10/04/00In a report to the Chicago Transit Board today, CTA Vice President of Purchasing and Warehousing John Trotta announced the agency has been able to save millions of dollars through a combination of smarter purchasing initiatives and more efficient warehousing operations. Improved procurement practices and enhanced revenue from these initiatives has resulted in annual savings of $3 million.
CTA President Frank Kruesi said, "The CTA has been working diligently to find ways to make our operations run smoother and smarter while saving money. Creative and innovative strategies aimed at improving how the CTA purchases goods and services, and stores materials throughout the system have led to these significant cost savings. We've all been working hard to help the CTA continue to save money that can be reinvested to provide better service to our customers."
Smarter buying measures such as off-the-shelf purchases, stockless purchasing, reverse engineering, second sourcing and streamlining of procurement processes contributed toward achieving the savings.
Off-the-Shelf PurchasesBy using industry standard specifications for purchases instead of customized specifications, the CTA is able to make purchases that are more widely available and at lower costs.
For example, by using industry standard specifications when the CTA went out for bid on new buses, the CTA was able to obtain a better price on the order of 469 new Nova buses. These buses, which are not as customized as previous bus orders from the past, are expected to bring the CTA a savings of at least $15,000 per bus or $7.3 million over the entire purchase contract. Included in this bus procurement is a provision for the CTA to receive bus component manufacturer and model numbers to allow the CTA to purchase replacement parts competitively instead of through a single source.
In the past, the CTA bought bias-ply bus tires. By switching to industry standard radial tires, the CTA expects to save $1 million over the five-year contract term.
Stockless PurchasingContracts that provide the CTA with delivery of certain items in one to seven days allow the agency to minimize inventory costs. Through stockless purchases, the CTA saves money by not purchasing large quantities of products and supplies that have a definite shelf life which may expire before being used.
Prior to January 1998, the CTA had no stockless purchasing contracts. Now the CTA has 67 stockless purchase contracts totaling $9.5 million. Stockless purchasing contracts are in place for alkaline batteries, cleaning supplies, motor oil, tires, vehicle fluids and electrical materials among others. This gives the CTA the opportunity to obtain materials and supplies on an as-needed basis instead of tying up funds in an inflated inventory. The most significant savings incurred are labor dollars, since staff does not have to handle and warehouse the overstocked materials.
Reverse Engineering and Second Sourcing In cases where parts or items are purchased as a sole-source item from an exclusive manufacturer, reverse engineering allows the CTA the opportunity to procure the item competitively from multiple sources at a lower cost. Through this process, the CTA creates technical design documents for products and materials the agency needs.
Through second sourcing, multiple vendors are identified that can provide the required part, item or service at lower costs through increased competition.
Some examples where reverse engineering and second sourcing have increased the savings to the CTA include:
Description
Old Price New Price
40 AMP Fuse
$78.88 $9.66
Rail Disc Brake
50.07 32.58
Hose Deflector
509.60 23.25
Air Filter Restriction
22.28 6.30
Gearbox Cover Breather
31.00 19.94
Door Shock Absorber
38.00 9.20
Latch
85.68 24.80
Oil Baffle or Fluid
Restrictor
9.90 2.45
Fan Belt Guard
315.57 40.00
24 Volt Solenoid or Electric Coil
77.69 28.30
Splash
Assembly
550.53 186.00
Reverse engineering brought the CTA a savings of $758,000 in 1998, $1.6 million in 1999, and has saved the CTA $2.3 million through August 2000.
Streamlining of Procurement ProcessTo make the CTA procurement process more efficient, an electronic database has been developed to electronically track procurements. Advancements in technology have made bid information readily available to the public on the internet, and electronic signatures have sped up the internal procurement approval process.
Additional savings came through more efficient warehousing operations such as reduction of inventory, improved warehouse layout, consolidation of materials and supplies, and streamlining of the internal procurement process.
Inventory Reduction
Since January 1998, the total value of CTA inventory has been reduced from $88 million, to $76 million in January 1999 and down to $66 million in January of this year. As of August 2000, the total value of CTA inventory has been reduced to $61 million. By reducing the amount of inventory, the CTA is able to have less money tied up in stockpiled supplies and have more funds available for immediate investment. It is estimated that this inventory reduction has led to a revenue increase of $2 million annually.
By reducing the amount of inventory the CTA has in stock on warehouse shelves, the CTA has been able to save money by having the ability to invest funds instead of having the funds tied up in stockpiled inventory.
For example, the CTA had a 1 year supply of cleaning towels, a 9 month supply of work gloves, a 1 year supply of copy paper and paint that was more than 10 years old stockpiled on warehouse shelves. By having contracts in place that allow for delivery of these items in one to seven days, the amount of inventory is reduced and fewer stockpiled products become obsolete.
Improved Warehouse Layout &
Consolidation of Inventory
Warehouse operations are streamlined by the improvement of the physical layout of the 400,000 square foot central warehouse facility. The reconfiguration of the warehouse layout with a main center aisle provides better and easier access to products, supplies and materials. By organizing the faster-moving items closer to the receiving and shipping areas along the main center aisle, the time it takes CTA staff to stock items, pull ordered items and ship them out as needed is substantially reduced.
Similar items and materials are consolidated and stocked in one section of the warehouse instead of being spread throughout the facility. Through this consolidation of inventory, the time it takes to fill 100 orders has been reduced from 8 hours down to 2 hours.
Chicago Transit Board Chairman Valerie B. Jarrett said, "As part of our mission to deliver quality, affordable transit services that link people, jobs and communities, we have to continually look for better ways to do business. We owe it to our customers to monitor our spending and carefully control our costs so that we can devote as much of our resources as possible to providing quality service."
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