Outsourcing Maintenance: Is it Profitable?

By: Steve Krone, Nutec Facilities Corp

Does it make sense for industrial maintenance departments to outsource maintenance? And, if so, is it profitable or value-added? The answer to those questions depends upon whether the intent is to support Facility Services or Process Maintenance Services on hi-tech machine tools. 

The answer could be “yes” for both areas, provided that the contract language for services as well as corrective action steps are developed prior to contractor selections.

Maintenance organizations seldom implement training programs to enhance maintenance staff capabilities. Staff learn on the go, and as they approach retirement age, these senior staff are frequently on their own, without junior staff to learn the skills necessary to work on the equipment and move into the retiree’s position – it is just too expensive for most companies to justify.

Maintenance organizations consistently strive to measure the effectiveness and efficiency of the maintenance departments, even going as far as to describe the department as a “cost center.” However, when you ask the question – what is maintenance? – the reality is that the departments don’t create a product or provide revenue. They are an expense to the organization.

Maintenance is evaluated by the length of time it takes to perform a duty. Departments strive to reduce the downtown on equipment by measuring the mean-time between failures (MTBF) and mean-time to repair (MTTR). Both of these measurements support reduction in downtime stats. However, these stats often drive a different behavior that prevents achievement of the true 85% or better Overall Equipment Effectiveness (OEE) levels required by operations to produce a product. Because of this, work orders are seldom entered into the work order system and accurate information is not provided to accounting and manufacturing engineers to evaluate the next criteria equipment for replacement with capital each year. This drives the wrong behavior as it relates to organizational downtime stats for production / maintenance to use as an accurate tool for improvements and information flow.

Facility Services typically perform work on equipment that has very detailed preventative maintenance instructions. These instructions should exist to ensure that staff does the same thing the same way every time and without errors. Maintenance staff that are provided with systemic instructions about the preventative maintenance routine can thus perform their work in a reasonable time with average knowledge. In these cases, the maintenance organization can save approximately 20% per year, lowering expenses when compared with the normal yearly expense costs when using facility service outsourcing.

Examples of these types of jobs include:

  • Maintaining plant lighting
  • Preventative maintenance on HVAC equipment
  • Hoist preventative maintenance to meet OSHA Standards
  • Building painting
  • New and relocated equipment installations
  • ARC Flash and Lockout/Tagout equipment tagging
  • Various utility drops to equipment
  • Toolroom services
  • Parts distribution including maintenance and production
  • Vehicle repair
  • Cleaning services

Process maintenance services on equipment varies when using outsourced maintenance services. The key question to ask is whether or not the repairs and/or preventative actions required are 80% of the work orders created for maintenance staff. If so, then a structured method should be developed. In many cases, the Work Order system creates a history of how the equipment was previously repaired, what was repaired, and which parts were used for the repair. If this information is provided by the maintenance staff at the end of each work order, many instructions and/or methods can be developed for future repairs.

The most effective process maintenance organizations are run similar to industrial quality control departments. The emphasis is to repair the equipment with very high standards and, when a repair does not work – failing within a short period (MFBF) – finding the root-cause, developing a corrective action, and communicating with every maintenance person on the every shift. This “root cause analysis” report should be the talking point among staff every day, immediately after safety discussions. This will create an automatic continuous training program that improves the abilities for each employee and involves everyone in the solution – even if a solution is wrong. If the maintenance staff does it the same way across every shift, corrections to the “root cause” can be implemented across all shifts, preventing the “leave it for the day shift” mentality and positively impacting production.

When developing contracts for outsourcing maintenance, the area most overlooked by purchasing departments is material costs. The general rule is that 50-60% of the cost of a repair is related to materials. This number may actually triple when outsourcing maintenance during the first year because of staff education about the type of equipment. Outsourcing contracts should include a provision to lock in the maximum amount of material costs per year, with the contractor, as well as required employee training for a designated amount of hours annually. The contract should also include root cause analysis reports for every item over a certain dollar amount or hours of labor to repair.

Going back to our initial questions: does it make sense for industrial maintenance departments to outsource maintenance? And, if so, is it profitable or value-added? Companies should maintain 25% of the internal staffing level for hi-tech repairs and history development. The remaining staffing can be outsourced to meet OEE levels and production variations. Outsourced contractors should be required to provide monthly matrix reports encompassing how and what they are doing to improve OEE and root cause analysis reports to the internal maintenance manager.

Outsourcing is a key tool for reducing enterprise expenses – typically by 20%. Companies need an internal manager to oversee the results provided by the contractor(s), not manage the maintenance staff. This allows the maintenance manager to oversee other areas like the Toolroom, Parts Storage, and areas the contractors provide, thus spreading the strategy across every indirect department. Yes, outsourcing is profitable and will improve the overall every-day service if properly management by a maintenance supervisor.