When Does it Make Sense to Outsource Maintenance?
Even if you have a robust in-house repair shop, chances are that you still outsource portions of your maintenance operations – to save money, quickly fill gaps left by technicians who’ve recently retired or tap into specialized expertise to perform critical repairs.
But how do you determine which aspects of your maintenance operations make the most sense to outsource and which ones you should keep in-house?
UFP recently posed this question to Paul Lauria, who has worked with numerous government and utility fleets for more than three decades as president of Mercury Associates Inc. (www.mercury-assoc.com), a fleet management consulting firm based in Rockville, Md. He offered these four points to consider.
How much money will outsourcing actually save the organization?
“The only way that you’re going to be able to determine if you’re saving money is to know the costs of performing outsourceable fleet maintenance and repair activities in-house versus farming them out to a vendor or contractor,” Lauria said. “And that’s one thing, in my experience, that a lot of organizations, including utilities, don’t have a good handle on. What are the avoidable costs of operating its own garages or of performing a particular type of maintenance or repair activity, for example? If you were to shut down or downsize those garages and shift work to third-party service providers, what costs would go away? That establishes the baseline for determining whether or not you can save money by outsourcing.”
How will outsourcing impact your ability to serve and respond to customers?
“You need to understand how the level and quality of service you provide to the company’s operating units – your customers – would be impacted by outsourcing,” Lauria said. “If you’re going to reduce your costs by 5 percent, even if that’s a multimillion-dollar figure, the question you have to ask yourself is: Will that level of savings be sufficiently large to justify any reduction in service level or quality that might result?”
That’s because utilities, especially, can’t afford to allow excessive downtime with important assets.
“Most utility companies operate their own garages because they have mission-critical equipment that they cannot easily have maintained and repaired entirely by outside vendors. For example, they’re understandably reluctant to relinquish complete control over the maintenance and repair of those assets because, once they do that, they generally will not be able to call out mechanics 24/7 to support the fleet during weather-related or other emergencies,” Lauria said.
Then there’s the impact of any logistics involved with outsourcing. “If you’re talking about outsourcing, where the vehicles need to go to vendor garages for servicing – as opposed to a situation where you’re bringing a contractor in to staff the company’s garages – you now have to take vehicles off-site, which could result in a significant increase in the amount of time that’s spent transporting vehicles to and from vendor shops,” Lauria said.
And you also have to consider any impact that outsourcing could have on in-house staff, Lauria advised. “You want to think about: Are the savings that could be realized – whatever they are – large enough to justify all of the hand-wringing, all of the angst that the organization’s likely to go through to outsource? Because there is going to be a lot of hand-wringing. There is going to be a lot of angst, particularly if there are labor unions involved.”
What types of vehicles offer the best opportunity for outsourcing?
“The best candidates for outsourcing generally are the light-duty vehicles in a fleet, as long as your heavy truck and equipment mechanics are not sitting around, twiddling their thumbs if work on the light-duty vehicles is outsourced,” Lauria said. “Keep in mind that one of the reasons that a lot of in-house fleet maintenance programs work on light-duty vehicles is precisely because they have to employ technicians to work on the mission-critical assets. So, if there’s not a steady diet of line truck or digger derrick maintenance and repair work to be done, you sure don’t want to be sending your service technician vans and passenger sedans out to commercial garages while your truck mechanics stand around staring at the walls. So, a lot of times, light commercial vehicle maintenance effectively is used as backfill for in-house shops.”
What’s the most common aspect of maintenance operations that utility fleets tend to outsource?
“When you need specialized expertise, for one,” Lauria said. “Depending on the size of the utility, a smaller company may be more likely to outsource dielectric testing of its buckets, for example, because they can’t justify having the equipment to do that in-house. Or, it may be outsourcing hydraulic repairs because it doesn’t have enough volume to justify having the technical expertise on staff. The last thing you want is one of your aerials failing because somebody in-house didn’t properly repair a hydraulic cylinder.”
The idea here is that the more specialized the type of repair, the greater the economies of scale associated with its performance. So, if you don’t have the volume of work to keep specialists busy, then it usually makes financial sense to outsource that work to service providers that perform those repairs all the time.
The Bottom Line
Keep in mind that outsourcing maintenance is not an all-or-nothing proposition. As Lauria put it: “I can outsource simply by saying, ‘You know what? Every second PM, we’re going to let the drivers of our passenger vehicles go to Jiffy Lube.’ Or, ‘We want to see the vehicle at least once a year, but we don’t have a problem with you getting tire rotations and oil changes at a commercial repair shop at other times during the year.’ If that helps a company stretch its in-house maintenance resources during an era in which all fleet owners increasingly struggle to attract and retain qualified maintenance technicians, then that type of outsourcing deserves careful consideration.”