11-17 Staff Report NAPA Proposal

REPORT TO COUNCILCity of Sacramento

915 I Street, Sacramento, CA 95814-2604. www.CityofSacramento.org

STAFFNovember 17, 2009

Honorable Mayor andMembers of the City Council

Title: Contract: Fleet Parts and Inventory Program Services - Two Thirds VoteRequired

Location/Council District: Citywide

Recommendation: Adopt a Resolution: 1) suspending competitive bidding in the bestinterests of the City; 2) awarding a five-year contract to Genuine Parts Company /National Auto Parts Association (NAPA) for Fleet Parts and Inventory Program servicesin an amount not to exceed $21,050,000 for the five year period; and 3) authorizing theCity Manager or the City Manager's designee to execute the contract specified aboveprovided that sufficient funds are available in the budget adopted for the applicablefiscal year(s).

Contacts: Keith Leech, Fleet Manager, 808-5869

Presenters: Cassandra Jennings, Assistant City Manager

Department: General Services

Division: Fleet Management

Organization No: 13001311

Description/Analysis:

Issue: The Department of General Services, Fleet Management Division hasan ongoing requirement to supply parts and manage inventory for a diverseselection of 2,600 City vehicles and equipment. This report recommendsimplementing a comprehensive Fleet Parts and Inventory Program which willresult in significant savings to the City.

The Fleet Parts and Inventory Program will be an integrated business solution(IBS) that provides sourcing for "just in time" fleet parts inventory necessary to

14

Contract: Fleet Parts and Inventory Program November 17, 2009

maintain and repair the City's fleet.

Policy Considerations: The recommendations in this report are in accordancewith the provisions of City Code Section 3.56.

Committee/Commission Action: Not applicable

Environmental Considerations:

California Environmental Quality Act (CEQA): The current proposalinvolves the purchasing of fleet parts and inventory services for City vehiclesand equipment. The proposal is not a'project' in accordance with Section15378 (b) (2) of the CEQA guidelines. The proposal involves a continuingadministrative activity. Therefore, as determined by the City's EnvironmentalServices Planning Manager, no environmental review is necessary.

Sustainability Considerations: Not applicable

Rationale for Recommendation: During fiscal year 2009, over 285,000 partquantities were purchased from over 100 vendors and charged out to over33,000 work orders in support of the mission critical equipment depended on bythe city departments. Implementing a "just in time" sourcing of fleet parts andinventory program represents a fundamental change in the way the City procuresparts for vehicles and equipment. This is the first time a contract of this naturehas been solicited by the Fleet Management Division. This contract has anelement of supplies procurement (typically solicited through.an Invitation.for Bidand awarded on the basis of lowest responsible bidder) and an element of.professional management services (typically solicited through a Request forProposal and awarded primarily on the basis of best qualified bidder). Becauseof the unique contract requirements Fleet Management, in conjunction with theProcurement Services Division, determined that a Request for Proposal (RFP)process should be used. Suspending competitive bidding in the best interests ofthe City is recommended to address the supplies component of this contract thatwould typically be awarded on the basis of lowest responsible bidder.

In March 2009, the Department of General Services, Fleet Management Divisionin conjunction with Procurement Services, and in accordance with City CodeSection 3.56 issued RFP P093259009 for a Fleet Parts and Inventory Programfor four Fleet Management locations. One response was received from NAPA.An evaluation team comprised of staff from the City, Placer County, and Countyof Sacramento determined that NAPA met the requirements of the RFPevaluation criteria. As part of the evaluation process, City staff visited three partslocations, consisting of two private companies and one government agency (Cityof Oxnard) that were provided as references for NAPA. Staff also sentquestionnaires to various government agencies that currently have or previouslyhad NAPA IBS parts and inventory programs. All information collected from thesite visits and the questionnaires was very positive.

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Awarding a contract for a Fleet Parts and Inventory Program will benefit the FleetManagement Division and its customers by:

• Providing "just in time" sourcing for fleet parts inventory necessary tomaintain and repair the City's fleet. This will eliminate the need for asubstantial up-front investment by the City in a large parts inventory.NAPA will own and manage the inventory until the time it is posted on arepair order associated with a fleet equipment asset and sold to the City.

• Increasing City Fleet Management staff productivity by reducing the needto dedicate mechanics to inventory management. The current partsprocurement process requires that Fleet Management staff normallyassociated with vehicle repair and maintenance be dedicated to inventoryprocurement and management. The recommended contract provides forNAPA staff to monitor the NAPA owned parts inventory remotely from theSacramento NAPA distribution center and perform the delivery andrestocking of parts inventory for NAPA designated shelves.

• Reducing vehicle and equipment "down time" through an increase in partsavailability. NAPA's size, experience, and expertise in supplying vehicleand equipment parts will result in greater parts availability than can beachieved with the current process, thereby reducing the time that vehiclesand equipment are out of service.

• Saving the City an estimated $2 million over the five year contract term byreducing the cost of inventory procurement, shrinkage, obsolescence,management, and accounts payable. A survey by Fleet Management staffof other agencies that have or had a NAPA parts and inventory programfound that net savings varied from $200,000 to $450,000 annuallydepending on the size of the agencies' fleet and operations. The annualestimated cost savings for the City are shown in. Attachment 1.

The contract requires NAPA to purchase the City's existing parts inventory at thefour fleet shop locations noted in the RFP, and provide and maintain sufficientinventory to provide an 80 percent parts fill rate. Fleet Management willcontinually evaluate the cost effectiveness and savings of the Fleet Parts andInventory Program. Once the program savings are realized, Fleet Managementwill transition other fleet shop locations into this program within the next twoyears. Adding more locations will provide added savings and more efficienciesand will result in no additional financial impact to the Fleet Fund.

Financial Considerations: The Department of General Services, Fleet ManagementDivision has an ongoing requirement to supply parts and manage inventory for over2,600 vehicles and equipment units with a current replacement value in excess of $136million. This requires a significant annual expenditure in parts and equipment. Thisreport recommends executing a five-year contract with NAPA for Fleet Parts andInventory Program services in an amount not to exceed $21,050,000. which will reduce

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the annual expenditure in parts and inventory and result in significant savings to theCity.

The recommended not-to-exceed contract amount of $21,050,000 is based on ananticipated phased implementation plan over twelve months to establish NAPA as theprimary source for procurement of vehicle and equipment parts. It is estimated thatwithout implementing this new program, total parts and inventory management costsover the next five years will be $23,020,000 or almost $2 million more than therecommended contract amount.

The estimated annual contract amounts are as follows:

Vendor Year 1 Year 2 Year 3 Year 4 Year 5 ContractEstimate Estimate Estimate Estimate Estimate Total

NAPA $3,000,000 $4,000,000 $4,350,000 $4,700,000 $5,000,000 $21,050,000

Sufficient funds are available in the Department of General Services, FleetManagement, FY2009/1 0 operating budget to purchase the required services throughJune 30, 2010. Purchases after June 30, 2010 and through the duration of the contractare subject to funding availability in the adopted budget of the applicable fiscal years.

Emerging Small Business Development (ESBD): NAPA is not certified as anemerging/small business enterprise. However, NAPA has agreed to purchase 10percent of total parts purchased from registered small businesses in the state ofCalifornia.

Respectfully submitted by:

Approved by:

Keith LeechFleet Manager

Reina.-SchwartzDirector; Department of General Services

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Recommendation Approved:

&L/ Ray KerridgeCity Manager

Table of Contents:Report Pg 1

Attachments1 Estimated Cost Savings Table Pg 62 Background Information Pg 73 Power Point Presentation Slides Pg 84 Resolution Pg 22

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Contract: Fleet Parts and Inventory Program

Estimated 5 Year Cost Savings

November 17, 2009

Attachment 1

Vendor Year 1 Year 2 Year 3 Year 4 Year 5 Total Est.Savings

NAPA $151,000 $267,000 $468,000 $528,000 $556,000 $1,970,000

The five-year cumulative projected net savings shown above includes additionalsavings on parts purchases, associated inventory management expenses, staffproductivity and accounts payable support costs.


Attachment 2

Background Information

The Department of General Services, Fleet Management Division has an ongoingrequirement to supply parts and manage inventory for a diverse selection of 2,600 Cityvehicles and equipment. During fiscal year 2009, over 285,000 part quantities werepurchased from over 100 vendors and charged out to over 33,000 work orders insupport of the mission critical equipment depended on by the city departments.

In an attempt to procure and manage fleet equipment parts with the greatest costeffectiveness and least exposure to loss, staff conducted research and found that "justin time" equipment parts sourcing and inventory management provides a greatopportunity for budget savings and overall shop efficiencies.

In March 2009, the Department of General Services, Fleet Management Division inconjunction with Procurement Services, and in accordance with City Code Section 3.56issued RFP P093259009 for a Fleet Parts and Inventory Program for four FleetManagement locations. One response was received from NAPA. An evaluation teamcomprised of staff from the City, Placer County, and County of Sacramento determinedthat NAPA met the requirements of the RFP evaluation criteria. As part of theevaluation process, City staff visited three parts locations, consisting of two privatecompanies and one government agency (City of Oxnard) that were provided asreferences for NAPA. Staff also sent questionnaires to various government agenciesthat currently have or previously had NAPA IBS parts and inventory programs. Allinformation collected from the site visits and the questionnaires was very positive.

A Fleet Parts and Inventory Program would have the following benefits for the FleetManagement Division as well as its customers: Providing "just in time" sourcing for fleetparts inventory, thus eliminating the need for a substantial up-front investment by theCity in a large parts inventory; increasing staff productivity by reducing the need todedicate mechanics to inventory management; reducing vehicle and equipment "downtime" through an increase in parts availability and; saving the City an estimated $2.0million over the five year contract term by reducing the cost of inventory procurement,shrinkage, obsolescence, management, and accounts payable.

In August 2009, City Council advised staff to meet with Local 39 and explorealternatives to on-site parts management. As a result of those meetings, staff and Local39 have agreed to modifying the proposed parts inventory service delivery modeloriginally proposed by NAPA, to off-site remote management and coordination vs.dedicated NAPA staff on-site at City fleet inventory locations. The revised NAPA servicedelivery model provides for the off-site management coordination of NAPA ownedinventory that assures "just in time" parts availability on the shelves for assigned Cityemployees to issue as needed.

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Department of General Services

November 17, 2009Attachment 3.

Fleet Parts and Inventory ProgramServices

November 17, 2009

Staff Report Presentation Overview

Recommendation:

•,^-,:-:.ard a 5-year contract to Genuine PartsCompanyiNAPA Auto Parts

- Fleet Parts and Inventory Program services

- Not to exceed $21 million over 5 years

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Background - General Services Fleet Management

• Supplies parts for the ongoing maintenance andrepair of over 2,600 vehicles and equipmentunits

• In FY 2009 over 285,000 part quantities werepurchased- Almost '100 vendors used- O'v'er 33,1000v.,ork orders

Staffing and ^,:!.,,arehouse space are inadequate tosecure and manage city owned parts inventoryeffectively

Fleet Parts and Inventory Program Services

Off-site NAPA inventory and coordination

"Just in Time" equipment parts sourcing andinventory management-=1i-Minaies substantial up-front investment by the City- Reduces loss clue to obsolescence and shrinkage- Integrated Business Solution OBS)- Proven cost-effective service delivery moclel

• 0^^V,,er 250 fleet operations nationwide• NAPA 16S in San Diego; Oxnard. and Denver

9\


Fleet Parts and Inventory Program Services ("cont..)

Increases Staff Productivity- ^torekeepers Y:îll continue to perfori-n functions

• Issue parts from the shelves

• Ne'v:^ classification for existing storekeepers

- f:lechanics can he rnecnanics

• Reduces vehicle and equipment down time

Fleet Parts and Inventory Program Services (cont.)

Five-year cumulative budgetary savings of S2.0million through- volume purchasing- inventor'..,., management expenses- increase in mechanic productivity- streamlining of procurement and adniinistrative

activities- shifting o,.^t^nership and risk to third partyt ^1:1^+ iC . ' d0 II •S !1 0 ^' H2 any ! a . ^ If ^•r^n^r.r1 n nv f labor _.z.

^ n. r n Cl^r u -r^ . ^ aW!?g^

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The Agreement with NAPA

November 17, 2009

• Result of a formal RFP competitive process

• Non-exclusive supply contract

• NAPA. must provide cost savings and qualityservice

• Price escalation monitoring -- f-:'lust demonstrate price competitiveness for all

commoditiesMust earn the ci^Vs business for the entire -live

year term

The Agreement (Continued)

• Termination by either party with 60 days notice

• At least 1g1.fc, of total parts purchased from ESBE

• Phased implementation- Start at North Area Corporation Yard, Sutter's

Landino. Kinney and Rooney Police Substations- P:1ust meet performance and cost expectations before

rolling out to any additional facilities.

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In Summary:

November 17, 2009

Formal competitive sealed RFP process %::,,asfollowed.

Proposed contract with. NAPA is not an exclusivesupply contract.

Proposed NAPA contract does not contract outCity jobs.

y' City has addressed Local 39 concerns

In SU ni mary:

3 Revised NAPA service delivery model providesfor "'off-site" management of NAPA o-%r.,rnedinventory.

Business opportunities with small businesses willbe maintained.

Y' Efficiencies %!Vill be achieved

3 Savings to the City is $2 million over a 5 yearperiod.

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Contract: Fleet Parts and Inventory Program November 17, 2009,

RESOLUTION NO. 2009-XXXX

Adopted by the Sacramento City Council

November 17, 2009

AWARDING A CONTRACT FOR FLEET PARTS AND INVENTORY PROGRAMSERVICES

BACKGROUND

A. The Department of General Services, Fleet Management Division has anongoing requirement to supply parts and manage inventory for a diverseselection of City vehicles and equipment. Implementing a comprehensive FleetParts and Inventory Program will result in significant savings to the City.

B. In accordance with City Code Section 3.56.230, the City Council may, by two-thirds vote, suspend competitive bidding for any purchase or contract in the bestinterests of the City. Suspending competitive bidding in the best interests of theCity is recommended to address the supplies component of this contract thatwould typically be awarded on the basis of lowest responsible bidder.

C. In March 2009, the Department of General Services, Fleet Management Divisionin conjunction with Procurement Services, and in accordance with City CodeSection 3.56 issued Request for Proposals (RFP) P093259009 for a Fleet Partsand Inventory Program for four Fleet Management locations. One response wasreceived from Genuine Parts Company / NAPA Auto Parts. An evaluation teamcomprised of staff from the City, Placer County, and County of Sacramentodetermined that Genuine Parts Company / NAPA Auto Parts met therequirements of the RFP evaluation criteria.

BASED ON THE FACTS SET FORTH IN THE BACKGROUND, THE CITY COUNCILRESOLVES AS FOLLOWS:

Section 1. It is in the best interests of the City to suspend competitive bidding, andcompetitive bidding is hereby suspended for the Fleet Parts and InventoryProgram contract.

Section 2. Genuine Parts Company / National Auto Parts Association (NAPA) isawarded a five-year contract for Fleet Parts and Inventory Programservices in an amount not to exceed $21,050,000 for the five year period.

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Section 3. The City Manager or the City Manager's designee is authorized to executethe contract specified above provided that sufficient funds are available inthe budget adopted for the applicable fiscal year(s).

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Documents

11-17 Staff Report NAPA Proposal