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:
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."[PAGEBREAK]
Reduce your inventory investment. Fleet budgets are tight enough as is, and parts are expensive. That means it's not likely a fleet will want a large percentage of its budget tied up in parts that may not be used for months - or at all, for that matter. Reducing the inventory to the parts a fleet will use frequently - the "fast-moving" parts - while having a plan to get other parts when needed is important.
"One of the most critical elements of a parts management operation is managing the inventory investment. There is a lot of time and money invested in owning and maintaining parts inventory," Kuntz said.
To tackle the problem, Lamerato relies on software to track parts levels that will balance demand with excess.
"We stock a minimum and maximum of parts to keep operations going on a daily basis without being a parts warehouse," Lamerato said. "We don't want budgeted money in parts sitting on the shelf, so our system ensures the necessary parts are in stock for both the day and afternoon shifts without tying up a significant amount of our parts budget on inventory at one time. We don't want to purchase large quantities just to have parts sit on a shelf and collect dust."
For Ellis, the expense to keep up with the City's non-vehicle fleet units was simply too significant. "We had difficulty in finding and keeping parts counterpersons who have the experience in light duty, heavy truck, construction, and fire equipment," he said. "In order to operate a department that services 1,200 units with 14 technicians, the capital outlay for the inventory would be $500,000-$600,000."
With NAPA, Ellis is able to get these parts (NAPA and non-NAPA) on demand, without investing in them up front. Instead, the investment is on NAPA's part - and Ellis still gets the parts when needed.
Kuntz offered the City of Fremont, Calif., as a prime example of just how many dollars can be freed up. "We cleaned up its obsolete inventory and purchased $150,000 of working inventory. By acquiring this inventory, we got [the City] out of the inventory investment business and helped its budget," he said. "We helped [the City] figure out what fast-moving parts to keep, figure out what was obsolete, bought that inventory, then sold the parts to the City as needed. We also added to its current inventory to make it better and increased fill rates. Now the City doesn't pay for a part until it is used, and the parts investment is NAPA's."
Get old parts off the shelf. A big part of reducing inventory investment is getting obsolete parts off the shelf. When parts aren't being used, they're tying up money that could be spent on any number of other things. This could happen because a part is for a specialty vehicle, or because a vehicle has been removed from the fleet altogether. Either way, the space and the dollars could have a greater purpose than collecting dust.
Thankfully, these parts can often be returned to the vendor or manufacturer for credit, but waiting too long could jeopardize the chances of a full refund.
Kuntz underscores the need to keep up with ever-changing fleets and the demand it places on inventory budgets. "A fleet changes every year. Oftentimes fleets will have a part on the shelf that doesn't fit the fleet anymore," he said. "As vehicles are auctioned off and fleets change, parts stay on the shelf. We eliminate that obsolescence."
Keep fast-moving parts on the shelf. Likewise, the parts a fleet does have on the shelf should be the ones that are getting pulled on a regular basis. Those parts should have established maximum and minimum inventory levels. Having too many means too high of an investment and too few means critical repair and maintenance work isn't getting done. Identifying which parts the fleet uses most, then finding the sweet spot for how many to keep around establishes the right balance between investment and keeping operations running smoothly.
"If inventory is not on the shelf, you have a vehicle in the bay that is out of service until the parts arrive. Keeping inventory current is critical - having shelves stocked with fast-moving parts, not obsolete parts, is key," Lamerato said. "One of the things that makes our parts management most successful is the auto-reordering with parts delivered on the same day. We have very few open slots on our parts shelf where parts are not available."
Lamerato suggests performing a fleet survey to review the parts needed for fleet units and determine which parts should be stocked. This keeps shelves properly stocked and reduces obsolescence.
The fill rate - the percentage of times a part is on the shelf when it's needed - is also important to track. A fill rate of 50 percent means the part is there only half the time. Being aware of the fast-moving parts the fleet relies on most, then making sure the proper minimums and maximums are in place can increase a fill rate to as high as 95 percent.
These measures can be accomplished through software for those fleets that keep parts management in house. For those with outsourced parts operations, the partner tracks and is responsible for meeting these metrics.
For example, Kuntz outlined NAPA's partnership with the City of Chicago over the last 11 years. "We have 15 IBS stores there, from O'Hare Airport to police garages to maintenance facilities. Overall, we maintain and manage more than $6 million worth of inventory and have more than 75 NAPA personnel who work 24/7, 365 days a year," he said. "We take a significant inventory investment off them by owning, stocking, and maintaining thousands of NAPA and non-NAPA parts and supplies, and our fill rate is consistently in the 90-percent-plus range. That means we get a part there when they need it, and that increases productivity."
Manage vendors. Ultimately, a successful parts management program relies on vendors. Without someone to supply the parts, there is no parts operation at all. But sometimes working with multiple vendors means increased administrative time in both transactions and paperwork.
Outsourcing parts management can mean also outsourcing vendor management. For example, some fleets deal with hundreds of vendors, so NAPA compiles vendor statements at the end of the month. That means a fleet has one parts bill, not hundreds.
The other component to managing vendors is ensuring quality. That's one reason Lamerato prefers to keep parts management in-house. "When it comes to parts inventory, a lot of people look at price. But you have to be sure you're buying quality parts," he said. "For instance, if you buy a low-quality wiper blade and the customer has to come back every three months to get it replaced, it defeats the purpose. You may have saved a dollar on the initial purchase, but a higher quality blade could have saved a lot of money in the long run. It's not only about the cost of the part but about labor, downtime, and the safety of the public."
The Benefits of a Parts Partner
In addition to managing the City of Denton’s parts operation, NAPA has been helping fleets with parts management for nearly 20 years. The following are a few ways they help fleets stay focused on what they do best — keeping the fleet rolling — by focusing on what they do best: parts management.
Get fleets out of the inventory business and investment. Because NAPA provides fleets with parts on demand, fleets don’t have to invest in parts that might sit on their shelves and tie up dollars that could be spent elsewhere. NAPA also takes care of the paperwork and people resources needed to handle warranties, returns, and defective merchandise.
Keep the parts room staffed at all times. When fleets partner with NAPA, they have NAPA employees located on site. “Our people are contracted to cover all of the hours fleets need us,” Kuntz said. “So for vacation days, sick days and other days when the parts room would typically be left unattended, we’re there.”
Reduce transaction costs. Many fleets deal with hundreds of vendors. NAPA compiles vendor statements at the end of the month, so a fleet gets one parts bill, not hundreds.
Improve productivity in the shop. A typical shop might have a 50- or 60-percent fill rate off the shelf. NAPA aims to get them to 80-90 percent on the spot. “We can provide significant productivity improvements by having a part there when they need it eight or nine times out of 10,” Kutz said.
Offer more than just parts. Despite what some might think, NAPA can source and stock OE parts and non-NAPA parts. And perhaps surprisingly, in some cases they even maintain a fleet’s stock of office products. “We can stock and manage anything that has a part number,” Kuntz said.
Other Tips for In-House Parts Management
When parts management is outsourced, it’s the outsourcing company’s responsibility to have parts on demand, make sure inventory is accurate, and find parts for new vehicles. But for in-house parts management, Lamerato offers are a few additional hints to streamline the operation.
Keep inventory current. In addition to using Faster software, Lamerato and his staff also developed a few procedures in house. One includes developing a sheet that lists the parts needed to keep a newly purchased vehicle in service.
“When a new vehicle comes in, our staff looks at the unit and documents what type of oil filter, air filter, etc. it uses, then checks the parts inventory to see if those parts are in stock,” he said. “Then, we adjust our inventory as needed to keep the fast-moving parts in stock. This dramatically reduces downtime for routine service and repair.”
Likewise, when a vehicle is removed from service, Lamerato runs a parts history report on which parts are unique to only that piece. They then remove those items from the shelves and send them back to the supplier for credit. “This keeps our inventory current and reduces obsolescence,” Lamerato said.
Take stock. On top of accounting for new and out of service vehicles, Lamerato also oversees how many times their parts inventory turns over every year. “We like to see three or four turns each year on parts. That tells us we have a current inventory and parts aren’t collecting dust on a shelf,” he said.
To ensure security, Lamerato also suggests performing spot inventories monthly as well as physical inventory at least once per year. That means counting every part and matching the quantity with what’s supposed to be on the shelves. Once an inventory of parts and materials is conducted annually, a report is generated to demonstrate to external auditors controls are in place to safeguard the city’s assets, as required by the state of Michigan.
Don’t forget about seasonal parts. Parts for equipment like snowplows and mowers should be marked in the system accordingly. That way, when running obsolescent reports it’s easy to recognize why those parts aren’t moving during certain times of the year.
Successful Parts Management Pays Off
A fleet's parts inventory is critical to keeping its maintenance and repair process moving forward - and keeping units on the road. The benefits of taking a close look at a fleet's parts operation include reducing inventory investment, minimizing down time, and increasing utilization - not to mention reduced frustration on the parts of technicians and drivers. So whether parts management is kept in-house or outsourced, it's worth it to spend some time making sure a solid strategy is in place.
- Mike Ellis, fleet services superintendent, City of Denton, Texas.
- Jett Kuntz, national director, NAPA Integrated Business Solutions.
- Sam Lamerato, CPFP, superintendent of Fleet Maintenance, City of Troy, Mich.