July 15, 2008 Send It Out

Years ago, outsourcing was a dirty word relegated to the privacy of corporate boardrooms. Today, outsourcing is allocated a more reputable status. It is viewed as a dynamic management tool that can help reduce costs and improve productivity. This proves especially true in manufacturing companies where strategic planning has determined that the company's limited resources must be allocated only to business processes at the absolute core of business success. These strategic processes have been labeled "core competencies." Business processes that do not meet this definition of core competencies become likely candidates for outsourcing.
 
As business processes and economic climates change, so does the definition of a company's core competencies. In today's business climate, production equipment maintenance usually fails to make the list. In this two-part series, we'll explore the various factors that contribute to production equipment maintenance being defined as a noncore competency and examine how companies can successfully outsource this key business function. Part 1 looks at defining core competencies in a changing economic climate and presents a business case for outsourcing production equipment maintenance.

Determining which activities are truly core is a process that has evolved into something quite different from earlier business thought processes. Previously, a core process fell under one of two categories: a process important to a business' success or a process that a business performed very well. The key words used to define core were "important" and "proficient." However, current conversations about core competencies focus less and less on these words. Companies leaders are now discovering certain business processes that are important to business success or at which the company is significantly proficient are not core to the real success of the business.

Rather than looking internally for a new definition, more and more business leaders are turning to their customers to define their real core competencies. Many companies now find that the definition of core competencies centers on business processes that drive why customers buy the product. These processes differentiate a company's product from that of competitors and include a variety of processes, such as manufacturing, engineering, customer service, and distribution. Processes such as payroll, accounts receivable, human resources, janitorial services, facilities and grounds, and security generally do not make the list. Today, production equipment maintenance is often added to the list of noncore competencies.
 
During the recent economic boom, the decision to outsource equipment maintenance was generally made to improve maintenance performance to maximize plant output. With orders at very high levels, the only thing that would hurt plant financial performance would be the inability to make enough products to meet market demand. Although the decision to outsource a key, yet noncore, function such as maintenance was not an easy one, plant managers felt comfortable that the risk involved with outsourcing was not as great as the risk of not producing.
 
With the economic issues facing manufacturers today, the decision to outsource equipment maintenance is probably more viable than it has been in robust economic times. Today, companies are hunkering down and simply trying to get through the economic downturn. Professionals are taking a short-term view of the world-cutting costs wherever and whenever possible. Although the desired outcome of outsourcing today is different than in the past, it is probably a more important strategic and tactical decision than ever before. Plant managers look to improve the effectiveness and efficiency of maintenance. They do not seek to generate greater output but to generate the same or less output at a reduced maintenance cost.
 
In addition to reducing maintenance costs, many plant managers recognize that there are a variety of other benefits to outsourcing equipment maintenance in this slow economy. These benefits include reduced total cost to produce,improved management focus, minimized risks, overcoming internal resource limitations and preparation for the recovery.
 
When economic times get difficult and a plant's backlog of orders dwindles, the usual reaction is to circle the wagons, cut people and costs wherever possible, and try to ride out the storm until the economy turns around. There is no question that minimizing costs when the economy is poor is the smart approach. However, often plant managers focus so intently on cutting payroll, they miss the big-dollar-savings opportunities. Maintenance is one example of this practice.
 
When the economy turns down, most plant managers make the judicious decision to cut the number of maintenance staff. If maintenance was not performing well before the downturn, it is unlikely that a reduced staff will make it any better. When maintenance is performing well, the total cost to produce the end product goes down significantly, and overtime (production and maintenance) is minimized or eliminated because machines are available and running when needed. In this scenario, production can be accomplished in one or two shifts rather than three, or production goals can be met in four days rather than five or six. Much less finished goods inventory is required to meet rigorous shipping demands.
 
However, these savings can only be achieved if maintenance is performing at a level sufficient to sustain a minimized production schedule. If maintenance staffs are going to be cut in down times, their performance must be significantly improved if the plants are going to realize the desired levels of profits. Using outsource contractors for equipment maintenance, and benefiting from their broad-based expertise, is certainly one way to get enhanced maintenance performance with a cut-back maintenance staff.