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e-Transit: Electronic Business Strategies for Public Transportation, Volume 1, Supply Chain: Parts and Inventory Management (2002)

Chapter: Summary - e-Transit: Electronic Business Strategies for Public Transportation Volume 1 Supply Chain: Parts and Inventory Mana

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Suggested Citation:"Summary - e-Transit: Electronic Business Strategies for Public Transportation Volume 1 Supply Chain: Parts and Inventory Mana." National Academies of Sciences, Engineering, and Medicine. 2002. e-Transit: Electronic Business Strategies for Public Transportation, Volume 1, Supply Chain: Parts and Inventory Management. Washington, DC: The National Academies Press. doi: 10.17226/24725.
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Suggested Citation:"Summary - e-Transit: Electronic Business Strategies for Public Transportation Volume 1 Supply Chain: Parts and Inventory Mana." National Academies of Sciences, Engineering, and Medicine. 2002. e-Transit: Electronic Business Strategies for Public Transportation, Volume 1, Supply Chain: Parts and Inventory Management. Washington, DC: The National Academies Press. doi: 10.17226/24725.
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“Supply chain,” “supply-chain management,” “e-procurement,” and other similar terms are commonly used interchangeably although they have different meanings and different levels of applicability for transit agencies. Leveraging these concepts to achieve the desired gains requires a basic understanding of the terminology, the con- cepts, a self-assessment of agency capabilities, and the will to make the investments needed in technology and personnel—or the willingness to outsource, if necessary. In theory, the advantage of the supply-chain approach is that a community of trading partners can leverage their respective core competencies, thus producing greater value through their cumulative efforts than would be possible if they were not collaborating. In such an integrated supply chain, the end customer is the focus of the entire supply- chain community, with unfiltered electronic information exchanged freely among com- munity members. This exchange allows trading partners to leverage information to reduce miscommunication (i.e., waste) among firms and enhances internal processes (i.e., increases value). Creating such partnering relationships requires a long-term com- mitment of time and resources to develop the trust needed to freely share information among organizations and is a major challenge to creating supply-chain communities. e-Procurement is the business-to-business purchase and sale of supplies and ser- vices over the Internet. e-Procurement reflects the application of supply-chain prin- ciples to leverage the Internet’s ability to provide faster, more cost-efficient means of communicating information between buyers and sellers. Research cites the ability of e-procurement techniques to reduce purchase and transaction costs, but the value and number of e-procurement transactions remains small (less than 10% of all business pur- chases in the fourth quarter of 2001 [1]). However, this share is growing rapidly, with e-procurement viewed as an integral function for large purchasers. Driving this growth are reported savings of 15% to 20% on item costs and up to 80% in process cost savings (2,3). e-Procurement takes five primary forms: 1. Automated purchasing systems; 2. Internet market exchanges (i.e., e-markets); 3. Buyers’ consortia; 4. Industry portals; and 5. Private trading exchanges. SUMMARY e-Transit: Electronic Business Strategies for Public Transportation: Volume 1 SUPPLY CHAIN: PARTS AND INVENTORY MANAGEMENT

Of these, automated purchasing systems—typically software purchased from a vendor to standardize buying practices and aggregate purchasing volumes for better pricing—are the most popular. Online auctions are popular with large corporations while governmental, edu- cational, and non-profit entities tend to favor Internet market exchanges (i.e., e-markets)(4). Current transit industry e-markets exist through providers such as iRail.com and iBusXchange.com (both of which are part of the same company), with an American Public Transportation Association–sponsored (APTA-sponsored) industry portal— TransportMAX.com—under development. iRail/iBusXchange’s current and TransportMAX’s planned service offerings duplicate functions, but only the iRail/ iBusXchange services are currently available for use (although TransportMAX is in the testing stage of posting requests for quotations [RFQs]). Securing seller support and participation in e-procurement activities is a major prob- lem for all e-procurement forms (5) and a special problem for the transit industry. APTA’s “Procurement Task Force Status Report” indicates that the “health of the [tran- sit vendor] industry is not good,” with difficulty in attracting suppliers and vendor com- plaints of low margins and slow payments resulting in unacceptable levels of risk (6). Additionally, the task force observes that current agency purchasing practices often result in the buying of substandard products. As described, this is a particularly chal- lenging environment in which to apply a supply-chain approach to procurement—an environment in which trust is a key component in developing the collaborative envi- ronment essential for effective supply-chain partnering. Project research on non-transit, fleet-focused organizations indicates that few firms have achieved a significant degree of supply-chain integration for parts and materials support, with Internet parts sourcing at most companies limited to the use of online ven- dor catalogs. Most firms recognize the Internet as an integral tool of future parts sourc- ing but remain unclear as to how to progress to a higher level of integration consistent with reports from other industries and sources (7). However, anecdotal information from fleet-industry insiders suggests that supply-chain integration is more advanced and per- vasive at large carrier fleet operations than can be confirmed in the literature. Success stories identified for fleet-based parts or inventory management generally involved some type of systems implementation, either vehicle maintenance manage- ment or warehouse inventory systems. However, available information did not indicate the extent to which these systems were tied to automated purchasing systems that sup- port e-procurement. Management personnel at two less-than-truckload carriers and at a major truck-leasing company acknowledged the use of electronic vendor links by their respective firms. However, these implementations used prime vendors and con- tractors serving as lead suppliers in handling such procurements, usually on a multi- year contract basis (to defray the start-up costs of integrating information systems). This form of “outsourced purchasing” is conceptually similar to the use of on-site con- tractors to provide vehicle parts and inventory support, as is used by the U.S. military and the Texas DOT (TxDOT). The strategic basis for such arrangements is the ven- dor’s core competency in areas of parts procurement and inventory management and the superior buying power of such firms. For fleets, asset-management decisions are the fundamental drivers for equipment parts and inventory needs. Relevant decisions include choices about replacement strategies, degree of standardization, vehicle mix, maintenance source (in-house versus outsourced), and maintenance focus (preventive maintenance or remedial-focused), among others. 2

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TRB's Transit Cooperative Research Program (TCRP) Report 84: e-Transit: Electronic Business Strategies for Public Transportation, Volume 1, Supply Chain: Parts and Inventory Management examines the supply-chain concept and identifies supply-chain strategies used by nontransit fleets to reduce investments in parts and inventory while increasing fleet availability.

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