Contracting MRO services could mean trading control for cost benefits

Head games: Strategic considerations and tactical moves influence whether to outsource MRO.

By Mike Bacidore, chief editor

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What business are you in? It’s a time-honored question designed to help companies strip down to their core competencies, often right before they downsize or outsource every function that isn’t one.

Equipment maintenance, by its very nature, isn’t typically a core competency for manufacturers.

“The primary reason to outsource should be based on core competencies, as well as to create value-added tasking for your own employees,” agrees Ron Verweij, maintenance engineer at Heineken Brewery den Bosch, the Netherlands (see the Heineken case history).

“Trust is a key part of partnerships,” explains Ben Keizers, product marketing manager, services, Endress+Hauser. “If that trust is established, a high percentage or even 100% of MRO services could be outsourced over time. Performance agreements are a basis for these kinds of partnerships.” This is exemplified by the partnership between Heineken and Endress+Hauser in the Netherlands. “Heineken wanted to focus on its core expertise, which is producing excellent beer,” says Keizers. “Instrumentation isn’t a part of Heineken’s core competencies, so Heineken preferred to outsource instrumentation maintenance and calibrations. Now Heineken is expanding this partnership to its plants in other parts of the world, such as South Africa. This partnership is based on continuous improvements, which means tracking asset life cycle information is critical.”

Most organizations probably need to outsource when they realize their required workload exceeds 80% of their required workload hours, explains Dan Stedham, asset optimization (AO) services global program manager, operational excellence/AO services marketing manager — Emerson Process Management. “Unfortunately, most organizations don’t know what their definitive required workload is, unless they go through a prioritization and task optimization process,” he says. “Another way to look at when to outsource is to look at the repair cost per unit of work. If an organization finds that its own repair functions cost more per unit of work than the services provided by an outside maintenance provider, the shift becomes attractive.”

Sometimes, however, organizations go beyond that point before realizing the need and benefit, says John Sorenson, director of service operations at Honeywell Process Solutions. “Some indicators will be increased overtime of maintenance personnel, degradation of equipment reliability, increased complaints from operations or the simple reason that the maintenance team is consumed with ‘firefighting’ and spending less time on reliability-based activities,” he says.

Tracking the life cycle of assets is critical when moving from a reactive maintenance mindset to a service management program, continues Sorenson. “Firefighting consumes a tremendous amount of time and energy, while pulling the focus and key resources away from proactive programs,” he explains. “Partnering with an experienced vendor creates advantages, such as prioritizing activities and processes such as tracking asset life cycles that feed into the larger reliability-based programs.”

And so begins the strategic chess match between cost and control. Many organizations move slowly through the strategic considerations that define what they will manage and control with their own resources and which services they will contract another company to perform.

My kingdom for a horse

Maintaining control of MRO is a strategic move that outweighs the potential trade-off that outsourcing could create in cost savings.

But many organizations see contracting maintenance services as a strategic advantage. According to a 2009 study conducted by ARC Advisory Group, the two most common reasons for outsourcing are to gain access to specific skills (23% of respondents) and to focus employees on core needs (21%) — once again indicating the role core competencies play in contracting MRO services.

“If manufacturing is the core business, they don’t want to focus too much on maintenance, especially because modern production lines are becoming increasingly complex and might require highly skilled personnel and special service tools and equipment,” says Rowena Coode, portfolio coordinator, product and process management, for Germany’s SEW-Eurodrive. “Especially if certain skills and resources are used only from time to time, the customer faces the danger that the skills become outdated — know-how fades — or resources can’t be fully utilized.”

The service categories that are contracted vary, but between a quarter and a third of companies participating in the survey indicated they outsourced cleaning and refurbishing (34%), fix or repair (33%), inspections (30%), equipment diagnostic services (30%), turning and calibration (29%), preventive maintenance (28%) and predictive maintenance (25%).

“If you’re producing paper or steel, that’s your core business,” says Magnus Pousette, vice president of reliability services in North America, Australia and New Zealand for ABB, which is contracted to do almost all of the maintenance services for Scandinavian paper and pulp giant Stora Enso’s mills in Finland. “You’ll have a problem recruiting the same level of craftsperson for maintenance because you’re not a maintenance company and can’t provide the same career opportunities as a company that specializes in maintenance. This is when you should look at outsourcing.”

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