EVERY PURCHASING EXECUTIVE that buys heavy equipment can remember an expensive blunder that he or she has made over the years. Perhaps the purchasing manager specified a refuse truck so expensive no manufacturer would bid on it, or perhaps he awarded a bid to a company that didn't manufacture the heavy equipment being bid. Mistakes happen, but successful purchasing executives use previous good and bad experiences to make themselves better.
In hopes of helping today's purchasing managers avoid some of the blunders, Waste Age recently conducted a roundtable discussion with four of the waste industry's purchasing executives.
The roundtable participants included: Rocky DiRico, assistant commissioner and purchasing official for the New York Department of Sanitation (DSNY); Jim Kennedy, director of purchasing and maintenance for Onyx Waste Services, Milwaukee; Carolyn Peck, certified purchasing manager (CPM) for Waste Industries, Raleigh, N.C.; and Jerry Wickett, vice president of purchasing and maintenance for Republic Services, Ft. Lauderdale, Fla.
Here's what they had to say.
WA: What are the top five factors that influence equipment purchasing decisions?
Kennedy: We take an analytic approach to evaluating responses to requests for proposals (RFPs). We evaluate quality, price, dealer support, company stability, and the operational and maintenance characteristics of the product itself. We assign scores from 1 to 10, with 10 being the best, to each of these elements. The highest score doesn't necessarily determine our decision, but it is an important part of our discussions because it makes us focus on analysis rather than relationships.
Wickett: The most important factor in our purchasing decisions is a thorough understanding of the job we want to accomplish. We are looking for the right tool to get the job done as effectively and as efficiently as possible. After that, we consider the supplier's track record, quality of the item, availability of the equipment and, of course, price. Our price analysis considers the cost to purchase, as well as the lifecycle cost.
Peck: We look at seven issues: application, standardization of the equipment, specification details, life expectancy of the equipment, manufacturer's warranty program, delivery and price.
DiRico: In New York, we consider all of these issues, too. Let me add a few ideas. In addition to evaluating the terms of the warranty, we consider the manufacturer's support mechanisms. How will the manufacturer deliver on warranty claims? In the case of a potential new supplier, before we analyze the proposal, we visit the factory and talk to the quality assurance people and the plant managers about their processes.
WA: What other considerations do you have?
Kennedy: One thing that may sway us is whether or not a company manufactures its own engines, transmissions and rear ends. We think that service and warranty claims can be handled better by a one-stop operation.
Peck: We look into the dedication of a manufacturer to our industry and to its product line. In our industry, only 2 percent of all trucks built go to the refuse industry. As a result, some vendors don't dedicate the resources or research to our industry. When we find a vendor that does, we tend to go that way. We also study a vendor's financial records and evaluate its ability to stand behind its products.
WA: How important is it to standardize equipment?
DiRico: That's paramount. We standardize as much of our equipment as possible: the engines, transmissions, axles, electrical systems and other systems. The more you standardize, the more efficient you can be. For example, we maintain a $40 million parts inventory in 59 locations throughout New York. Because of standardization, if one shop doesn't have a part, a neighboring shop will.
Wickett: I agree. Republic standardizes equipment whenever possible. The benefits include interchangeability among divisions, competitive pricing, ongoing aftermarket support and familiarity with maintenance issues. It also leads to consistent operator training and experience.
Kennedy: Let me add that standardization helps build strong relationships with manufacturers. If a manufacturer relies on you for a lot of business, you'll get the support you need. The manufacturer will be more likely to work with you to identify and solve problems. Standardization is a way to ensure a manufacturer's commitment to you.
WA: With whom do you work to make purchasing and specifying decisions?
Peck: For both purchasing and specifying, we start in the field and work through the organization to the corporate management level. We prepare purchasing budgets approximately six months before our new year begins. Budgeting begins with the branch manager, who provides an operational analysis of needs for the coming year. What is due to be replaced? Are there expansion plans? This information flows up to the division level. At the corporate level, the chief operating officer (COO) and the maintenance, fleet and purchasing managers evaluate the company's overall needs. The fleet manager handles the specifications, in collaboration with people in the field, regarding equipment issues and performance.
Kennedy: I'm just the guy that buys the equipment by trying to negotiate for the best deal. So I look at the big picture. But the guys in the locations — in operations and maintenance — call the shots. Because I'm director of both purchasing and maintenance, I get direct feedback from the guys if something isn't right with a piece of equipment. My goal is to send them what they want and what they will like.
DiRico: I meet with a committee of drivers, maintenance supervisors, mechanics in the field and union representatives several times a year to discuss every vehicle category. We never rubber-stamp anything. If we see a problem with any vehicle related to visibility, comfort or maintenance, we'll make changes. Then we talk to our specification writers, who have all worked as mechanics during their careers.
WA: How do you evaluate maintenance and other lifecycle costs?
Wickett: In 2001, Republic implemented a comprehensive maintenance tracking system called “Dossier.” Today, the system is critical to our success. Every day, we track maintenance and operating costs and look at month-to-date, year-to-date and lifecycle numbers. The data gives us the ability to evaluate equipment performance with accurate and timely information.
Kennedy: We use a computerized maintenance program to store detailed histories of equipment. We use this data to determine what costs money and what doesn't. Feedback from locations helps a lot, too.
Peck: We retrieve data from maintenance records, downtime reports and mileage records, as well as profit and loss statements, to evaluate maintenance and overall equipment performance. Our fleet manager has equipment histories dating back to the early 1980s, categorized by manufacturer and product lines. Using this data, our fleet manager can tell us exactly when maintenance on a particular manufacturer's piece of equipment will likely start eating [us] alive.
DiRico: Our preventive maintenance program calls for a 30-day cycle. Every one of our 6,000 vehicles is seen every month, whether mileage markers have been reached or not. Because of this, we catch things very early, and that saves a lot of money. If a bulb is out, the time to fix it is as soon as you see it, so you don't short circuit and cook a harness. This way, we can evaluate long-term equipment maintenance requirements in terms of equipment that has been well taken care of.
WA: How does lifecycle affect purchasing?
Peck: We purchase annually for replacement and expansion needs, and as needed for new contracts, acquisitions and accidents. Within our existing fleet, our front loaders follow a seven-year depreciation schedule; residential rear loaders are on a 10-year schedule; and roll-offs are replaced on a 12-year schedule. We expect to get close to these schedules in use. When a piece of equipment gets to be five to seven years old, it is put into a backup position. When it comes to compactors used in our transfer stations, we expect to get 10 to 12 years of life. In year six or seven, we'll rebuild it and maybe rotate it to a lighter application.
Wickett: Generally, our highway equipment runs for eight to 12 years, depending on the application. Our off-road equipment has an expected lifecycle of more than seven years.
Kennedy: We run our heavy equipment — trucks, compactors, landfill equipment, you name it — until it wears out. When it comes to the fleet, we try to maintain an average fleet age between six and seven years. Maintaining this average requires us to replace about 10 percent of our fleet every year.
DiRico: Our truck replacement cycle varies from five to 12 years, depending on the duty cycle of the vehicle and, of course, the quality of the product. Some trucks run three shifts per day, and they'll have a shorter life cycle. Then we have seasonal trucks like salt spreaders that can stay around for 12 years. Generally, our collection trucks have a seven-year life, and we replace about 1/7th of our fleet every year. For a 2,200 truck fleet, that's about 300 trucks.
WA: How can vendors help or hinder purchasing decisions?
Kennedy: I look for vendors willing to share problems and solutions with us. Vendors that try to hide problems are hindering the case for their products. On the other hand, manufacturers willing to step up proactively to acknowledge and address problems before they affect us are showing that they want our business.
DiRico: I expect vendors to tell the truth and react fast when we need them, whether the issue is buying a truck, looking at a warranty claim or providing support. If they aren't babying me, they may not get another bid.
Peck: I only work with vendors willing to form partnerships with our company. By partnership, I mean that the vendor is as committed to making our company succeed as we are to making the vendor succeed. For example, we installed new equipment in our cabs, but the cab wasn't large enough to accommodate the driver comfortably with the new equipment. We worked together with the vendor on a redesign. That's a partnership.
WA: How important is service after the sale?
Peck: Service is more important than the sale. The partnership I mentioned will never develop if we can't count on the distributor or equipment or component manufacturer to respond to service issues. We won't accept passing the buck. If we have a problem with a transmission, we expect the truck manufacturer and the transmission manufacturer — everyone involved in the sale to us — to work to resolve the issue.
DiRico: For us to succeed we have to minimize downtime. That's why we spend so much time specifying equipment. But if something is wrong and you need service after the sale, you want it quickly and comprehensively. What does that mean? Suppose we see a 10 percent failure rate on a particular component during the warranty period. Say 30 alternators fail out of a purchase of 300 trucks. We don't just want the alternators replaced; we want a redesigned alternator. Service after the sale isn't just fixing a truck, it's identifying weak spots, redesigning and eliminating excessive failure rates.
Wickett: In this business, the true test of a vendor is service and support following the sale. We realize that at some time, every manufacturer will encounter problems with a product. Vendors that respond to the issues and help us minimize downtime become valuable to us.
WA: What advice can you share with other buyers?
Peck: Don't buy a manufacturer's standard equipment because the price is lower. Specifying and standardizing equipment to meet your performance needs is the most important part of purchasing heavy equipment. If you don't have the knowledge to specify and standardize to your needs, get a vendor to help you.
DiRico: Communicate with drivers and mechanics. Find out what they want and need. And, standardize your specifications. These are the keys.
Wickett: Call references provided by prospective vendors. Ask detailed questions about the product and the support commitment, especially if this is the first time you are bidding this vendor. Most importantly, maintain a competitive bidding process. Competition brings out the best in all of us.
Kennedy: I have three suggestions. First, negotiating skill comes from knowing the products you are buying inside out. Knowing the products means you understand the difference between competitive products. When you have this knowledge, you can negotiate effectively. Second, think about the 50-50 rule. In purchasing, you try to buy perfect products, but that's only half of the equation. Once you have the product, it is up to you — your company — to operate it and maintain it properly. Don't blame a vendor for your mistakes. Third, before you make any final decision, step back and think. It is easy to get caught up in the momentum and logic of the purchasing process. When that happens, you can forget your most important goal: buying something that will help the company succeed.
Michael Fickes is Waste Age's business editor based in Cockeysville, Md.