. “We have a good relationship, and they will stock anything we ask for. But what really matters is, per the contract, they need to meet an 80% fill rate,” Weichman explained. “To do this, they need to do a good job of stocking inventory.” In the past three years, NAPA has produced fill rates of 90.08% in ­FY-14, 89.92% in FY-15, and 91.4% so far in FY-16. Prior to outsourcing, the county’s fill rates averaged closer to 60%.

“Outsourcing was the best thing we did — and we should have done it sooner,” Weichman said.  “If I have problems, I hold NAPA IBS responsible and they will correct the problem. They have many more resources to pull from than I did when we ran the parts room. We also don’t have to worry about personnel problems, as parts room employees are now their responsibility.”

Graphic by LaMar Norman.
Graphic by LaMar Norman.

What the Numbers Say

To hear each fleet tell the story of parts outsourcing is to hear the story of successfully handing over parts management. But what tale do the numbers themselves tell?

Syler said the City of Dublin has saved more than $60,000 when calculating lost technician time and parts cost. That’s about 8% of the fleet’s operation and maintenance budget.

At Sarasota County, parts availability has resulted in significant savings. Currently, 80% or more of the parts the county needs are available right away — and 90% of other parts are in stock by the time the team arrives to work the next day. With greater parts availability, the county is returning assets to service two days sooner than before. Likewise, preventive maintenance on large equipment happens in less than a day, thanks to parts availability. “Customer service improved due to quick turnaround,” Morris said.

Morris compares parts pricing throughout the year and has found savings there as well. “NAPA IBS-branded parts are less expensive than other branded parts, and agreements they have made provide significant savings,” he said. “NAPA has a huge amount of buying power that we benefit from.” In addition, the county no longer worries about (or pays for) obsolete or incorrectly ordered parts — those are a thing of the past.

In total, the costs for six full-time employees and a parts runner Sarasota County previously relied on to manage the parts room exceed the management fee the county currently pays.

For Weichman, the savings are more a result of efficiencies than they are about more affordable parts. “Everyone has the idea that you now get parts cheaper; that’s really not the case — you are going to pay about the same,” he said. “Your savings come from opportunity cost related to efficiencies, less work required to maintain contracts, not having to maintain inventory at your cost, [and] better productivity from your technicians.” It also comes from processing one payment instead of many payments to multiple companies and from administering one contract instead of multiple contracts.

As a result of outsourcing, Palm Beach County eliminated four technician jobs, totaling savings of $229,600. By eliminating administrative tasks such as issuing purchase orders and checks, processing contracts, and managing one contract versus 56, the county calculates its savings in indirect annual transaction expenses at $161,672.

In terms of inventory management, including expenses related to cores (handling broken and misplaced parts), defective credits on parts, inventory not posted to work orders, priority freight expenses, and shrinkage, the county has saved another $14,700.

“When looking at the overall cost for our operation related to delivering parts to our technicians, with all related overhead, when we were doing it, it cost about 50% in overhead related inefficiencies,” Weichman said. “With outsourcing, the overhead is more in the 30% range.”

When including improved technician productivity estimated at $232,128, the county estimates its annual savings at $354,864.  

Where Do the Jobs Go?

As demonstrated by Palm Beach County’s calculations, technician productivity is one of the areas in which outsourcing can make a big impact. At the same time, technicians who play a role in running the parts room may fear they’ll be let go as a result of outsourcing. This can be a very delicate matter, so fleets must proceed carefully — especially when working with labor unions.

Sarasota County did reduce three parts positions, but the county handled this through attrition — two employees retired and one quit before the contract was put in place.

In Dublin, no jobs were cut. Technicians, however, became much more productive. “We have gone from less than 50% productivity to, on average, 78% and improving,” Syler said. “The staff enjoys not having to go to parts stores and get parts.”

Four auto parts counter positions were eliminated at Palm Beach County, but no employees were let go: one position was already vacant and wasn’t filled, one employee moved away, another was promoted to another position in the department, and a fourth was hired by NAPA, per the county’s contract, which included language about county employees having first right to work for NAPA IBS.

Even though Palm Beach County had counter employees, the fleet has seen a rise in technician productivity as a result of outsourcing. Weichman attributes this to better fill rates. With the right parts available, technicians don’t have to stop working on a repair because they don’t have the right part; likewise, they don’t have to move vehicles from the bay and get reassigned to another job. Technicians don’t even have to spend time walking to the parts counter; NAPA IBS staff brings parts out to the floor.

“We track productivity very closely,” Weichman said. “We did a comparison of our technicians’ billable hours a year before outsourcing and then a year after, and our productivity or billable hours went up approximately 3%.”

Is Outsourcing the Way to Go?

Outsourcing parts isn’t for every fleet, and when it goes poorly, it can have costly and complicated effects. But proceeding with caution, ensuring a well-­written and thorough contract, and effective contract management can lead to beneficial results.

Sarasota County, the City of Dublin, and Palm Beach County all plan to continue outsourcing parts room management for now. As for whether it’s the right step for other fleets, Syler said they should take time for careful consideration before taking the plunge. “Do your research and make sure that this is the right thing for your fleet,” he advised. “We spent 12  months before we felt like this would be beneficial to us.”

COMMENTS

  1. 1. Kristina [ May 02, 2016 @ 12:17PM ]

    All of these articles about outsourcing parts mention how it increases technician productivity. Wouldn't the same benefit be realized simply by hiring knowledgeable parts people directly? The common thread in all of these articles seems to be that the parts rooms are either not staffed, or they are staffed by people who are woefully inadequate. Even major cities do not bother making a classification for parts people, lumping in generic 'storekeepers' who have zero knowledge of equipment parts. There are plenty of qualified people working at Napa, Pep Boys, or dealership parts rooms, but these people never seem to end up in government fleet stores.

    Contracting out jobs for a third party that offers considerably less pay and fewer benefits will always save money up front, but there are many hidden costs that creep up in the long run. There is also the impact of having fewer taxpayers in the city/county that are making a living wage that enables them to support neighborhood businesses in their own locality and create local tax revenue. Public-Private partnerships are a sure bet for siphoning local tax revenue out of a community and redirecting it into the pockets of shareholders who will never spend one dime or one minute in that community. But who cares about that???

  2. 2. Stephanie [ September 24, 2016 @ 02:11PM ]

    As both a vendor and a taxpayer, I am amazed at the fleet management reasoning supporting outsourcing. In very limited circumstances i can see it being a viable option.
    The most common reasoning is a direct result of weak management. "Poor counter personnel" is the reason most commonly used, as Kristina states above, but that is the direct result of hiring the wrong person, not training them correctly and not holding them responsible for poor performance.
    In the aftermarket we hold our people responsible. If you can't sell the correct part when given the correct information, you don't belong in this business. The fleet parts counter actually has it easier. They have a known inventory of vehicles with vin and upfit information on every vehicle. If you can't utilize your vendors, the vehicle manuals and past repair information to order the correct parts, you shouldn't be working as a fleet parts specialist.
    Overstock and obsolescence should be a non-issue. Send overstock back to the vendor. Period. Have your vendors update your obsolete parts. Period. EVERY contract I have ever been awarded carried wording to that effect. Use your vendors, make them and your own parts people responsible.

 

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