A positive attitude toward maintenance outsourcing can save your career

Strother Martin said it best in the movie, Cool Hand Luke (1967): “You’ve got to get your mind right!” That’s the key to outsourcing maintenance. If you do it because the accountants told you to cut your budget, or because you want to foil the union, or the plant down the street is doing it, you don’t have your mind right.

With that kind of attitude, you’ll wind up like the Grace L. Ferguson Airline and Storm Door Company. In a classic comedy bit by Bob Newhart, the pilot tells the passengers that the reason the air fares are so low is because, “We have attempted to eliminate what we in the airline business call 'frills' and 'extras,’ like maintenance and radar and a whole bunch of technical instruments up in the cockpit.”

Instead of treating maintenance as a frill and extra, it’s far better to take a positive attitude toward maintenance outsourcing and learn how a proper program can improve reliability, increase the bottom line and keep people working.

Get your mind right
A study by A.T. Kearney (www.atkearney.com) says that many plants outsource services for the wrong reasons. More than 80% of the companies in their study said they outsourced to reduce operating costs, reduce capital investment and concentrate on their core business. Fewer than half said it was to increase speed to market, improve quality and gain faster customer response time. The majority of companies with revenue-related goals reported they failed to meet those goals.

The Mittal (formerly International Steel Group) plant in Cleveland has the right idea about maintenance outsourcing. In 2004, management decided it was important to more clearly identify the root causes of failures, and thereby improve equipment reliability. Their goals were to identify failures, standardize repair reporting, expand repair tracking to all repairable assets, track equipment and use condition monitoring to find equipment that may require repair soon. The plant is still in the process of making all this work, but it illustrates a company with specific goals for its outsourcing. Note that achieving lower costs is not one of the goals.

“If the plan to outsource maintenance is viewed as the plant throwing maintenance ‘over the wall,’ making it someone else’s problem, the plan will be doomed to failure from the beginning,” says Stephen Welch, marketing sales manager at Advanced Technology Services (ATS, www.advancedtech.com). “A common mistake is made when considerations to outsource maintenance focus solely on the ability to reduce cost. Another common mistake is focusing outsourcing efforts on the labor component only. Generally, 85% of problems are related to poor processes, and 15% are related to people.”

Many outsourcing activities are started with no real planning. “I often hear managers tell me they decided to outsource a service based on an article, a vendor pitch or even a company initiative to find activities to outsource,” says Andy Drexler, global marketing leader for services at Honeywell (www.honeywell.com). “No one took the time up front to discover what their desired results were, and what tradeoffs would have to be incurred to reach them.”

Plant managers often have wrong ideas about outsourced maintenance. Welch says some of the common myths and misunderstandings include:

• Outsourcing maintenance is an admission of internal failure: “Traditionally, companies outsourced a function when it was being performed poorly or the processes were out of control,” says Welch. That may have been true once. “In today’s marketplace, outsourcing is viewed as a proactive measure that allows best practices to be accomplished.”
• Control of maintenance will be lost if it is outsourced: Not true. In many cases, you don’t have control anyway. Much of today’s maintenance activity is devoted to putting out fires. With competent outsourcing, the provider produces performance metrics and maintenance data that can lead to a significant gain in overall control.
• If outsourcing is unsuccessful, internal expertise will be lost: Again, not true. Many service providers will hire much of your current workforce, especially those with detailed knowledge about your process equipment. The contractor will actually enhance the abilities of those employees through advanced training, better tools and exposure to maintenance management software. If the outsourcing contract doesn’t work out, the workers are available to return to the plant with more skills than they had when they left.
• Outsourcing will increase costs: Although outsourcing may increase maintenance spending in the short term, as contractors make necessary changes, a good maintenance program will reduce the plant’s cost to manufacture products. Also, the long-term results of a good maintenance program are lower overall maintenance costs.

Martin Michael, vice president of marketing and sales at Advanced Automation Associates (www.aaainc.com), says that outsourcing “helps companies and plants prevent downtime, improves production efficiency and uptime, allows the plants to deal with emergencies immediately, and improves the quality of manufacturing operations. Because of these benefits, outsourcing has an immediate ROI, saving thousands in maintenance and an improved profitability.”

Outsourcing companies follow best practices, so they will help you implement programs such as maintenance leadership, planned and scheduled maintenance, preventive and predictive maintenance, reliability improvements, maintenance materials management and good contractor relationships, says Welch. In other words, they’ll help you implement the programs you’ve always wanted to do.

Now that you have your mind right, let’s look at ways to accomplish a good maintenance outsourcing program.

What should you outsource?
Let’s face it, your maintenance staff can’t do everything. You don’t make them repave the parking lot, right? No, you bring in an outside contractor for that. Halsely Buell of CHBusiness Services (www.chbusiness.com), a maintenance consultant, says there are four types of services you can consider outsourcing:

1. Activities you can do, but are non-strategic and can be done better by others. “This includes housekeeping, window cleaning, security and cafeteria,” says Buell. Most companies today outsource one or more of these services.

2. Activities you don’t do often enough to justify hiring and retaining the required crafts, including roofing, glazing, parking lot sealing, infrared thermography, construction and pest control.

3. Skilled trades including HVAC, plumbing, electrical and computer/network support. “This work is often outsourced to large maintenance management organizations, such as Trammell Crow and Cushman Wakefield,” says Buell.

 4. Activities that are critical to your business and could have an adverse effect on your company’s performance. “These include computer systems development and maintenance, engineering, and factory floor machine maintenance,” he says. “This work must be outsourced very cautiously because any problems can have severe consequences.”

Buell says most companies have already outsourced types one and two, but types three and four are more complex and involve more risk.

No matter how good your maintenance team is, an outside company somewhere is always better able than you are to perform certain maintenance functions. They have better people, better tools, more training and more resources than you have. What you must decide is which of the tasks you are doing now could be done better by a contractor.

Tom O'Reilly, business manager, plant services at Rockwell Automation (www.rockwell.com) suggests you look within your own company first. “Before customers decide on a partner, I suggest that they assess their business goals then look at the capabilities they already have in house,” says O'Reilly. “By understanding their own company and knowing what is good and where the weak points are in the operations, they can find a good partner who will support them by strengthening their weaknesses.”

Alfa Laval, a manufacturer of separation, heat transfer and fluid handling equipment, says you should consider using the OEM to maintain specialized equipment. “In some cases, maintenance organizations have evolved into ‘jacks of all trades and masters of none,’” says Brent Smith, president, Parts and Service Div. at Alfa Laval. “In many cases, our products are in the heart of the customer’s process and, therefore, equipment availability, process uptime and stability are critical financial drivers that make a difference to our customers’ ultimate success.”

For example, Bosch-Rexroth in South Carolina installed an Alfa Laval AlfaPure 2000 separator system, a specialized centrifuge, in its plant that makes hydraulic pumps and motors. Maintenance manager Lamar Williamson feels that he has improved service and uptime by retaining the OEM for service. “With our previous centrifuge we spent tons of money and still couldn’t keep it running,” he says. “Now, whenever I call Alfa Laval for service, they are usually here within a day.”

Setting up an agreement
We don’t want to get into how you can identify contractors, because there are hundreds of them, encompassing everything from narrow specialties such as instrument calibration, to companies that offer across-the-board services. You may even need to bring in multiple contractors for the same equipment. Mittal, for example, has a dozen contractors servicing its motors.

Like Mittal, you should have a plan to achieve your business objectives. Your objectives should be as specific as possible, and you should analyze the costs involved. Most important, says Drexler, is making sure the objectives are actually possible. “Once the desired business outcome is agreed upon, a company considering outsourcing should assure there is actually a path to that outcome,” he advises. “This requires first that the company understand its true cost associated with the outsourcing, and second that they have at least a basic understanding of the benefits they are likely to achieve from the outsourcing.”

Once you know what you want to do, you can start working with contractors. They must enter into a service level agreement (SLA) that spells out what you expect them to do. Buell says the SLA will determine the response and time limits for each repair in a Priority and Preventive Maintenance Schedule (Conformance to Schedule). These time limits should include the hours of response.

“The SLA should also have performance metrics with bonuses or penalties for performance,” says Buell, “such as, ‘98% annual PM work orders will be completed within 30 days of the due date.’ With fixed price contracts, we often see a fee holdback called the ‘at risk’ portion of the contractor’s monthly fee. This holdback is paid to the contractor when they meet the SLA’s key performance indicators [KPIs].”

Drexler says you should consider how you pay your contractor to avoid providing undesirable incentives. “If you pay someone by the hour, they have an incentive to drag the work out as long as possible and little incentive to apply productivity tools,” he notes. “Look for payment mechanisms that are aligned with the measures you want to achieve and tie them into the service level agreement. Just like with an employee, you want a meaningful amount of compensation that varies with performance. Perform well, you get more; perform poorly, you get less.”

Mike Barambi, plant engineering manager at John Deal Coatings (www.jdcinc.com), says, “A maintenance agreement is valuable if all I have to do is use it one time, and it pays for itself.” He had a good experience, where his service provider, Rockwell Automation Global Automation Systems, went above and beyond the call of duty, responded immediately to a service call, and saved the company $20,000 in downtime.

If you have provisions written into your SLA that cover unscheduled maintenance calls and spell out the time of response you need, you might experience the same happy result as Barambi.

Drexler warns to watch out for bait-and-switch tactics. “You should never, ever, use pricing you get from Web sites, presentations or marketing literature for any sort of business analysis,” he cautions. “Use either actual experience from demand work or a written quote for a clearly defined scope of work when doing any sort of price comparison among service providers.”
 
Creating KPIs
The maintenance world is full of terms that define performance and efficiency. O'Reilly of Rockwell Automation says the KPIs that interest you the most in an outsourcing SLA are return on investment (ROI), return on net assets (RONA), and overall equipment efficiency (OEE). “These are the most important barometers of how effectively a company utilizes its assets,” says O'Reilly. “By designing a support program around these KPIs, companies can maximize results and accurately measure progress against the defined goals.”

Define the KPIs that will determine how well the outsourcing provider is performing its task. Some of these might include:

• Cost and downtime reduction
• Throughput improvement
• Quality improvement
• Maintenance cost per unit of product
• Inventory stockouts
• Work order backlog
• Labor utilization
• Machine availability
• Cost per repair
• Average repair time

Because your overall goal is to improve your plant’s productivity, efficiency, quality and customer response, you should determine how outsourced maintenance will help, and then develop KPIs to measure specific performance goals.

“Metrics that better measure the success of an outsourced maintenance program might be maintenance cost per unit of production,” says Welch of ATS. “As production goes up, the cost per unit should be going down. Similarly, as production is reduced, maintenance costs must go down. Another measurement of maintenance might be proactive maintenance compliance. Perhaps the fill rate on maintenance parts out of the storeroom would be an effective measurement. Whatever measurement you use, make sure that maintenance is driving down the total cost to produce and improving the profit line.”

Welch says good outsourcing companies have the necessary software for tracking KPIs. “Maintenance should never be outsourced to any service provider who can’t demonstrate a history of collecting maintenance data and reporting performance metrics for continuous improvement,” says Welch. “If decision-making is going to become fact-based, having access to information is essential. The prerequisite for data collection and metric reporting is a computerized maintenance management system [CMMS]. The CMMS is the heart of any maintenance improvement effort, and I’m convinced that equipment maintenance improvement is impossible without an effective CMMS process.”

Get your own software
As Welch says, most outsourcing companies are up to their corporate ears in maintenance software. This is not just because they use it to justify their existence to their customers, but the software helps them do their job better. Some of these packages include CMMS, condition monitoring, asset management, data historians and dashboards.

The provider will use the software to maintain equipment histories, including dates and details about calibration, repairs, service calls, regular maintenance calls, vibration signatures, motor current draw, operating temperatures and other machine or equipment information. Condition-monitoring software can detect when problems are starting, and schedule maintenance before machines halt. CMMS packages track and manage maintenance activities.

“Here’s a secret most outsourcing companies don’t want you to know: your outsource agreement should clearly state that you will provide the maintenance management system hardware and software at your site and at your expense,” advises Buell. “Also, all data entered into the system and all reports developed for your use belong to you.”

This protects you in the event relationships with one or more providers don’t work out, you have to start over with another, and have to pay a new vendor to install a new system. “This seemingly insignificant aspect of outsourcing will cost you $50,000 to $250,000 when you change vendors,” says Buell. It also lets you manage equipment and repair data from several vendors.

The Mittal plant bought a Web-hosted software system called Tango Equipment Lifecycle Management from 24/7 Systems (www.tf7.com), and requires all its outsourcing vendors to use it. The plant started the program with its 12 motor-repair vendors in January 2005. “Up to that point, repair vendors had been doing their own thing,” says Lyle Bufogle, reliability manager for the Cleveland plant. “Repair shops would provide their own teardown and inspection reports that would often not identify the root cause of failures. Repair reports were impossible to integrate among multiple vendors, not standardized, and not widely retrievable by plant reliability engineers. To gain control, we decided to standardize and integrate the repair reporting.”

The plant had an existing Access database of motor design and history information on about 15,000 motors. This was imported into the Tango database. Next, it trained its 12 motor repair vendors on how to use Tango. Now, via a Web browser, contractors enter repair information into standardized forms, and the plant can use the data to manage motor repair activities.

It seems that Web-based maintenance systems are a hot ticket right now, because they allow your service contractors and anyone else with an interest in maintenance information easy access to the data.

FMC Airport Systems (www.fmctechnologies.com/AirportEquipmentServices.aspx) builds passenger and cargo handling equipment and maintains the equipment under contract to various airports. It uses Web-based Datastream 7i software to manage, track and maintain the capital assets that go into operating gate and terminal services, including bridges, PC Air, baggage systems and facilities maintenance operations.

“This equipment is critical to efficient aircraft and passenger service,” said Colin MacDonald, vice president of sales and marketing for FMC Airport Services. “Datastream 7i gives facility managers the information they need to ensure that their equipment is maintained properly. This helps our customers greatly increase the overall efficiency of their airport operations.”

The software runs on a single server, and airport personnel can access and use the application with standard Web browsers and mobile devices. “The Web architecture permits multiple airports to be supported by a single instance of the server software,” says Larry Blackwell, chief executive officer of Datastream Systems (http://www.datastream.net/). “This radically reduces the total cost of ownership when compared to multi-server client/server deployments, and also provides the universal accessibility that is required by mobile workforces such as ramp services personnel.”

Hudson’s Bay Company operates in 500 locations in Canada, and it outsources its maintenance work to local contractors. Hudson’s Bay uses Megamation (www.megamationsystems.com) DirectLine Web-based software to keep track of the work and costs of the thousands of transactions each day, as well as the inbound work requests from thousands of people. Contractors have access to the system from any remote location.

No failure to communicate
Web-based monitoring is a fast-growing technology that equipment, machine and control system suppliers use to track and maintain their own equipment. Because many control system vendors also perform plant-wide maintenance services, it helps them diagnose and pinpoint problems. These days, some equipment and systems have diagnostics and condition monitoring built in to allow the vendors to support their equipment from afar. 

Like many equipment OEMs, Alfa Laval offers diagnostics for its own products. “As soon as a component shows the first sign of deterioration, our COSMOS service will pinpoint the exact source of the fault,” says Comerford. “It will even tell you if the wrong type of oil has been used in the gearbox.” At Exelon Thermal Technologies in Chicago, COSMOS monitors plate and frame heat exchangers.

Some maintenance suppliers can use this same information to diagnose ills in your plant. Engineers at Advanced Automation Services, for example, monitor a factory’s control and information systems, network connections and data interfaces across the manufacturing process line. Using remote diagnostics, engineers can determine if problems are looming and dispatch emergency repair services when needed.

“This allows us to resolve approximately 80% of all service requests via telephone support and enable us to provide emergency field service response on a guaranteed, rapid basis,” says Michael.
 Improving service response, obtaining automatic equipment diagnostics, employing best practices across your maintenance program, and improving the reliability of plant equipment are advantages of an outsourced maintenance program. And, if you do it right, it can cut your overall costs, too.