Every operation’s size, budget, equipment, staff, and resources are different. Some fleets are able to manage parts inventories better than others. Some managers would rather keep control over their inventories and quality of parts.
But with public agencies still reeling from the economic downturn, it’s becoming more difficult to dismiss the financial advantages of vendor-managed inventory (VMI). If you’re considering VMI, be sure to look at:
Volume of parts purchased. If your operation spends less than $30,000 per month on parts, VMI may not make financial sense, says Mike Picardi, Midwest division manager with NAPA IBS.
A typical NAPA contract includes at least one onsite NAPA employee to run the parts store, and that salary is calculated into the contract. Public works and parks manager Brian Heath says VMI wasn’t a good fit until Cedar Falls, Iowa, reorganized and integrated park division equipment into the public works fleet.
Personnel. According to Bob Stanton, member-spokesman with the NAFA Fleet Management Association, the only drawback to outsourcing parts management is deciding what to do with existing parts personnel, which may include reassignments to vacant positions.
Cedars Falls waited until the current parts clerk announced his retirement, allowing the position to be eliminated through attrition, before beginning the request for proposal (RFP) process.
Software compatibility. Ensure that the contractor’s solution is compatible with your fleet’s software, says Joseph Hopp, superintendent of maintenance services for the City of Aurora, Ill.
For example, NAPA IBS uses a Windows-based barcode scanning system that integrates with many common programs, including AssetWorks.
True costs of parts inventory management. When comparing in-house versus contract expenses, remember that true costs extend beyond the inventory itself.
According to Stanton, that includes running the parts room: staffing and benefits, facility cost per square foot, administration, phones, faxes, utilities, accounting, shrinkage, and parts obsolescence.
Objectives and expectations. Is your goal to remove inventory-related responsibilities, lower transaction costs, improve vehicle turnover times, maximize warranties, or a combination of the above?
Prioritize your objectives in order of importance to ensure the contract meets the desired goals, says Stanton.
Communication and potential champions. Involve all stakeholders — human resources, procurement, and finance departments — when exploring VMI options.
Make sure that the vendor sees you as a partner, not just a client. Keep communication channels open and work together to achieve your objectives.
“We started with weekly, then monthly, and now quarterly meetings with our contractor,” says Hopp.
Negotiation power. Feel free to negotiate part satisfaction rates, minimum fill rate percentages, and other performance standards that exceed in-house performance levels.
“I’ve added performance incentives and penalties, delivery directly to the technician’s work space, and other advantages and benefits that we didn’t have previously,” says Stanton.