Firms compare outsourced work to in-house maintenance.
To outsource, or not to outsource? That’s the question you face when deciding who is to do the various maintenance and repair tasks needed to keep the fleet up and running. Most contractors we talked to say they are outsourcing more fleet work, or at least the same volume, as they did five years ago. |
PHOTO: BLYTHE CONSTRUCTION |
But the decision is not simple. The goals: to hold hourly equipment costs to the lowest levels possible—and to maximize uptime. “There’s no one cookie-cutter concept that fits every scenario,” says Michael A. Bates, equipment services division manager at Cajun Constructors Inc.
“You’ve got to do the math every time,” Bates says. “And doing the math includes factoring in the cost of downtime. You may save $2,000 doing it in-house, but spend several thousand dollars in downtime—in labor, transportation, and more.” Based in Baton Rouge, LA, Cajun Constructors is a heavy-construction contractor with a fleet worth an estimated $18 million in replacement value.
“We sub out component remanufacturing,” says Bates, and most of the eight contractors we interviewed do the same. Cajun doesn’t rebuild starters, hydraulic pumps, transmissions, boom cylinders, and most components of similar complexity. For major components, the firm either does an exchange or has them rebuilt.
At K-Five Construction Co. in Lemont, IL, Shop Administrator Dave Gorski knows well that downtime can get expensive. “If an asphalt paver goes down, that’s $4,500 an hour,” Gorski says. “A concrete paver going down can run you up to $18,000 an hour. Because K-Five has a shop that employs 16 mechanics and eight more welders and tire repair people, the firm can often handle repairs in-house. But it’s not a given.
“I don’t do something in-house just to say I can do it in-house,” says Gorski. “It all depends on what is going on at the time. My tendency is to do what’s most efficient for the company. Not always can outsourcing get the job done faster.”
In 2003, K-Five’s mechanics were fully occupied doing other things when oil analysis showed an alert on the transmission fluid in a Cat 988B wheel loader. Gorski outsourced the repair, which turned out to be a gear showing premature wear. The repair cost just $7,500—far less than the $30,000 or more that a catastrophic failure would have cost. “We needed the machine,” says Gorski. “It was used for charging a rock crusher.”
Light Vehicle PM
Like many contractors, Cajun outsources the preventive maintenance (PM) work on light vehicles and pickups. The firm operates some 110 pickup trucks and about 20 cars and SUVs. Of those, about a fourth are leased vehicles, and the rest are owned. The leased deals include maintenance. “Leasing affords us a fixed cost scenario and a closed-in time frame,” says Bates. “We know exactly how much those vehicles will cost us.”
Other vehicles are maintained through the Ford Quality Fleet Care Program, a nationwide plan. Local Ford dealers do the maintenance at various locations and then submit bills to Ford, where they are consolidated and sent to Cajun. Costs for repairs, oil changes, and lube jobs are set at fleet rates that vary somewhat with labor scales across the country.
“We’re very happy with it,” says Bates. “The warranty travels from state to state. If we have a brake job done in Georgia, and the pickup’s brakes fail in Kansas, the warranty travels. Plus, the dealers all submit paperwork to Ford, and Ford gives us a consolidated bill. We don’t have 25 dealers billing us for their work.”
Another plus for the program is that the first burden of approval for repairs, tires, or accessories falls on the dealer. If a Cajun foreman pulls into a Ford dealer and wants four new tires, the dealer will pull up the vehicle identification number on his computer—and must get approval from Cajun’s Equipment Services Division to sell the tires.
Outsourcing Small Machines
“We aim to be the lowest-cost provider of safe, reliable equipment to our company,” says William White, equipment division manager at Blythe Construction Inc. of Charlotte, NC. The company annually places some 150 million dollars’ worth of heavy construction, including earthwork, asphalt paving, and bridges.
“We go to great lengths to measure all our costs,” White says. “And the things we are outsourcing today are things that we have measured and that we can obtain at a lower cost by outsourcing.”
For example, Blythe currently has two projects that are more than 50 miles from Greensboro, NC, or Greenville, SC, two centers of operation for the company. And Blythe chooses to outsource fueling services for those two projects. “It pays for us to have an independent fuel company take a tanker out there, keep those machines topped off, and take the hour meter readings,” says White. Fueling costs, he emphasizes, must include the driver’s time, liability insurance, taxes, depreciation on the truck, and more. If all of those costs total $2.50 per gallon (not a real number), but an outsource company can do it for $1.00 per gallon, then outsourcing is the obvious choice.
Moreover, Blythe has found that renting small equipment and some tools is more effective than owning machines such as pumps, compressors, small rollers, Bobcat skid-steer loaders, and the like. “We’ve partnered with Rental Service Corporation [RSC],” White says.
“We have a single point of contact with RSC,” he explains. “We can call our RSC man in Charlotte and say we need a plate tamper and a compressor, and they’ll deliver the equipment to any location in the Carolinas.” White credits John Sharp, his equipment support manager, with helping set up the rental program.
There’s more. RSC consolidates all Blythe’s rental bills and sends in one monthly statement. And Blythe can go to a password-protected location on RSC’s Web site and gain access to daily updates on equipment being rented—and its cost. “At any given time we may have 20, 30, or 40 pieces on rental, all scattered around on 15 jobs,” says White. “We can go to that Web site and see it all—real-time information as to what we have on rent every day.
“One call does it all: the real-time Web site, the consolidated billing—all those things have made this partnership cost-effective for us,” says White.
Doing It Yourself
Dave Dingey is maintenance manager for Excavating Unlimited, a Columbus, OH, contractor that owns 125 to 150 pieces of mobile equipment, including 18 excavators. The firm employs five mechanics and practices a detailed PM program that is performed in-house. As a result, the company succeeds at keeping costs low. “We look at the manufacturers’ guidelines of costs per hour, and usually we’re under the costs that Caterpillar publishes for its machines,” says Dingey.
If dealer support is not up to par for a given brand of equipment, Excavating Unlimited takes on the job in-house. Currently the company is tearing down and rebuilding one twin-engine scraper, and plans to rebuild a second one as well. “We have a good mechanic who can do the work, and we don’t have the dealer support from some manufacturers that Caterpillar or John Deere provides,” Dingey says.
He will send out each scraper’s two engines and two transmissions for rebuilding. “We bought the two used scrapers recently, and we’ll totally rebuild them this year,” Dingey says.
“We can overhaul engines if we choose, but we don’t do it very often, because there’s no warranty when we do it,” says Ervin Yahr, shop superintendent for Fred Carlson Co. LLC, a Decorah, IA–based contractor with an estimated $50 million fleet (replacement value). “We outsource the repair and rebuilding of transmissions, rear ends, hydraulic pumps and motors, starters, and alternators.
“We used to do a few engines ourselves, but now we outsource them all,” says Yahr. “We just don’t have the personnel with the expertise that engine rebuilding requires. Plus, outsourcing allows us the time to do the things we really know how to do.”
“We do a lot of outsourcing of components,” says Rex Davis, vice president of equipment at RMCI Inc., an Albuquerque, NM, contractor with three full-time mechanics. “We don’t do in-house engine rebuilds or components, and many times we outsource the labor of removing the component to the dealer. We have the ability and the expertise to do the removal and replacement—it’s just more economical to job them out.”
Besides freeing up mechanics to keep other equipment running, outsourcing components means that RMCI’s mechanics don’t have to become experts in several brands of equipment. “It becomes overwhelming to have to know all about a Cat loader, a Volvo loader, and a Komatsu loader,” says Davis. “Even if you’re just replacing an engine, there are certain techniques you use on one that you would not use on another.”
Winter Maintenance
Carlson shuts down construction during the winter, brings the equipment inside, and puts the operating crews to work repairing and maintaining machines. “In the winter we’ll have 40 guys wrenching,” says Yahr. “They’re foremen and operators, and they each have their own expertise. Some guys work on Caterpillar equipment, some work on concrete paving equipment, and some work on asphalt paving equipment.
“For the most part, foremen and operators work on the equipment that they run,” Yahr says. “They need to know how to repair it during the construction season as well.”
Today’s computerized equipment does require more maintenance to be dealer-performed, Yahr says. “The Mack trucks are all computerized, and so are the more recent Caterpillar machines,” he says. “We haven’t bit the bullet to buy the computer to do the diagnostics on Mack trucks or the Caterpillar stuff. It’s hard to justify buying a computer for two out of 20 bulldozers.”
Yahr is not alone. Todd Fulsom is shop manager at Kelpe Contracting Inc. in Wildwood, MO, which operates a fleet with a more than $10 million replacement value. “If you only have a few computerized machines, you can’t afford to buy the computer to analyze the codes,” he says. However, some machines—such as one Komatsu excavator owned by Kelpe—have specific fault codes that come up on a display and enable a mechanic to troubleshoot the problem. “You can look up the code in the manual,” says Fulsom.
Other machines have fault codes that are less specific. “We have some New Holland excavators that have codes to point you in the general direction, but you still need detailed diagnostic equipment for them,” says Fulsom.
Yahr says he keeps spares for components that are likely to break down with any frequency. “It’s pretty much a guessing game as to which components to keep on hand,” Yahr says. “If something breaks down every year or year and a half, it makes sense to stock that component. We keep a couple of rear ends for certain trucks, and we keep starters and alternators on hand for all our equipment.”
Pittsburgh contractor P.J. Dick/Trumbull found it much less expensive to outsource the rebuilding of six Caterpillar D8N dozers than to buy new D8R machines. The dozers, which had some 20,000 frame-hours on them, went back to the dealer for rebuilding. “The rebuilds cost us $220,000 apiece—about half the cost of a new dozer,” says Robert Decker, corporate equipment manager for the firm. “We rebuilt everything—the frame, wiring, hoses, all components were rebuilt—the works.”
Decker and his mechanics have set up GearWatch software (by Profitool Inc. of Centennial, CO) on a network of laptop computers that enables the company to manage equipment maintenance in-house—with no paper. Mechanics log onto the Internet, go to the company’s system site, enter hour meter readings, and within 24 to 48 hours, PM work orders are created. When the work is complete, the mechanic enters the work completed and the hour meter reading again.
“Each of our 15 mobile mechanics has a laptop,” says Decker. “We’ve used this system for about two years now, and the laptops have considerably improved the level of our maintenance. Why? There’s no paper. The mechanics use the laptops for diagnosing machines and for e-mails, and all parts and service manuals are on the laptops. We’ve eliminated buying the big, thick parts books.”
For oil analysis, the contractor turns to WearCheck, an international firm based in Cary, NC. Across the contractor’s $30 million fleet, engine oil, final drive oil, and transmission and hydraulic fluids all get sampled for oil analysis. And three times a year, coolant is sampled as well. The cost is about $10 a sample, and P.J. Dick/Trumbull runs about 2,000 samples a year. Decker figures it’s money well spent; probably 30% of the samples indicate problems ranging from abnormal to severe.
At K-Five, Gorski says oil analysis is inexpensive insurance. His company spends about $10,000 a year to have samples analyzed on a $70 million fleet. Only a small percentage of oil samples indicates problems. Often, he says the problems turn out to be housekeeping errors. Somebody may have used an old antifreeze jug to hold engine oil, and then topped off the engine from that container.
In summary, outsourced tasks need to strike a balance with the work you’re doing in-house. That balance point will be different for every contractor—and much of the decision depends on the situation at the time.