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

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12 CHAPTER 3 INTERPRETATION, APPRAISAL, AND APPLICATIONS SUPPLY-CHAIN MANAGEMENT— APPLICATION TO TRANSIT As described in Chapter 2, supply-chain management is a collaborative, customer-focused approach, relying on the free exchange of information and the idea that by leveraging the core competencies of trading partners, the supply-chain community can provide products of greater value to the cus- tomer than would otherwise be possible. For transit organi- zations, the “end customers” are existing and potential tran- sit riders; various organizations, agencies, and companies that use and fund transit services are indirect customers (or stake- holders). Enhancing the “value” of transportation services that are provided to these customers’ carries a number of potential meanings for transit entities: • Increased service frequency (reduced headways on fixed- route systems); • Expanded service (service provided over a greater oper- ating area or over more hours or improved types of ser- vice [e.g., wheelchair-equipped, etc.]); • Better service integration (complementary routes and schedules for the various transportation providers); • Improved service planning (reduced wait times for demand-response transportation); • Better schedule adherence (improved on-time perfor- mance), • Increased efficiency (reduced cost per hour, per mile, per trip, etc., including streamlining ways to accomplish support functions); or • A combination thereof. To provide value improvements, supply-chain theory sug- gests that transit organizations would benefit from adopting a process-aligned, customer-centric focus in which the organiza- tion focuses on trying to better serve the end customer (i.e., the transit rider). Figure 2 and the accompanying role descriptions provide a basic discussion model for such an organization. • Rider: The transit rider is the operator’s (i.e., the driv- er’s) primary customer and the transit supply chain’s end customer. • Operator: The operator is the primary service supplier for the transit rider. The operator directly adds service value to the customer through the operation of the tran- sit vehicle. The operator’s value contribution varies depending on the quality of its tangible performance (e.g., on time, on schedule, safe driving) and intangible contributions (e.g., customer friendliness), subject to external factors beyond its control (e.g., blocked roads, bad weather, etc.). The operator is an internal customer of operations/dispatch. • Operations/Dispatch: Operations/dispatch directly adds transportation value through coordination of the drivers for maximum service efficiency and effective- ness. Operations/dispatch also indirectly adds service value by acting as a “supplier” to the equipment opera- tor, ensuring that the driver has the resources needed (e.g., vehicles and support infrastructure) to provide the transportation service. Operations/dispatch is the pri- mary internal customer of maintenance. • Maintenance: Maintenance is a supplier to operations/ dispatch and has the responsibility of ensuring that equipment receives the required attention to ensure its availability and safe operation. Maintenance indirectly adds transportation value by ensuring vehicles operate efficiently, have no safety defects, and have the maxi- mum service availability, while minimizing the costs of providing these services. Maintenance is an internal customer of parts/inventory. • Parts/Inventory: Parts/inventory provides the mainte- nance group with the items needed to support the equip- ment. Parts/inventory indirectly provides transportation value by ensuring that the maintenance group has the parts needed, when needed, to maximize vehicle avail- ability while minimizing parts and inventory investment. Parts/inventory is an internal customer of purchasing. • Purchasing: Purchasing identifies, purchases, and arranges delivery of items meeting the specification, quan- tity, quality, and schedule needs of the parts/inventory group. Purchasing indirectly provides value by support- ing the parts/inventory function while striving to mini- mize purchase price. Purchasing is the customer of parts and materials vendors. • Parts and Materials Vendors: Parts and materials vendors provide the required information that allows purchasing to make sourcing decisions. If selected, the vendor must supply the items according to the purchase specifications.

The benefit of this customer-centric, process-aligned approach is that it helps each group understand its organizational role and how that role provides value to the customer. This align- ment also helps the different groups understand the need for better communication and cooperation and helps identify activities that may be necessary, but do not inherently add value (e.g., paying invoices or processing payroll). In the case of such non-value-added activities, a process-aligned organization encourages challenging the necessity of these operations while seeking more efficient ways to accomplish these tasks. Within the existing population of transit operations, it is possible to find the supply chain–model functions being per- formed by any mix of transit employees, contractors, and vendors. Supply-chain theory suggests that transit organiza- tions should examine these relationships and seek ways of improving communications and collaboration—both inside and outside the organization—and should build an atmo- sphere of trust among groups. Once successful, extending this approach to include the end customer (i.e., the rider) and other customer stakeholder groups (e.g., social service agencies, housing authorities, etc.) in a true supply chain–community effort to improve transportation service delivery becomes a viable concept. TRANSIT e-PROCUREMENT Each transit organization is unique, serving different pop- ulation bases and geographical areas with varying customer demands and levels of local transit funding support. Accord- ingly, each transit agency has a different mix of equipment, materials, and infrastructure support needs. The experiences of other industries suggest that transit agencies could benefit by applying e-procurement to signifi- cantly increase the speed and efficiency of conducting busi- ness transactions. However, getting suppliers to participate in e-procurement initiatives is a particular concern for the transit industry. The APTA Procurement Task Force identified the following transit industry supplier concerns at APTA’s Transit Information Technology Conference in February 2002 (28): • The “health” of the transit supplier industry is not good; • Suppliers face low profit margins; • Product development and innovation are limited; • Many companies do not want to do business with the transit industry; 13 • Transit procurement practices place excessive risk on suppliers; and • Transit procurement practices result in substandard products. Accordingly, the APTA Procurement Task Force identified the following as target objectives for TCRP Project J-9, Task 1 (29): • Improve relationships between buyers and sellers, • Increase use of standards and standardization, • Maximize the efficiency of the procurement process, • Increase the use of technology in the procurement process, and • Make partnering, collaborative relationships, and risk- sharing commonplace in the industry. Because leveraging e-procurement and other supply-chain initiatives depends on transit industry supplier participation, APTA’s success and speed in accomplishing these goals may determinate the broad-based success of e-procurement in the transit industry. Transit-Focused e-Procurement Currently, transit industry e-markets exist through pro- viders such as iRail.com and iBusXchange.com (both of which are part of the same company) and with an APTA- sponsored industry portal—TransportMAX.com—which is currently under development. iRail has been in operation for more than 2 years and is a joint venture of Singularity, LLC, and Vistaar, Inc. The iRail website identifies a membership base of more than 2,500 users, including transit agencies, bus operators, railroads, sup- pliers, original equipment manufacturers, and consultants (30). iRail currently provides the following e-procurement services through its web e-marketplace, based on an ASP model: • Automatic bids matching and distribution, • Auctions, • RFQs, and • Marketmaking. For customers desiring to directly implement these services or to integrate online services with back-office operations, iRail also offers software and consulting services, including Parts/ Inventory Maintenance Operations/ Dispatch Parts Vendors Rider OperatorPurchasing Figure 2. Supply-chain model of a transit organization.

modules for e-procurement, vendor management, inventory management, and financial management. TransportMAX is in the testing phase of its first service offering—posting RFQs on the Internet. Plans for Transport- MAX include developing services and software products of the type provided by iRail, through TransportMAX’s devel- opment partner, Booz-Allen Hamilton. CORE COMPETENCY The central concept that drives value gains in the supply- chain concept is leveraging core competencies among trading partners. This simply means that organizations can improve service, reduce costs, or both, by having functions performed as efficiently and effectively as possible—regardless of whether services are provided in-house or by trading partners. In the TxDOT example, the switch to an on-site contrac- tor quickly provided better parts availability, reduced space requirements, and provided considerable process efficiencies in-house while avoiding internal investments in systems and freeing funds previously invested in inventory for other uses. In the Overnite Transportation example, the carrier chose to invest in technology (vehicle maintenance and inventory man- agement software and hardware) and training to develop a core competency in those areas, while recognizing the advantage of simplifying its supply chain and achieving process efficiencies by creating partnerships with prime vendors for parts pro- curement and supplies. California’s use of Office Depot and BGE’s use of outsourced inventory management represent similar examples in which large, capable organizations recog- nized that other firms possessed core competency advantages in certain areas and choose to create supply-chain teams with those firms rather than to try to develop internal competencies. In the examples above, a major benefit of the supply team approach was the ability of the supply-chain partner to quickly bring proven solutions and trained personnel to perform rel- evant functions, providing a much more rapid impact than would be possible through internal investment in technology and training. Transit agencies certainly have the option of developing new or enhanced core competencies in supply- chain management to leverage their parts and inventory invest- ments. However, specialty firms have the ability to leverage both systems investments and organizational learning over multiple entities. This leveraging ability is difficult for any sin- gle organization to match, and such investments must compete with other such organizational needs. These factors help explain why many highly capable firms look to such partner- ships for these skills. Nevertheless, even examples of success- ful supply-chain partnering cannot ignore the challenges of gaining organizational support for such teaming initiatives, creating good lines of communication, and avoiding other “blockers” (as identified by Fawcett and Magnan [31]). 14 ASSET MANAGEMENT The experiences of the commercial trucking and utility fleet industries emphasize how fundamental asset-management decisions (such as when to replace vehicles or the extent of fleet standardization in suppliers, models, and age) have a tremendous influence on maintenance demands and supply- chain needs. For these fleets, “providing value to the cus- tomer” means that fleet purchasing and maintenance practices focus on maximizing vehicle availability so that fleet oper- ations (the maintenance department’s customer) has the greatest capability to provide transportation service. Gleaned from project research and interviews is the fol- lowing list of asset-management considerations for reducing parts and inventory (and, therefore, supply-chain) needs: • The greater the extent of fleet standardization, the lower the total number of parts items that need to be stocked and the easier it is to attempt “just-in-time” parts-purchasing strategies. • Firms successful in achieving a preventive-maintenance focus greatly enhance their ability to predict parts demands because scheduled services identify future work needs (such as brake, tire, hose replacement, etc.) for correction during the next maintenance cycle. This approach allows securing needed parts in advance, which allows work completion with minimum loss of equip- ment availability and avoids breakdowns (in-service failures). • Reducing the number of spare fleet units maintained (typically, older equipment awaiting replacement) can disproportionately free maintenance personnel and inven- tory resources. • Purchasing vehicles with extended warranty provisions and negotiated schedules for parts availability, speed of delivery, and pricing can significantly reduce overall parts and inventory investment. • The use of equipment leasing, maintenance outsourcing, or both can shift maintenance, inventory, and adminis- trative burdens to vendors, allowing organizations to focus on operations. While use of these strategies significantly reduces parts and inventory demands on the organization, it does not eliminate these needs. In fact, the simplified supply chains resulting from good asset-management decisions can actually enhance vendor interest (because of fewer items but more volume per item, reducing the sourcing workload and increasing the potential for volume-purchasing discounts). Accordingly, use of supply-chain strategies such as vendor-stocking programs, teaming with “prime vendors,” e-procurement, and others remain viable approaches to leveraging transit (or other fleet) operations—even in well-managed fleets.