maintenance and repair shop management: part 2€¦ · maintenance and repair shop management: part...

Maintenance and Repair Shop Management: Part 2

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Indianapolis, IN March 2, 2016

Copyright © 2016 Mercury Associates, Inc. All rights reserved.

Presentation Outline

•  Part 1 - 8:00 to 9:15 am 1.  Introduction 2.  Overview of Fleet Maintenance and Repair (M&R) Processes 3.  Fleet Management Policies and Procedures 4.  PM Program Design and Execution 5.  Maintenance Activity Coding and Cost Center Analysis

•  Part 2 - now through 10:45 am 1.  Determining Fleet M&R Costs and Cost Competitiveness

1.  Activity-Based Cost Analysis with Example

2.  Measuring Fleet Performance 1.  Fleet Data Sources and Processing Tools 2.  Measurement and Benchmarking

3.  Maintenance and Repair Shop Staffing Levels (time permitting)

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Determining Fleet M&R Costs and Cost Competitiveness: Activity-Based Cost (ABC) Analysis


Primary Types of Fleet Costs

•  Asset capital costs

•  Asset operating costs §  Ownership costs (registration, insurance, taxes, etc.)

§  Maintenance and repair costs §  Fuel costs

§  Management costs

•  The goal of ABC analysis is to determine and improve the management of fleet operating costs

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Benefits of Conducting an ABC Analysis

•  Determine the reasonableness (i.e., competitiveness) of fleet management costs

•  Determine whether or not and how costs can be reduced if they are not reasonable §  By changing fleet management practices

§  By changing fleet resource consumption practices

•  Provide the foundation for establishing internal cost charge-back rates

•  Assess the benefits of outsourcing or insourcing certain fleet asset management activities

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Key Steps in the ABC Analysis Process

1.  Identify all annual costs associated with managing and operating the fleet

2.  Define fleet management activities for which costs will be calculated

3.  Allocate costs to cost pools associated with each activity

4.  Convert annual costs to unit costs of performing each activity

5.  Assess reasonableness of costs using appropriate benchmarks

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1. Determine Fleet Operating Costs

Direct (out of pocket) costs

•  Personnel salaries and fringe benefit costs

•  Parts and supplies

•  Warranty and insurance claim recoveries

•  Fuel

•  Vendor and contractor services charges

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1. Determine Fleet Operating Costs

Indirect costs •  Depreciation

§  Fleet management infrastructure §  Fleet management vehicles (e.g., mobile service truck, parts runner

truck, wrecker)

•  Support services costs §  Procurement and contract management §  Budget and finance §  Legal §  Risk management §  HR management §  Facility management §  IT infrastructure and support

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2. Define Fleet Management Activities

•  Manage asset acquisition, operation, utilization, replacement, and disposal

•  Manage drivers/operators

•  Furnish in-house maintenance and repair labor

•  Furnish in-house maintenance and repair parts

•  Procure (outsourced) maintenance and/or repair services

•  Procure (and supply) fuel

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3. Allocate Costs to Activities

•  Establish cost pools or buckets for each fleet-related product or service for which an annual cost will be calculated

•  Develop allocation methods and statistics for allocating costs to pools

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4. Convert Annual Costs to Unit Costs

TCi / Ci = UCi

Where:

TCi Is the projected annual cost of providing all units of goods or services of Type i (fuel, parts, labor)

Ci Is the projected total annual consumption (by fleet users) of goods or services of Type i (gallons, dollars, hours)

UCi Is the cost of one unit of a good or service of Type i ($/gallon, %, $/hour)

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Calculating Unit Costs – An Example

$1.97M / 21,000 = $94

Where:

$1.97M Is the total annual cost in Year X of employing and supporting a mechanic workforce of 15

21,000 Is the total number of hours of in-house mechanic labor projected to be charged to work orders in Year X

$94 Is the “fully loaded” cost in Year X per mechanic labor hour

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How Can ABC Analysis Improve Fleet M&R Practices?

•  Consider an organization that thinks its cost of in-house technician labor is $65 per hour, but ABC analysis reveals that it really is $115 per hour

•  How would you and other stakeholders in your organization react to such a finding?

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Estimating Annual Consumption of Resources

•  Months of asset ownership

•  In-house M&R labor hours

•  Costs of in-house M&R parts

•  Costs of outsourced/”sublet” maintenance and repair services

•  Gallons of fuel

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ABC Analysis: Sample ABC Model


Sample Unit Cost Table from ABC Model

Fee or Rate Description Rate or

Fee Fleet Asset Management Fee/veh/mo $14.38 Fuel Management Fee/gallon (or gallon equivalent) of fuel dispensed by FSD-managed facilities $0.21 Percentage markup per dollar of pass thru charges for sublet repairs 19.44% Percentage markup per dollar of pass thru charges for maintenance and repair parts charged to work orders 29.38% Motor Pool Fee per Vehicle Rental Day $59.66 Solid Waste cost per billable hour based on projected billable hours $79.06 Auto cost per billable hour based on projected billable hours $93.89 Heavy cost per billable hour based on projected billable hours $107.38

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Activity-Based Cost Analysis Recap

•  Understanding the unit costs of your fleet M&R activities is essential for managing and ensuring their reasonableness; no organization can effectively manage fleet costs that it cannot see

•  Any organization can manage fleet-related expenditures but this is not the same thing as managing fleet costs

•  Many fleet costs do not generate regular invoices or receipts that can be retrieved from the finance department/system for compilation and analysis

•  Determining fleet operating costs begins with the development of an annual fleet operating budget; if you don’t currently have one, consider creating one either within or outside your organization’s financial management system

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Questions

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Measuring Fleet Performance: Fleet Data Sources and Processing Tools


The role of a fleet management information system (FMIS)

•  To capture, store, and facilitate the analysis of quantitative data on all facets of fleet and fleet management performance: §  Vehicles §  Drivers §  Maintenance technicians §  Parts §  Fuel §  Facilities §  Suppliers

•  Computerized data are the foundation of cost-effective fleet management

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Types of Software Used in Managed Fleet Maintenance and Repair

•  Integrated FMIS for in-house asset, shop, and parts management

•  Fleet leasing/management company management information tools for customers

•  Mobile resource management (telematics) systems

•  Fuel card systems and fuel management systems

•  A combination of multiple systems that integrate or interface back to the FMIS

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Major Integrated FMIS Software Companies in North America

•  AssetWorks – www.assetworks.com

•  Chevin Fleet Solutions – www.chevinfleet.com

•  Faster – www.fasterasset.com

•  Collective Data – www.collectivedata.com

•  Arsenault – www.arsenault.com

•  RTA Fleet – www.rtafleet.com

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Other Types of Software Used to Manage Fleet Maintenance and Repair

•  Enterprise resource planning (ERP) software – e.g., SAP, Oracle, HTE

•  Enterprise asset management (EAM) software – e.g., Maximo, Infor

•  Infrastructure management software – AgileAssets, iWorQ

•  Telematics solutions §  Aftermarket (e.g., Verizon NetworkFleet)

§  OEM solutions (e.g., Ford Crew Chief) provided as an effort to offer “wrap-around” services

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Operations and Maintenance Data

•  Asset Lifecycles can be broken down into four phases §  Acquisition §  Operation

§  Maintenance

§  Disposal

•  The differences between purpose-built fleet software and generic asset management software are greatest in how they manage the large volumes of operations and maintenance data

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Key Features of an FMIS not Available in ERP and EAM Software

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Out of the Box With Modification / Configuration

OPERATIONAL AREA

COUNT OF FEATURES

AVAILABLE OUT OF THE BOX

FIT-RATE OF MODULE OUT OF

THE BOX

COUNT OF FEATURES

AVAILABLE WITH MODIFICATION

OR CONFIGURATION

FIT-RATE OF MODULE WITH MODIFICATION

OR CONFIGURATION

TOTAL PRIORITY 1 FEATURES REQUIRED

Accident/incident management 0 0.00% 27 100.00% 27

Customer/driver management 0 0.00% 6 100.00% 6

Equipment/asset management 28 9.46% 268 90.54% 296

Fuel and bulk fluids management 2 4.55% 42 95.45% 44

General settings and features 6 9.23% 59 90.77% 65

Location management 5 25.00% 15 75.00% 20

Motor pool management 1 3.33% 29 96.67% 30 Parts management 95 59.38% 65 40.63% 160 Procurement card 1 12.50% 7 87.50% 8 Purchase order management 36 100.00% 0 0.00% 36

Technical requirements 18 54.55% 15 45.45% 33

Technician management 25 71.43% 10 28.57% 35 Telematics 0 N/A 0 N/A 0 Vendor management 9 39.13% 14 60.87% 23 Warranty management 14 66.67% 7 33.33% 21

Work order management 86 48.86% 90 51.14% 176 FIT RATE 326 33.27% 654 66.73% 980


Key Considerations When Buying Computerized Systems and Tools

•  Defining functional requirements

•  Understanding product functionality fits and gaps

•  Determining willingness of your organization to tailor current business practices to new system functionality

•  Determining willingness – and propensity – of product developer to customize – or not customize

•  Determining internal technical support capabilities and priorities

•  Using new system acquisition as an opportunity to reengineer outdated business practices

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Questions

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Measuring Fleet Performance: Measurement and Benchmarking


What is performance measurement?

•  The expression of some attribute of conditions, activities, or performance in quantitative terms

•  Whose conditions, activities, or performance? §  Organizations

¡  Fleet owner ¡  Fleet management (including individual shops, motor pools, and fueling

facilities)

¡  Fleet user ¡  Internal support service (e.g., procurement, surplus property)

¡  Contractor ¡  Other supplier

§  Employees (e.g., drivers, mechanics, call center agents)

§  Vehicles and vehicle components

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Why measure performance?

•  To evaluate – to develop an understanding of conditions, activities, and performance attributes relative to competitors, trends, and goals that cannot be attained through first-hand observation or second-hand information

•  To diagnose – to delve into underlying causes of, or contributors to, conditions and performance levels

•  To monitor – to maintain awareness of conditions, activities, and performance levels in critically important areas and areas that are susceptible to change

•  To motivate – to define concrete goals toward which to strive and to which rewards can be linked

•  To demonstrate – to illustrate accomplishments in objective, independently verifiable terms

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Definitions

•  Performance measure – the expression of a condition, activity, or level of performance in quantitative terms §  Example – cost per in-house mechanic labor hour

•  Performance statistic – the calculated value of a performance measure for a specific organizational unit, employee, vehicle, etc. §  Example – $128 per hour

•  Benchmark – a numerical value that serves as a gauge of the reasonableness or acceptability of a performance statistic §  Example – average or typical labor rate charged by local

commercial repair shops (for comparable service delivery capabilities), say, $95 per hour

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A Process for Using Performance Measurement to Evaluate Business Practices

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1. Identify Objectives

2. Define Performance

Measures

3. Calculate Performance

Statistics

5. Verify Data Accuracy

6. Evaluate Conditions

and Practices

4. Compare Statistics to Benchmarks

7. (Re)Engineer

Processes


Step 1: Identify Objective(s) – An Example

•  Perform only those vehicle maintenance and repair activities in house that cannot be performed more cost effectively by outside vendors

•  Demonstrate this to senior management

•  Demonstrate this to a particular customer who wants to opt out of participation in the in-house fleet M&R program

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Step 2: Define Performance Measures

•  Service Cost §  In-house cost per mechanic labor hour §  In-house cost of parts

§  Other in-house costs (e.g., shop supplies, waste disposal)

•  Service Level §  Input measures

¡  Regular hours of service ¡  Availability of mechanics for emergency call out

§  Output measures ¡  Service request response time ¡  Service completion turn-around time ¡  Fleet downtime

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Step 3: Calculate Performance Statistics

•  In-house cost per mechanic labor hour •  Formula: annual costs of furnishing mechanic labor/

mechanic “chargeable” hours per year (e.g., $959,779/7,500 = $128)

•  Key questions and considerations §  What’s included in the cost amount?

¡  Maintenance management and administration costs? ¡  Facility costs (debt service, depreciation, utilities, etc.)? ¡  Allocated overhead costs?

§  Is the number of chargeable hours used achievable? §  How much of the annual cost is avoidable?

¡  If we outsource all fleet maintenance and repair? ¡  If we permit particular customers to opt out?

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Step 4: Compare Statistics to Benchmarks

•  Benchmark: $95 per labor hour at local, comparable commercial shops

•  $128 fully-loaded in-house cost per labor hour – $959,779/7,500 = $128

•  $102 avoidable cost in-house cost per labor hour – ($959,779-195,755*)/7,500 = $102

•  $111 avoidable cost per labor hour if a customer who consumes 500 hours of service per year opts out – $764,004/7,000 = $111

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* Allocated OH costs are 16% of fleet mgt organization’s annual operating cost


Step 4: Compare Statistics to Benchmarks

•  Benchmark: $95 per labor hour at local, comparable commercial shops

•  What information is not reflected in this benchmark? §  Other costs of using outside shops (access to service

providers, parts prices, shop charges, upselling)

§  Service level (hours of operation, prioritization, emergency service)

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Step 5: Verify Data Accuracy

•  $959,779/7,500 = $128

•  Cost accuracy §  Budgeted versus actual costs

§  Unbudgeted costs

•  Chargeable hours accuracy §  Mechanic performance measurement and accountability

expectations

§  Real-time data capture

§  Independent data review and verification

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Step 6: Evaluate Conditions and Practices

•  $959,779/7,500 = $128

•  Conditions and practices affecting costs §  Fleet composition and mission criticality

§  Cost recognition and allocation methods §  Indirect cost allocation policies

§  Staffing levels and compensation and fringe benefit practices

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Step 6: Evaluate Conditions and Practices

•  $959,779/7,500 = $128

•  Conditions and practices affecting chargeable hours §  Fleet size, composition, age, and condition

§  Fleet operating environment and practices §  Maintenance organization structure/staffing

§  Maintenance facility size, layout, and condition

§  Work methods ¡  Work planning and service writing ¡  Mechanic training, supervision, and seniority ¡  Quality assurance ¡  Parts/services procurement and management

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Step 7: Implementing Management and Operating Improvements

•  Work scheduling

•  Defect reporting

•  Time and task standards and time reporting

•  Training

•  Supervision

•  Quality assurance

•  Pay for performance

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Processes that promote good mechanic performance and maintenance cost competitiveness:


Key Points to Remember

•  Performance should not be measured for its own sake but in order to evaluate how an organization is performing relative to a specific goal or objective

•  The same performance measure can result in different performance statistics depending on the objective being examined

•  The accuracy of performance statistics can be heavily affected by data codification, capture, and verification practices

•  Benchmarks must be chosen with care to ensure “apples-to-apples” comparisons

•  Performance measurement rarely produces definitive conclusions about how to improve business practices - they may not provide answers, but will probably make you ask the right questions

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Questions

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Maintenance and Repair Shop Staffing Levels


Computing Mechanic Staffing Requirements

Where:

M Is the number of FTE mechanics needed

HA Is the average number of direct in-house M&R labor hours per year to maintain and repair each vehicle of type "A"

NA Is the number of assets of type "A" typically receiving all in- house maintenance and repair services at the maintenance facility for which staffing requirements are being computed

P Is the average number of hours per year that each mechanic working in this facility can devote to direct M&R activities

ΣHANA

P

M=

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Computing Staffing Requirements: An Example

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Asset Type Asset

Quantity

Average Annual In-

House Mechanic

Labor Hours Required per

Asset

Total Annual Labor Hours

Required

Pickup Truck 25 18 450

Dump Truck 32 60 1,920

Backhoe/Loader 8 68 544

Refuse Truck 35 120 4,200

Trailer 11 6 66

Total/(Average) 111 (65) 7,180

7,180 annual hours / 1,500 hours per mechanic = 4.8 FTE mechanics 7,180 annual hours / 1,300 hours per mechanic = 5.5 FTE mechanics 7,180 annual hours / 1,100 hours per mechanic = 6.5 FTE mechanics


Factors that Affect Technician Staffing Requirements

External to the M&R program (the numerator of the staffing equation)

•  Fleet size and composition

•  Fleet age and condition

•  Fleet utilization levels

•  Fleet operating practices

•  Fleet deployment

•  Regulatory requirements

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Factors that Affect Technician Staffing Requirements

Internal to the M&R program (the denominator of the equation) •  Work flow management practices •  Parts management practices •  Technician training and supervision •  Technician seniority •  Shop organization structure and staffing •  Outsourcing practices •  Data processing practices •  Facility size, layout, and condition

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Dimensions of Maintenance Technician Performance

•  Productivity (or application) •  Efficiency (or accomplishment)

•  Effectiveness (or quality)

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Measuring Technician Performance

Productivity

•  Hours charged to work orders/total hours worked

Efficiency

•  Average time required to perform a service/expected time

Effectiveness

•  Percentage of services performed that are incomplete or incorrect/total services performed

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Questions

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For Further Information:

Scott Conlon Mercury Associates, Inc.

Rockville, MD [email protected]

301 519 0535 www.mercury-assoc.com

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