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Should You Outsource Your Production Maintenance?

Wed, 11/09/2005 - 5:13am
Stephen C. Welch, Contributor
Here’s a guide to help you answer that question, and tips for what to do if the response is ‘yes.’


Outsourcing of IT maintenance is expected to grow as more manufacturers turn to computer-based production technologies.
Many companies have been guilty of viewing production maintenance as a necessary evil or, at best, a cost that is difficult to isolate and control. This viewpoint has led some manufacturers to simply accept their maintenance operation “as is” and, as a result, make little investment in maintenance improvement initiatives. But growing numbers of forward-thinking manufacturers are able to prove that a well-executed maintenance strategy delivers a competitive advantage.

A look at the manufacturing marketplace suggests the contribution that maintenance outsourcing can make toward this advantage, and why it has become a viable option. Recent efforts in the manufacturing sector to become more competitive in the global marketplace have focused on reducing production costs, with the ultimate goal to become the “low-cost producer” in their respective industries. In the process, significant improvements were achieved in manufacturing processes.

However, even as companies made significant investments to improve their manufacturing processes, maintenance was often excluded from improvement plans. In such cases, the opportunity for maximum gains in manufacturing productivity is compromised. This keeps companies exposed to problems with quality control, production levels and schedule adherence, because they are often working with poorly maintained equipment.

Clearly, an effective maintenance program is integral to the success of any manufacturer. Manufacturers no longer have a full reserve of redundant machines or a large stock of inventory to cover for missed production. The manufacturer must count on predictive and preventive maintenance activities to accommodate sophisticated delivery requirements.
Assessing core competencies
The decision whether to improve an existing maintenance operation or outsource these activities is not one to be taken lightly. Perhaps the most fundamental factor in making this decision is determining if maintenance is a core competency. This is a term that’s used a lot, but may not be universally understood. Evaluating a company’s core competencies, for example, does not mean assessing what the company does well. A discussion on core competencies should pinpoint activities that a company must do well if it is to gain a competitive edge in its market. This analysis can be tricky, since companies often have core competencies that they perform poorly and, conversely, have non-core competencies that they perform exceptionally well.

Core competencies are defined as those functions that differentiate a company from its competitors. They are not anything a company does well. Similarly, non-core competencies are not defined as those things a company does not do so well. For example, if research and development is considered a competitive differentiator, it is a core competency whether the company performs function well or not. Because it is core, though, a company must find a way to do it well, and will most likely mean doing it with internal resources. If maintenance is not a competitive differentiator, it is non-core whether it is performed well or not. Regardless of how it is performed, if it is non-core, it becomes a candidate for outsourcing in order that internal resources can be allocated to core functions.

Determining core competencies is a strategic endeavor. Executive management must be the ones who decide what is core and what is not core. And understand that core competencies may change over time as businesses change.
Making the decision
Because maintenance is typically a non-core competency, it’s a common outsourcing option. But a review of existing practices is in order before a decision can be made. This will pinpoint components that are going well and those that are key challenges. Areas for scrutiny include: People As with any business process, finding, training and retaining technically competent personnel is of utmost importance to the maintenance function.

•Management. Consider how easily existing leadership might advance from traditional maintenance practices to Total Productive Maintenance techniques.

•Maintenance processes. Determine existing abilities to perform root-cause analysis, elevate use of a CMMS system, and to track and adapt from performance measurements.

Spare parts and maintenance supplies. Gauge familiarity with the real-time aspects of repair jobs (required downtime, if any, scheduling, etc.), parts procurement, management, ownership, warranty administration and total-cost-to-own issues?

Costs. Determine how well workers and management understand the cost connection between maintenance, uptime and productivity.

A professional maintenance organization can assist in addressing these issues, and help determine to what extent an outsourcing program can help. The argument for outsourcing includes the fact it can provide greater control over maintenance. This may sound strange, but remember that, while some control over actual maintenance activities is lost, outsourcing affords greater control over maintenance results, based on contracted goals and expectations. Another benefit of an outsourcing partnership is that the efforts of key people can be redeployed toward core competencies, which allows all areas of the plant to work more effectively.
Traditional or partnership?
Many companies choose to outsource for traditional reasons. These include reduced labor costs, increased craft flexibility, support of business cycle fluctuations and the implementation of specialized activities. In the traditional scenario, the relationship established between the manufacturer and the contractor is based primarily on providing “bodies and tools” to work within the framework of the existing maintenance operation. In this case, it’s likely that nothing in the maintenance process is changed.

A partnership scenario is based on change and continuous improvement in the way maintenance is performed. A true maintenance partnership means the maintenance partner has complete ownership of production and facilities maintenance, including workers, management, spare-parts procurement, repairs, vendor management, processes, CMMS, technical support, data collection, performance measurements and maintenance results.

Specifically, the partnership is likely to include the following key elements:

• Performance measurements, which are developed and clearly communicated
• Planned maintenance activities
• Maintenance as a competitive advantage
• A mutually beneficial relationship between manufacturer and maintenance outsource provider
• Maintenance best practices, which are established and tracked.
Tips for effective outsourcing

Once the decision is made to review outsourcing as an option, several steps can be taken to ensure the review process is productive. First, prepare a description of the level of service the outsourced partner needs to provide. This should clarify responsibilities, service levels, reporting needs and conformance parameters. Look for companies that assume total responsibility for the maintenance elements. Also, look for an outsourced partner that uses your own maintenance talent as they assume responsibility for your maintenance operation.

Next, make sure you investigate the culture of your potential maintenance partners to ensure it will blend with your existing company culture. This review is critical to finding a partner you trust and feel comfortable working with on a long-term basis.

In reviewing the culture of a potential partner, look for characteristics that are consistent with the culture you are trying to develop and achieve with your own organization. Particularly, you want to learn if the potential partner not only communicates the desired culture, but also demonstrates it. It is highly recommended that you also talk to current customers of a potential partner. Some of the cultural characteristics to look for and ask questions about when evaluating a potential partner include:

• Use of Six Sigma or other process-improvement methodology (continuous improvement)
• Use of a fact-based decision making process
• Use of data and metrics for performance reporting
• History of and policies for treating employees professionally and respectfully
• Company core values
• Employee retention and employee surveys
• Pay-for-performance policies

There are other cultural areas to explore as well, but it cannot be overemphasized how important it is that any potential maintenance partner be able to show culture in practice, not just in talk.

Who actually asks the questions and explores the cultural issues can vary. Certainly the human resources department would play an active role in this activity. And production management needs to feel comfortable that the maintenance culture will align with the culture they are trying to achieve in the plant. The plant manager obviously has a vested interest in the activity, too, so all should play a role in the decision. This is an area of due diligence that should not be rushed. All groups within the organization must feel comfortable that the potential partner can at least complement and, preferably, enhance the desired culture in the plant.

As you progress, ask potential partners for a written proposal. Make sure the proposal covers not only how maintenance will be performed, but how the provider plans to transition from internal to outsourced maintenance mode. Determine if the provider has the flexibility and depth to call on additional resources. Verify that the provider has a comprehensive performance-measurement strategy. The less left to interpretation, the better.

Ask for references, but don’t stop there. Visit plants where the potential partner is currently performing maintenance. Talk to plant personnel currently working with them, especially the plant manager. Inquire what the partner is like to work with. Are they responsive? Can they do what they say they will do? Are they flexible? Are they knowledgeable and professional?

Carefully develop and analyze the price agreement. Although many outsourcing contracts have been prepared on a “cost-plus” basis, the trend is shifting toward fixed-price agreements. These provide clear statements of responsibilities and, therefore, accountabilities. Fixed-price agreements also take the variability out of the maintenance budget.

Most important, begin an open, two-way dialogue with plenty of feedback opportunities. Like personal relationships, the best partnerships occur when the two parties have a high level of respect and trust for one another.

Ready-or-not checklist
If you are on the fence about inviting a maintenance partner into your plant, consider the following questions. Your answers may help you determine whether you are ready to outsource.

• Is maintenance one of your core competencies?
• Do you have the resources to dedicate to an internal improvement initiative?
• Do you have a maintenance improvement plan?
• Do you have metrics in place to tell you how your maintenance organization is performing?
• Do your maintenance expenses vary wildly?
• Will your maintenance organization support your quality certification goals?
• Does your maintenance organization lack leadership?
• Are you having difficulty hiring and retaining good maintenance people?
• Are you having difficulty with machine uptime?
• Are you constantly operating in an overtime mode to keep up with production demand?

Remember that it’s not necessary to outsource everything at once. You can test outsourcing by using it only for specific situations. Such “situational” outsourcing, used perhaps to enhance craft flexibility or support business cycle fluctuations, can be a good way to get to know a potential long-term maintenance partner.

Steven C. Welsh is the sales manager at Advanced Technology Services, a Peoria, IL-based supplier of outsourced factory maintenance, industrial component repair and IT services for top FORTUNE 500 companies.
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