When FedEx Freight received an invitation from the Technology & Maintenance Council (TMC) to help develop new Recommended Practices (RP) for parts purchasing and inventory management, the company happily answered the call. If you've developed a system to efficiently distribute parts for over 9,500...
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When FedEx Freight received an invitation from the Technology & Maintenance Council (TMC) to help develop new Recommended Practices (RP) for parts purchasing and inventory management, the company happily answered the call. If you've developed a system to efficiently distribute parts for over 9,500 tractors and 26,000 trailers to 100 different maintenance facilities nationwide, as the parts team at FedEx Freight has, you're going to have some good ideas to share with your colleagues.
"FedEx Freight was selected for being on the cutting edge of the ordering, inventory and payment process out in the industry," says Alex Billings, FedEx Freight's maintenance supply chain manager. "I was just one of the few that were selected from some of the different fleets to gather information, to provide input for the RPs."
TWO IN ONE
FedEx Freight's parts efficiencies are all the more amazing when you consider that the company started out as two separate companies in two different parts of the country. "The corporation was formed through FedEx acquiring two companies: one being Viking in the west, and American Freightways in the east," explains Dennis Beal, vice president of physical assets.
"We operate as one organization now," he says, "and we've been able to streamline operations. Our purchasing and billing process has improved and evolved to where we believe we are leading the industry in parts procurement and inventory management."
The system begins with the company establishing an accurate definition of the total consumption cost of parts. Billings explains that FedEx Freight's consumption costs start with the "pre-negotiation," and go on to include the selection of the vendors, the request for Price (RFP) process, the awarding of the contract, and all the associated paperwork. The final figure also include an obsolescence report that we run for parts that haven't been used for a specified period of time, to turn in for credit to keep the inventory current.
COST OF PARTS
Before FedEx Freight enters into a partnership with a parts supplier, the company qualifies that vendor as part of its pre-RFQ (Request for Quote) process.
"It wouldn't make good business sense to send an RFQ out to John Q. Public, not understanding their business practices and whether they could meet FedEx Freight's needs," Billings explains. "So establishing a qualified vendor selection is the first part of an RFQ strategy. The key points obviously are your product availability, your product need, the customer support, and the new equipment that you are bringing into the fleet."
Because it operates 100 maintenance facilities across the country, FedEx Freight does business with multiple parts vendors, but maintains strict company-wide standards.
"We define the total cost as the total consumption cost of the part," Billings explains. "I would say it starts with the pre-negotiation, with the selection of the vendors, through the RFP process, the awarding of the contract, through the paper process, and to also include an obsolescence report that we run for parts that haven't been used for a specified period of time, to turn in for credit to keep the inventory current."
"The price auditing for product delivery is very important," he says. "The daily summary invoice billing process is very important; warranty absolutely is in that mix, a central ordering point, and open report communication."
How much information is enough information?
To Billings, the whole parts operation succeeds or fails on the amount of information he has access to. At one time, it may have been enough to get a monthly billing audited by a third-party billing service, but not any more.
"Whenever you start forecasting or projecting budgets, you need timely information-timely, accurate information," Billings says. "So we started looking at a better way, a cutting edge, and looking for a process that would supply us with this information in a timely, accurate manner."
Today Billings has access to a monthly report for fill rate and for total spending, a weekly report for product availability, and timely reports for raw material shortcomings, surcharges, and price increases coming in the future. "I can't stress enough the communication part," he says.
Billings reports that his requirements for RFQs haven't been affected by his work with the TMC Parts Task Forces, but he feels that other Task Force members may have learned from FedEx Freight?s experiences.
"I feel we brought some to the attention of some of the members of the TMC panels, to let them digest it and make their own decisions, and their own conclusions," he says. "It was just areas that we had identified to work with compliance, being able to manage our warranty and cut parts purchases, and to build a long-term relationship with our vendors, where they would be willing to listen to us, and we also would listen to them, and build a good partnership where we could each learn and grow from the experience.
"I think the main point that we had identified and were working to build a process to improve on was, through the billing process when we purchase a part, the local dealer would charge one price, and then it would be audited as our negotiated price and we would be billed the negotiated price," Billings says. "I believe that was our largest opportunity."
Once the parts are purchased and delivered, their costs start to rise with every second they're not used on a truck. Perhaps more importantly, costs rise for every part that's not on the shelves.
FedEx Freight's goal is to have 100 percent in-house availability across the board. Their maintenance facilities average about 92 or 93 percent now, and Billings and his colleagues are focusing their efforts on closing the gap.
In a perfect world, the parts managers at every maintenance location would be able to predict every part they'll need every day, every week, every month, and maintain their stock accordingly. With the help of Dan Umphress, FedEx Freight's managing director of maintenance solutions, that kind of predictability may one day be possible. "We're trying to try to improve that predictability of what parts we're going," says Umphress. "We're beginning to study the reliability of the components on the vehicles, to try to get a predictability formula that will improve that number.
"It's a big effort in our group, because we feel it's important," he says. "It's critical to us to move that number; our goal is 100 percent, and we're going to get there."
Unfortunately, Umphress has found that the sort of system-wide reliability data his team needs simply does not exist in the transportation industry, and so FedEx Freight must start from scratch. His group is currently developing a reliability/predictability program that will be applied to every part on every piece of equipment in FedEx Freight's fleet.
"One of the things we've found is that we spend a lot of time in warranty studying what fails, and we've not really been good at studying what's working," he explains. "So one of the things we're doing is we're going into the engineering field, to work with the calculations that manufacturers use, to take our reliability information of what's working in the fleet and study that, put a number to it."
"Understand, we're not interested in what the manufacturer says," Dennis Beal interjects. "We're interested in what works in our fleet."
"Our primary objective is having the part for the technician when he needs it to keep the equipment up and running to haul freight," says Billings. "That's what we're in business for: to satisfy our customers."
To that end FedEx Freight inventories parts on a weekly basis. "We do a weekly cyclical inventory that is computer-generated, and it?s at random," Billings says. "Each part will be counted a minimum of twice per year, and we run a report that checks the last fiscal inventory update per part, to ensure that each part is counted."
"We have just made a recent change in our order frequency," Billing continues. "We went from weekly stock orders to daily stock orders. We found an efficiency in that method to provide the parts in a timely fashion."
That translates into less downtime in the shop, according to Rick McSheridan, fleet maintenance manager at FedEx Freight's year-old maintenance facility in Aurora, IL.
"Every day the computer generates a stock order," he explains. "And that goes off of min/max set-ups. In other words, whatever we use, the computer calculates it, and then it will automatically reorder that. And that's on a daily basis."
With the old weekly order system, McSheridan's technicians might order one needed part, but by the time the order was delivered the following week, they could easily need more of the same part.
"Now," he says, "we can do it daily. If the guys are working on a tractor and they come in and say, 'I need this, this and that,' and I know my stock order's going to be in the very next day and that truck's going to be down anyway, instead of cutting an emergency purchase order (PO), I can go right into my daily stock order, add it, and it'll be here the next day."
As a backup, McSheridan will call the vendor to make sure the needed part is in stock. If it's not, he may have to cut an emergency purchase order to get the truck back on the road delivering freight.
"An emergency PO is something we're going to put on a truck immediately," he says. "A stock order is generally going to sit on my shelf, but? if I can get it in and the truck is here I can put it on the truck and charge it out.
"My daily stock orders go to our national qualified vendors, and if I cut an emergency PO I may have to go to a local supplier, and I may have to pay a little more for that part," he explains. "Those are judgment calls we have to make on the floor: is it worth a few dollars extra to get the truck rolling? Generally, yeah."
But the extra dollars spent on the occasional emergency only emphasize how perfectly the system works on a day-to-day basis. "Daily stock orders reduce our cost, our overhead, and it also relates into the retail world as 'inventory turn,' and it generates a positive relationship between vendor and customer," Billings says.
Those relationships are crucial, as parts inventories are handled separately at each of the company's maintenance locations, and those locations rely heavily on vendor inventories to supplement their own, especially when demand levels for certain parts start to change.
"As the needs start arising, we get in and negotiate and try to project usage by looking at the type of equipment that was purchased, what part is being used," says Billings. "If you bought 500 tractors and it's a preventive maintenance part, you start using two or three, you can predict that you're going to need 500.
Essentially, the company has shifted from a central delivery system to a system based on product availability at the location where it's needed, the day it's needed. This has led to a significant reduction in inventory carrying costs, which is, ultimately, the point.
"Today we try to keep product on shelf for the technicians to use at the time of need, to keep their efficiency up, and to replenish that supply on an 'as used' basis," says Billings.
Of course, the most sophisticated purchasing and inventory process can fall apart the minute a part leaves the shelf in the hand of a technician.
Billings points out that FedEx Freight's parts are issued through a repair order process using a bar code and a scanner for accuracy. When that scan code is downloaded in the system, it releases the inventory and issues it to that asset unit. "That way we can get accurate, immediate costs on our cost-per-mile for the operation of the vehicle," he says.
"The way we've got it set up, before a part is installed on a truck, it gets charged to the RO," McSheridan says, "because once they install it, there's a good chance they're going to forget they put it on and they're not going to charge it out. So what we preach to the techs is, if you pull a part, you go straight to the scanner before you ever install it.
"The most important thing I see is that you've got to have accurate charging of parts out," he continues. "If you've got techs who are not charging out parts to the unit, that throws off everything. The computer only tracks what it's told, so if it thinks that particular part has not been used, it won't reorder it. It's gone! You get another one in here with the same problem, you don't have the part for it. So the system is great, but the techs have got to be diligent about charging out their parts. If that works, the rest of it's smooth sailing."
FedEx Freight's challenge is to allow individual locations enough autonomy and flexibility to meet their own unique needs, while still maintaining nationwide standards, and purchasing strength. The company has already achieved a 93 percent on-time availability level, and Billings knows that to go the last seven percent, FedEx Freight is counting on its vendors.
"You could look at a forklift part that you bought from a particular manufacturer," he says. "He may not have a national program, where all the dealers would provide the part, or provide it at a negotiated price."
"We're addressing what is available out there, and it seems that the small percentage that we don't have available at locations is needed industry-wide," he explains. "It's a program that has not been developed yet; a vendor doesn't specifically offer."
Until vendors do offer such a program, FedEx Freight will continue to improve its parts purchasing and inventory systems with the help of the company's own in-house expertise.
"We listen to all of our people," Billings says. "In my opinion, those people out there on the floor are our experts. They aren't only our associates, they're also my customers, and we have to listen to our customers. So I listen to their needs, and their input is greatly appreciated in developing a process that improves for everyone."