In today’s competitive manufacturing environment, maintenance professionals are tasked with improving the manpower efficiency of the maintenance operation, while rising to the task of limiting downtime and providing effective maintenance programs. Past solutions have included limiting the number of maintenance associates with an emphasis on multidiscipline capability.
The inherent weak point is that eventually strong expertise is needed. How does one solve this problem with out increasing the overall direct labor cost, or “over” contracting with large numbers of specialized suppliers?
At Honda Manufacturing of Alabama LLC (HMA), we have chosen to outsource all of the facilities maintenance function. HMA is doing this by contracting with BE&K Industrial Services. BE&K has 17 industrial sites, as well as global construction and engineering divisions. This allows BE&K the flexibility of adding or reducing manpower as needed at the HMA site, simply by moving manpower resources between sites or projects. This includes such areas as engineering, contract management and additional maintenance associates. Meanwhile, a core group of maintenance associates is permanently staffed at HMA. By staffing a core group, BE&K is able to maintain the resident knowledge base. The organization chart is more of a flat line, where barriers are removed, allowing for a smoother workflow and a higher quality of work while still achieving cost targets.
This presentation will attempt to explain why HMA chose to outsource our facilities maintenance and how we have managed our outsourced relationship during the last six years. Finally, we will discuss some additional benefits that HMA did not originally anticipate.
Background
There are two strong realities that exist in the manufacturing world which impact the maintenance environment. The first and obvious one is that we are all in competitive markets that require us to make the best product possible for the cost. Competition is global, and if we are to be viable long-term, we must do everything possible to control our costs.
The second reality is that maintenance is overhead. If machines didn’t break, manufacturing organizations would not need us. Our value to the organization is keeping our equipment ready and running during manufacturing production hours, with the least amount of cost. Additionally, at many production facilities, the production equipment is more complex. Electricity, compressed air, HVAC, even industrial water, not only has to be available, in many cases; the utilities must meet tight control tolerances. With Honda, implicit with low-cost maintenance is high-quality services.
To achieve the goal of low-cost maintenance, we have all become much better in how we manage our maintenance responsibilities. During the last 20 years, I’ve seen the shift from maintenance fire-fighting to maintenance planning and predictive maintenance. We control our inventory and utilize tools like vibration analysis and CMMS programs. As we have become more efficient, we have trimmed our maintenance organizations to reflect our efficiency. The “fat” has been eliminated and probably all of us view ourselves as “Lean Manufacturers.” All of these activities have kept us competitive in the global ballgame. It hasn’t been easy, and it seems like new challenges are always before us.
These are the realities of business. We have to be competitive and we have to keep our costs as low as possible. While we all view ourselves as “lean manufacturers,” the definition is probably much different from company to company. Within Honda, “lean” is a natural result of our operating philosophy. A key component of Honda philosophy is good communication. In order to foster good communication, Honda’s organization structure is very flat. Between the maintenance associate and the company president, there are only four or five levels. Within the maintenance groups, there are no classifications of skills. In order to operate with the fewest barriers and the maximum amount of flexibility, maintenance associates are multi-disciplined and capable of responding to a wide variety of equipment problems.
Honda’s facilities maintenance department is responsible for the incoming utilities, the compressed air systems, all of the heating and cooling system – in short, almost all of the equipment that doesn’t make the car. How we structure our maintenance organization impacts our competitiveness. Each method has its strengths and weakness, and the ideal organization should be plant-specific. Any decision relating to outsourcing, even a portion of the facilities maintenance work, should consider the goals of the individual plant as well as the location and local support businesses
Three approaches to a maintenance organization.
Direct Manpower:
One approach to staffing a maintenance organization is the method of hiring all of the required maintenance associates directly. This method is very familiar to most maintenance managers. The only outside contracted work might be support during plant shutdowns or large capital projects. The shift schedules reflect the plant shifts, and there is a shared vision of operation with the rest of the plant. Administrative policies are held in common and compensation is part of the overall company operation strategy. Cooperation with other employees is easier because everyone is working for the same company. There are no concerns of co-employment and, generally, work ownership is high because everyone has a stake in the success of the company.
However, in a lean manufacturing environment, the organization is flat with limited levels of management. Since the maintenance organization reflects the lean culture, there is also a flat maintenance structure. The maintenance associates must be more diverse and have a higher skill capability. One moment the associate may be working on a PLC program and the next responding to a robot malfunction.
Within the Honda production departments, this is an ideal maintenance organization. While the equipment varies within the department, almost all equipment requires a high degree of training in order to be serviced. Additionally, some of the production equipment is manufactured within Honda. Equipment experts are already part of the organization and, for competitive reasons, it is important to keep this expertise in-house.
However, within the facilities department, the story is a little different. Facilities equipment is largely not unique to Honda or designed specifically for Honda. Centrifugal air compressors, large chillers, pumps, substations and distribution gear can be found in any large manufacturing facility. Maintenance knowledge is widely distributed and equipment experts can be both in-house or outside of the organization. Additionally, the spectrum of facilities responsibilities at Honda is wide. Everything from drinking fountains and restrooms to high-voltage relays and compressor rebuilds are part of the facilities department. In a lean environment, this creates a dilemma for the maintenance manager. On one hand, he needs highly skilled craftsmen to work on complex, large equipment or electrical control systems. But with a flat organization, this same highly trained individual might be needed to unclog a sanitary drain or replace a door closer. The question becomes, is this the best use of maintenance labor dollars?
Partial outsourcing:
A logical evolution of the direct manpower approach is to partially outsource some of the maintenance work. This allows the maintenance manager to take advantage of local suppliers that can do the work more economically than it can be done in-house. However, a core number of maintenance associates remain structured in the organization. The in-house maintenance team is available to respond to emergency downtime situations. They have the skills necessary to return services to normal and to analyze the root cause of the failure. The in-house maintenance group has ownership in their work and understands the values and objectives of the overall organization.
Partial outsourcing allows for efficient utilization of the core team. The minimum size of the core team is based on the ability to respond to emergency situations, whereas the maximum number is determined by the amount and type of work that the organization wants to keep in-house. The question is; how does the maintenance manager decide what should be outsourced and what should be kept as work for the core team?
Looking again at the spectrum of facilities maintenance responsibilities at Honda, work can be divided into three separate buckets:
The first bucket represents approximately 10% to 20% of the work volume and is work that can be outsourced to suppliers more economically than doing the same work in-house. Service agreements can be set up so these suppliers respond at a moment’s notice. The supplier maintains the spare parts inventory or repair parts necessary to do the work that has been outsourced. Since the service contractor specializes in a particular area, the work is normally completed more efficiently. For instance, a rapid roll door repairman may only work on roll doors and see many of the same problems every day. The repair person should be able to diagnose the problem and make the repair more quickly than a maintenance associate who hasn’t worked on the door in the last six months.
This first bucket may also include work that doesn’t require a high level of technical skill. Changing filters in an HVAC unit is not difficult, but if a plant is large enough, the filter changing work is ongoing. Lean manufacturing typically dictates a flat maintenance structure. With a flat organization, a skilled maintenance person could find themselves changing filters and not working in the area for which they’ve been trained. Not only is this a potential morale problem, it’s probably not the best use of the facilities maintenance resources.
The second bucket represents approximately 60% to 80% of the work volume. This work requires trained maintenance personnel and is more challenging than the work represented by the first bucket. While service suppliers are available to do this work, it is work that can be done by the core team of maintenance associates just as economically as it can be outsourced.
Remember that the core in-house maintenance team’s primary functions are to prevent downtime and to respond effectively to minimize downtime when it occurs. The work in the second bucket has the added benefit of keeping the maintenance associate familiar with the equipment and capable of quickly responding to an emergency situation.
The third and final bucket represents 10% to 20% of the work volume. The work in this bucket requires highly trained and skilled associates. It is work that might only occur for a short time once a year. Due to infrequent skill usage, keeping an associate’s skill level high is difficult. For instance, calibration and testing of 13-kilovolt relays only occurs for one day during an annual plant shutdown. When considering the training, retraining and the risk if there is a mistake, it may be better to outsource this work even if outsourced base labor hours are more expensive. Also, testing equipment and the calibration of the testing equipment may not be economically feasible to keep in-house.
So, buckets one and three represent potential work that can be outsourced. The maintenance manager must evaluate what makes sense to outsource. It is never a cut–and-dried decision. Here are a few considerations of outsourcing:
- Are there suppliers/contractors available locally that can perform this work in a timely manner with quick response time?
- How much supervision is going to be required of the outside supplier while he is doing his work? Can this supervision be done by the core team of maintenance associates, or will project management staff need to be increased?
- What are the criteria for determining qualified contractors to even come on-site, and what methods will be used to control access to the site?
- How much administrative burden is being added to the organization in order to issue and track requisitions, invoices and budget?
- Over a period of time, how does the maintenance manager know that a successful suppler is still cost competitive?
Partial outsourcing offers some tantalizing economic advantages, but it requires more effort to manage the overall maintenance program than the direct manpower method. Periodically, the process of deciding what volume of work belongs in which bucket should be re-evaluated. Economic factors change and may increase or decrease the pressure to partially outsource some of the maintenance work. Over time, the in-house core maintenance team may become underutilized due to overzealous outsourcing. At that point, the economic advantage of partial outsourcing deteriorates, although it might not be recognized. Benchmarking maintenance practices and costs against similar organizations is critical to keeping an overall perspective.
Total outsourcing:
The third approach is to completely outsource the facilities maintenance function. This is not an uncommon practice. There are large companies that specialize in this type of work and have been doing so for more than 20 years. It was, however, a new approach for Honda, and we implemented this approach at Honda Manufacturing of Alabama LLC (HMA) near the end of initial plant construction in March 2001.
For us, total outsourcing means that the selected supplier completely replaces the facilities maintenance team. This includes planning, scheduling, hiring, training, emergency response, wastewater treatment operation – everything that is part of facilities maintenance.
The advantage of total outsourcing is that the company selected can provide a complete maintenance package. They have experience at other sites and bring a fresh perspective to the overall management of the maintenance operation. Because these companies have other sites, they have experienced manpower and management teams. They know how to structure a CMMS system and they have flexibility in their organizational structure. An outside company can offer all of this and still provide an economical advantage when compared to the direct manpower approach.
But, what advantage does total outsourcing offer over partial outsourcing? Wouldn’t we want to keep a core group within a new facility?
I had experience with partial outsourcing at Honda’s Marysville auto plant for 10 years prior to coming to Alabama. I was very familiar with the positive and the negative aspects of partial outsourcing. Through partial outsourcing, the number of contractors had grown to almost 70 and it had created an administrative nightmare. The distribution between in-house and outsourced work was out of balance. Still, even with a redistribution of work, I believed I would be able to reduce the number of outside companies to no fewer than 35 and most likely higher.
If there is a time to experiment with total outsourcing, it is when a plant is brand new. It is simple to transition from total outsourcing to partial outsourcing, but the reverse is much more difficult. In addition, I believed that we would realize the following advantages.
- The negotiated overhead/profit with one company would be less than the sum of the overhead/profit of 35 or 40 companies.
- Since the organization is an outside company, they can structure the work shifts to best accommodate the required coverage. In our case, we have 24/7 coverage and do so with four crews working 12-hour shifts.
- Finding qualified maintenance associates is easier because of the size of the parent organization. National companies have multiple sites and are often linked with either construction or engineering companies or both.
- Total outsourcing would maximize the flexibility of the maintenance associates.
- If successful, the role could expand to include small capital project crews or additional support during shutdown.
We chose BE&K Inc. of Birmingham, Ala., as our maintenance partner. BE&K is a global construction and engineering company. Industrial services is a branch of the construction division. BE&K Engineering was the A&E of record for the plant in Lincoln, Ala.; they continue to provide engineering services in support of expansion projects.
We are now into six years with our maintenance partner. During the past six years, we have both learned what we believe is required to have a successful totally outsourced program. Though there have been bumps alone the way, I believe that overall we have a program that has exceeded our expectations.
In order to make a total outsourced program achieve the highest potential benefit, there are a few items we believe to be critical.
While a “hands off” approach can work on a total outsourced program, we believe that close partnering with our supplier achieves the best results. A benefit of the direct manpower and partial outsourcing approaches is that there are still associates who are part of the company. There is an understood philosophy and ownership that comes with being a Honda associate. When our facilities maintenance program was outsourced, we knew that we would have to take steps to transfer our philosophy and build ownership with our maintenance partner. We have done this by sharing offices and having the maintenance associates wear a uniform similar to the Honda associates’ uniform. We teach BE&K our business philosophy and include them in our budgeting and planning processes. All of these activities build ownership and an understanding of our business objectives.
The on-site BE&K management team prepares monthly and quarterly reports. These presentations are given to the facilities department manager as well as other senior managers. Their reports are structured to fit the Honda style of reporting and are shared with other Honda plants in North America. It is important for a maintenance partner to understand that they are not operating in a vacuum – that they are an integral part of the operations. Monthly, quarterly and annual reports can foster inclusion. This transparency also builds trust between the client and the service provider.
Finally, there must be a flexible understanding of expectations. What worked two years ago may not be valid today. Organization structures, shifts schedules, even approaches to data tracking and reporting must be flexible enough to change with the demands of the time. Flexibility of the owner and the maintenance partner is critical for long term success.
Additional Benefits
In the six years since beginning our total outsourcing program, we have made many adjustments. In that time period, the amount of plant square footage maintained has doubled, while our maintenance staff has not. We have been growing so rapidly that we identified a need for some short-term engineering support. BE&K has been able to provide that support on an “as needed” basis. Because of that company’s size, it is able to shift job assignments and move associates between sites or its home office. As an example, our growth added complexity to our CMMS system and we needed a person with a higher skill level to assist us with making our CMMS system the most efficient it can be. This individual became known with in the plant as an “expert” and is now supporting other departments within HMA.
Based on the success of the facilities maintenance group, facilities has been able to start a small capital project group. This group assists other departments with modifications ranging from an office relocation to a power feed for new equipment. This group consistently saves 10% to 15% of installed costs compared to an “outside” contractor.
Benchmarking cost data to other North American Honda facilities, the cost per square foot of maintained space is running around 10% less than the other plants. This is after factoring in the age of the facility and replacement costs of worn equipment.
Summary
There are many ways to approach a maintenance organization, and I have reviewed just three methods based on the experience gleaned at Honda. The key point is that any method works, and each method has strengths and weaknesses. Picking the method that works the best is dependent on the individual plant’s goals and objectives as well as the location of the plant.
Whichever method of outsourcing is chosen, there is still a requirement of strong leadership by the maintenance manager. If the total outsourcing method is the selected approach, then partnering with the maintenance company is critical for long-term success and maximum benefits. It has been our experience at Honda Manufacturing of Alabama that total outsourcing of the facilities maintenance department has been a success. If given the opportunity, we would repeat this approach.
By Mark LaRue, Plant Services Division Manager, Honda Manufacturing of Alabama
Originally published in Noria’s Lean Manufacturing 2007 Conference Proceedings