What types of work do you outsource?
Why is maintenance outsourcing more attractive to some fleets than to others? The results of a CCJ survey of fleet managers conducted in January indicate that the answer is highly individualized, based on fleets’ unique environments, their experiences with outsourcing vendors, and their ability to successfully manage those vendors.
But whether it’s a little or a lot, the survey shows that most fleet managers incorporate some form of maintenance outsourcing as part of their missions to keep vehicles on the road, making money, for the highest possible percentage of time. And if outsourcing is a fact of life, you should learn to manage it well.
Specialized services rule
Clearly, outsourcing has its place. Out of 369 fleet-manager survey respondents, 95.1 percent outsource some work. That’s up from the 78 percent found in a similar CCJ survey conducted in 1998. Those responding were a mix of fleet owners and corporate executives and managers directly responsible for maintenance.
In the current survey, about 65 percent of respondents said they outsource 25 percent or less of their maintenance work. On the other end of the spectrum, almost 20 percent outsource 75
On what bases do you select an outsourcing vendor?
percent to 100 percent. Why so much? The reasons are varied, and many cited more than one. The most common reason – cited by 62.3 percent of respondents – was inadequate equipment or facilities at their locations. Virtually tied at about 47 percent each were insufficient personnel and the fact that repairs were done under warranty.
“In-house maintenance has the potential to be more cost-effective than vendor maintenance, because we know our own fleet environment,” says John Dolce, director of the Division of Fleet Management for Essex County D.P.W. in Cedar Grove, N.J. “But there may be maintenance tasks we don’t address on a frequent basis, and we may lack the equipment or expertise to do them, which is a situation where outsourcing is appropriate,” says Dolce, who has authored several maintenance publications.
Dolce is hardly alone. Most respondents outsource specialized, equipment-intensive work, such as collision repair and paint work (76.7 percent) and alignment/suspension work (71 percent). This compares with 81.6 percent and 86.3 percent, respectively, reported in our 1998 survey.
It’s common sense that the more specialized the task, the more likely it is to be outsourced. “Electrical component rebuilding is one of the things we outsource, because it requires expensive, specialized equipment,” says Scott Kimmons of TP Trucking in Central Point, Ore.
On-road breakdown services and tire work also ranked high as outsourced services at 63.1 percent and 55.8 percent, respectively.
“Tire work is one of the few things we do outsource,” says Dale Kinloch, shop manager/technician for the City of Chubbuck, Idaho. “Sometimes it’s a little more expensive but, time-wise, it’s worth it. We also farm out some bigger projects, like frame work.”
When it comes to maintenance, size matters. “We work hard to get our maintenance and repair work into one of our 20 shops,” says David Foster, director of maintenance for Southeastern Freight Lines in Columbia, S.C. “It makes for better quality and faster turnarounds. We’re at 82 percent in-house, up from 72 percent in 1999. And with the planned addition of a new shop, we hope to improve that figure.” Southeastern operates 1,925 power units and 5,991 trailers in the Southeast, Louisiana and Texas.
“Most of what gets farmed-out on the road is tire work and driver-complaint stuff – headlights, wiper blades, etc.,” Foster says. “About the only planned outsourced work is frame and alignment.”
A matter of trust
While almost 67 percent of respondents tap OE dealerships and OE-run maintenance programs for help, local and national independent services are alive and well. More than 55 percent of those who outsource maintenance use independents for some of the work. A similar portion – 56.6 percent – employs the services of a tire dealer/specialist, and 52.8 percent use body-repair shops. Almost 30 percent hire mobile service providers, and only 14.1 percent have maintenance work performed at truck stops.
Not surprisingly, many fleets use a combination of vendor types. “We outsource all of our work,” says Edwin Dazachacon, fleet manager for Southwest Bell Corp. (SBC) in St. Louis. SBC operates some 1,400 light and medium-duty vehicles coast to coast. “We use OE dealerships for warranty work, and we contract with local shops as well as major tire and service outlets, such as Goodyear dealers, Valvoline Instant Oil Change facilities and Pep Boys, in each city where we operate.”
Although the number of service locations is a big consideration for SBC, “we choose vendors with whom we can establish partnerships,” Dazachacon says. “We trust them, and they do what they do well. We have no complaints.”
Most fleets surveyed would agree with Dazachacon’s vendor-selection criteria, with 70.5 percent citing relationship/trust as an important consideration. At 52.3 percent, price was cited next most frequently as an important consideration in the selection of a vendor, followed by completion of work when promised and manufacturer affiliation weighing in at 44.2 percent and 42.3 percent, respectively.
“We do business primarily with a Kenworth dealer and a Caterpillar distributor,” says the City of Chubbuck’s Kinloch. “We have a good relationship with them. They work night shifts, they deliver on time, and they’re up to date on all the latest equipment changes.”
Kevin Costello has found finding good service providers to be a process of trial and error. “It’s a question of cost versus work quality,” says Costello, owner of Newington, Conn.-based Strait-Line Transport, a small fleet that operates within a 250-mile radius. “Dealers and distributors are way too expensive. We’ve found independent shops we’re very comfortable with, and there’s no way we’d go anywhere else, even if our guys were a little more expensive.”
Tonitown, Ark.-based P.A.M. Transport is a good example of an operation that outsources to a variety of vendors. “Our warranty work goes to the OEs or engine distributors,” says Carl Tapp, director of maintenance. “For tires on the road, we use the TA truck stop network, where we have a national Bridgestone/Firestone account. And for our ‘closed loop’ trucks that don’t come home, we use some independent maintenance/repair facilities for selected maintenance that we can monitor closely.” Tapp is less likely to use OE dealerships, however, since “The quality of dealership work, hours of operation, and parts stocks have all been deteriorating.”
Right from the start
For many fleets, maintenance outsourcing is a convenient supplement to in-house efforts. But it shouldn’t become too convenient, advises Dolce. “The danger in routinely falling back on vendors is the lack of incentive to increase internal productivity,” he says.
“The trick is to balance day-to-day vehicle repair needs with overtime and vendor service for peak activity and cost control,” Dolce says.
In other words, make sure you’re outsourcing for the right reasons, not as a Band-Aid for an under-performing, in-house maintenance operation.
Once a reasonable outsourced workload has been established, fleet managers should hold outsourcing vendors to the same quality, efficiency and productivity standards used to judge in-house operations.
Bruce Foster, director of equipment management for a large, Northeast-based fleet, recommends that fleet managers:
- Establish, up-front, standard pricing for commonly used parts and supplies, as well as for “captive” parts, which generally carry higher profit margins;
- Ask the vendor to provide an estimate of the annual cost per mile of your equipment, based on detailed information provided by you. The object is to determine if he can intelligently discuss the concept and work with you to manage it;
- Ask the vendor to provide a brief description of his method of identifying and pursuing warranty opportunities on your behalf;
- Request a list of fleet references, to determine the level of customer satisfaction he’s achieving;
- Arrange a detailed interview at the vendor’s location. This gives you a chance to see his operation in action, – and to firmly establish your expectations.
Staying on top
One of the biggest misconceptions of outsourcing is that it relieves you of the burden of managing the maintenance function. Far from it! You may be outsourcing the actual maintenance work, but successful outsourcing requires close oversight – perhaps even more than if the work was done on your property with your employees.
Bruce Foster recommends efforts to keep relationships with outsourcing vendors current and ongoing. Ideally, you should set up fleet management software to share information with the
To whom do you outsource?
vendor, so you can authorize work, monitor activity, and even flag unexpected or nonstandard repairs for investigation and follow-up.
“Outsourcing maintenance requires very diligent monitoring before and during each job,” says Larry Seal, owner and president of Conway, Ark.-based Pride of the Country Carriers. Seal outsources work to Kenworth, Peterbilt and Detroit Diesel outlets, truck stops and a few independent shops he’s come to trust.
“There must be a clear parts-and-labor cost estimate, as well as hard, fast rules that require the shop to notify the company before any additional costs are incurred above the estimate,” Seal says. “Phone calls must be made to the shop if the equipment is not done on schedule. You have to stay on top of things or costs can get out of hand very quickly.”
“We have five regional maintenance managers who closely monitor our vendors,” says Southeastern’s David Foster. “They continually compare the vendors’ activity and performance against each other and look for exceptions.”
“Our zone managers are in constant communication with our drivers and vendors,” says SBC’s Dazachacon. “And we review daily activity and compare it to our established metrics. It works very well for us.”
It’s understandable that you would need to stay on top of the independents, but you don’t really need to manage the big guys that closely, right? Wrong.
“We’ve got national tire accounts with Michelin and Yokohama,” says TP Trucking’s Kimmons. “But even when dealing with good people, it takes time to oversee the work that’s provided and ensure that you’re getting what you’re paying for.”
When tracking the cost of outsourced work – whether against in-house work or past outsourced performance – be sure to break costs down into comparable data. “We look at cost per mile and per repair order for trucks serviced at our shops and our vendors’,” says P.A.M.’s Tapp. “If you monitor performance, you can improve it.”
And in the end, you need to spend some time on site with your vendor. “It’s management by walking around,” Tapp says. “Sometimes, you’ve got to go visit service vendors and physically see what you’re getting.”
When CCJ published the results of its 1998 outsourcing survey, OEM executives predicted a marked increase in outsourcing over the coming years, saying that lower-maintenance vehicles, shorter trade cycles, extended warranties and environmental concerns would make it harder for fleets to justify the costs associated with in-house maintenance.
And, apart from trade cycles, which actually lengthened, that reasoning still seems sound. Yet, CCJ’s surveys indicate that most fleets – 78.3 percent (up from 65.3 percent in 1998) – anticipate that their mix of in-house and outsourced work will likely remain stable for the foreseeable future.
“Over time, we’ve established good relationships with our vendors,” notes TP Trucking’s Kimmons. “And we’re at a comfortable level. I don’t see us increasing or decreasing our reliance on outsourcing. But as technology advances and trucks become more complex, who knows? It could all change.”
A view from the other side
Oren Summer offers an unusual perspective on outsourcing. For many years, Summer served as director of maintenance for Carolina Carriers. Out of the company’s in-house breakdown center grew FleetNet America. Owned by Carolina Carriers’ successor Arkansas Best Corp., Cherryville, N.C.-based FleetNet America is the nation’s largest independent roadside-assistance vendor for commercial vehicles.
So Summer, FleetNet America’s president and CEO, is now on the other side of the outsourcing fence. But even now, Summer outsources – to a nationwide network of roadside-assistance vendors under contract to FleetNet America.
Contracting out work doesn’t necessarily save you money or improve your quality. The key, Summer says, is to ensure that an outsourcing relationship offers specific advantages, which include:
- Reducing operating expenses by reducing overhead;
- Improving service by increasing availability and improving responsiveness;
- Eliminating pockets of waste by removing non-value-added activities;
- Increasing productivity and efficiency in specific areas of the company by introducing more rigorous procedures and policies;
- Allowing the company to focus on what it does best;
- Reducing development costs by capitalizing on the outsourcing vendor’s superior capabilities; and
- Raising the level of specialization expertise.
The ability to achieve those goals, however, depends on selecting the right vendor, Summer says. Fleet managers, he says, should consider a vendor’s:
- Cost of work
- Data reporting capability
- Existing workload
- Warranty recovering capabilities
- Experience and integrity
- Financial history.
Once selected, it’s crucial that fleet managers maintain ongoing contact and communication, Summer says.
Finally, Summer offers some advice for fleets that have resisted outsourcing in the past due to the hassle. “Information technology is changing the way we do business. Allowing vendors to enter work orders, invoices and other documents directly into your information system saves redundant work at your end and helps ensure accuracy,” Summer says.
A leap of faith
Ten years ago, Carolina Freight Carriers, Cherryville, N.C., decided to turn its maintenance and repair experience into a profit center, and Carolina Breakdown Service was born. It’s since evolved into FleetNet America, the country’s largest, independent, roadside-assistance vendor for commercial vehicles. It’s now a wholly owned subsidiary of Arkansas Best Corp., Ft. Smith, Ark.
Why, you may ask, would a large, successful, for-hire carrier want to help keep other carriers’ vehicles on the road? “Because we were treating the newly-established Carolina Breakdown Service as an autonomous subsidiary of Carolina Freight,” explains Oren Summer, FleetNet America’s president and CEO, and former director of maintenance for Carolina.
“We wanted it to be a business, and we were in it to succeed. And we couldn’t do that unless we gave it our best effort. We decided that anyone who signed on with us would have his/her vehicles treated exactly as we treated our own.”
It seemed a natural fit. “After all, we’d had 35 years experience in keeping equipment on the road,” recalls Summer. “And we must have been doing it right, because we had one of the lowest maintenance costs in the industry.”
Today, the company covers emergency breakdown services, including mechanical, tires and towing, 24/7. Call coordinators have an average of over 20 years in fleet maintenance, ranging from shop management to floor mechanic. “These guys know what they’re talking about,” says Summer. “So when they take a call, they understand the problem and can make intelligent repair decisions.”
Once an appropriate course of action has been determined, a coordinator contacts a member of the FleetNet vendor network near the site of the breakdown, and repairs are begun, either on the road or at the vendor’s facility. The vendor network consists of over 60,000 screened and rated service providers.
FleetNet America currently services over 1,700 trucking clients, three OEMs and two aftermarket service companies.
“We’ve been involved in fleet maintenance for a long time, so we know how much it costs to have a truck down,” concludes Summer “We were determined from the start to do this right, and I think we have.”