Selective outsourcing can be a good business decision

May 22, 2003
When it's decision time, you should be able to prove you can do the work as well as any outsider

During the past 10 years, many corporations reduced headcounts by outsourcing some corporate and plant functions. Initially, the concept was limited to non-core support functions that didn't harm plant effectiveness. As the trend continues, core functionsmaintenance, procurement, engineering and even productionhave been added to the growing list of outsource candidates.

Outsourcing critical functions is simply a way to control both short- and long-term costs.

Two reasons

A typical plant workforce, especially in the maintenance department, is mature. In many cases, the majority of the maintenance workforce will reach mandatory retirement age within the next five to 10 years. Given the greater life expectancy of the retirees, corporations face many years of paying retirement benefits to its current workforce. Corporate boards have made the decision to offer early retirement and other incentives to reduce the long-term liability and reduce or eliminate future retirement costs through outsourcing. In addition, the contract labor costwithout fringe benefitsis considered a short-term cost that can be terminated at any time.

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A second reason that maintenance has become a prime candidate for outsourcing is its earned reputation of promising everything while delivering nothing. Corporations have considered, or are considering, outsourcing maintenance simply because it has earned a terrible reputation as an ineffective service function that has absolutely no understanding of how a business should be run. Until plant and corporate management see proof that maintenance managers can use resources effectively and take a proactive role in plant management, the trend will continue.

Being picky

Selective outsourcing is a good business decision, but not as a means to reduce retirement benefits or weed out ineffective management. For example, maintenance work, such as replacing roofs, handling major outages and cleaning up non-recurring tasks, are good candidates for outsourcing. It's impractical and not cost-effective to inflate a permanent workforce just to handle jobs that appear irregularly.

In addition, tasks that require special skills, special tools and equipment or excessive manpower also may be candidates for outsourcing because doing them in-house requires training and spikes in manpower that increase operating and maintenance costs artificially. However, an in-house workforce should perform core functions, such as preventive maintenance, recurring repairs and the full spectrum of routine maintenance.

Getting it right

The decision to outsource should be based on a cost-benefit analysis comparing the cost of in-house personnel to a qualified contractor to determine which generates the best results for the plant at the lowest cost. In many cases, decisions are made because the labor agreements give "right of first refusal" to the bargaining unit, even though outsourcing would be more cost-effective and often result in better quality work. In addition, many decisions to outsource are made simply because the scope of work is something that in-house personnel don't want to do or because of a friendship with an outside vendor or service company. Abuses of the proper decision-making process have helped corporate management outsource entire plant functions.

Making the decision to outsource is relatively simple.

Is there sufficient in-house manpower to complete the scope of work without affecting other required tasks?

Are adequate in-house skills available to complete the tasks effectively?

Can the work be planned, scheduled and completed within the required time?

Will it be less expensive to perform the work using in-house personnel?

If these questions are answered affirmatively, there's really no reason to outsource.

Maintenance is a business. Maintenance contractors eagerly waiting to take over your organization's work have learned that effective maintenance management permits them to do the job and make a profit in the process. If they can do it, why can't in-house management do it?

Contributing Editor Keith Mobley can be reached via email at [email protected].

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