outsourcing pro and cons - Contract Maintenance or not?

outsourcing pro and cons


outsourcing pro and cons

Contract Maintenance or not? By Torbjorn Idhammar

(Mr. Idhammar is president of IDCON, a reliability and maintenance management consulting firm)

With few exceptions, most mills I visit ask me what I think of contract, or outsourcing, of maintenance. In this article I would like to elaborate on what kind of maintenance should or should not be contracted out and the reasons for choosing either option.

Variability in workload. The better you manage the workload of your own resources, the less need you will have for outsourcing maintenance. In weekly and daily maintenance activities, your workload should not vary much if you have disciplined priorities and a good preventive maintenance system in place. Even areas such as maintenance workshops and scaffolding services should experience very few urgent requests, which justifies keeping only a minimum crew, if any at all, for such services in-house.

Large variations in workload will lead to poor utilization of resources and overstaffing. This often leads to discussions about outsourcing maintenance. However, outsourcing maintenance resources will not change anything. The contractor must provide a better system for people to work in. Otherwise, they will not be more effective than your existing system. If this is the case, you must ask yourself why you cannot improve the system yourself when the contractor can.

The answer may be that you have tried many times without sustainable success. Your organization might be in gridlock because of politics, ingrained union practices, and so on. A situation like this can lead to an “act of desperation.” In other words, your organization has lost its power and ability to improve as fast as a contractor can (or at least promises to), so this becomes the reason why your maintenance is outsourced.

Temporary scheduled increase in workload.
During scheduled shutdowns and major outages, it is natural that you contract out work. It can be very cost-effective to not only contract the resources for executing the work, but to also have them plan and schedule major outages. However, periodic shutdowns—for example, every five to seven weeks—of a paper machine can, most probably, be managed better by your own shutdown planners.

Core business philosophy. Contract maintenance suppliers often argue, as a selling point, that maintenance is not a core business. Well, if you are a pulp and paper mill, or any other manufacturing plant, I would like to challenge that statement.

Why would maintenance not be a core business, while operations and manufacturing are considered core businesses? In fact, I believe that one of the best ways of approaching outsourcing is to have a manufacturing contract that is not limited to maintenance alone.

In looking at maintenance contracts alone, you should look upon “equipment reliability tasks” as a core business. You can always question if it makes good business sense to have your own carpenters, painters, people for scaffolding, masons, tinsmiths, and blacksmiths. Having the resources a phone call away and no invoice to explain will lead to more use of these resources than is needed. I sometimes wonder how many unnecessary paint jobs—and bookshelves, tables, and other carpentry work—have been done just because the resources were available and the requestor of the work did not need to pay the full cost of it.

Equipment reliability is the result of maintenance work, and it includes such essential elements as maintenance prevention, including lubrication, filtration, alignment, cleaning, and operating practices. It also includes preventive maintenance activities such as vibration analysis, basic inspections, and so forth. I believe all equipment reliability activities should be performed with in-house resources, unless you outsourcing all maintenance on an equipment reliability performance and cost basis.

Lack of skills. If your organization does not frequently use certain special skills, it is necessary to contract for these skills. Even if you train your own people in specialty skills, they cannot maintain them because they do not use them frequently enough.

The present and the future shortage of skilled craftspeople, especially in the U.S. pulp and paper industry, might be one of the best sales arguments for maintenance contract suppliers—if they have these resources to offer. Also, it is not unheard for unions to hold back their own members from receiving training. This fact has never made sense to me, since it should be in their interest to support training of members so that they are competitive with contractors.

Over the 30 years I have been in this business, I have been frequently asked about whether to contract maintenance or not. I would hear these questions more frequently when less capital work was available and supplier companies began seeking work other than capital project work.

In the last two years, the push for maintenance work among suppliers has been strong. Only the future will show how many will remain in this business long term. In this column, I would like to continue to elaborate on what kind of maintenance you should or should not contract out and the reasons why, as well as the characteristics of a good maintenance contract.

INCENTIVES AND GOALS. If you consider outsourcing maintenance, I advise you to set up a contract that includes an incentive for the contractor to continuously perform better.

SERVICE. If your contract is based on buying service alone, there is no real incentive for the contractor to perform better. The more hours they sell, the more money they make, and they can sell more hours if your maintenance needs are reactive. Only the fear of losing the contract will motivate the contractor to perform better.

RELIABILITY. If your contract is based on delivering results, you can create a win-win situation for yourself and the contractor. In most mills, results should be in the following order of priority after safety and environmental issues:

  1. Reliability of equipment.
  2. Cost of delivering reliability.

If there is an incentive for a contractor to deliver reliability, it naturally follows an incentive to prevent maintenance and to perform preventive maintenance, plan maintenance, schedule maintenance, and so forth. In summary, they need a disciplined process in place and a good system to support it.

In selecting a contractor, I suggest that you not only look at their rates, but that you spend the most time evaluating their maintenance philosophy (if they have one), what reliability and maintenance process they will implement, and how they will measure results. Go into detail on the basics of how they would decide whether to prevent—or not prevent—component failures, how planning will be done, how scheduling will be done, which key performance indicators will be used, continuous training of their people, and so forth. This is important, because you must remember that the only thing a contractor can do differently than you is that they can implement a more efficient work system. They can often do this quickly, or at least they can promise to do it quickly. Seldom will a contractor bring in a crew with superior skills to your own.

LONG-TERM CONTRACTS. A maintenance contract should be long term—no less than five years and preferably longer than that. There are many reasons for this. Two of them are included in what Dr. Deming called the seven deadly diseases common to U.S. management. They are “Lack of constancy of purpose” and “Mobility of top management.” My observation is that one phenomenon leads to the other. New managers are called in for fast and, unfortunately, often temporary results. They often change the organization, perhaps only because they want to bring in their buddies, make some cut backs, and then move on to another place before the long-term effects are noticed. The front line of the organization, where the actual actions of new directives have to take place, sees this as a constant change of direction. They start talking about the program of the month and, consequently, they do not change anything and the results of management efforts will be absent.

If this goes on for some time, no sustainable results will be achieved. In this situation, I think a long-term maintenance contract offers a possible solution. The contract has to be founded on the right principles and work processes, because, when these are not changed for a long period of time, your contractor can help eliminate the “lack-of-constancy-of-purpose phenomenon.” With good leadership, the work processes and your results should continuously improve. It could be done without a contractor, but not in a system where a new mill manager or maintenance manager means a new program.

HEALTHY COMPETITION. Almost without exception, maintenance departments have never had true competition. They have monopoly on most work in the mill. A contractor should be seen as a competitor to your own organization. As long as you are competitive, outsourcing of maintenance is not a valid alternative.

About the Author: Reliability and Maintenance Management consultant Torbjorn Idhammar is president of IDCON, Raleigh, NC, a reliability and maintenance management consulting firm, specializing in education, training and implementation of improved operations, reliability, and maintenance management practices.

Feedback on this reliability article is appreciated. Send to info@idcon.com

 

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