Complexity is the No. 1 reason cited for outsourcing.
A fleet’s decision whether to outsource a maintenance task or complete it at its own facility has rested on mostly the same factors for years. Some fleet operators like the security of having maintenance and repairs done in-house – where quality can be monitored more readily – while others find that it’s easier and more cost-effective to farm out varying degrees of the work. So the question of cost versus control might lead any two given fleets to make different decisions on precisely the same maintenance or repair task.
But two trends – more complex and expensive technology, and a tighter labor supply – may increasingly complicate these decisions. These trends generally would suggest a greater degree of outsourcing in the years to come, but old habits and understandable preferences die hard.
Complexity and coverage
In general, work that is difficult, complex or equipment-intensive is most likely to be outsourced. On the other hand, warranty work, regardless of complexity, is usually performed by the dealer.
“We outsource body work and warranty work,” says Jim Partridge, director of maintenance for Alvan Motor Freight, based in Kalamazoo, Mich. “We don’t have the equipment for that.”
Monmouth County, N.J., farms out very little work, but coverage and complexity are the reasons for outsourcing the little work it does. “We will outsource things like warranty work and in-frame overhauls, where our guys might not have as much experience as a vendor,” says John Dolce, the county’s director of automotive services.
When it comes to high-tech work such as fuel systems, “You might do it only once or twice a year,” Dolce says. “In that case, it makes sense to give the work to someone who does it every day.”
Dolce’s philosophy tracks pretty closely with the results of a recent CCJ survey of more than 330 fleet managers and executives, which found that for non-warranty work, 55 percent cite complexity of the repair as the most important factor in the decision on whether to outsource it. Complexity was far more important than length of time to complete the repair, which was next most popular at 21 percent. Only 6 percent identified cost as the most important factor, and for 11 percent the question basically was irrelevant because they already outsource all of their maintenance.
The importance of complexity and equipment investment is clear when you consider what tasks usually are done by a third party even when the component is beyond warranty. Only a third of fleets do their own paint and body work, and only 42 percent do their own engine work, although that number probably is higher for external engine components.
Engine complexity is rising, of course, as manufacturers take steps to achieve ever-larger reductions in emissions. For example, buyers of new trucks face an entirely new component in the exhaust system – a diesel particulate filter. Another round in 2010 will bring – at least for some engine makers – a catalytic aftertreatment for NOx.
And that’s also the beginning of a three-year transition to the Environmental Protection Agency’s mandatory requirements for onboard diagnostics systems to monitor the status of all components and systems related to emissions. Some engine makers warn that the challenge of linking all the disparate systems that affect emissions – and maintaining those links after production – promises to be even greater than the challenge of meeting EPA’s tightening emissions thresholds. Andy Stopka, vice president of maintenance for NationaLease, argues that the trend will be toward more outsourcing primarily due to new technologies and the need for expensive diagnostic equipment.
Warranty status is another major consideration. Not surprisingly, the amount of work done in-house for most maintenance items goes up substantially once vehicles are beyond warranty. For example, only 36 percent perform electrical work in-house when trucks are under warranty, while 73 percent said they do electrical work in-house when the equipment is beyond warranty. Drivetrain work goes from 26 percent in-house during warranty to 64 percent beyond it.
During the warranty period, dealers get the lion’s share of work for everything except PM, brakes and tires. But the shift away from dealers beyond warranty is as dramatic as it is understandable. And it’s not just truck owners doing more of the work. “While under warranty, most work goes back to a dealer,” says industry analyst Stu MacKay, president of MacKay & Co. “But out of warranty, independents do more work than dealers.”
Consumables like oil and tires aren’t much affected by warranty, the survey confirms. More than 73 percent of fleets perform preventive maintenance in-house during the warranty period, and the figure rises only to 82 percent once the truck is beyond warranty. For tires, the difference is even smaller at 56 percent in-house when the truck is under warranty and 62 percent beyond warranty. In the case of both PM and tires, the slightly lower in-house percentage while the truck is under warranty probably results from fleets sometimes choosing to have those chores done at a dealer while the truck is in for other work.
Competence and control
For many fleets, the preference for in-house maintenance goes far beyond PM and tire work. P.A.M. Transportation tries to keep as much work in-house as possible. “Warranty work goes back to dealers,” says Carl Tapp, vice president of maintenance for the Tontitown, Ark-based carrier. Among the reasons for doing work in-house are a desire for more control over quality and an operational profile conducive to centralized or regionalized maintenance.
Southeastern Freight Lines prides itself on doing the majority of its maintenance and repair work in-house. “Last year, we completed 182,912 repairs, of which only 26,415 were outsourced,” says Dave Foster, vice president of maintenance for the Columbia, S.C.-based company. The percentage of in-house work has been climbing, now up to the mid 80s, and the company recently built a new maintenance facility in West Palm Beach, Fla. Foster attributes Southeastern’s success at keeping most work in-house to technician training. The company has its own ASE-like program called ACE (Associate Continuing Education), wherein those technicians who complete the ACE training modules can earn extra money.
In general, more local applications lend themselves to in-house maintenance, of course. “We do all our own tire work,” says Monmouth’s Dolce. “We don’t put on that much mileage, so by the time a tire needs replacement, it’s been five years or so. By that time, the casing’s probably shot, so we just put on new tires in-house.”
But even for those who prefer to do their own work, geographic distance and other factors sometimes make that impossible, or at least impractical. Southeastern outsources some of its maintenance and repair. Much of that is on-road tire work, which has been reduced greatly due to the company’s aggressive tire-pressure maintenance campaign, Foster says. Or the company may outsource maintenance temporarily in new areas of the country where it has started operating – such as Oklahoma, Texas and Arkansas – but doesn’t yet have maintenance facilities. “But outsourcing is pretty flat for us, and not a trend,” he says.
Monmouth County, N.J., operates its own body shop and paint booth. “We like that approach because we don’t need to get estimates, and we don’t have to wait in line for the work to start at a vendor’s site,” Dolce says. “The job is done on our schedule.”
Aside from complexity of work, Alvan also makes its outsourcing decisions based on its in-house workload and the vendor’s pricing. “Sometimes it’s a matter of trial and error,” Partridge says.
Anyone doing in-house work, whether they’re thinking about outsourcing or not, must identify true costs from both sides of the fence, advises NationaLease’s Stopka. A fleet’s self-assessment needs to be “brutally honest,” he says. If you operate a shop, treat it as your own business.
“Parts and labor are the easy part,” Stopka says. “But you need to consider all the other costs, such as office staff and insurance.” And, of course, that doesn’t include the cost and upkeep of the maintenance facility, he says.
What are the priorities in selecting an outside maintenance provider? By far, the No. 1 issue is turnaround time. In the CCJ survey, 45 percent selected that factor as most important. Cost was second at 24 percent, followed by reputation, affiliation with a particular truck manufacturer and location.
Fleet operators considering outsourcing should establish goals and interview vendors until they’re certain those goals can be met, NationaLease’s Stopka advises.
“We keep a database of vendors, and we qualify them,” says Southeastern’s Foster. “It’s really no different from hiring in-house.” Foster suggests doing work audits in-house and in the field. But even if the vendors can do the work, there are other factors to consider – for example, can they offer the proper administrative support? If not, “we reject them,” he says.
Periodically visit your vendors and audit their repairs, P.A.M.’s Tapp advises. Make sure they’re doing what they say they’re doing. Are they using the parts you specified? “We don’t fire bad vendors – they fire themselves,” Tapp says. But if it’s only a one-time mess-up, “we can take them back,” he says.
Although Monmouth County rarely outsources work, except if the in-house workload is excessive, it will have a finished job brought home for a work audit – if the repair is relatively uncomplicated. If it’s more complicated, “We’ll send a supervisor to the vendor’s site, with a technician, to evaluate the work,” says Dolce. “We’re looking to make sure the most cost-effective repair decision has been made.”
For instance, if it’s an older truck with one bad injector, the best solution may be to just replace that one, and get as many more miles out of the unit as possible for the least amount of money. But if it’s a newer truck, it makes sense to replace the whole set and know that it’ll be good for at least a few more years.
The human element
In addition to technology and diagnostics, NationaLease’s Stopka sees the technician shortage as a significant factor in a trend toward outsourcing.
“You just can’t keep them,” Stopka says. That’s because, as good techs are harder to find, salaries have become more competitive. “They’ll leave and go where they can make the most money.”
“It’s a yo-yo,” says P.A.M.’s Tapp. “I’ve seen shops close, especially if underutilized, only to reopen later.” Yes, there’s a technician shortage, Tapp says. “But outsourcing vendors are having the same problem.”
The supply of qualified technicians gets less attention than that of the people who drive the trucks they maintain, but employers face similar challenges. For drivers, the competition typically is blue-collar work like construction and manufacturing. Fleets, dealers and garages are competing not only with each other for technicians but with other industries that involve similar automotive, engine and machine work.
And like drivers, fleets’ demand is expected to be strong in the coming years. The Bureau of Labor Statistics projects that the number of truck mechanics/technicians and heavy-duty truck drivers employed by for-hire trucking companies both will grow by about 13 percent between 2006 and 2016. That’s strong enough, but BLS projects that diesel technician employment by automotive repair and maintenance businesses will grow at twice that rate – 26.7 percent – through 2016.
The BLS prediction of a surge in diesel technician jobs in the automotive sector relies on automobile industry projections for greater sales of diesel-powered automobiles and light commercial trucks due to the desire for greater fuel economy. And BLS sees the demand for diesel engine retrofits in emissions-sensitive areas like California as driving more diesel technician employment.
Meanwhile, growth in the overall U.S. labor supply will slow as the “Baby Boom” generation declines. But if there is a chronic shortage of diesel technicians, will it drive more outsourcing or less? On one hand, a common provider for multiple fleets likely will achieve higher utilization of the precious labor resource. On the other hand, fleets outsourcing engine maintenance might find turnaround times slip substantially and so might prefer to invest in their own diesel technicians.
In the end, the question might not be so complicated. “Lots of operators say they’d like to do more outsourcing,” MacKay says. “But they can’t find a vendor they’re comfortable with.” Chris Brady, president of industry research firm Commercial Motor Vehicle Consulting, agrees. “Generally, fleets tend to do what they’ve been doing.” Management style might just be the biggest factor of all.
–Avery Vise contributed to this article.
Fine and blurry lines
Fleets may be providers as well as consumers
Ogden, Utah-based Auto Transport Group is fairly typical among fleets in what work it chooses to send to third parties. “We also outsource major engine repairs not under warranty to the OEMs, based on our in-house workload and time constraints,” says Brent Larsen, chief executive officer of the automobile hauler.
But Auto Transport Group is also an outsourcing vendor. “We perform all of our own trailer repairs, warranty or not,” Larsen says. “We are a warranty repair facility for multiple trailer manufacturers.”
With significant fixed costs and variable technician workload, it’s not all that surprising that fleet owners would explore ways to leverage their shops’ potential as revenue generators. A recent CCJ survey of more than 330 readers asked what would lead fleet owners to perform more maintenance in-house. Inability to get outsourced work done in a timely manner was No. 1 at 32 percent, followed closely by higher costs and lower quality. But 10 percent of respondents said an opportunity to create a new profit center by doing work for other carriers would lead them to do more work in-house.
And even outsource providers outsource. “While our customers look to us, even we outsource some work,” says Andy Stopka, vice president of maintenance for NationaLease, which merged with AmeriQuest a little more than a year ago. “We’ll send some warranty and engine and transmission work back to dealers. We work closely with them.”
Fleets concerned with turnaround times and quality might find their solution by investing in in-house capabilities and defraying the cost by marketing those services to others.