Seek Single-Source Contracts

April 11, 2007
Manufacturers must identify clear, measurable targets that can be used to actively track a maintenance service provider’s performance.
At present, many large manufacturers are using their own staff for maintenance services. In the future, they would like to have a single maintenance service contract for control, safety and field devices from suppliers or third parties. They are looking for suppliers and other third parties who offer comprehensive contracts that promise continuous improvements in the maintenance of their assets. Multinational manufacturers are, of course, looking for parties who can offer these comprehensive maintenance contracts on a worldwide basis. 

Automation suppliers and large system integrators should be well positioned to take advantage of this opportunity by offering comprehensive maintenance services to their customers. Both suppliers and customers will benefit from long-term maintenance contracts that clearly define terms such as response time and spare parts availability. 

Increasing focus

The initial cost of machinery and equipment represents less than a quarter of the typical Total Cost of Ownership (TCO) of a system. The remaining three quarters of TCO are operational costs that include operations, maintenance and upgrades. It is the operational area in which manufacturers are beginning to pay closer attention to the potential for increased cost savings. Manufacturers are demanding extended warranty periods, higher throughput and longer cycle time between maintenance periods.

Several opportunities factor into the maintenance outsourcing decision. Some of these include reducing maintenance cost, reducing unplanned equipment shutdown, increasing equipment availability, reducing hiring and training expenses, and improving equipment performance.

By making maintenance a primary focus, a supplier or a system integrator can be more cost effective in the use of resources and workload leveling. Emergency personnel with special training on complex products can be deployed at various customer sites as needed. This special training and flexible resource utilization can be very expensive and difficult to justify for many customers on their own. Suppliers and system integrators can also gain economy of scale advantages by sharing the costs of specialized spare parts, tools and test equipment across a number of companies. Maintenance specialists can also gain important technical, regulatory and legal knowledge by working on various systems at different customer sites. 

As a service provider, a supplier or system integrator should focus on continuous improvement of the production processes for their clients. They may offer full service whereby they manage their clients’ entire maintenance activities, and compensation is based on performance. This may involve hiring their customers’ existing maintenance personnel who, after training, can drive the maintenance and continuous improvement processes. A maintenance team may establish technical and economic performance indicators to measure success and calculate periodic payments according to the levels of performance. 

While evaluating a potential service provider, it is important to get to know the company. The service providers’ global reach may be of great importance for a multinational manufacturing company. The breadth of experience and technical knowledge of the service provider is of concern, particularly its experience in the manufacturer’s industry sector. The importance of the service provider’s financial stability and its previous track record are obvious.

Once a service provider is chosen, it is time to make sure that both parties understand the key performance targets to be used to measure the success of the relationship in reaching the specified goals. For an outsourcing agreement to succeed, a manufacturing organization must clearly identify measurable performance targets that can be used to actively track the service provider’s performance in reaching these goals.

Manufacturers should consider reducing the number of maintenance contracts, preferably to a single contract for control, safety and field devices that offers continuous improvement in their manufacturing processes and in the maintenance of their assets. They must identify clear, measurable performance targets that can be used to actively track the maintenance service provider’s performance.    

Asish Ghosh, is vice president, Manufacturing Advisory Services, at ARC Advisory Group Inc., in Dedham, Mass.