Outsourced Maintenance or In-House Maintenance?

[CEwriter]

In the Discussions forum on the Construction Equipment LinkedIn group web page, an equipment professional asks the question that has been raising eyebrows -- and hackles -- in this industry for at least my 20 years here, and surely longer: “Can small fleet operators still afford to have a full-fledged maintenance team or would they rather outsource their maintenance jobs?”

Responses have run an interesting gamut from challenging to equivocating, practical to mincing.

I've written about enough equipment managers who have outsourced some or all of their fleet-maintenance functions to know that it can work very well. The choice seems to depend much more on your business strategy and negotiating skill than it does on the size or makeup of your fleet.

The example of 2009 AEMP Fleet Master, Barrierre Construction, is a lesson in how to outsource using dealer service contracts with fixed trade-ins. Barriere measures equipment quality in the performance of its 266 major pieces and uses that information to guide its partnerships with equipment dealers.

Keeping machines under warranty and/or under full service contracts is inevitably more expensive than holding on to them longer to spread fixed costs over more operating hours. But managing service contracts and fixed trade-ins can be much easier than maintaining repair expertise in an equipped, motivated, accountable and productive service workforce.

It seems the overhead savings balances the cost of trading machines more frequently, and the overall cost difference between outsourcing and doing in-house repairs is negligible. For your trouble, you can end up with a more productive and flexible fleet.

Outsourcing definitely requires a different skill set. You have to be able to negotiate positively with equipment suppliers and draw them into real partnerships that guarantee uptime and share the residual-value risk.

More of this discussion at my blog post, and links to stories about how Barriere in Louisiana and Hunter Construction in Arizona handle the dealer relationships and benefit from having virtually no investment in equipment-support infrastructure.

Have you considered outsourcing equipment maintenance? Why haven’t you done it?

If you have outsourced some or all of your maintenance functions, how long has it been working for you? What has been the greatest value of the choice?

 

[John C.]

I've seen it done both ways and will note that there is a profit margin threshold before outsourcing maintenance can work. Your operation has to be making big money to pay the profit margin of the service organization and figure the turn over on equipment in a trade in program. I'm not sure that in today's economy anyone can afford outside maintenance when they are more worried about keeping the doors open.

Most of the smaller companies don't have a book keeping system that will break out the cost of operation of each machine. Without that knowledge there is no way to make an objective decision on whether to go one way of the other. Most of the owner's I have dealt with over the years only look into the issue when a disaster happens. Usually multiple machines go down at the same time on a sensitive job.

Using outside sources also means that as an owner, you are giving up absolute control of your machinery. It is not uncommon to have a disaster caused by maintenance not performed properly and everyone holding their hands in the air pointing at everyone else. These issues might include damaged equipment, fluid spills and injured personnel. Who is responsible should any of these accidents happen? Perhaps you need an attorney to review the maintenance contract before instituting the program.

The other big issue is who does the tracking of accomplished work. How does your supplier know when maintenance is necessary. Do you have to hire a manager to supervise and schedule or do you just throw the keys to the supplier and trust them to get the job done properly, on time and for the agreed upon payment. What happens on items not contracted for?

The last time I set up a program for an employer we tailored it specifically to our fleet and threw away the standard contract. Fluid prices were set for a specified period of time and we were given the choice of supplying our own when needed for special items. Specific actions were proscribed and check lists generated and given to the service man. We hand picked the service man, gave him an emergency phone number and wrote out a plan for emergencies. All worked well until business slowed down and iron was sitting. The owners at that time decided they could do their own maintenance and the program went away.

I'm not saying it can't work and have seen some examples that it can work very well. I am saying that you will still loose sleep at night worrying that things are getting done properly. Will contracting be cost effective for your operation? It takes a lot of research into operating costs, putting your maintenance philosophy on paper and then negotiating the best deal with your suppliers. In my experience it wasn't any easier than doing it yourself. It could be cost effective.

 

[heavylift]

I worked for companies, big and small... It seems the most heavy maintenance is done in the winter....
I ask on shop foreman at big company,which owned multiple companies, why they did there own oil changes on the small trucks... he said to inspected the truck basically.... they were billed 10 bucks for the oil change... so the trucks would come thru the shop, instead of going to an oil change place..

Little company farms out a lot of it's major stuff... they have 3 parts changers. and 1 mechanic that was pretty good, but he wouldn't go out of the shop. If it wasn't flat out obvious what's broke, then there would be a dealer service truck setting next to the machine

 

[natemcmurtrey]

I've seen it done both ways and will note that there is a profit margin threshold before outsourcing maintenance can work. Your operation has to be making big money to pay the profit margin of the service organization and figure the turn over on equipment in a trade in program. I'm not sure that in today's economy anyone can afford outside maintenance when they are more worried about keeping the doors open.


Using outside sources also means that as an owner, you are giving up absolute control of your machinery. It is not uncommon to have a disaster caused by maintenance not performed properly and everyone holding their hands in the air pointing at everyone else. These issues might include damaged equipment, fluid spills and injured personnel. Who is responsible should any of these accidents happen? Perhaps you need an attorney to review the maintenance contract before instituting the program.

The other big issue is who does the tracking of accomplished work. How does your supplier know when maintenance is necessary. Do you have to hire a manager to supervise and schedule or do you just throw the keys to the supplier and trust them to get the job done properly, on time and for the agreed upon payment. What happens on items not contracted for?

When it comes to outsourcing your maintenance. A reputable mechanic with plenty of background should be the one you use. If you are call the guy that you met while he fueled his roached out shop truck with you at the pump station that morning. Your asking for problems. Know your mechanic before you call him for that big job. Make sure they are insured and have the right documents. If you have enough equipment to have multiple operators than you probably already have someone keeping track of the equipment.

ATCO Equipment puts it perfect in his signature:
"A GOOD MECHANIC ISN'T EXPENSIVE, HE'S PRICELESS"

 

[Hardline]

When it comes to outsourcing your maintenance. A reputable mechanic with plenty of background should be the one you use. If you are call the guy that you met while he fueled his roached out shop truck with you at the pump station that morning. Your asking for problems. Know your mechanic before you call him for that big job. Make sure they are insured and have the right documents. If you have enough equipment to have multiple operators than you probably already have someone keeping track of the equipment.

ATCO Equipment puts it perfect in his signature:
"A GOOD MECHANIC ISN'T EXPENSIVE, HE'S PRICELESS"

I have been receiving calls from larger operations that I would have never thought of being able to get business from. With the shift in the economy lately I have seen many shops have cut their shop personal down to bare minimum and do not have anyone to do any of the unscheduled repairs. JJ

 

[OFF]

I have been receiving calls from larger operations that I would have never thought of being able to get business from. With the shift in the economy lately I have seen many shops have cut their shop personal down to bare minimum and do not have anyone to do any of the unscheduled repairs. JJ

I can vouch for that one.

In the early 80's, the company I work for had 20+ mechanics on staff, 2 shop forman, 1 general forman and a partsman.
Right now there's 3 of us. I'm partsman, forman, run the office, and a part-time mechanic. One guy on the service truck. One guy in the shop.
We'll tackle the bigger jobs when we have time......but if we don't have time I send it out.

It's lean & mean but it's working. :beatsme

 

[RobVG]

This talk about "outsourcing" is discouraging. Owners should understand that mechanics are not just overhead. Say the company's profit margin is 10%. The company has to do $1000 worth of work to increase it's holdings by $100. There are several ways the mechanic can save the company money and for every $100 dollars he can save, it's like a crew doing $1000 worth of work but it's even better- The owner doesn't pay taxes on the "profit" the mechanic generated.

 

[John C.]

Unfortunately it is not the profit motive that thins the mechanic ranks. It the unemployment insurance, social security, medicare, health insurance, vacation, retirement and so on. Loaded costs on a good mechanic run about 30% now. A wrench making $50,000 a year actually costs around $74,000 with benefits and government programs.

Two mechanic's loaded costs will pay the dealer a lot of repair work with a warranty to go along.

I could justify a lube guy, welder/mechanic and troubleshooter per twenty machines less than five years old. Right now it's tough to find a company with twenty machines working.

If you are good with a wrench, I would suggest checking out parallel industries. Agriculture was mentioned but you might also check busses, elevators and escalators, industrial plants, marine and maybe generators. Heavy equipment is going to be very hit and miss for at least a couple of years.

Good Luck!

 

[RobVG]

I was trying to show a good mechanic/manager can add to the bottom line. This is often overlooked.

 

[chrisbowles]

we have 25 pieces of equipment and trucks, we got a mechanic 3 months ago. Its been the best decesion we have ever made. I am so dern glad i dont have to crawl under a machine any more, all i have to do is point him in the right direction and go back in the office to bidding on work. He also is an operator also, so he's either making money or saving money.

 

[EMT]

I look at it this way. I am a company that my customers out source to. So I am only one side of the story. If you can find a company that you can trust, someone that takes care of you, someone who cares, someone who provides monthly and quarterly reports on your equipment. In other words a company that is an extension of you. Then outsourcing is more cost effective.
Unfortuneately most companies(dealers) are too big, dont care, in it for the money, to many gaps in the process, lack of experience in the techs. I have beat it into my personel this " We treat our customers like we would want to be treated and we treat there equipment the same". I go through a lot of personel to get a tech with this mentality. You have to find some one you trust or outsourcing becomes a hassle and very spendy. GOOD LUCK

 

[SterlingR]

I will give my $.02. It is irrelevent what you make on a job or profit. I comes down to true cost of that technician. What does it cost you an hour to have him employed? I have a shop cost analysis form that I have given to customers to fill out when I was selling contracts. When you complete this form it will tell you what it cost an hour for your own technician. I have never had one filled out where the contractor came out lower than the dealer. At one time I had 700 machines on contract. If anyone would like a copy send me a pm with your fax number. I am not saying you don't need technicians. I am saying they cost a lot more than people think or realize.

 

[EMT]

ok, That sounds interesting. Im game, ill fill it out and let you know the true costs.
303-872-3509 send it

 

[SterlingR]

Fax sent.

 

[EMT]

Hey Thank you. I wil fill it out and get back to you on the facts

 

[SterlingR]

I have sent this out to two people. Curious on the results found.

 

[AmerIndependent]

I have sent this out to two people. Curious on the results found.

I didn't fill out the form because we're not in that situation- I was just curious what was on the list. (Very interesting by the way, really hits a lot of points you wouldn't consider off the top of your head)

There are lots of good comments on outsourcing in this thread and depending on your circumstances there is no right answer. As a long time component rebuilder specializing in transmissions I would like to add yet another perspective:

Over the years we’ve seen a repeating pattern as big dirt movers up and downsize in our Southern California roller coaster housing market. When things are blowing and going we are a valuable resource as they would rather concentrate on bidding jobs and figuring out how to move dirt more efficiently. Then the big slow down hits and they understandably try to keep their best mechanics busy by pulling the component work back for in house repairs.

This makes a lot of sense on the surface but a good field mechanic is unlikely to know the intricacies of a transmission and the result can often be frustrating and costly. There is value in experience and the old saying “it’s only nuts and bolts” does not apply to modern machines in which a machine is powered by a complex labyrinth of electronics, hydraulics, and mechanical all working together like a symphony with an on board as the orchestra leader.

 

[EMT]

Ok, great thought! Beautifully Put.

But here this, I filled out the fact sheet. a little over board but it brings numbers to a mechanic's worth.
This sheet does prove my opion on outsourcing Good Mechanics vs company owned mechanics. We can do the job cheaper than a company owned mechanic. We keep overhead low and we are not concerned about becoming a
"fat dealership"
A Good Mechanic will produce, take pride in his work and treat the customer with care. He treats the customer's equipment as his own. A 7-5 company owned mechanic spends company money at the customer's expense and cares only for the overtime.
I want Good Mechanics with morals and a sense of pride for there work, one who keeps the attitude of "the customer is most important". :Banghead That should be the standard. :usa
Dont get me started!
Out sourcing Good Mechanics is less expensive than company owned mechanics and allows businesses to focus on doing what that business does best, construction.

 

[SterlingR]

Had a friend tell me one time while standing in the back door of our shop looking out over the equipment in the yard. He was not going to renew his contract for maintenance. I said OK. Then I said you know what we are going to start doing utilities work. I mean why not we have all the equipment right. His response was but thats not what you do you sell and fix equipment. I said my point exactly. I told him he needed to let us do what we do best and we would leave the utility work to him because that is what he does best.

 

[AmerIndependent]

And what did your friend say?