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Chapter 6.4

Reduce Supply of Road Signs



Summary

New roads require new signs to be installed by the Texas Department of Transportation (TxDOT), while changes in sign standards, damage and theft require TxDOT to replace existing signs. TxDOT maintains more than $9 million of signs in inventory. The Texas Department of Criminal Justice (TDCJ), the major provider of signs, produces each type of sign in large quantities and ships them to TxDOT at the end of each production run. Renegotiating the contract to require TDCJ to deliver signs more frequently would reduce the inventory that TxDOT must maintain, saving about $3.3 million each year in fiscal 2002 and fiscal 2003.


Background

The Federal Highway Administration sets minimum standards for roadway signs, including shape, size, location and reflectivity.[1] New roads require new signs to be installed by TxDOT. Changes in sign standards, loss of reflectivity, damage or theft require TxDOT to regularly replace existing roadway signs. TxDOT has more than 17,000 types of signs catalogued in its inventory. These signs are divided into three basic types. Standard signs such as those for “yield” or “stop” are needed the most frequently, so TxDOT maintenance crews always carry them in their vehicles. Semi-custom signs, such as those for speed limits, need only minimal modification prior to use. The third type, custom signs, such as those containing city, street or route information are fabricated from blank stock[2] and thus require more time to produce.

TxDOT retains a significant amount of roadway signs in its inventory to meet these needs, but maintaining an adequate sign supply is often a challenge. TxDOT must forecast the state’s future need for signs, order the signs with enough lead time to ensure that the current supply is not exhausted, and store the signs at an appropriate location.[3] Signs held in inventory too long may become obsolete due to changes in standards as well as deterioration due to age. Other normal inventory problems, such as damage, shrinkage,[4] and inventory costs, such as warehouse or personnel costs, also apply to roadway signs.

TxDOT’s primary vendor for roadway signs is the Texas Department of Criminal Justice (TDCJ). Production of these signs occurs at the Beto Sign Shop, which is located in the Tennessee Colony facility, a medium security prison.[5] TDCJ manufactures signs for TxDOT under a purchase order contract which is negotiated annually. This contract allows TDCJ 60 days to deliver signs, with an allowable extension of up to 150 days. Contract provisions allow TxDOT to grant delivery extensions, provided that TDCJ keeps TxDOT advised of the delivery status of their orders.[6] To minimize TxDOT’s potential for running out of signs due to inmate lock-downs,[7] TDCJ ships all finished materials to TxDOT’s regional supply centers as soon as a trailerload of signs is ready.[8] Between September 1998 and August 1999, the Beto Sign Shop lost only 25 days of production due to lock-downs or other causes. Only 20 days were lost between September 1999 and June 2000.[9]

Based on its TDCJ contract terms, TxDOT would be expected to carry between a 60- and 150-day supply of road signs. Instead, it has about a 282-day supply. Exhibit 1 summarizes TxDOT sign inventory level and backorders. Since TxDOT purchases signs from TDCJ by the square foot and type of sign material used, it was unable to provide the review team with the number and type of signs purchased. [10] Therefore, the review team calculated an average sign cost to determine the number of signs in Exhibit 1.

Exhibit 1

Sign Inventory and Backorders[11]

Location
Dollar Value
Number of Signs
Regional Supply Centers
$1,816,789
38,660
Districts
$7,898,063
168,080
Backordered from TDCJ
$493,155
10,494

Sources: Texas Department of Transportation and

Texas Comptroller of Public Accounts.

Several factors contribute to TxDOT’s high inventory and backorder levels. The contract delivery terms increase TDCJ’s production efficiency by minimizing the time that TDCJ spends reconfiguring its equipment for each production run of a different type of sign. This practice allows TDCJ to supply TxDOT with larger quantities of signs on a less frequent basis. In turn, TxDOT must order and store enough signs to avoid an outage of a specific sign before TDCJ’s next production run. Even with high inventory levels, TxDOT continues to require backorders due to non-stock (ordered only on request) road signs. Forecasting the need for 17,000 different roadway signs is difficult, but the process is complicated even further by TxDOT’s practice of stocking signs at multiple distribution levels. As a result, TxDOT is forecasting the need for 17,000 signs at about 311 different locations.[12]

Forecasting demand for a large variety of items such as road signs is often difficult. A just-in-time manufacturing and distribution approach seeks to avoid forecasting and inventory problems by focusing on how to more quickly procure, produce and distribute goods. Using just-in-time methods, the need to forecast and inventory a large variety of items is minimized, which decreases obsolescence and avoids the facilities, personnel and time investment involved in maintaining large inventories. The key to executing this approach is the use of smaller, more frequent shipments of goods with a minimal amount of time between order and receipt.

TxDOT is moving towards just-in-time distribution with the recent statewide expansion of its Athens Regional Service Center (RSC) distribution program. In this program, TxDOT districts, area offices and maintenance offices receive materials at least weekly from their regional supply centers, using commercial carriers to provide transportation.[13]

If this just-in-time program was applied to road signs, each TxDOT facility would receive in-stock signs within one week of their order. Custom signs would continue to be supplied from district sign shops, which would not need to carry more than a week’s supply of raw materials.

North Carolina has a similar relationship between its prison system and transportation department for sign production, which employs a just-in-time approach. In North Carolina, the prison system uses a mixed model production system. This mixed model system is similar to the TDCJ batch production system, but the North Carolina machinery is reconfigured more frequently, allowing for smaller, more frequent runs of each type of sign. The North Carolina transportation department has a 30-day turnaround from the time it places a sign order until it receives the signs.[14] When compared to TxDOT’s 60-day delivery requirement, compressing delivery requirements to 30 days reduces target inventory levels by 50 percent.[15]


Recommendation

TxDOT should renegotiate its contract with the Texas Department of Criminal Justice (TDCJ) to reduce its inventory and the number of days allowed for TDCJ to deliver signs.

TxDOT should renegotiate its contract with TDCJ in order to reduce its road sign supply from 282 days, as currently reported by TxDOT, to 90 days or less. Additionally, TxDOT should insist on receiving road sign orders as demanded, rather than receiving entire production runs that increase its warehousing requirements.

To reduce its current inventory of road signs, TxDOT should reduce stock levels in the field, focusing instead on storing signs at the regional service center level. Existing sign inventories should be evaluated for compliance with regulatory and reflectivity standards, with non-compliant signs recovered for salvage. TxDOT should use the signs warehoused in its storage facilities until it reaches no more than a 90-day supply level.

TxDOT should use stock transfers between districts in order to expedite this process. TxDOT would be assuming a minimal risk from a prison lock-down or running out of stock because: (1) a 90-day inventory exceeds the reported number of days of TDJC production lost due to lock-downs or other causes (20-25, as reported previously in this paper) by a period of approximately two months, and (2) if additional signs are needed, transferring stock from one district to another is a viable alternative to TxDOT’s current practice of maintaining excess inventory.



Fiscal Impact

Reducing TxDOT’s supply of road signs from its current reported 282-day supply to a conservative 90-day system-wide supply should reduce TxDOT’s investment in road signs by approximately $3.3 million per year in the coming biennium, due to the use of signs currently stored as inventory. This would be a one-time savings to the State Highway Fund. The estimated savings below represent the amounts of the State Highway Fund revenue that could be redirected to TxDOT roadway construction and maintenance programs to bring the highway system into the 21st century. In addition, since the Texas Department of Criminal Justice provides the signs, it would realize a revenue loss from TxDOT reducing its sign inventory. This revenue loss would be offset by reduced material costs, but the amount of the offset cannot be estimated.

Fiscal Year
Revenue Loss to the General Revenue Fund
Net Savings to the State Highway Fund Available
to Redirect
2002
$3,300,000
$3,300,000
2003
$3,300,000
$3,300,000
2004
0
0
2005
0
0
2006
0
0

Endnotes

[1] 23 Code of Federal Regulations 750.154.

[2] Blank “sign stock” consists of 4 ft by 8 foot sheets of marine plywood laminated with reflective sheeting. The Texas Department of Criminal Justice supplies this material to Texas Department of Transportation.

[3] Interview with George Miller, Texas Department of Transportation Purchasing, at Texas Department of Criminal Justice sign manufacturing operations in Palestine, Texas, February 10, 2000.

[4] “Shrinkage” refers to unexplained shortages between the amount of items indicated to be in inventory and the number actually found during a physical inventory count. Sources of shrinkage include failure to identify a shortage between the amount originally ordered and amount delivered, shipping mistakes that result in more items shipped that records indicate, misplaced items and theft.

[5] Interview with George Miller, Texas Department of Transportation Purchasing, at Texas Department of Criminal Justice sign manufacturing operations in Palestine, Texas, February 10, 2000.

[6] E-mail communication from Ron Eberhardt, purchasing manager, Texas Department of Transportation, Austin, Texas, July 12, 2000, and letter from Kirby W. Pickett, P.E., deputy executive director, Texas Department of Transportation, to Clint Winters, Research and Policy Development Division, Texas Comptroller of Public Accounts, August 21, 2000.

[7] “Lock-downs” refer to prison security situations where prisoners are not available to work in correction industry operations.

[8] Interview with R.C. Cousins, division manager, Texas Department of Criminal Justice, Palestine, Texas, February 10, 2000.

[9] Letter from John Benestante, assistant director for industry, Texas Department of Criminal Justice, to Jeff Baldwin, senior executive assistant, Texas Department of Criminal Justice, June 11, 2000.

[10] E-mail communication from Jefferson Grimes, Texas Department of Transportation, January 8, 2001.

[11] E-mail communication from Larry Bloom, MSMS branch chief, Texas Department of Transportation, Austin, Texas, July 12, 2000.

[12] Letter from Kirby W. Pickett, P.E., deputy executive director, Texas Department of Transportation, to Clint Winters, Research and Policy Development Division, Comptroller of Public Accounts, Austin, Texas, August 21, 2000.

[13] Telephone interview with Charles McKinney, supplies management section chief, Texas Department of Transportation, Austin, Texas, July 20, 2000, and interview with Donny Morrison, manager, Athens Regional Supply Center, Texas Department of Transportation, Athens, Texas, February 10, 2000.

[14] Telephone interview with Charles Congleton, North Carolina Correctional Enterprises, Raleigh, North Carolina, April 5, 2000.

[15] This reorder point is based on an estimate of the daily usage multiplied by the estimated number of days needed to receive the item after initial order plus a buffer against demand and supply uncertainty referred to as “safety stock.” “Safety stock” is excess inventory carried as a buffer against order replenishment delays or variations in demand.