outsourcing pro and cons
Contract Maintenance or not? By
(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
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
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
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
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:
- Reliability of equipment.
- 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
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.
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