The Parts Bin - The PartsRiver Blog
13 Apr 2012
Keeping spare parts inventory low and managing the consequences
Many fleets are focusing on minimizing the level of heavy duty truck parts inventory they carry in their shops. Inventory is cash tied up in an illiquid asset. Most companies would rather have that cash working for them more productively. However, there are some consequences for keeping inventory too low. The most obvious one is equipment downtime; if you don’t have a spare part for an unscheduled repair, the truck may be down longer than needed.
The second reason is cost. If you spot buy on are regular basis because your inventory is low, you are likely paying a higher price for the part than you would if you bought in greater quantity.
Lastly, supplier service level may fall short; your suppliers may have a tough time keeping the parts you need on hand because they don’t have visibility as to what you will need.
So the question is: how do you minimize the pitfalls by keeping your inventory as low as possible and at the same time, make sure costs are in line and repairs can be done on time? Here are a couple of things that can help manage these challenges.
First, if you have multiple equipment brands for tractors and trailers, develop a cross-reference between common parts. For example, one OE D2 Governor can be substituted by a different OE brand if you know that the component manufacturer part number is the same for each. That way you can consolidate inventory (if warranty issues are not a concern) by stocking one maintenance part for both brands.
Second, keep open communications with your suppliers. Let them know what equipment you are running and keep them updated with changes in your fleet. The more they know, the better their service level will be.
Third, ask your dealers to keep you informed of any problems in the supply chain; for example if a part is back ordered due to a production problem, you will need to find a substitute.
Fourth, keep track of superseded and obsolete parts notices from the dealers. Often, it’s only the part number that is changing, not the part and this knowledge will help you keep from buying parts unnecessarily.
These are just a few things that can help you optimize inventory. If you have others, please share them with us.
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05 Apr 2012
The parts hunt – The times they are a-changing'
When eBooks first came on the scene, many people thought that they were going to be a passing fancy and get a small piece of the total market. I was one of those people until I saw a graph that Amazon put out showing that, eBooks went from 20% of the total market to more than double the volume over print books. All in four months! One thing was clear to me; the book business has changed forever all along the chain from the author, publisher, printer, retail store, and finally the reader. So what drove this explosion in sales and how does this relate to how parts buyers search for heavy duty truck parts?
There are many reasons why eBooks have come into their own, but there are four things that changed the book world and which are beginning to have a major impact on the way truck maintenance shops find and buy urgently needed or hard to find maintenance or aftermarket parts.
First is the availability of eBook readers like the Kindle, the Nook, and the iPad (I wish I had bought a lot of Apple stock when it was $4 a share). Second, Amazon and Apple made millions of titles available as eBooks. Third, a reader can go to one place to buy all the titles he or she wanted. But most importantly, there are lots of people who want to read this way; you can have all the eReaders, eBooks, and others but if no one wants to read this way, the whole thing will go up in smoke.
Our polls show that a similar change, although more slowly, is happening in the truck parts business. Every part buyer has a computer connected to the internet. There are more and more sellers with websites that have either an online parts catalog or a real online store that can take and ship orders. But the real key is that as younger parts buyers join companies as purchase executives, they are more and more oriented to buy online. Whereas some of the more seasoned buyers relied almost exclusively on the telephone and personal relationships, which will always be a foundation for most buyers. The younger buyers are very comfortable buying parts online. If a shop needs a part right now, price and shipping costs may not be as important as getting the truck running again.
Is online buying going to explode like eReaders? Maybe not. But one thing is clear: part suppliers that have good, clear, easy-to-navigate websites that can take and ship orders quickly, will start winning more business. These companies will have to show the buyer real availability, pricing, and prove their reliability for quality and service.
I don’t look to online buying to come anywhere close to replacing the local supplier for standard maintenance parts, but for urgent need, look out.
What’s your experience? Agree? Disagree? I would love to know what you think.
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27 Mar 2012
Managing inventory after a merger or acquisition
The transportation industry has always been an active merger/acquisition industry because it is an excellent way for a company to expand its market and to achieve operating economies. You hope that the good stuff survives like good customer service, good pricing, and customer loyalty because in the end, that is what determines whether a company succeeds or fails.
But behind the scenes there is a lot of ‘blocking and tackling’ that needs to happen to put two companies together; the one that PartsRiver gets involved with is putting two parts masters together so the merged company can trim its inventory and start purchasing heavy duty truck parts without duplicating purchases.
There are a couple of things that can make integrating parts masters tricky. First, is if the companies have Class 8 fleets made up of different name plates; one company may have primarily Peterbilt and Kenworth trucks and the other may have International and Volvo. This guarantees a challenge. Second, the larger the number of maintenance locations, the more likely there will be duplicate numbers.
So what to do? There are several important steps that should be taken to minimize duplicate inventory. First, a central parts master should be created that incorporates both companies and, if necessary, all the parts masters of the various locations. This requires a dedicated effort to cross-reference as many non-proprietary truck parts as possible. Once it’s done, however, the company can achieve some amazing cost advantages and keep inventory levels as low as possible for its replacement and aftermarket truck parts.
Second, identify the categories of truck parts that can be integrated most easily. For example, filters, belts, hoses, lights and other commodities can be cross referenced to each other and a preferred brand selected. If this information is loaded into the fleet management system, the parts buyers will see what the preferred part is and the company can get preferred pricing. If done right, the merged company can negotiate some excellent pricing from the primary suppliers.
Cross-referencing is the secret sauce and if you happen to be the lucky person whose job it is to manage the parts master for a merger, the key will be to locate a deep cross-reference database.
Anything else? I would love to hear your thoughts.
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22 Mar 2012
Are there rabbits in my inventory master?
PartsRiver provides data management services for many fleets and we see the scenario of duplication over and over again. The inventory item master is full of duplicate part numbers and no one seems to know how they got there. One customer says that he thinks they are like rabbits and just breed on their own.
Duplicates happen because of a couple of things. Either there is more than one person entering part numbers into the system, a different brand but identical part was purchased, or a part number was superseded and no one made a note of it. There are more ways to “breed” part numbers, but those are the most common.
So what, you ask? Data storage is cheap. The truth is that duplicates can lead to procurement over spend in a large company of up to 20%. If a Class 8 truck fleet is buying $3 million in parts every year, they could be spending up to $600,000. Isn’t that too much? It that was my company, I would rather have the money in the company than send it to my suppliers.
Here’s an example, right out of a purchase file from one of our customers. The actual part is a Webb wheel drum. Every part number (5 different ones) is for the same drum. But more importantly, check out the “Unit Cost”. Scary! A low of $51.63 and a high of $132.00
And because computers aren’t smart enough to know that these part numbers are the same part, these “rabbits” can just keep breeding.
Take a look for yourself and let me know what you find.
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20 Mar 2012
Managing superseded and obsolete parts in your catalog
Just when you think you have a clean, solid vehicle parts catalog, you get an update from a supplier that contains new part numbers that either supersede ones in your system or replace ones that are now obsolete. The new number could be just that; the part stays the same but gets a new name. Or the new number could be for a replacement part that obsoletes the existing part. Either way, part number changes create a problem for procurement and managing inventory.
If a part number is simply replacing an old number, but the part will be the same, one solution is to note this in the description (short or long) of your fleet management system. It is important to make this note in both the new and the old part number. That way you won’t end up with two stocking locations in your warehouse.
If there is an actual part change, then it becomes important to not only note the change in each part but also to use the old inventory (unless there is a reason, like a recall, not to) before buying the new part.
It is also important to maintain a history of all of these changes over time so that you can understand and make sense of the company’s part spend over time.
Lastly, if there is a price change along with the part number change, how this price is justified. If the part remains the same and just the part number is changing, it might be worth it to question your supplier. I don’t want to suggest that they may be changing part numbers just to raise the price, but…..
We have managed superseded and obsolete part number changes for many companies, and it is never a simple process. However, we have learned that it is critical to managing parts spend and inventory over time.
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15 Mar 2012
Senate passes $109 billion transportation bill
Whatever you think of the passage of the $109 Billion transportation bill that passed the senate (74-22), the amazing thing is that it was about as bi-partisan a vote as we have seen in quite some time. This is clearly a bill that will create jobs but one can’t tell at this early stage whether or not the number of jobs actually saved or created will be worth the money spent. If it gets through the house and becomes law, my hope is that this transportation bill might actually lead to improving our highway system.
One of the key provisions in the bill is the one that will make it more difficult to privatize and create toll roads. The private companies, many of them foreign companies can also depreciate these roads over a 15 year period. The net result has been a higher cost of transportation for the trucking industry. Since this higher cost will be passed on to the consumer, the net is overall higher costs with the benefit going to a very small part of the infrastructure. So I tip my hat to Senator Jeff Bingham of New Mexico for that one.
The transportation bill sets in place the funding mechanism through which the federal government pays its share of the cost of transportation repair and construction projects that are carried out by state and local governments.
It largely continues current funding levels, although there are changes to some programs, including a grant program that seeks to leverage private investment in infrastructure projects.
There is a lot in this bill that may or may not prove to be beneficial in the long run. Part of its funding will come from the gas tax; however, there is a good chance that this won’t be enough to fund the entire cost of the transportation bill.
But all in all, at least it locks in a stable spending process, a streamlined bid process, both of which will hopefully enable consistent infrastructure improvement and a predictable cost basis that truck fleets can use for planning in the future.
I would love to hear your opinions on this transportation bill.
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07 Mar 2012
When diesel goes up, what can come down?
For any fleet, fuel has always been a big line item. But at four dollars per gallon and perhaps rising, it is becoming the elephant in the room. There is a lot of thinking about fuel efficiency, the cost/benefit of alternate fuels, and driving habits to reduce consumption. FedEx, for example has saved 276,000 gallons by adding 408 electric and hybrid-electric vehicles, not to mention CO2 emissions reduction of nearly 2,800 metric tons. I drive a Prius and every time I am sitting at a red light at an intersection I can’t help wondering how much fuel is being consumed by all of the cars and trucks sitting at intersections across the country going nowhere. 0 mpg gets really expensive when you look at it on a large scale. According to Argonne National Laboratory, fleets use about 20 million barrels of diesel every year just idling.
Clearly, with the volatility of fuel prices driven by increasing demand all over the world as well as unrest in the Middle East, the more and faster we invest in fuel saving technologies, alternate fuels, and operational processes, the better.
Since PartsRiver spends its time in the heavy duty truck parts world, we looked into how fleets can reduce cost by managing maintenance parts better. The manageable piece of parts costs lie in managing them all along the supply chain. Here are a few of the things fleets can do to lower the overall cost of parts:
- Stock only the high turn items like filters and belts.
- Keep your part suppliers informed. If you acquire new equipment, let them know so together you can determine what non-warranty parts you may need them to carry for you.
- Know what alternate parts are acceptable. By knowing the component manufacturer of a part, you can often locate the same part branded by another company and get a critical part in quickly.
- Know who the good suppliers are nationally. When a part is not available locally, it helps to know who else you can call in a pinch.
- Keep in mind that the faster you turn your parts inventory, the less it is costing you. Your suppliers will be happy to stock for you if you work with them.
If you have other cost savings ideas, I would love to know about them.
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06 Mar 2012
Real cost of ordering the wrong part
My guess is that all heavy duty truck parts buyers have ordered a part only to find out later that it is the wrong one. That can happen for a number of reasons: The part number that you got from the seller part catalog or a supplier’s website is just plain wrong. If you didn’t have a good number and had to use the description, the chances of making an error go way up; most part descriptions leave a lot to be desired. And Make-Model-Year (MMY) searches don’t always work if the truck has been modified. Or the part you are ordering has been superseded by another part number. I can go on, but, you already know that it’s easy to get the wrong vehicle replacement part in.
I did some checking on the real cost of getting in the wrong part and was surprised to find out how much it really costs when you add it up all along the supply chain. First is time. The time the buyer spends looking up the part, the time the parts person at the dealer spends talking to the buyer on the phone, the time it takes to enter the order at both the shop and the dealer, the time the warehouse person spends pulling and packing, the time the delivery person spends driving the part to the shop. And so on. The time is crucial element in replacement vehicle part and wrong part order takes a toll on it.
But wait, there’s more. When you send the part back, this whole process has to go in reverse, kind of like running a movie backward. The delivery person picks up the wrong part, it has to go back to the warehouse, credit has to be issued, and so on. Then there is the cost of downtime since the truck repair can’t be completed. Which means the shop won’t get paid until later and truck can’t come on road.
But, most important and most costly is the cost of poor customer satisfaction. An unhappy customer usually votes with his feet, or in this case, with his wheels.
Add it all up and these costs can easily cost ten times the cost of the part. A $50 part can cost $500 in associated costs. That hurts everyone’s bottom line. The dealer will pass these costs onto the shop and the shop will pass them along to the fleet. And the fleet will pass them along to the shipper…
So, you ask, how do we minimize ordering or receiving wrong parts? There is no single place that needs to be fixed, but rather, each step along the way has potential for error. Parts catalogs need to be accurate, including descriptions. OE’s must be vigilant to make sure that part number changes are communicated to both their dealers and to the end users. Parts buyers need access to current MMY information so they know what the current part number is. There is no magic, but rather a commitment on everyone’s part to manage part information better.
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01 Mar 2012
Cross-referencing parts – the right way and the wrong way
I guess the first question about cross-referencing is why cross reference at all if I have a good source for my heavy duty truck parts?
Cross-referencing has always been a challenge for several reasons. First, vehicle part numbers are not consistent. An OE part number may be different from a dealer or aftermarket supplier. Second, some part numbers have been created by the end user as an internal part number. Third, parts get superseded or become obsolete and can’t be reliably crossed to a new part with some additional information. The cost of an incorrect cross reference can be high from warranty violation to an outright failure of using an inferior part.
Being able to cross reference reliably has some real benefits, most of them having to do with price and availability. When your primary part is unavailable and you can find an alternate, you can complete the maintenance job on time and get the truck back to fleet for work. Or you can find the same part, marketed under a different brand name, for a better price. Or third, if you are buying the same part under different part numbers, you may be able to consolidate purchases for a better quantity discount.
So now you ask, how do I know that I am getting apples for apples? Basic Principal Number one says to first cross every part number back to the component manufacturer’s part number. If you take an aftermarket, OEM, or dealer part number back to the source, you will know which supplier parts are the same. Trying to cross between two suppliers, such as two aftermarket suppliers is risky. One may be selling a top tier replacement part and the other may selling an import or second rate part. Or one of the parts has been superseded by a new part but the supplier part number hasn’t reflected this change.
If you have looked at published cross references very often you might have discovered that some are more reliable than others. Basic Principal Number two says to put more trust in cross-references produced by the actual manufacture. Treat this information as a one way street. Cross references from the component manufacturer to a competitor or supplier is much more reliable than a cross reference published by a re-marketer.
Cross referencing will remain a challenge, but if you follow these basic principles, you will reduce your chances of successfully reducing downtime and cost.
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27 Feb 2012
View from the booth – The 2012 TMC Conference
I look forward to attending TMC each year. It is one of the best opportunities to see old friends, meet new ones, and see the latest developments in the heavy duty truck industry. This year was no exception and since PartsRiver is company that delivers truck part information, I am particularly interested in how other companies are fundamentally impacting the transportation industry.
Even though there may not be a blockbuster software product each year, one thing is clear: more information is available, closer and closer to real time, and to a more people all along the operations and supply chains than ever before. Fleet management systems not only help companies manage the physical aspects of their fleet such as maintenance, inventory, fuel management, warranty and so on, they also are offering more and more access to the outside world such as vehicle parts supply and access to breakdown services. Fleet managers have a better and better view of their equipment not only in shop, but also on the road.
I am beginning to see a tractor/ trailer like a computer on wheels wirelessly connected to a server. Information about where it is, what it is doing, what’s wrong with it, where it can be fixed, and what the impact of this will be on delivering product to the customer is all becoming available real time to anyone who has a smart phone. And let’s not forget the driver, whose safety and well-being is the most important part of this rolling computer. If all of this information is managed properly companies can dramatically improve their efficiency and customer satisfaction. Companies are now able to predict problems before they happen and communicate important information to their customers before the customers ask them.
I think we all know by now that none of this technology replaces people. But it does allow team members to do things more efficiently and more interestingly. And that’s a good thing. So I’m looking forward to TMC next year to see how far things have progressed during 2012.
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