June 30, 1999

Purpose:

This report provides a summary of the findings of the KPMG review of fleet and garage operations including the rationalization of garage facilities, performance improvement and efficiencies. This report also responds to the directives of the Strategic Policies and Priorities Committee in relation to fleet reduction, zero base review, cost recovery and costing systems approved by Council on April 26, 1999.

It is recommended that:

In June of 1998, KPMG was engaged to undertake a review of the various fleet operations of the former municipalities. The selection of KPMG was made by an evaluation team through a structured two stage evaluation process: a) initial assessment of RFP’s and b) detailed assessment through interviews and presentations by consultants.

The primary goal of the study was to integrate the fleet organizations of the seven former municipalities as a result of amalgamation, and to consolidate the fleet management and garage operations in an efficient and effective manner. Specifically, the study identified the following objectives: a) identification of a framework and a recommended approach for the establishment of a centralized fleet management function; b) determination and assessment of the revised fleet requirements for the new City; c) determination of appropriate fleet maintenance standards and requirements; d) identification of garage operations and fueling stations that are to continue and estimation of potential savings; e) determination of an appropriate organizational structure for fleet management and garage operations from the perspective of the new City of Toronto; and f) determination of appropriate management control processes.

Project direction was provided by the Fleet Management Steering Committee which included the Commissioner of Corporate Services, the Commissioner of Works and Emergency Services, and representatives from the CAO’s Office and Economic Development, Culture and Tourism. Project management was provided by Fleet Management Services. A User Committee, including representatives from Fleet Management Services and user departments, worked on data collection and were consulted at key phases of the study. Consultations were also conducted with the senior management teams in the user departments and CUPE Locals 416 and 79 as well as COTAPSAI.

The KPMG study assessed fleet maintenance activity for 1997, to ensure a full twelve months of fleet maintenance activity in the analysis. The study excluded Fire and Ambulance Services and the agencies, boards and commissions.

Fleet assets were defined in two classes: 1) vehicles and major equipment with wheels and axles having a replacement value over $5000; and 2) small equipment with a replacement value of less than $5000.

For the purposes of this report, fleet management refers to the management of fleet assets through their life cycle from specifications development to replacement planning and disposal; tracking costs and fleet utilization; insurance, licensing, and registration; fleet safety training and monitoring. Fleet maintenance refers to those activities involved in the preventative maintenance and breakdown repairs, both in-sourced and out-sourced.

Due to data limitations and other extenuating factors, KPMG did not address some key initiatives, such as assessing the fleet size, assessing fleet maintenance standards and defining the standard labour hours required etc. These initiatives are being addressed by Fleet Management Services (FMS) as part of the next steps outlined in section 7.0.

Appendix 1 provides a summary of the study’s recommendations. The key findings follow:

KPMG has concluded that the City has a significant over capacity of fleet maintenance facilities. The current 20 garages, with a total of 220 bays, were not located or designed for a single City. The City’s fleet maintenance requirements can be met utilizing fewer than 80 bays. This can be accommodated in four main garages: 843 Eastern Avenue, Alness, Disco Road, and Ellesmere. The study recommends a phased-in approach over three years commencing with the immediate closure of six garages.

The former municipalities did not provide extensive management support for their fleet operations, and comprehensive financial analysis was lacking in relation to fleet management and maintenance decision making. They employed little in the way of performance measures relative to fleet. Subsequently, poor data and weak information systems restrict effective decision making. This deficiency will be addressed through the implementation of the former North York Fleet System effective September 1999.

Fleet management and maintenance is a $43 million dollar business (excluding capital costs) and due to the high degree of interdependence between some high profile programs such as solid waste and snow removal, fleet management and in some cases fleet maintenance should be a core competency for the City. Some aspects of maintenance can be out-sourced if the economics and service quality merit it. However, maintenance services will need to be provided in-house to support critical public services. The City currently out-sources about $7 million in fleet maintenance and FMS staff make daily out-sourcing decisions based on price, quality and availability. KPMG does not believe it is appropriate to substantially change the current practices until better cost information is available, and an assessment has been made as to what services should be procured externally.

Level of staff productivity has not been systematically managed, and use of best practices has not been consistent at the various garage locations in the city.

Using a four garage model with mobile units, KPMG has identified potential savings of $5.9 million, comprised of $3.0 million in salaries and $2.9 million in facilities. Operational costs to user departments must be taken into consideration in order to determine net savings to the Corporation. Of these savings, approximately half are amalgamation related, and the other half are related to efficiency improvements. KPMG estimates a one time capital cost investment of $2.1 million.

These savings are based on 1997 expenditure and staffing levels. To date, staffing has been reduced within FMS by 27 positions, and the Fleet Management Services budget reduced by $2.6 million. This leaves a balance of $3.3 million in savings to be accomplished from garage rationalization (approximately $2.3 million) and productivity improvements (approximately $1.0 million).

This estimate of $3.3 million operating savings does not include any one time savings from the sale of surplus facilities. One time costs for soil remediation caused by in-ground fuel tanks will also be incurred.

The net savings do not include long-term savings to be realized from reducing the fleet size, fleet standardization, and reduced maintenance expenditures.

The management structure for Fleet Management Services was approved by the CAO and implemented in January 1999. This model is consistent with the four garage model discussed in the report.

FMS is currently implementing the North York (M4) Fleet Management Information System which will provide the necessary platform for the management control systems and support key initiatives recommended by the KPMG study: full charge back system and billing, employee and garage productivity, monitoring, standard time monitoring, fleet utilization reporting, maintenance scheduling, etc. The adoption of the M4 Fleet Management Information System and performance standards city-wide will facilitate the implementation of a common information base for all of the City’s fleet operations, and allow for comparisons, reporting and monitoring the costs of fleet operations.

The charge back system, standard times and flat rates job costing is under development, and will be discussed with user departments as recommended by the Strategic Policies and Planning Committee. Policy development and harmonization has begun. Upon approval of the recommendations, FMS will complete the staffing of its supervisory levels and consolidate its locations.

FMS 1999 budget is $22.5 million with approximately 50 per cent of city wide fleet related costs still within User Department budgets. The breakdown of the Fleet costs by program based on 1997 actual expenditures is presented in the following Table:

KPMG identifies a benchmark of 75 per cent labour utilization as a best practice standard in the industry. The City’s FMS has a current rate of 70 per cent based on work order hours. This report recommends that the labour productivity be increased to the benchmark of 75 per cent based on standard hours.

The second indicator, garage charge out rate, is the hourly cost of labour and shop overhead, excluding parts. KPMG reported a 1997 rate of $74 per hour. Fleet Management Service’s average current rate is $68 per hour, excluding corporate overheads. Fleet Management Services rate is a single rate, developed to average out the lower costs of car and truck maintenance with the higher cost of heavy truck and specialized equipment. Industry standards are on average between $65 and $100 per hour, depending on the type of vehicle/equipment being serviced. FMS is currently developing garage rates by vehicle class.

The third performance measure is garage utilization. Garage utilization measures the efficiency of using the fixed assets of garages. The current rate is about 15 per cent. Best practices are around 38 per cent utilization, representing two shifts, five days per week. In order to achieve best practice ratio in garage utilization, additional garage facilities would have to be closed.

In addition to these performance measures, FMS needs to monitor and continuously improve turn around times of vehicle repair, and reduce downtime due to waiting for parts. Other service performance measures will be identified as FMS develops Service Level Agreements with its clients, the first of which will be developed September, 1999.

FMS provides fleet management and maintenance services to most programs. FMS also provides maintenance services for small equipment such as chain saws, smaller mowers, etc. Seventy-five percent of all fleet maintenance is provided to the Works and Emergency Services Department. Not all fleet maintenance and management is currently consolidated within FMS. Fleet management and maintenance is provided by the Works and Emergency Services Department at the Keele Valley landfill and by Parks and Recreation at their Kipling yard.

Four of the six former municipalities fire vehicles and equipment are serviced by Fleet Management Services to varying degrees. In the former City of Toronto and Scarborough, fleet undertook preventative maintenance, and repairs to the body and chassis. In East York and York all components of the equipment were serviced by fleet staff, while in North York and Etobicoke, Fire Services maintained a separate fleet management and maintenance operations. This is an amalgamation issue addressed by the KPMG recommendations.

User needs and concerns were identified during the course of the review. They included: sufficient fleet replacement funds, reduced turnaround maintenance times to reduce surplus vehicles, reliable and on-site running repairs services, expedited procurement of vehicles.

The following principles were applied by KPMG to assess options for the consolidation of garage facilities: minimize fleet maintenance costs through centralization; minimize incremental capital expenditures; maximize current sites and minimize the use of other City-owned facilities; create potential opportunities for implementing best practices and ensurance of adequate geographic distribution. Garages were also assessed on their physical attributes, ease of upgrade, location and utilization. (Appendix 3 presents a summary of the garage sites with favourable and unfavourable characteristics).

The following table summarizes the options considered by KPMG:

Garage Options Summary (based on KPMG data)

As noted by KPMG the net savings to the City through garage consolidation will only be realized when the former garage properties are disposed of. Sixteen of the twenty garages covered by the review are located within user department yards and seventeen of the twenty have in-ground gas tanks that will require remediation before sale. Some of the sites are located on former dump sites and are not likely to be saleable.

In order to reduce over capacity and to concentrate maintenance operations in fewer locations, KPMG has recommended the closure of six garages immediately, i.e., Merton, Eastern Grounds Keeping, Northline, Emery and two of: Symes or Castlefield or Ingram. The specific garages recommended by staff for immediate closure in this report are based on the principles outlined, consultations with user departments on anticipated changes to the use of yards and the maximum resale potential for the City. The changes in garage closures do not impact the net savings estimates. Over the long term, KPMG believes that the City’s fleet maintenance could be carried out of four large district facilities where there is sufficient capacity to meet the City’s future requirements i.e., Eastern, Allness, Ellesmere, and Disco. It is therefore recommended that the Commissioners of Corporate Services, Works and Emergency Services and Economic Development Culture and Tourism jointly report by September 30, 2000 on the feasibility of adopting the four garage model.

Fleet Management Services is responsible for the stewardship and maintenance of all vehicles covered under the City’s Commercial Vehicle Owner’s Registration (CVOR) and all vehicles and equipment with a replacement value of more than $5000, with wheels and axles.

Stewardship encompasses: Fleet inventory management; life cycle management; procurement management; cost tracking and reporting; insurance, registrations and licensing; fleet replacement/disposal planning; fleet assignment.

Maintenance encompasses: Preventative maintenance and breakdown repairs, both in-sourced and out-sourced, for assets under its trusteeship.

Fleet Management Services role is to act as an operational partner with user departments to provide fleet management and maintenance at a competitive level through the setting of maintenance standards and quality control measures, and to provide operating departments with support, service and expertise in fleet utilization, specifications development, cost saving programs, decisions on in-house and external provisions of repair and other fleet services.

Fleet Management Services will work with an Implementation Team and Fleet Advisory Committee, including representatives from User Departments, Finance and the CAO’s office. A project manager will be accountable for the implementation of the major initiatives, garage closures and deliverables outlined in Appendix 4 "Implementation Timeframe".

It is recommended that a staggered three phased implementation approach of garage closures be undertaken should the City migrate toward the four garage model.

Phase One: closure of 6 garages in 1999, to allow for the implementation of mobile running repairs and needed capital improvements (i.e., 145K for mobile repair units) to mitigate the impact of the garage closure on users departments.

Phase Two: garage closures resulting from yards rationalization and further implementation of the mobile running repairs services. Until decisions are made on the consolidation and closure of yards, capital improvement requirements, if any, cannot be determined for the remaining locations. It is therefore recommended that a yards consolidation plan be developed in consultation with the user departments by June 30, 2000 with a garage and yard closure timetable and be reported to the Administration Committee.

Phase Three: additional garages may be closed after taking into consideration the findings of the yards rationalization study, operational requirements and associated incremental costs and net savings from a corporate and departmental perspective.

An effective cost control mechanism for the City’s fleet services is to pass through all fleet management and maintenance costs to the users of those services, placing them on a fee for service basis under a contract for services arrangement. This approach will provide financial incentives for users to control their fleet size, gain maximum utilization of the fleet, and ensure proper care in the use of the City fleet. It will also provide user departments with information on their true fleet costs and the added value and competitiveness of the services they acquire from Fleet Management Services on a cost recovery basis. Costs will be further controlled by requiring internal fleet maintenance services be competitive with private sector providers of the same services (provided quality is constant). As a result, Departments will be able to assess and monitor the true costs of in-house services in relation to those provided by the private sector.

Initiatives planned to support this objective are: a) develop a full charge back system for all fleet management, maintenance and fuels; b) develop and communicate to users garage charge out rates by vehicle and equipment class that are competitive with industry standards; c) develop and communicate to users flat rate job rates based on standard labour hours; d) implement a costing system to support in-source/out-source decision making; and e) re-engineer practices and procedures to reduce time and costs.

The implementation of the M4 Fleet Management Information System will provide a comprehensive information base to track fleet costs and performance. This system is expected to be rolled out by September 30, 1999. Management controls are also being implemented which include garage performance standards and performance management. Appropriate reports will be provided to users effective February 2000.

FMS has begun the development of the Zero Base Review criteria and process and will begin consultations with user departments in August. FMS will report, in consultation with user departments, to Council, the findings of the zero base review by December 31, 1999, consistent with Council’s directive. The objectives of the review are to: identify under-utilized vehicles and equipment for disposal or reassignment; identify potential for sharing of vehicles and equipment; identify alternatives to meet the service needs of departments, such as short-term leasing or rental. The review will assess appropriate use of fleet assets by considering utilization, need for appropriate equipment, and compliance with the fleet assignment policy.

FMS will implement a number of performance improvement initiatives focusing on improved customer satisfaction and reducing the costs of fleet operations. These include: a) monitoring performance in relation to benchmarks on standard labour hours, garage utilization, garage charge out rate, labour productivity, and cost of flat rate services; b) setting targets for reduced turn around times with departments as part of the Service Level Alignment; and c) identifying and monitoring additional fleet performance indicators with user departments such as cost per kilometer, fleet utilization levels, etc.

Amalgamation initiatives were deferred, pending the outcome of the KPMG study findings. The following initiatives will be completed: a) staffing and location consolidation of the Division; b) policy harmonization and development; and c) budget disentanglement and integration; d) service disentanglement.

Fleet Management Services will be harmonizing and developing polices, including the best practices policy directions identified by KPMG. These include: feet assignment; fleet acquisition, fleet planning, fleet disposal/replacement; fleet replacement reserve; driver safety and training; management information systems; parts inventory and control; performance monitoring and maintenance.

A fuel exit strategy will be developed by Fleet Management Services and user departments to reduce the City’s use of bulk fuels through the development of a retail fuels supply contract for the City. Fuel tanks closures will be assessed based on user department needs, emergency and off-hour fuel supply needs, alternative fuels needs, age and location of tanks, yards rationalization and garage closures. Fuels will be fully charged back to users.

Improved customer service and satisfaction is a key goal for FMS. Many of the cost savings initiatives will benefit FMS customers by reducing their overall fleet costs. Additional customer service initiatives will include: a) regular assessments of customer satisfaction; b) development of Service Level Agreements with targets for turnaround time and downtime reductions; c) improved process for vehicle procurement and specifications; and d) development of additional performance indicators to support departmental decisions making.

Due to the downsizing already completed by Fleet Management Services, phase one garage closures will not result in staff layoff. Staff at garages slated for closure will be transferred to other locations.

There will be a need to develop new key roles for fleet management in cost accounting, performance improvement and benchmarking, and contract management. These needs will be accommodated without impacting the staff reduction targets set out in the KPMG plan.

Neither the Fleet Study nor the Fire and Ambulance Facilities Study assessed or analyzed the fleet maintenance operations of Fire and Ambulance. In the Fire and Ambulance Facilities Study, KPMG concluded that Fire and Ambulance fleet maintenance and repairs be undertaken in specialized facilities. In the Fleet Study, KPMG further recommends, that these facilities adopt the City-wide fleet information system, maintenance standards and performance standards. Potential for further efficiencies between emergency services fleet and corporate fleet will be reported to the Administration Committee by September 30, 2000.

The CFO is currently in the process of submitting a report to the Policy and Finance Committee concerning fleet replacements for 1999.

The KPMG report has identified key directions for a corporate fleet management program, and the appropriate framework to achieve it. It is recommended that a phased-in approach to garage rationalization be undertaken in close consultation with user departments which will focus on enhancing net-benefit potential to the City, incorporating yards rationalization with garage closures, and migrating to the four garage model.

The KPMG study has determined that there is significant excess garage capacity, effective fleet management systems for decision making are weak or absent, staff productivity is not systematically managed and the use of best practices is limited. FMS has already commenced addressing the major deficiencies identified by KPMG, through the phased implementation of productivity improvements and cost control measures. The study is recommending that six garages be closed immediately, further garage closures be considered upon completion of the yards rationalization study; over the longer term (three years), after assessing impact on key programs, the City consider proceeding towards the concept of establishing four central garages. It is therefore recommended that six garages be closed by December 31, 1999, the findings of the yards rationalization study be reported by June 30, 2000, the zero base review of corporate fleet be completed by December 31, 1999 and the feasibility of adopting the model of four central garages be reported to the Administration Committee by September 30, 2000.

Contact Persons:

Firoz Kara 392-8678 Stan Burrows 392-7791

Strategic and Corporate Policy Division Effie Ginzberg 392-7791

Fleet Management Services

Michael R. Garrett

Chief Administrative Officer