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HomeMy WebLinkAboutIR 8414 INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8414 July 16, 2002 U ` ►"� � To the Mayor and Members of the City Council SUBJECT: OUTSOURCING OF PARTS OPERATIONS IN EQUIPMENT SERVICES DEPARTMENT BACKGROUND Equipment Services Department (ESD) is responsible for the acquisition, preventive maintenance, repairs, and fueling for the City's mixed fleet of vehicles, off-road equipment, and auxiliary equipment. As part of on-going efforts to ensure the competitiveness of ESD services by considering alternative delivery systems, a Request for Proposals (RFP) was developed to provide parts, supplies, staffing, and management for ESD parts operations at six maintenance facilities. The RFP was issued on March 20, 2002. Proposals were received May 2 and evaluated by a team comprised of staff from the Budget Office, Internal Audit, Organizational Analysis Unit, and ESD. NAPA Auto Parts was determined to have submitted the best and most responsive proposal. CURRENT PARTS OPERATIONS ESD's Parts Section is comprised of twenty-five positions. They include a Parts Supervisor, an Assistant Parts Supervisor, two Account Clerks, seven Parts Expediters, and fourteen Stock Clerks. Twenty-one positions are filled. Four positions are currently being staffed with temporary employees. Four vehicles are utilized to pickup and transport parts from suppliers and between facilities. Parts are acquired through two hundred twenty-three purchase agreements. For the nine- month period October 2001 through June 2002, Parts processed 21,029 invoices for payment. This is a 30% increase in the number of invoices processed for the same nine-month period during the previous year. The increase is attributed to implementation of a more rigorous preventive maintenance inspection program, the objective of which is to identify and make needed repairs prior to the vehicle or equipment breaking down. Parts overhead costs for FY 2002-03 are projected to be $980,145.. Actual costs for parts and supplies for FY 2002-03 are estimated to be $2.6 million. Overhead costs are recovered by charging departments for the actual cost of repair parts plus a percentage markup. For FY 2002- 03, a markup of 37% is required to achieve full cost recovery. Currently, parts inventory totals $713,000 and is turned over on average twice annually. 84% of requests for parts are filled on demand; 90% of requests for parts are filled within twenty-four hours or less; and 95% of requests for parts are filled within three days or less. NAPA PROPOSAL NAPA proposes to provide all parts, supplies, staffing, and systems for parts management at each of ESD's six maintenance facilities to meet the following performance requirements: 85% of parts provided on demand; 90% of parts provided within twenty-four hours or less; and 95% of parts provided within three working days or less. ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8414 July 16, 2002 PA" To the Mayor and Members of the City Council Page 2 of 3 a x 1p73 SUBJECT: OUTSOURCING OF PARTS OPERATIONS IN EQUIPMENT SERVICES DEPARTMENT NAPA will recover its costs by adding 10% on to the cost of all parts and services purchased by NAPA for the City. Additionally, NAPA proposes a first year fixed fee cost for staffing and parts management of $780,880. Staffing includes a Project Manager and twenty NAPA personnel to provide full-time coverage for parts operations at all six ESD maintenance facilities. The fee includes the cost of shelving and improvements to the facilities. A contract with NAPA will be for an initial three-year term with three additional one-year options to renew. Year two and subsequent year costs are subject to annual adjustments based on changes in the GPI. Control and management of the City's current inventory of parts will be assumed by NAPA and issued back to the City at no charge until it is eliminated. COST/BENEFIT ANALYSIS In an effort to compare the costs of parks purchased currently by ESD with the costs of parts as would be provided if outsourced, proposers were requested to provide their unit prices for ninety- seven commonly used repair parts. Based solely on the prices provided, the costs of parts � provided by NAPA would actually be more than they are currently. However, after some discussions with NAPA about the prices quoted for specific parts, it is believed that by NAPA and ESD working together to identify alternate manufacturers and additional suppliers, parts costs would not increase and could in fact be reduced. For purposes of this analysis, it is assumed that the actual costs of parts and supplies to the City would be the same if continued to be procured as is or outsourced and provided by NAPA. Based on budget projections for FY 2002-03, the following table indicates projected costs for retaining parts procurement and management in ESD and year one costs of outsourcing it to NAPA: ESD NAPA PARTS & SUPPLIES COSTS $2,600,000 $2,600,000 INVENTORY CREDIT 0 -710,000 OVERHEAD, STAFFING, & MANAGEMENT COSTS 980,145 780,880 CONTRACT MONITORING & ADMINISTRATION 0 84,000 CONTINUATION OF TIRE SHOP FUNCTION 0 41,712 TOTAL COST $3,580,145 $2,795,712 The most significant benefit during year one of outsourcing is that ESD's current inventory will be issued back to the City at no charge until the inventory is eliminated. The cost of replacing and maintaining the inventory will then be incurred by NAPA during the term of the contract. ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8414 NF July 16, 2002 To the Mayor and Members of the City Council Page 3 of 3 SUBJECT: OUTSOURCING OF PARTS OPERATIONS IN EQUIPMENT SERVICES DEPARTMENT Of the twenty-five authorized positions currently in Parts, three positions are planned to be retained. Two positions will provide for contract compliance and administration. They will also continue to perform some functions that are not being outsourced. An additional position will be retained in the Tire Shop as part of ESD's tire management program. One of the four vehicles currently in Parts will be retained to provide transportation for the contract compliance and administration function. Three vehicles will be cascaded back into the City fleet to replace vehicles that are older and in poorer condition. Overall, there will be a net reduction of three vehicles for which there will be no future replacement requirements. An additional benefit to the City, although difficult to quantify in terms of savings, is that many of the 200-plus purchase agreements that must be set up to obtain parts and services and the 25,000- plus invoices that must be processed annually can be eliminated. The most direct benefit- is to ESD, but Purchasing and Accounting in the Finance Department will also benefit from the reduced work. SUMMARY Outsourcing of parts procurement and parts management is something that is being done by a number of fleet management organizations. It is a service that NAPA has experience with and is successfully providing to both public and private entities throughout the country. Outsourcing of ESD parts operations to NAPA appears to offer some significant benefits to the City in terms of reducing costs and freeing up resources while maintaining timely and cost effective procurement of parts for the maintenance and repair of City equipment. Unless directed otherwise, within the next couple of weeks staff will be requesting City Council approval for the City Manager to execute a contract with NAPA to provide parts, supplies, staffing, and management for ESD's parts operations. ESD staff will also begin working with Human Resources to develop a reduction in force plan and provide assistance to those Parts employees who will be affected by the outsourcing. Assistance will include placement of employees in vacant positions in other City departments and referral to NAPA, who will be hiring for some positions. Staffs objective is to complete this process and the transition to NAPA by October 1, 2002. Gary W. Jackson City Manager ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS