Equipment Type

Outsourcing: A Growing Option

A shortage of qualified technicians has more equipment managers turning to dealers for maintenance

August 29, 2014

Reprinted with the permission of Equipment Manager magazine, the magazine of the Association of Equipment Management Professionals.

Surfacing from the deep pool of recession that washed over the economy and the heavy-equipment industry hasn’t been without its price.

For one thing, the ongoing shortage of qualified technicians shows no sign of improving. If anything, it has become worse due to the economic warm-up. Many equipment managers witnessed the industry’s technician exit, watching as potential candidates moved into other industries. Even equipment dealerships felt the pinch, losing some qualified technicians to some of their larger customers. Now that a business turnaround has begun, those asset managers and dealers aren’t seeing a return to the fold.

Building Quality Relationships

Dan Pitt, CEM, Mulzer Crushed Stone, provided these tips for building a quality relationship between fleet managers and outside third parties:

Start small: Give a third party a few repairs or projects to ascertain the quality of its work and its level of service. If the third party is able to do top-notch work on smaller jobs, it most likely will carry that level on to bigger and bigger projects. Don’t “nickel and dime,” however, by outsourcing only small, low-margin projects with the promise of larger jobs to come. If they have earned your trust and proven to be reliable, they should be given some of the large-scale projects as well.

Visit: Stopping by the facilities of potential vendors can go a long way in letting you know what kind of service they can provide. If the shop looks like it is well run and orderly, chances are this will carry over into the quality they provide.

Open communications with dealers and dealer employees: By knowing what is expected of each party up front, everyone is able to move in the same direction and the likelihood of disagreements will be diminished.

Open communications with in-house employees: By letting your employees in on some of the decisions on what to do in-house versus what to outsource, you can get their cooperation and, just as importantly, their knowledge. This helps you get the value from outside vendors, creates a workforce that is not skeptical of what is happening, and gives them a sense of security. Ask for their advice and allow them to communicate with your vendors as well. This will diminish conflicts and promote a partnership between all parties as opposed to an adversarial relationship.

A strong undertow, or riptide, beneath the shortage is retention. Keeping the technicians you have and providing them with essential training in advancing technology have become much harder to justify, especially for smaller fleets, according to Dan Pitt, CEM, fleet manager for Mulzer Crushed Stone.

On the positive side, however, these challenges have opened up outsourcing options, and Pitt, along with other equipment managers, is paying attention.

“The new engine technology will have an effect on every fleet, regardless of size,” Pitt says. “Larger fleets with in-house capabilities will have to deal with training issues to keep their in-house technicians up to speed as the technology advances.”

Combine that with the dwindling availability of technicians, and it becomes more difficult for smaller fleets to compete with larger fleets, dealers and manufacturers to attract well-qualified technicians, Pitt says.

“To justify the expense of operating an in-house repair facility, you have to take economy of scale into account,” he says. “The question becomes, at what point do you have enough of a workload to justify your own in-house repair facility?”

In Mulzer’s operation, the new engine technology that incorporates diesel particulate filters is one example. The filters have to be cleaned every 200,000 miles, approximately, but Mulzer’s on-road truck fleet is fewer than 50 vehicles. That doesn’t create enough demand to invest hundreds of thousands of dollars in equipment and shop space necessary to change the filters in-house.

“It’s more economical for us to either have our dealer shops perform the service or use a component-exchange system with the dealer,” he says.

Recently, Mulzer entered into an agreement with one of its dealers to begin using a “visibility package that includes the notification of fault codes to me and our maintenance managers,” Pitt says. “This will be a very useful tool for us in diagnosing problems and arranging repairs without having to pull trucks away from customers. Also, it will be a safety factor for our drivers since they won’t have to pull over on the side of the road to call in every time an engine light comes on.”

According to the manufacturer, Pitt says, one benefit of using the visibility package is having Mulzer’s GPS system within the same package as the maintenance visibility package.

“It also provides two-way communication from drivers to dispatchers,” he says. “Currently, we have separate GPS and cell phone providers. This integration into the trucks from the manufacturer cuts down on the number of different entities we deal with and cuts down on the time it takes to manage three different vendors.”

In addition, the system eliminates the costs of installing third-party devices in a vehicle and re-installing them in newer vehicles as they are cycled in and out of the fleet, he says.

Another service option offered by dealers is portable preventive maintenance service, Pitt says. “They’ve offered to bring their lube vehicles to our depots to perform PM during out-of-peak hours without us having to drive our trucks several miles to their facilities.” Pitt described the service as a “viable option” for Mulzer depots located 45 miles from the nearest dealership.

“It would be much more economical for them to travel to us with one truck than for us to have 15 trucks drive to them,” he says.

The range of services available spreads from something as minor as simple grease jobs to total maintenance packages.

“However, as AEMP leaders frequently warn, no business should ever give up total fleet control to a third party,” Pitt says. “That being said, fleet managers can benefit mainly in the areas of recruiting, training and retention of employees by outsourcing some or all of that responsibility to a third party.” 

The speed of technology always leaves a fleet’s technicians in catch-up mode. As a result, for smaller fleets, “training could become too large a financial investment to justify,” Pitt says. “It would appear that a dealer’s shop would have more experience in performing these tasks and could provide a faster turnaround time.”

Another advantage a third party brings to the table, he says, is the use of warranties and performance guarantees.

“In the event of a failure requiring rework, the third party would be responsible for all or part of the rework,” he says.

Komatsu America helps customers become more involved with its distributors and better understand the distributor’s capabilities by performing complimentary maintenance on its machines for the first 2,000 hours or three years, according to Tony Robson, general manager-service.

“What we’ve also found is that with the improved quality and reliability of the machine’s technology, there is less and less day-to-day work for a customer to keep a maintenance department on hand,” he says. “We believe that general day-to-day maintenance on the machine has been reduced for fleet managers. The only thing they will be dealing with is higher advanced technology that needs factory-trained technicians to actually troubleshoot the machines in a timely and efficient manner and keep the machines at maximum uptime.”

There are numerous items that must be reset and adjusted, he says. For instance, Komatsu equipment has a scheduling maintenance program inside the actual monitor that is reset by technicians every time service is performed. “At the end of the day, the customer has a full service history record,” says Robson.

Komatsu introduced its Complimentary Care program in 2011 with the Interim Tier 4 engines, he adds.

“We like to think that that helped customers become comfortable with our distributors and the distributor’s capabilities,” he says. “At the same time, we show the customer that if additional work is needed on other equipment brands, our distributors can work on those machines as well.”

To ensure that a machine is maintained properly from cradle to grave, extended service contracts are encouraged. 

“We do health checks, so to speak, with point inspections to continually keep the machine under check,” Robson says. “We do continued oil sampling, and the customer who has a full Complimentary Care contract has a full line of engineers looking after the welfare of the equipment.”

Komatsu also offers a repair and maintenance contract that its distributors put together themselves. The reason for that, Robson says, is because each market is slightly different. Most of its distributors offer the Maintenance and Repair Agreements at the time of sale, but customers can buy into the program at the end of their warranty.

As for training, Komatsu has programs established with North Dakota Diesel and Technology School and a program with Oklahoma State University for technicians who want to earn a fully accredited degree.

“We offer different financing services, as well,” Robson says. “Customers can look at the planned operating cost of a machine through its life cycle.”

Most technician training these days is OEM-specific, Robson says, and if the technician doesn’t work for an OEM, the training is limited.

“Like Microsoft, we’re at the point where today’s technology is tomorrow’s history,” he says. “Technology is changing so fast that fleet managers who have a good relationship with Komatsu distributors can be assured that the machine can be fixed right the first time.”

Caterpillar works with its dealers to identify those dimensions of service quality, according to David B. Augustine, commercial manager for connected services, Caterpillar. “Product quality is very important, but when it comes to service quality, it is a whole different deal,” he says.

“We’re really looking for a different kind of thing. With connected services, our Cat dealers become the service ‘factories.’ It’s not really about defects or any of the normal quality metrics that we use. However, some are the same, such as reliability. It’s not the reliability of the product, but of the dealer to deliver the service. We talk about responsiveness—are you going to do it when you say you’ll do it—and we talk about assurance, which is probably the most important.

“This is where we want our dealers to grow,” he says. “We want them to be in the services business, to be the thought leader or expert in equipment management, not just the expert in selling and servicing Cat machines.”

Understanding the customer’s business, needs and requirements enables Caterpillar to offer business solutions as well as equipment solutions. The move from selling product to delivering solutions “is a real shift,” he says. “We spend a lot of time doing that and we think that’s one of our success factors.”

Caterpillar offers solutions for any size fleet, he says. “And some customers want to manage everything themselves. Some like to work with Cat dealers to manage their equipment, which we prefer, and then there is the do-it-for-me type customer.”

One Caterpillar dealer, Augustine says, has medium and small customers who “actually subscribe to PM [preventive maintenance] service agreements, not for cost purposes, but for timeliness and convenience. It often gets down to resources, equipment and time.”

Many of the smaller operations do not have good dedicated service facilities or the equipment stays on the job site, so properly servicing it is difficult, he says.

“We’re shifting paradigms a little in terms of technology-enabled services offered through our dealers.”

In fact, Cat introduced a Cat-branded service business called Cat EMSolutions earlier this year that gives customers a choice of five levels of service including: Level 1, which is converting basic telematics data from Cat’s Product Link into useable information; Level 2, which is monthly benchmark reporting; Level 3, often referred to as condition monitoring that includes, among other things, oil analysis and equipment inspections; Level 4, which is PM services and digital inspections of equipment; and Level 5, which is maintenance and repair, “or what the industry calls a Maintenance and Repair Contract,” Augustine says. “Dealers who meet certain readiness criteria will be endorsed to offer that comprehensive set of solutions.”

As these technologies come of age, he says, “we try to make a business out of them. Telematics, for example, is not the business. It is the enabler for our business.”

As each point of the Equipment Triangle strives to maintain quality in a fluid industry culture, there are always unknown factors. Or as Augustine says, “With services, it’s like getting a haircut. You don’t know you got a quality job until it’s over.”

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