Outsource? Internalize? It Depends.
Klaus M. Blache | June 16, 2020
By Dr. Klaus M. Blache and Dr. F. H. (Skipper) Yocum Univ. of Tennessee Reliability and Maintainability Center (RMC)
Q: Is it better to outsource or internalize maintenance functions?
A: Why outsource? The plants of the first company are located in industrial regions where many skilled workers are available. The company’s maintenance structure is a maintenance manager with planners and subject-matter experts (SMEs). They determine routine- and corrective-maintenance requirements. Planners and SMEs develop detailed work plans, including skilled labor, tool, and parts requirements. The planners work with operations and the contractor to schedule the work.
SMEs are available to support the contractor, if needed. The contractor provides the maintenance crew, a combination of regular/reactive/additional workforce, as required according to the schedule. The contractor must meet performance KPIs and follow the company’s safety procedures. The contract is bid annually to keep cost competitive. Benefits given for this approach were: contractors provide the skilled workforce, safety and skills training, and human-resources function, all of which reduce the company’s burden. In addition, the contractor can share these costs over several companies.
The second company is a global steel company, headquartered in Latin America. They have a similar maintenance approach (maintenance leader, planners, and SMEs supporting outsourced labor). They also benefit from advantages provided by the country’s labor laws and union requirements. Both companies are pleased with the outsourced approach and have good maintenance performance. These companies believe the advantages outweigh paying a higher hourly maintenance rate.
The other extreme is to internalize all maintenance functions and skills. This approach is typically used for proprietary reasons, primarily keeping equipment and process knowledge confidential to maintain competitive advantage. One chemical company used all internal maintenance on a new process and contractors needed non-disclosure agreements, were highly supervised, and limited to specific equipment or applications.
Approximately 80% of companies use a combination of internal and external resources, with criteria such as:
• Is the work or application routine enough to justify the investment in the skills and equipment, compared with the cost for outsourcing?
• Do regulatory requirements dictate an external licensed contractor?
• Is an OEM or licensed contractor needed to perform work to maintain warranties?
In recent years, as vibration analysis, thermography, ultrasound, and motor-circuit analysis became proven approaches to predicting failures, companies tended to contract the maintenance work. The cost to buy the monitoring equipment, train
employees to properly use it, and analyze the data was too high. Too often the reasoning was, “Why train our technicians only to see them leave for a contractor.”
Ten years ago, a major steel company made the decision to internalize use of predictive technologies. The justification was that, too often, contractors were not available when requested or, when they visited, equipment was not available. The transition was initiated by selecting reliability technicians that had good work performance, demonstrated a desire to learn new technology, and were involved in their families and communities (enhanced retention). These individuals would be assigned to work with contractors to observe their techniques and practices.
Training was provided to achieve Level 2 vibration-analysis certification and minimum Level 1 certification in thermography and ultrasound. The reliability technicians would then perform data collection and analysis. Benefits were recorded and, if a false alarm happened, a root-cause analysis was performed. Full acceptance was established when operations personnel started asking reliability technicians to use their predictive tools to evaluate a potential problem. Documented benefits (after two years) showed a minimum annual savings of five times the equipment investment and compensation costs for the reliability team, along with improved equipment life and reduced maintenance costs.
As on-line vibration monitoring and analytics technology advances, the reliability technician’s role is transitioning to that of prescriptive maintenance. Many excellent vendors are offering prescriptive services which, again, brings us back to the question of whether to contract or internalize. The decision will always be influenced by your company’s culture, work requirements, skilled-worker availability, and economic analysis. Only you can decide which direction is correct. EP
Based in Knoxville, Klaus M. Blache is director of the Reliability & Maintainability Center at the Univ. of Tennessee, and a research professor in the College of Engineering. Contact him at email@example.com.