e-Procurement saves money, time for fleets

June 1, 2002
Chasing purchase orders by telephone and fax wastes time and money something that every fleet manager wants to avoid. Web-based transactions can reduce

Chasing purchase orders by telephone and fax wastes time and money — something that every fleet manager wants to avoid. Web-based transactions can reduce time and costs for purchasing repair parts and supplies, said Michael B Covington, president, Velox Logic Inc. He spoke at the 2002 Dairy Distribution and Fleet Management Conference in San Antonio, Texas.

“Shop managers and supervisors spend too much time handling paper and tracking information on the telephone and by fax instead of actually managing shop workflow,” Covington said. “This has a negative impact on shop productivity and eventually reduces equipment utilization. Manually monitoring shop parts inventory and purchasing parts at the best price are very difficult tasks.

“About 80% to 90% of all purchase contracts are negotiated offline, meaning someone puts together a paper based on other pieces of paper that contain a trend analysis of how many units were bought the previous year. Much of that information juggling could be done on the Internet.”

The most frequent complaints from buyers about suppliers are being put on hold, the seller's lack of parts knowledge, unreliable service (sending the wrong part), and hours of operation inconsistent with shop operating hours, Covington said. “A fleet manager who buys $1 million in parts from one supplier told me that the counter guy couldn't even remember to put the order into the computer.”

Fleet managers should examine the following factors in calculating a reasonable return on investment for the costs related to web-based parts purchasing and tracking: controlled procurement, national contract management, detailed procurement analysis, and reduced transaction costs.

Prior to widespread availability of Internet technology, if a fleet manager wanted to adopt a strict companywide or departmental policy for parts procurement, he typically would centralize it in a well-staffed, high-overhead corporate or regional office. A paperwork-driven centralized process becomes difficult to manage when a fleet manager tries to control multiple facilities on a regional or national basis.

Using a web-based system offers managers a choice to decentralize or centralize the purchasing process without releasing any control of the transactions. Fleet managers and purchasing departments can order from their preferred local, regional, and national suppliers through one Internet marketplace at the fleet's negotiated pricing levels, and they can monitor transactions and control workflow.

National contract management

Many national and regional fleets can leverage their size and buying power in negotiating national buying contracts with preferred suppliers. Fleet managers build firm contracts for tires, filters, brakes, friction parts, or with national buying groups such as FleetPride, HDA, Truck Pride Marketing, and VIPAR.

Fleet managers typically send their shops “yellow sheets,” which cover specific contract products, pricing, and authorized dealer and supplier locations. Manufacturers send out hard copy contract information to their national and regional dealer networks. After the buying program is established, very little marketing and sales follow-up occurs at the field level where transactions actually take place.

“The inherent problem with managing national buying programs is how to monitor and enforce them efficiently,” Covington said. “Without real-time connection between all parties, the value of national contract programs can deteriorate quickly. Buyers usually have little technical audit capability outside of traditional telephone and paper monitoring processes. Fleets often do not have online tools to track total procurement activity by location, part number, or product, or by supplier.”

Parts manufacturers and suppliers currently have a tactical monitoring advantage, because they maintain online distribution and shipping documentation as part of daily business. However, most parts vendors are independently owned and operated warehouse distributors. This network typically has computer systems incompatible with other systems in the supply chain. An accurate and timely audit trail is often very difficult or impossible to produce.

“Each buyer, manufacturer, supplier, and dealer/distributor now has access to an online electronic parts buying transaction system, such as the e-VMRS i-parts counter,” Covington said. “Parts orders can be tracked in real time from order creation by the buyer to the actual date and time of shipment and delivery. This includes accurate tracking of back-ordered, canceled, and returned orders. This e-procurement technology allows participants on both sides of the equation to view the contract easily at any point. Managers can make more realistic and timely adjustments to their transactions based on online information rather than gut feel and estimates frequently the case with manual, cumbersome, paperwork-driven systems.”

Detailed procurement analysis

Tracking purchases throughout the year is hindered by the lack of efficient or decentralized audit tools in many computer systems. Gathering specific historical fleet purchasing information to construct and negotiate accurate and reliable contracts and annual fleet operating budgets is time-consuming with a heavily paper-based process. Analysis of outdated or inaccurate historical purchasing data from these manual systems results in bad decisions.

“By using online parts purchasing systems that contain an internal audit trail, managers can extract detailed purchasing information to build stronger agreements, remotely monitor or control shop purchasing activity, and quickly adjust to the year-to-date business plan actual results,” Covington said. “In addition, fleet managers can generate both standard and ad hoc custom reports, independent of the corporate information technology departments — normally a very slow process.

“Real-time management information as well as transaction capability is available to the fleet manager at anytime, anywhere via a simple, browser-driven Internet connection. This includes complete historical purchasing information either by supplier, part number, VMRS code, delivery status codes, or fleet repair location.”

Reduced transaction costs

Managing repair parts inventory and purchasing repair parts are tasks laden with many hidden costs — from the initial search of a hard-copy parts catalog and/or telephone inquiry to the production of a readable and accurate manually prepared purchase order, to the purchase order approval process through invoice reconciliation, and eventually invoice payment.

“As one example, the Maryland Department of Transportation says it costs about $200 to produce a purchase order,” Covington said. “On average they handle about 20,000 purchase orders per month. The transaction process takes anywhere from one to seven days.

“Research shows that about 20% of all parts ordered over the telephone or fax are returned to the supplier because the fleet buyer ordered the wrong part or the supplier delivered the wrong part. Returned-parts cost to both sides of the supply chain is difficult to determine, but the potential costs in lost employee productivity, inflated inventory levels, customer satisfaction, and reduced equipment utilization, including increased downtime, is very high.

“Many transportation companies and their suppliers have determined that it costs well over $100 to create, approve, internally process, and deliver a manually prepared purchase order. To reduce transaction time and handling costs, web-based systems can efficiently assist in the initial parts search, part number validation, and actual purchase order copy creation. The time to complete the entire transaction, including acceptance by the supplier, can be minutes rather than hours or days.”

Outsourced technology

While reasons to use today's newest technologies can be very compelling, real costs to select, purchase, install, train to use, and maintain a technology can be expensive and often hidden in the project. To purchase and install technology in an organization efficiently, managers must not only thoroughly understand the costs of hardware, software, training, and online parts catalog development including updating and connectivity, but they must also plan for the ongoing technical support and upgrade of the new technology systems. In today's economic environment, the capital necessary to fund such projects can be very difficult to find, as is justifying the internal staffing levels required to manage the project if approved.

“Given a choice, most organizations would rather spend hard-to-get capital dollars on revenue-producing assets,” Covington said. “Internet technology can provide the least cost opportunity in the implementation of cost-saving technology solutions such as the e-VMRS procurement system. By subscribing on a monthly-fee basis to a web-based purchasing service, fleet managers can start, sometimes in a matter of a few weeks, an e-procurement system without the need to spend valuable capital on the technology as well as the information technology staff typically necessary to support a new system.

“In summary, outsourced, pay-by-the-month, subscription-fee-based e-procurement technology solutions have the potential to produce thousands of real dollars in savings quickly for the fleet's procurement budget and bottom line without obligating budget dollars to technology projects,” Covington said.

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