Technology helps minimize parts inventory and free up capital.
In June 2002, Anderson Erickson Dairies began using a new software system to manage the parts inventory of its 212-truck fleet. Four years later, the dividends poured in when Jerry Bender looked at the data and decided the time was right to reduce inventory.
“We ran our first obsolete parts report last summer,” says Bender, fleet manager of the Des Moines, Iowa-based company. “We found that we had $60,000 in inventory sitting on our shelves that hadn’t been used.” The company returned its unused parts for those the system indicated were utilized. The company has since kept inventory levels $50,000 below its previous mark.
Compared to vehicle downtime and unapplied labor – sending a skilled technician to buy parts – the cost of inventory may seem minimal. But in a low-margin business, that inventory represents precious capital that’s not earning a return. More importantly, if the inventory becomes outdated, it loses its value entirely.
No fleet would choose to do this, of course, but it happens because parts inventory also can be complex to manage, with part pricing, part numbers, usage and many other constantly changing details. However, with the right technology, fleets like Anderson Erickson Dairies can use inventory as a strategic tool to maximize vehicle uptime at the lowest possible cost.
Most fleet maintenance management systems incorporate parts management as a feature, capturing details of each part – where it came from, where it is now, how many are left, and its value. The more accurate the data, the greater level of visibility and control fleets gain over their inventory. Yet realizing the full benefit of computerized inventory systems can take months – perhaps even years – of gathering information on what parts are used, and how frequently.
Considering the payoffs, vendors and customers agree it’s worth the effort. Recapturing the value of outdated parts in inventory often will pay for an entire fleet maintenance management system within six to eight months, says Charles Arsenault, president of Arsenault and Associates, provider of the Dossier software
“The biggest challenge is learning how to do it right the first time,” Arsenault says. “It is like going to a dentist. Nobody likes it, but once it is done, it is done.”
One challenge is getting technicians to operate within a tightly controlled system for tracking parts. Software can make the job intuitive for non-techies, but the organization of the physical inventory also is a big factor in successfully achieving a return on investment. Organizing parts by Vehicle Maintenance Reporting Standards (VMRS) codes is the best strategy, says Rick Rosenberg, president of TMT Software.
VMRS is a coding convention that many software systems use to track parts and maintenance activities. VMRS codes identify parts by their location on a vehicle and, as such, provide an intuitive way of locating parts on shelves and in bins, Rosenberg says.
Software providers also say that during the startup phase, it is critical to audit the inventory in the system regularly so that it agrees precisely with what is – or is not – on the shelves and in bins. Discrepancies cause technicians and other users to lose faith in the system, Arsenault says.
The latest versions of maintenance software systems allow fleets to perform fast, accurate physical inventory counts or audits. A worker can enter a parts room with a handheld computer, scan a barcode on a part or on a bin, enter the piece count and move to the next item by VMRS code. Inventory counts that may have taken an entire weekend can be reduced to less than one hour, Rosenberg says. To simplify the job even further, some firms use rolling inventory counts – that is, they choose a segment of VMRS codes (i.e. parts) to audit each month, he says.
The effort to produce accurate data and gain visibility of inventory is especially beneficial for fleets that operate more than one maintenance facility. The corporate office can build a central parts catalog from which separate locations can place orders, providing more control over purchasing. Having a central parts catalog also helps ensure consistent data entry and integrity, Rosenberg says.
Anderson Erickson Dairies buys parts from up to five local suppliers in the Des Moines area for its headquarters and for two maintenance facilities in Kansas City, Kan., and Waterloo, Iowa. The company’s Dossier system provides visibility to the inventory positions of each location, which in turn leads to cost savings and efficiency through centralizing purchasing and management.
“We have such a good history on what we pay,” Bender says. “We can see if we have an increase. Now we call and ask the questions and get the price fixed. We find mistakes on (the supplier’s) end before they do.”
The company also has reduced the number of invoices it has to process, saving time and money on clerical work.
Going for automation
Besides giving fleets visibility and control over their inventory, maintenance management systems help automate the task of replenishing parts. Through scanning barcodes on individual parts and bins as items are used, inventory is tracked continuously as items enter and leave the system – by attaching parts information to repair orders, for example.
As soon as the remaining items in stock for a certain part reach a preset quantity or “order point,” software systems automatically generate a list of parts to reorder. The list can include the last purchase price and vendor for each. Software systems also show the order quantity – the difference between the order point and an order up-to level, or maximum. This inventory policy, called the min-max system, can be fine-tuned over time as companies capture data on parts usage, Arsenault says.
Anderson Erickson Dairies uses a “parts turn” report in its Dossier system to set min-max levels for each part through trial and error. When the company adds a new item in stock, it only keeps one. By looking at the parts turn report after a period of time, Bender sees the number of times the item was used during a specific period – for example, 10 alternators in a month.
If the system shows an item had to be ordered frequently during a month or other time period, Bender will raise the max level for that item. For example, the company now stocks many more EGR and engine sensor parts than it did in the past, Bender says.
Fleets can automate parts ordering through linking directly with suppliers’ electronic parts ordering systems. Epes Carriers orders a large percentage of its parts through Freightliner’s online ordering system called Target, says Joe Samford, vice president of maintenance for the Greensboro, N.C.-based fleet. Epes Carriers, which operates more than 1,000 trucks, manually enters orders into Target from its fleet maintenance management system, TMT Software. Samford’s objective is to generate parts orders electronically by utilizing TMT’s ordering menu feature, where maximum and minimum ordering levels are entered and the parts order is produced electronically. The next step is to build an interface where orders from TMT will be downloaded automatically, Samford says.
One way to automate inventory replenishment completely is to allow suppliers to have visibility of your parts usage. Truck makers International, Freightliner, Kenworth and Peterbilt offer their own software systems to link fleets with local dealerships for automated replenishment. Orders are transmitted electronically to dealers, which then deliver the parts the next business day.
International’s Diamond Connection is a software system fleets can buy for less than $2,000. The system has a full set of maintenance and inventory management tools, such as automatic tracking of cores and parts warranties, says Jim Weldon, marketing project manager for International Truck and Engine. Fleets scan parts as they are used, and the dealership handles the rest, including calculating the optimal min and max policy based on usage history.
Paccar Parts offers the Peterbilt TruckCare Connect and Kenworth PremierCare Connect Web-based fleet maintenance management systems. The systems simplify inventory management for fleets, especially first-time users of an electronic inventory system, says John Wisdom, director of customer systems for Paccar Parts. The software gives fleets a “quick-receive” option for parts delivered from their local dealership.
By using the quick-receive feature, a fleet receives product into its inventory without having to create a purchase order. Information is entered into the Web Connect systems at the dealer level as fleets scan parts out of inventory, or call in to place an order. When the fleet customer receives the physical order, he performs a physical count and then clicks a button in the software if no discrepancies are found. All the parts in the order then are received into the fleet’s inventory system.
While software can automate inventory replenishment, fleets have multiple objectives for their inventory systems. Increasingly, one of these objectives is to integrate their inventory information with other departments. For example, accounting might want a clean audit trail for assets – which includes parts inventory – and to automate the flow and accuracy of that data into its general ledger and accounts payable.
“Virtually all of our new customers have an accounting interface into their general ledger and accounts payable,” Rosenberg says. “They are taking people off jobs of just re-entering data.”
Another point of integration offered by leading software providers is with electronic payment systems such as MasterCard. Fleets can authorize payments from within their maintenance software systems, eliminating the need to generate a purchase order. With a few mouse clicks, fleets can obtain a credit card number good for a one-time use for a specified amount and vendor.
The program is useful for fleets that may need to purchase a part for a driver on the road, pay an outside repair shop or otherwise make a point-of-sale purchase from a vendor. Both TMT Software and Arsenault Associates offer a virtual MasterCard program through Comdata.
“It’s ready to be used 100 percent,” says Epes Carriers’ Samford. The company uses the virtual MasterCard from Comdata in its TMT Software system. Epes Carriers says the virtual MasterCard is as secure as its physical counterpart and also pays the vendor directly – no driver settlement transactions, no deductions and fewer margins for error. “We are easing into it,” Samford says. “Accounting is choosing strategic vendors and going through the checks and balances.”
Inventory is more than tracking and ordering parts. With the latest features in fleet maintenance management systems, fleets can turn inventory into a strategic advantage by keeping an optimal mixture of items at high availability – at minimum cost.
The supply chain gang
Dealers leverage their resources and tech-nology to be fleets’ primary parts suppliers
Dealerships continually are looking for ways to be fleets’ preferred parts suppliers through inventory programs that are beneficial to both the dealer and the customer. Through software systems that link directly to a dealer, fleets can tap into a wealth of resources to manage their inventory.
With visibility of fleets’ parts usage, dealers can be notified of parts that are replaced during a repair while still covered under warranty, allowing them to proactively initiate a replacement part or credit. Dealerships also could recommend returns on products that haven’t been used for a certain period, such as 90 days.
Through a program called Golden Parts Recovery, International dealerships offer fleets the opportunity to trade in obsolete inventory purchased from other suppliers at the regular rate. The dealership initiates a return of all obsolete parts and credits parts purchases made through the Diamond Connect program, which includes a PC-based maintenance software system that fleets use to manage their parts inventory.
“From our perspective, it locks them in and lets them get money out of inventory that is dead,” says Jim Weldon, marketing project manager for International Truck and Engine. The hardest part of managing inventory is getting rid of current obsolescence and minimizing future occurrences, Weldon says.
An International dealership also can use Diamond Connect to watch for changes in the fleet’s vehicle mix and identify parts that were unique to prior vehicle models, allowing the dealer to initiate a return of those parts.
For larger accounts, Peterbilt and Kenworth dealers offer a major account assistance program where they staff a full-time person in a customer repair shop to buy parts from all of a fleet’s vendors. Using either the Web-based Peterbilt TruckCare or Kenworth PremiumCare Connect products, the staffer can order parts from the dealership and other third-party suppliers, and handle all deliveries. Customers receive one invoice, says John Wisdom, director of customer systems for Paccar Parts.
International has a parts distribution system for its 1,000 dealer locations to maintain above a 95 percent fill rate – that is, more than 95 percent of items that are ordered from a dealer are fulfilled from inventory on hand. Most items not in stock can be delivered the next day. But this high level of availability, and automated parts replenishment through Diamond Connect, doesn’t mean fleets pay a price premium, Weldon says.
“We make sure the perception of our dealers is not high cost,” Weldon says. “We make sure our price level is commensurate with the price at a discount house.”
Parts suppliers, fleets thrive on e-commerce
Millions of consumers buy goods online regularly, but ordering parts online is a foreign concept for some fleets. After all, it may seem tough to beat the convenience of ordering directly from a route salesperson – that is, if you don’t mind being bothered.
By incorporating technologies like barcode scanning and advanced reporting tools, purchasing online can be convenient and secure, and fleets can maintain greater control over their purchases, vendors say.
Imperial Supplies, a national distributor of maintenance supplies, provides its customers with a barcode scanner. When a bin is empty or nearing empty, a parts manager simply scans a barcode label on the bin. He then returns the scanner to a cradle connected to a PC via a serial cable. The order is automatically transmitted to Imperial through the Internet. Before the order is processed, the parts manager can make any corrections on his PC.
By ordering online, Imperial provides visibility to fleets through various purchasing reports on the cost and quantity of any item. Through an inventory reduction program, any slow-moving or obsolete products are flagged. Fleets then can choose to block these products from being ordered or mark them for return, says Jason Jacobsen, marketing manager of Imperial Supplies.
Fleets with multiple locations and centralized purchasing programs can benefit from the convenience and control of purchasing parts online, says Jeff Paul, marketing manager for Vipar Heavy Duty, a national parts marketing and buying network. Vipar Heavy Duty offers national fleet programs for consistent pricing and quality of parts.
Through an e-commerce platform called v-Enterprise, fleets with multiple locations can place orders electronically. Invoicing and billing is centralized for Vipar’s parts network of 115 distributors and 500 locations across the United States and Canada. In most cases, parts can be delivered to fleet locations the same day to reduce the amount of inventory fleets carry, Paul says.
Some fleets push orders to Vipar directly through their parts management systems, but the majority use v-Enterprise, says Paul, who estimates the number of fleets ordering parts electronically is in excess of 70 percent. Typically, fleets use the e-commerce side for supplies such as brakes and filters for scheduled PM, but will call directly in the event of a breakdown.
“The technology takes the majority of the workload off, but there is still a human side to take care of unpredictable events,” Paul says.