may2021 - 40

MANAGEMENT

»By applying rigorous purchasing and
negotiationg techniques to lower costs,
a fleet might be able to save money.
This is an excellent application for the
skills of the purchasing department.
Photo by David Brierley | Fleet Maintenance

The business of parts
Steps to trim costs and
improve ROI by better
managing parts inventory.

Two facts about parts make them an exciting area to investigate. The first is that parts
consume 40 to 70 percent of every maintenance dollar, so reducing parts cost can mean
major savings.
The second is that parts can point to maintenance problems. A fleet can reduce their problems by looking at the parts used. Since most
maintenance jobs require some parts, reducing
parts usage will automatically reduce labor.

By Joel Levitt

PRESIDENT, SPRINGFIELD RESOURCES
Joel Levitt is the president of Springfield Resources, a
management consulting firm that services a variety of
clients on a wide range of maintenance issues. Levitt
has trained more than 17,000 maintenance leaders from
more than 3,000 organizations in 38 countries. He is also
the creator of Laser-Focused Training, a flexible training
program that provides specific, targeted training on your
schedule, online to one to 250 people in maintenance
management, asset management, and reliability.

40 Fleet Maintenance | May 2021

Choosing targets

In the maintenance storeroom, parts consumption is an important metric, but money
consumption is even more so. We can use the
following calculation to get a rough estimate
of annual spending, by SKU, to find unnecessary waste.

For each part, multiply SKU units used
per month by 12 to calculate annual usage.
Multiply the resulting number by the unit cost,
then add freight to calculate annual spend.
Sort this list in descending order and disregard the bottom 90 percent (if the report is 20
pages long, only keep two pages of it).
One study determined that the top 7.3
percent of the line items represented 76
percent of the yearly dollar volume spent on
parts annually. Minimizing these parts' usage
provides a double bonus of saving money from
the part and saving on labor.
Most fleets likely already know the top
items on their parts list and already spend
time on them (tires, batteries, motor oil, etc.).
The next tier after these items is where it is
important to focus.
For example, if a brake part costs $112.50
and a fleet uses 132 units annually, their
annual purchasing cost for the part would
be $14,850.
The action is to investigate the where channel (where the fleet buys it from) to either save
money or reduce the annual usage, which
impacts ownership costs.
Look at these items closely for potential engineering changes that could reduce usage; use
preventive maintenance (PM) to reduce usage;
review specifications to get better parts at the
same costs or equivalent parts at lower prices
(this is the situation where some level of engineering can pay off in significant returns).
By applying rigorous purchasing and negotiating techniques to lower costs, a fleet might
be able to save money. This is an excellent
application for the skills of the purchasing
department. These items will pay dividends
with creative new vendors, purchasing modes,
and approaches.

Example 1

Motor oil purchased in 1-gallon bottles costs
$10.00 per gallon, and motor oil purchased in
bulk costs $7.00 per gallon.
The cost to plumb the shop for motor oil and
supply tankage is $15,500.
The fleet's annual motor oil usage is 20,000
gallons, meaning 1-gallon bottles would cost
$200,000, but buying the same amount of oil
in bulk would cost $140,000.
In this case, the $15,500 cost of installing bulk oil equipment in the shop is far
outweighed by the $60,000 saved annually
by purchasing bulk oil instead of 1-gallon
bottles. Other advantages including reduced
labor, reduced contamination, higher yield, less
clean-up, and less debris (bottles).

may2021

Table of Contents for the Digital Edition of may2021