Parts Outsourcing: The Lynchburg way
John McCorkhill, CFM/CAFM
Fleet Services Director
City of Lynchburg, Virginia
Effectively managing a state-of-the-art municipal fleet operation today requires fine-tuning every facet of the maintenance operation and exacting periodic adjustments to ensure everything is operating like a well-oiled machine. Government officials today have little tolerance for weak-link garages that fail to provide timely repairs in an efficient manner with high quality and quick turnaround. Limited tax dollars have forced cuts in staff and budgets, leaving little room for a mediocre fleet operation.
In the late 1990s, fleet frustrations in the City of Lynchburg, Virginia, initiated a top-to-bottom review of fleet performance within the City. The fleet consulting firm of David M. Griffith & Assoc. (now DMG/MAXIMUS) was commissioned to study all facets of municipal fleet maintenance and management in Lynchburg and to bring to the table recommendations for improvement.
DMGs list of recommendations in the form of a final report was issued in late 1997. Two significant proposals of the many recommendations were: hire a fleet director and outsource the parts operation. I joined the City in March 1999 and was given the assignment of building a fleet department. I had spent 16 years in Indianapolis, Indiana, managing that Citys fleet, which included success at winning a major managed competition bid.
One of the more vexing issues awaiting me concerned what to do with the parts operation that serviced the technicians needs for repair parts. Animosity existed between the two groups. Continual warehouse sales were taking place to dump parts that had become stale and obsolete. Policies were nonexistent and the use of a retail markup for billing parts (if one was used) would have rendered a 69 percent markup, compared to the norm of 25-30 percent. The decision to outsource the City of Lynchburg parts operation appeared to be a no-brainer!
My experience in Indianapolis in staving off privatization had taught me the value of a strong set of specifications when seeking proposals from the private sector for a service. With the assistance of DMG, a thorough set of specifications was prepared describing all levels of service; these specifications also provided for liquidated damages for less than satisfactory delivery and a bonus if the contractor exceeded the standard.
Proposals were solicited in September 1999. Two firms expressed interest: NAPA, a national firm that specializes in managing outsourced parts operations, and Barker Jennings, a local automotive and industrial supply house with a beginning that dates back to 1885. Barkers cost proposal was the lower of the two and their technical proposal void of any exceptions, so after negotiations, Barker was given a three-year contract that began March 6, 2000.
Why did the City of Lynchburg elect to outsource its parts operation and what does the City expect from its private contractor?
A parts operation managed under widely accepted business principles.
Improved parts fill-rates with built-in penalties for inadequate performance.
Only 3-5 invoices each month to process instead of several hundred.
Pricing based on volume discounts offered to a large supply house that purchases in large lots to service several customers instead of one.
No inventory carrying cost since the City will be invoiced for only what it uses and not what ends up on the shelf.
No ongoing cost to count physical inventory.
No more obsolescence since the City no longer has an inventory.
No payroll cost and personnel problems to deal with any longer.
Parts outsourcing is not a new subject and has been incorporated as part of the fleet operation in other cities-some still are having success with their program, and others for one reason or other have gone back to the former way of doing business. I am confident that Lynchburgs program-with its sound specifications and the use of a local firm for its parts management-has all the signs for success leading to happier technicians, improved downtime, and reduced cost for the customer.
For more information, contact John McCorkhill at 804-847-1627 x-142, or firstname.lastname@example.org.