Staying Ahead of the Supply Chain Crisis

Fleet managers wear many hats, overseeing everything from fuel management, to departmental funding, to vehicle procurement. Now, they’re being forced to add handling supply chain disruptions to the list.

With seemingly no end in sight to the disruptions, Government Fleet talked to several fleet managers to see how this crisis has impacted their operations.

How Did this Happen?

First, let’s start at the beginning. How did this all come about? Well, it depends on which OEM you’re talking about.

As is the case with many industries, the COVID-19 pandemic caused a snowball effect to industries across the globe, with many of them forced to temporarily pause operations as the world essentially shut down. As assembly lines restarted and operations resumed, some older workers chose not to return to work. There’s no doubt the same was true for the industries that supply vehicles themselves, parts for vehicles, and essential components used to create parts.

General Motors (GM) was already dealing with interruptions to its operations after thousands of its employees across America went on strike in 2019. When that was resolved, the company put plans in place to catch up. Then COVID-19 happened. That compounded the issues the company was already seeing, explains Yuri Tello, manager of global fleet and government sales support for GM.

Then came the microchip shortage. As the amount of electronics and vehicles that require microchips rose, production of the critical component dropped due to the pandemic. In the auto industry, a lack of microchips led automakers to trim vehicle production by 1.5 million vehicles, according to an AutoForecast Solutions report.

The Biden Administration aims to bolster domestic microchip production, with the CHIPS (Creating Helpful Incentives to Produce Semiconductors for America) Act, which will provide billions of dollars to boost microchip research, development, and production. Currently, the U.S. produces only 10% of the world’s supply of semiconductors. While the legislation is a positive step, Tello explains, it will take time for domestic production to ramp up and help the industry catch up.

The reduction in vehicle production due to parts and microchip shortages has been met with a staggering increase in demand for more vehicles, Tello says.

“When we opened our order banks for the 2023 model year, we got flooded with orders, because everybody was waiting for the bank to open to place an order. In many cases, we exceeded the allocation in one day,” Tello explains.

In some cases, Tello says fleets placed orders for the equivalent of three years-worth of vehicles compared to their normal orders.

“We’ve tried to be as transparent as possible with this issue…as soon as we closed the order banks, we tallied up the orders that we had, determined what we could produce and what we couldn’t produce,” Tello says.

From there, Tello explains that GM had its dealers work with customers to determine which orders needed to be canceled while minimizing the negative impact as much as possible.

“We announced that cancellations had to happen right away, instead of letting the orders stay there for months, and then cancel them later. We decided to be up front with customers so they can plan,” Tello says.

Impact on Fleets

Scott McIver, CPFP, fleet manager for the city of Greenville, South Carolina, was in the middle of a preorder process with his vehicle dealer, when he found out the OEM he uses for much of his fleet was not accepting orders for government vehicles. Now, he’s assessing the inventory he has. In some cases, that means reassessing the lifecycle of certain vehicles in his fleet and keeping them on the road longer than originally planned.

Several models ordered from mid-year 2021 for the city of Columbus, Ohio, were also canceled with no notice, says Fleet Administrator Kelly Reagan. Lack of transparency and communication can damage long-term relationships fleet managers have with OEMs, he explains.

“What they are doing can have a lasting effect on all future relationships, the lack of communication, the lack of consistency, the lack of doing the right thing for the customer,” Reagan warns.

His advice for fleet managers: “Apply as much continued pressure on the OEM as possible — don’t stop ordering vehicles and let your voice be known.”

The Santa Clara County, California, fleet has had trouble with the vehicles and parts orders that aren’t getting canceled. In some cases, vehicles are delivered with fewer key fobs. Fleet Manager David Worthington says he’s had instances where vehicles are delivered with only one or two multifunctional key fobs, even if four or six sets were ordered. Additional key fobs can take months to come in when ordered due to the microchip shortages. The fleet is now retaining spare common key fobs from vehicles it sends to auction so they can be reprogrammed to be used on the newer vehicles that are delivered with fewer fobs.

Worthington also received a midsize SUV with front and rear air conditioning units that was meant to be used as a K-9 response vehicle. However, that vehicle was unable to be used because the rear unit was missing a component that was on back order due to the supply chain crisis. The K-9 officer cannot be put into a vehicle that doesn’t have proper ventilation and air conditioning.

Where Are the Police Vehicles?

David Renschler, CPFP, fleet division manager for the city of Fairfield, California, recently told Government Fleet his 2021 order of police patrol vehicles was canceled. Further complicating things, his 2022 order of police patrol vehicles was not even accepted, after the order bank closed early and unexpectedly. Other fleet managers have shared similar experiences.

The Ford Police Interceptor Utility (PIU) has also been impacted by the supply chain crisis. Like GM’s case, Ford received far more vehicle orders than expected, specifically in the case of its PIU model.

“Demand for the Ford Police Interceptor Utility, America’s best-selling police vehicle, exceeded our projections. As a result, Ford Pro is working to move 22MY Ford Police Interceptor Utility unscheduled order volume to the 23MY program,” reads a statement from a Ford Pro spokesperson. “Customers who have placed an order for 22MY Ford Police Interceptor Utility and have not yet received confirmation on their order changeover should contact their local Ford dealer.”

Minimizing the Impact on Parts

In Greenville, McIver has worked to increase his fleet’s parts inventory. At its normal level, the city has an inventory of about $200,000. McIver’s goal is to increase that to up to $600,000 to stay ahead of any future supply chain disruptions.

“Before, we would be able to do a lot of ‘just in time’ ordering, and that’s gone,” McIver says.

Reagan also recommends building up your parts inventory when possible.

“Buy and store frequently used parts, increase your inventory levels and go to after-market to find your parts,” he says. “We have even used and continue to use Amazon and other online buyers of parts for our equipment.”

Doing this can decrease downtime on vehicles.

Greenville’s parts are supplied through its own NAPA IBS onsite parts room. McIver says leveraging the company’s national reputation has helped his fleet to retain parts.

“We’re able to utilize a lot of their buying power and utilize their strengths in getting these parts so they can tap into other facets of their company to get us the parts we need,” McIver explains.

A welder on McIver’s team fabricates parts when possible. For fleet managers who don’t have welders, he recommends they work with municipalities and counties in surrounding areas who have welders on their team.

Decrease Wear and Tear

McIver recommends fleet managers educate drivers on ways to take care of vehicles and other equipment so it lasts longer.

“I think the best thing is to educate your operators and drivers to really take care of the vehicles, keep up with preventive maintenance, and keep babying [the vehicles],” he says.

Asking for Patience

OEMs are asking for patience as they manage the impacts of the supply chain crisis.

“The automotive industry continues to be confronted by supply chain shortages. Ford is working diligently to ensure our police vehicles are delivered on a timely basis to meet customer demand,” a Ford Pro spokesperson wrote to Government Fleet.

“These are uncharted waters that we’re navigating. We’re looking at ways to improve and make it less painful for everybody moving forward,” Tello says. “Nobody is more interested in selling as many units as possible and making as many deliveries as possible as we are. We share the pain with our customers.”