At a Glance
When discussing parts outsourcing, consider these steps:
- Outline objectives and concerns, and address concerns in the RFP.
- Analyze and compare current and projected operations.
- Develop an implementation plan.
- Get buy-in from all stakeholders.
- Analyze results to ensure projected savings are achieved.
Parts are a necessity for an in-house fleet maintenance facility. How an operation obtains parts is critical to overall costs, productivity, and reducing parts-related downtime, but admittedly, it's not a core function. Evaluating an operation and taking full advantage of alternative methods and options can dramatically improve the overall operation, and outsourcing the parts room function is an alternative that has many advantages.
In 1990, when I took over the Fleet Department for the Town of Greenwich, Conn., fleet had an in-house parts room operation. The Fleet Department maintained all Town vehicles and equipment, from fire apparatus and police vehicles to dump trucks and snow removal equipment. By the beginning of 1999, the parts room operation had become burdensome and time-consuming to maintain. For example, at that time, due to the bidding process to acquire new vehicles, the Town's fleet had a vast mixture of makes and models of different years. It became harder to obtain parts for older vehicles, and it took employees more time to research these parts. The dollar value of the parts room inventory was more than $300,000. Being a union facility, getting qualified personnel specializing in operating a parts room can be a challenge. The Town needed to find a better way, and outsourcing the parts room function was an alternative method that met that objective.
An on-site turnkey operation customized for the Town offered many advantages. The outsourcing provider would own the parts and stock them in the Town's maintenance facility. These parts would be either OEM-supplied or supplied through the provider's network. Other services available included custom hydraulic lines, recycling batteries, tire disposal, core credits, lubricants, and anti-freeze, to mention a few. Employees determined parts to be stocked by studying the prior year's parts usage and fleet composition. In addition, not paying for the parts until they are actually used would eliminate the need to have thousands of dollars invested in stocked inventory.
In November 1999, NAPA, the vendor that won the bid, took over the operation of the parts room. This continued as a mutually beneficial partnership when I retired from Greenwich in September 2009. The justification, objective, and steps taken for implementation are critical for success.
This is the process that worked successfully for the Town: identify the issues, define objectives, implement a process, and measure results.
[PAGEBREAK]Determine Issues & Objectives
The issues regarding the parts room were clear: it had become burdensome, time-consuming to maintain, had costly inventory, and was labor-intensive.
Fleet determined the objectives of the project, which were:
- Increase overall productivity by redirecting workforce to core functions of repairing and servicing Town vehicles and equipment.
- Improve operational efficiency by reducing parts-related downtime.
- Maximize resources by reducing labor cost and achieving projected savings in labor hours.
- Achieve buy-in by all parties.
First, fleet reviewed where it was and how it got there. It contacted other municipalities that had implemented parts room outsourcing. Then, fleet developed an implementation plan to make a smooth transition and have buy-in from all parties. Thinking and planning ahead was crucial. The position of parts room clerk, a union position, was reclassified to a technician. The incumbent was transferred to another department, and an interim part-time person was put in place. No union employee lost his or her job. Another option to consider is the outsourced vendor hiring the incumbent employees.
Fleet designed a telephone questionnaire and site visit form, then called five locations and visited seven sites to inquire about parts outsourcing. With this information, fleet made a list of pros and cons.
The pros list indicated the same reasoning that prompted fleet to outsource the parts room, primarily:
- Increase technicians' workable hours and repairs performance for the same time periods.
- Reduce parts-related downtime.
- Reduce parts-ordering paperwork.
- Increased parts availability on demand (to 92 percent average).
- Reduction in wrong parts received.
- Reduction in staff and administrative functions in preparing and processing data entry of requested parts and invoices.
- Better monitoring of parts room activities.
- Elimination of the re-stock ordering process.
Inventory elimination: By outsourcing, fleet could pay for parts only when they were used. It could eliminate its physical inventory, time-consuming physical inventory counts and variances, obsolete parts, and a multitude of parts suppliers.
Cost reduction: Fleet could achieve savings in salary and overtime hours.
The predominant issues fleet focused on were overall increase in productivity and maximizing resources. The goal was not only doing more with less, but doing the best with the available resources.
The cons were concerns later addressed through the request for proposal (RFP). They included:
- Current physical inventory reduction and crossover parts.
- Cost to carry current inventory versus monthly minimum dollar value of ordered parts.
- Fixed mark-up on network parts.
- Vendor from whom non-network parts are purchased.
- Cost projections versus actual costs.
- Emergency coverage of parts room.
- Adjustment and set-up issues from both fleet and provider.
- Information flow.
- Customization requirements.
- Experience and fit of personnel hired by provider.
- Current personnel in parts room.
- Lack of accessibility to parts room.
- Financial stability and support to maintain inventory.
In addition to the pros and cons list, fleet developed a time/cost study of existing practices, including processing parts requests, steps to order and receive parts, and maintaining and manning the parts room. The study compared the current times to projected times for parts room operations.
| TIME/COST STUDY: CURRENT TIMES VERSUS PROPOSED TIMES
|POSITIONS||PROPOSED TIMES (hours)||CURRENT TIMES (hours)||TOTAL WORKABLE HOURS||PRECENT OF TIME SPENT CURRENT/PROJECTED|
|Foreman (2 shifts)||400||1,600||3,640||44%||11%|
-1,100 Proposed Hours
This time-cost study for the Town of Greenwich's parts management showed fleet projected it could save 4,650 hours annually by outsourcing.
Fleet also created a time/cost analysis, comparing the current system to outsourcing. This defined the steps needed to obtain parts and operate the parts room function.
TIME/COST ANALYSIS OF SPECIAL ORDER PARTS
AVERAGE TIME (minutes)
COST ASSESSMENT (minutes)
|Preparation of parts requisition||Foreman/superintendent||5||43|
|Parts ordered|| Foreman/fleet assistant superintendent
|Parts requisition entered into system|| Fleet assistant
|Parts received in parts room|| Parts expediter, foreman, fleet assistant superintendent
|Invoice verified for payment|| Administrative assistant
|Service voucher preparation|| Administrative assistant
|Service voucher reviewed and signed|| Fleet director
|Copy invoice/separate service voucher|| Temporary clerk/administrative assistant
|Service voucher received and check issued|| Purchasing/accounts payable
| Total 60 (1 hr.) 150 (2.5 hrs.)
|Of approximately 900 special order purchase orders, 500 are routine.
500 X 1 = 500 hours
|Of approximately 900 special order purchase orders, 400 are problems.
400 X 2.5 = 1,000 hours
|Cost of special order parts = Hourly rate X 1,500 hours|
|By using this detailed breakdown of special parts ordering, the Town of Greenwich compared how much it could save through outsourcing. Salaries used for calculation should be the agency's actual pay structure.|
|TIME/COST ANALYSIS - RESTOCK ORDERS|
|(Including maintaining parts room, based on approx. 520 re-stock orders yearly.)|
|FUNCTION||RESPONSIBILITIES||AVERAGE TIME/COST ASSESSMENT|
|Determine parts for vehicles (min/max levels), vendor locations, maintain/update parts database||Superintendent, foreman, fleet assistant, or fleet director
270 units X 15 mins. per unit
|Prepare/negotiate vendor yearly contract||Purchasing dept. or fleet dept.||20 hrs.|
|Prepare weekly restock orders (excluding tire P.O.)||Fleet assistant, foreman, or parts expediter
10 hrs X 52 wks.
|Receive/store parts||Fleet assistant, foreman, or parts expediter
5 hrs X 52 wks.
|Enter parts into system (allowing for pricing problems)||Fleet assistant
5 hrs X 52 wks.
|Issue parts/operate parts counter||Parts expediter, fleet assistant, foreman, or superintendent
10 hrs. daily X 5 days X 52 wks.
|Invoice verified for payment||Administrative assistant
15 mins. X 520 purchase orders
|Prepare service voucher||Administrative assistant
10 mins. X 520 purchase orders
|Review/sign service voucher||Fleet director
1 hour per week X 52 wks.
|Review service vouchers/prepare check||Purchasing/accounts payable
20 mins. X 520 purchase orders
|Tire requisition/tatoo tires||Foreman, fleet assistant, or equipment superintendent
4 hrs. X 52 wks.
|Perform physical inventory (twice yearly)||Full staff/mechanics
11 hrs. X 10 staff X 2 times
|Obsolete parts project/adjustments from physical inventory||Foreman, superintendent, fleet director, or fleet assistant
49 hrs X 2 times
|Approx. hrs. of maintaining the parts room with 520 restock orders yearly||4,695 hrs.|
|Cost of restock orders = hourly rate X 4,695 hours @ (1) = -Plus cost Special order parts = (1) Total parts room operational cost.|
|By adding the cost of all restock order functions and the cost of special order parts, the Town of Greenwich found total parts room operational cost. Salaries used for calculation should be the agency's actual pay structure.|
Finally, fleet developed a projected savings summary comparison, indicating savings from elimination of the parts room position, including regular and overtime hours spent on parts room functions.
|PROJECTED SAVINGS SUMMARY|
|$__Salaries of eliminated position(s)|
|$__Reduction in overtime and cost of other personnel performing parts room functions (Number of hours at average rate per hour)|
|$__Cost of overtime for two physical inventories per year (Number of hours for inventory X number of employyes X 2 times annually X overtime rate average)|
|$__Value of obsolete parts, averaging 2 percent of inventory estimated at $6,000 per year
(Inventory valued at $300,000)
|+||$__Variance loss of physical inventory averaging 1.5 percent each count, 2 counts yearly = 3 percent total|
|$__Projected cost savings|
The Town of Greenwich calculated projected savings by incorporating all the factors above. Salaries used for calculation and should be the agency's actual pay structure.
These studies also indicated the projected increased productivity when labor hours were re-directed to repairs, and time spent on paperwork associated with parts invoices, wrong parts, parts on back order, re-stock ordering, variances, obsolete parts, and eliminating the cost associated with a perpetual inventory.
With the data, studies, and analysis, fleet scheduled the presentation for the approval process. The key point to note was that the projected cost to outsource the parts room function was based on the current budget allocation for parts and fluids. Fleet would not require any additional funding.
After Obtaining Approval
Once fleet obtained approval, it addressed the budgetary transfer, confirmed the implementation plan, and wrote the RFP. Considerable time was spent determining what fleet needs were and how those needs would be best met. It addressed all the con items and incorporated fleet's concerns. Fleet spent significant time on developing the paper flow, invoices, and forms to detail all transactions. These developed processes were written and added to the department's operational manual that covered all steps, forms, and flow. Exhibits to the RFP included information relating to type of fleet vehicles, engines, tires, replacement projections, prior part purchases, and information on parts vendors under contract. Included was a listing of parts that would be networked, indicating the minimum amounts to be kept in stock. The RFP also specified hours of operation, emergency call-in, overtime, and percentage of parts on demand that had to be achieved. Fleet set a date for the pre-bid conference as well as a facility tour.
During the process of evaluating vendors, employees contacted references and verified prior and current operations as well as financial stability. The implementation of the contract, including current inventory, personnel, and insurance issues were all part of the evaluation. While this phase was in progress, employees checked the parts room for obsolete parts, and all unnecessary items that had accumulated were disposed. The parts room was ready for the physical inventory that would identify the "TOG" (Town of Greenwich) parts and turn the parts room over to the vendor. Fleet was also working to integrate parts operations with the fleet maintenance program.
Once the Town awarded the contract, fleet detailed the physical inventory procedure and steps that would lead to turning the parts room. It scheduled the procedure to segregate the parts room and change door locks, phone lines, and security. Fleet confirmed a special count sheet and format for the physical inventory. User departments were informed of the implementation process that would impact them, and arrangements were made to continue to service them. Employees performed actual inventory on a Saturday, which enabled fleet to open Monday morning under the new system. Once the inventory was completed, employees entered the count sheets and marked parts owned by the Town. The Town and the vendor signed off, agreeing the vendor would issue "TOG" parts first until they were depleted.
The payment/cost of the services is unique to each client, and the RFP and response addressed each. After the first year of operation, the Town's initial payment structure was addressed and adjusted to better meet its requirements. Now that NAPA is an available vendor of the National Joint Powers Alliance (NJPA), other public sector fleets can save considerable time by using this purchasing contract and eliminating the RFP process.
The fleet department's operational manual clearly described the process for obtaining parts, stating that no parts would be issued without a part requisition form signed by the shift supervisor. This form had to include the vehicle being worked on, work order number, date, quantity, part number, control number, and the technician's name. On a daily basis, the vendor issued a statement with the prior day's invoices, along with the signed parts requisition forms. These invoices are matched to work orders, statement-verified, and entered into a worksheet designed for this purpose. Invoices are balanced daily. If there is a delayed invoice, the work order is indicated as finished but not complete until all parts have been billed. After verification, the invoices and worksheet are submitted for payment. On an annual basis, an outside auditor performs an audit for accuracy and part cost verification.
After the first three months in operation, fleet compared the cost analysis, projected savings, and increased productivity. After six months, it checked the parts on demand averages to the contractual amount to ensure compliance.
The overall objectives were to increase productivity, maximize resources, and improve operational efficiency. With the adjustment to the pay structure, fleet had achieved its objectives, as well as buy-in from all parties, and a successful outsourced parts room operation was in place.
Going through a well-planned and thought-out process, step by step, can help other public sector fleet managers maximize other parts room operations as well.
Creating the Implementation Plan
The following steps can be taken when beginning to outsource parts management:
1. Set implementation dates.
2. Prepare for and write the RFP.
- Use samples from other municipalities.
- Set the pre-bid inspection date.
- Establish parameters of Town-owned parts and inventory.
- Establish items and quantity of network parts.
- Specify hours of operation.
- Specify emergency coverage.
- Specify expectations for parts room operation including cleanliness, rules and regulations, telephone, and fax.
- Detail any changes or accommodations to be incorporated.
- Detail handling of all fluids (oils, lubes, etc.) and special tools.
- Include disposition of tires and batteries.
- Specify available training.
- Include exhibits such as a list of vehicles and equipment in the fleet, units on order and coming out of service, current providers of OEM parts, and past usage over the past two years.
3. Develop procedures, policies, and forms for the outsourced operation, including how to process invoices, verify parts to work orders, and steps to integrate with fleet maintenance. Develop a method to monitor performance and parts demand average.
4. Ensure communication and buy-in from employees, user departments, and all stakeholders.
5. Create status reports every three to six months as to vendor meeting objectives and calculate if projected labor time is saved and parts on demand average is achieved.
About the Author
Elizabeth Linck, CFM, is the retired fleet director for the Town of Greenwich, Conn. She now owns EBL Fleet Consulting, LLC, and volunteers at the Green Valley Animal League in Green Valley, Ariz., a no-kill, volunteer-operated facility.