Outsourcing: a term that may engender fear and loathing in a fleet manager. For some entities, it’s akin to a four-letter word; its mention can bring fear, insecurity, or anger. To savvy fleets, however, outsourcing is just another tool in their arsenal, the ability to exploit the marketplace and enhance their productivity. This article will explore how the very real threat of parts outsourcing was used, inadvertently, to improve a critically important fleet function.
In Defense of Outsourcing
Many fleet operations feel threatened by full outsourcing. In my 25 years in government fleet, I’ve seen that full outsourcing, though couched politically as a cost-reduction strategy, is used to solve long-term and seemingly systemic service failures on the part of the fleet. In many cases, unfortunately, the failures cited are more perception than reality and, because the fleet staff has neither the authority nor credibility to defend itself, full outsourcing becomes the final solution.
History also shows that government fleets subjected to full outsourcing often bring back fleet operations years later as costs creep up or service failures arise.
Given the right circumstances, outsourcing specific functions can be a great solution. Local government fleets cannot be experts in all phases of fleet operations and should never claim to be. When the marketplace can be exploited to perform certain fleet functions better, faster, or less expensively than a local government can perform them, those functions should be targets for outsourcing.
A key to this decision is ensuring the marketplace is performing the targeted service to the fleet’s expected standard. Outsourcing preventive maintenance is a common point of heated discussion between fleets and their client departments. Taking the time to generate a clear comparative analysis will usually yield the proper result; failure to do so often fails to satisfy either side of the argument.
A Case Study in Parts
A major fleet function commonly considered for outsourcing is the parts department. For many government fleets, outsourcing the parts operation has become a strategic success, resulting in improved efficiency complemented by gains in service delivery and cost containment. Fleets that outsource parts have reported operational successes year over year, and many assert that they would never consider returning parts in house.
In the case of this municipal fleet — which served a major city in the southeastern United States — outsourcing was promoted and initiated by the City Council for reasons of political expediency and headline prominence. And while the underlying reasons were clearly service- rather than cost-related, politics was the driving force behind the initiative.
I was asked to lead an employee-based defensive initiative in an effort to retain their positions within the city. My response to their entreaties was to tell them the game was rigged and already lost; their only chance for survival was to turn the functional process on its head and propose an overhauled procurement process completely different from their current process.
Analyzing the Parts Operation
Over the next several weeks, an in-depth analysis was conducted to ascertain the true picture and answer these questions: Was the parts operation performing at an optimum level and, if not, why not?
Although the parts function was performing well on several basic levels, its low performance and service reputations were well-deserved. In fact, the parts function could not have been worse. But why?
Vehicle throughput, or the transition of vehicles from needing repair to ready status, was appallingly low. Most fleets strive for an availability percentage in the mid-90s; this fleet’s vehicle availability percentage was in the low-80s, and even lower for critical departments such as Solid Waste.
Senior management dictated a reduction of in-stock parts inventory by one-half. Compared to fleet operations of similar size (3,000+ units), in-stock availability of fast-moving and commonly used items was essentially non-existent. Consequently, technicians routinely waited several days for parts that should have been immediately available on the shelf, such as brake pads.
Most fleet managers understand the value of a strong, robust, and responsive parts inventory. The cost of vehicle downtime far outweighs the cost associated with a parts inventory balance that may seem high. Other inventory value measurements — such as turn rate, vehicle throughput, and item min-max history — validate and justify the size of the inventory balance and its impact on service delivery. Senior management at this fleet, however, failed to understand these concepts.
The process to purchase any part, even those under contract, required 21 separate steps. When this cumbersome process worked as designed and without any delay, it required 36 hours to complete but seldom took less than three days. To expedite the process, technicians would often travel to the vendor themselves to retrieve their parts, but only after the days-long order process was satisfied.
The parts approval process was so onerous that the team responsible for fire equipment repairs developed an internal workaround to bypass these delays. Further, certain client departments (e.g. Public Works) had the authority to contract directly with outside vendors for repairs using the fleet budget without prior approval from fleet management.
Identifying Systemic Problems
In addition to these self-imposed challenges, other issues contributed to service failures and prevented the parts operation from performing at a high level:
- Infrastructure issues such as out-of-service parts counter phones, frequent computer time-outs, inoperative lighting, no file cabinets, limited work space, and lax inventory security.
- A disconnect between Procurement and Fleet kept Fleet out of new vehicle selection. As a result, vendor service and parts contracts were fraught with errors, unclear terms and specifications, and pricing irregularities. In addition, contracts included no accountability for pricing anomalies, service delivery failures, warranty specifics, or returned items.
- Special order part retrieval delays were common, as was poor communication between technicians and parts employees. As a result, there was a lack of a consistent work order process between fleet shop locations, work orders were routinely coded “waiting for parts” when no parts were ordered, and fleet management information system administrative rights were broadly allowed.
- State contracts, cooperative procurement instruments, city ordinance processes, and intergovernmental contracts were utilized by other city departments but not by fleet management. Purchasing stated that “Fleet never asked” to use them.
- Inadequate staffing was common, especially at satellite locations, resulting in parts room closings during operating hours. Certain parts personnel were working out of class, having been assigned to staff the front office.
Clearly the bad news for this operation was far-reaching and just about as bad as it can get. Consequently, its reputation was well-deserved. However, in spite of the roadblocks thrown in its way, this parts operation was actually performing its basic responsibilities at a high level:
- Parts rooms were well organized, with bin and shelf locations clearly marked to simplify the parts location process, and work areas were clean and neat.
- Inventory was well-controlled, cycle counts were frequently audited and accurately reflected, obsolescence was minimized, and in-stock performance was consistently greater than 90%.
- Parts was the only fleet business line performing at a break-even or profitable level. Fleet’s other business lines, labor and fuel, were assessed to customers at rates that could not be supported financially. Fleet, as a department, routinely operated in a deficit financial position requiring year-end outside support to break even.
The shortcomings outlined above were all self-inflicted. As such, each could be corrected internally. Fleet staff, without outside intervention or approval, had the ability to change direction, improve operations, and win the fight to keep their jobs. By realizing their shortcomings and finding solutions, staff members could better explain their role and help management understand fleet operations.
Once these weaknesses and strengths were identified, the team was able to put together a proposal of the changes needed and present it to city leadership. As a result, the fleet won the managed competition and was able to keep its parts operation in house.
Don’t Get Defensive
Anyone reading this may be lured into thinking, “That can’t or won’t happen to us.” Had this fleet’s staff members read this article a few years ago about another fleet, they, too, would have drawn that conclusion. Instead, they were victims of a combination of seemingly unrelated events over a period of years and found themselves in this unenviable situation.
If a fleet outsourcing conversation occurs within your entity, look internally first, rather than immediately taking the typical defensive response. Regardless of the “why” that will inevitably surface in such a discussion, fleet personnel should instead consider what they can do better, faster, or less expensively. If the marketplace offers a better mousetrap, there are only two alternatives: concede and outsource for the benefit of your clientele, or look in the mirror. If changing a process will result in greater efficiency and service, try this first; those actions will likely be their own reward.
About the Author: Bob Stanton, CPFP, CPM, is an independent fleet consultant and retired public sector fleet manager with 42 years of experience. In 2014, he was inducted into the Public Fleet Hall of Fame. He can be reached at email@example.com.