FLEET OUTSOURCING, MAINTENANCE CONTRACTING, AND VENDOR MANAGEMENT
By Steve Saltzgiver, Fleet Success Ambassador
Outsourcing select repairs are an integral part of managing a diverse fleet of assets. To what extent and how many outsource repairs a fleet engages in depends on the operational resources. For example, if a fleet has an inhouse repair shop facility, then outsourcing should consist of 10-25% of all specialty repairs. Fleet consultant Kelly Walker recommends 25% in his Professional Fleet Managers Certification program.
Specialty repairs require a vendor that specializes in specific system repairs when operating an inhouse shop may not possess the expertise, special tools, training, or resources. These specialty repairs may include such items as body work, glass repair and replacements, engine replacement, transmission work, and other specialty repair work that the inhouse shop is ill-equipped to manage.
Additionally, there are those fleets who do not operate an inhouse repair facility and must rely on outsourcing 100% of the repairs to capable and qualified vendors. Outsourcing all repairs can be accomplished with an inhouse operation or more commonly by utilizing a fleet management company (FMC), such as Ryder, Penske, Element, Wheels, and a myriad of other FMC service providers. During my practice of fleet management, I have used almost every type of outsource repair vendor, and if managed correctly, all can be effective. Most of these third-party service providers offer a various array of a la carte services that can be selected individually to fit your fleet needs.
Whether managed internally of externally, below are the best practices top performing fleets utilize to better manage people (i.e., techs and vendors), process (i.e., workflows), and technology (e.g., Telematics, interfaces, diagnostics EQ. etc.) effectively.
- OUTSOURCING BENEFITS DETERMINATION
- CONTRACT ESTABLISHMENT AND MANAGEMENT
- SERVICE AUTHORIZATION
- CONTRACTOR/VENDOR PAYMENT
- CONTRACTOR/VENDOR PERFORMANCE MANAGEMENT
In Section 1, we will discuss Outsourcing. We will next discuss Contracting and Vendor Management in next week’s blog.
OUTSOURCING BENEFITS DETERMINATION
Prior to using an external vendor, it may be a good idea to review the primary outsourcing Pros and Cons. Many businesses choose an outsourcing partner or service provider viscerally, without really exploring and documenting their needs without regard to the potential partner’s capabilities.
The most paramount outsourcing pros and cons in an effective outsourcing endeavor are by far experience, trust, business longevity, and solvency. Without these main attributes, any relationship will be destined for failure. It’s important that you take the time and effort to find the perfect partner.
Next, acquire a list of potential vendors before judging the potential outsourcing pros and cons. Then you must discuss and research whether the vendor’s services offered meet your desired requirements. If possible, meet with the potential service providers versus reviewing their websites. Each vendor may offer services beyond what their website or information brochures state. Additionally, there could also be hidden terms and conditions that might affect any decision you make to outsource to this vendor. Next, have the potential outsource partner provide you with a list of clients (past and present) that you can reach out to as a reference. Finally, ensure you perform a Dunn and Bradstreet analysis to ensure the service provider has long-term financial stability.
With the above in mind, below is a matrix that reviews some of the pros and cons related to outsourcing:
| Pros | Cons |
| Allows a fleet to focus on core activities. | Loss of talent generated internally. |
| Streamlines fleet operations and may assist with customer success. | Employees resent outsourcing and internal quality of work may suffer. |
| Allows access to specially repair and service capabilities without resource investment. | Loss of focus on your internal customer service objectives. |
| Distributes the repair and service risk between fleet and vendors. | Creates potential redundancies with internal shop. |
| Provides peace of mind that repair and service transactions are completed by capable and qualified professionals (increased reliability). | Increases anxiety of service provider going out of business (e.g., bankruptcy, etc.). |
| Helps maintain and leverage new technology offerings provided by vendors. | Loss of repair and service process control. |
| Lowers comeback repair frequency, improves overall service quality and downtime. | May stretch service provider resources, lower repair priority, and increase downtime. |
| Provides for additional human capital (i.e., tech shortage) to complete repair and service workload. | Outsourcing work can cause union contract issues that will have to be renegotiated in next collective bargaining agreement. |
| May reduce tool purchases, time and expenses related to specialty services provided by vendors. | |
| Increases control over the repair and service of the fleet. | |
| Allows flexibility for workload changes in an internal shop (i.e., flex demand). | |
| Lower inhouse training expenses for specialty repairs such as engine, glass, transmission, body work, etc. | |
| Reduces span of control ratio between supervisor and number of employees. |
Recalling my NAFA CAFM program study days, a great rule of thumb to remember regarding outsourcing repairs is, “retain repairs and services you do best, and outsource the rest”. The specific tasks to outsource can vary greatly between fleet operations. For example, many shops outsource law enforcement vehicle upfitting. However, while in consulting we ran across several inhouse shops who perform these upfitting tasks quite effectively. Other alternatives witnessed were shops who outsource repairs to internal third parties like State Corrections (i.e., Prison Systems).
Once the data elements are satisfied, managers should entertain these 12 suggested questions (and others) below in determining next steps.
- Are there any budgetary restraints for purchasing vendor services needed?
- Do you have a list of the specific services you would like to outsource to a specialist?
- What are our challenges of handling data with our internal systems?
- How will the vendor provide feed transaction data to our FMIS?
- How will the specialized repairs our shop doesn’t do well be dealt with?
- What tasks does our shop specialize in and what do we do best?
- What distance can drivers travel for repair services that we do at our shop?
- How are after-hours, weekends, holidays, and emergency repairs handled?
- What is the total capacity of our inhouse technicians?
- What specific maintenance tasks should we consider outsourcing?
- What are our fully burdened parts and service rates and how do they compare?
- How will you monitor and hold service providers accountable?
Like any critical program, task, or project, the fleet management team must invest time in the form of prework before moving forward. Before you start outsourcing repairs and services, it is important to first assemble data. The collection of data can come in many forms from stacks of invoices to using data transactions entered in a fully integrated fleet management information system (FMIS). The latter, using an FMIS is obviously the least amount of labor necessary to gather, store, analyze, and compile transactional data.
The type of data necessary is that which can be used to evaluate any fleet operation and determine which services can best be outsourced. These data generally consist of external repair invoices (parts and labor), internal workorders (parts and labor), fuel gallons consumed, overhead expenses, and any miscellaneous expenses associated with managing assets. If your fleet operates a replacement fund, sinking fund, internal service fund (ISF), enterprise fund, or an equipment repair and replacement fund, assembling this information should be rather easy based on the fully burdened rates charged each department for vehicles. Knowing all the actual costs of the activities you wish to outsource is paramount prior to proceeding. Much of the time before outsourcing repair and service work, managers must conduct a cost-benefit-analysis.
Once the costs are known (or best estimates prepared) then the fleet organization can proceed to work with their Procurement or Purchasing team to create detailed specifications for a Request for Proposal (RFP). Once the RFP is prepared then your organization can send it out to those pre-vetted vendors who will likely respond to your solicitation. Upon close of the RFP, the next step is to evaluate several vendors and select those who best meet your needs based on specifications. Always remember, that your inhouse repair operation is competing with these third-party specialty maintenance providers, so it is critical to maintain the data make the best decisions in the future for your fleet.
In next week’s blog we will discuss maintenance contracting and vendor management. In the meantime, if you want to learn more about RTA’s FMIS, please reach out to our Sales team or schedule a demo.