The true cost of outsourced maintenance

The True Cost of Outsourced Maintenance and How To
Compare Vendors
"The least expensive vendor is not usually the one with the
lowest bill rate"
Femi Esan
MBA, MTM

Investment In Vehicular Transportation In Africa – Nigeria in
Perspective
INDEX CONTRIBUTION AFRICA NIGERIA
POPULATION 15% 1,246,504,865 191,835,936
VEHICLE POPULATION 16% 104,413,936 16,306,055
PERSONS PER VEHICLE AVERAGE 12 12
INVESTMENT $0t 10% 17.9 1.8
PRODUCTION NONE NONE
COLAPSE RISK LEVEL POSSIBLE 72%
FLEET MANAGEMENT MASTERCLASS - (TRUCKMASTERS NIGERIA LIMITED)
2

Maintenance management had gone beyond just sending your vehicle to
everybody and determine or define cheap as the best, or define most expensive
as the premium brand.
Cost Of Maintenance In Practical Assumptions
You cannot therefore use assumptions without empirical facts to determine
true cost of maintenance.
Getting the facts together depends on individual organizations maintenance
concept and situations.
Hypothetical Statements must first be made inline with the followings:
Company Maintenance Policy
Defined Maintenance Concept & Theme
Maintenance Terminal Budget – (3, 5, Lifespan)
Availability Of Projections (for Budgeting Purposes)
3

Other Practical Assumptions
Other Hypothetical Statements that is needed to draw up a complete
maintenance agreement are the followings:
Company Concept Of End Of Use
Expected Disposal Value In Principle
If you have these knowledge, you will have a good running vehicle maintenance
management system.
Resultant = (Stress free + Timely Use + Cost less + System Value + Accident Free +
2nd Hand Valued).
4

Topic Objective
It is important and worthy of notes that most organization are not getting what
they expect from maintenance and this is because they don’t really know what
they “WANT” and tend to just achieve what they “NEED”.
This topic will treat the identification of what organization should be targeting in
“WANT” level of concept and the application of HERBS potentials to achieve
“HERBS”.
What is HERBS? HERBS is an achievable solution to various Wants in vehicle
maintenance in synonym. H E R B S
Highest Obtainable Level Of Utilization
Established Comfortable Usage & Management Process
Reasonable Cost Of Maintenance
Best Lifespan Available
System
And with assistance you will be able to achieve HERBS in the organizations
5

Introduction to HERBS Concept
1 Understanding Maintenance
2 Maintenance Of Choice
3 Maintenance Plan
4 Maintenance Budget
5 Maintenance Centers
6 Maintenance Parts & Materials
7 Evaluating Maintenance
8 The Next Budget Planning Session
9 Advantages Of Planned Maintenance
10 Achievement Level
Extensive discussion on the topics below will at the end of this seminar open the
individuals to the concept of HERBS and determination on going ahead will be set
by your organization.
The content are:
6

Understanding Maintenance
What Is Maintenance?
What Is Quality Standard?
Types of Maintenance
 Maintenance are the activities involved in form of routine to put vehicles,
machines and equipment back into a near new states. In continuity, you
might want to adopt a typical maintenance for groups of operating vehicles.
 Quality is a measure of Standard as set previously by a body, committee or
authority to align with an expected result or achievements. In this case
(vehicles) it is the directive by Manufacturers, Licensing Authorities, and
Country Specifications.
For instance, SAE, DOT, API, SON and Producer
7

Breakdown Maintenance
Preventive Maintenance – Standard Value
Predictive Maintenance – Added Value
Proactive Maintenance – Premium Value
Breakdown Maintenance
This is the minimum level of service that is delivered and carries mainly two – three parts
Replacements. Inspection level is dependent of complaints, this is found in the Service Stations
and at all Roadside Garages. Attributes: Owners Standard, Very Cheap, Parts
Originality is off concept. Advantages: No time wasted, Parts sourcing is at disposal. Labour
Cost is Cheap. Reliability Level is 28%
8

Preventive Maintenance – Standard Valued Service
This is the factory specified service and therefore qualify as a Standard Valued
Service. It specifically follows the manufacturer’s specifications, schedules and
timing. All servicing parts and materials are specified, The staff are trained to
follow up on checklists and quality standards.
Predictive Maintenance – Added Valued Service
This is in addition to factory specified service, other things that might get spoilt
before the next routine service are identified through inspections and solved,
saving discomfort and breakdown. Therefore value is further added to Service. It
specifically follows the manufacturer’s specifications, schedules and timing. All
servicing parts and materials are specified, The staff are trained to follow up on
checklists and quality standards.
9

Proactive Maintenance – Premium Value Service
Proactive maintenance is the APPLICATION of PREMIUM material content in
Maintenance. Apart from factory specification, the parts and materials are
of premium quality to withstand the environment of use? The Premium Service
guarantee increase in reliability of service. It follows the manufacturer’s
schedules/timing and authorization regulations. The staff are trained to follow up on
checklists and quality standards.
BREAKDOWN
Non-Scheduled
Non-Routine
Any Part Quality
Any Material Quality
No Warranty
No Assurance
PROACTIVEPREDICTIVEPREVENTIVE
Schedule/Routine
Dealer Part
Service Warranty
Standard Assurance
Schedule/Routine
Dealer Part
Service Warranty
Added Assurance
Up-Inspection
Schedule/Routine
Dealer Part
Service Warranty
Premium Assurance
Up-Inspection
Material Content
PROTECTED X 10

Maintenance Of Choice
What is your policy on Vehicle Maintenance?
What is your policy on Vehicle Maintenance Budgeting?
What is your projected cost of Maintenance?
How do you arrived at these figures?
Organization Maintenance Policy
It is common that organizations only have a maintenance management processes
and not the policy itself. This will address only contract awards, cost comparism
and budget.
Addressing process will not address:
 Quality and Routine Standard
 Evaluation of Service Delivery
 Trends and Relationship
 Controllable Structure in Maintenance Management
The maintenance vendor is thrown out of process, so is the controlling.
11

Organization Maintenance Policy
Now that we have the understanding of what maintenance is, there is a strong need
to address policy and the suggestion is to draw-up a policy along these theme:
Operation Vehicles Heavy Duties Km/Year
Operation Vehicles Light/Medium Duties Km/Year
Status Vehicles Medium Operations Km/Year
Status Vehicles Light Operations Km/Year
Status Vehicles Executives Km/Year
Heavy & Earth Moving Equipment Seldom OperationHours/Year
Heavy & Earth Moving Equipment Heavy Operation Hours/Year
Generators Operations Hours/Year
Specific Team should study the trends on these items and decide what form of
schedule and weight of delivery is necessary for each vehicle & machine. The
Engineering Crews must be involved or better still a professional consultant can be
involved. Total time frame is 2 days.
12

How Do I Determine My True
Cost Of Maintenance?
Budget Drawings & Analysis
13

Organization Maintenance Budgeting
Organizations uses assumptions in ratio/percentage to draw up the
Maintenance Budget. This cannot give you a clear or a near value for your
maintenance. Consequently, budget are finished before the 8 months of
budgeting and forced sources for fund commences.
The 1st operation in drawing up Maintenance Budgeting is the Annual
Maintenance Plan, this includes the followings:
Present Mileage or Operation Hours
Year of Purchase
Service Choice (Standard, Added Valued & Premium Services)
Budget Committee/Team
14

Maintenance Plan
Annual Engineering Report – All Vehicles (Reported)
Annual Vehicle Evaluation for Maintenance Plan – Charted
Annual Maintenance Calendar – All Vehicles (Charted)
Maintenance Plan is the maintenance outlay for the projection proper. An
engineering report is necessary to generate an outlay against the budget year. In
it are possible starter repair for the year. These starter repair is expected to be
written off against the incumbent year. Two main form that needed to by filled by
your garages are:
 Engineering report on all vehicles
 Valuation report (carrying projected cost of putting the vehicle right)
A maintenance calendar is also included in the plan.
15

Maintenance Budget
All necessary information for generating a scientific budget projection had been
discussed. There are two phases to the budget and these are:
 Routine Maintenance Budget
 Corrective Maintenance Budget
Routine Maintenance Budget
The budget for Routine Maintenance is easily developed with your service
provider that will in your personally generated projection cost sheet.
The organization must indicate interest in the type and scope of service that is
wanted. The attached Chart Explains how a Maintenance Projection Sheet looks
like.
16

Maintenance Budget
Corrective Maintenance Budget is a bit difficult to achieve, though achievable.
The following steps has to be taken to achieve a close budget:
Present Ratio of Repairs/Routine Service
2 Years Repair Cost on all Vehicles
Repair Budget Analysis
Repair Budget Value
The purpose of this exercise is to achieve four aims:
What is my proposed Routine Service Budget?
What is my proposed Repair Service Budget – Assuming that Insurance take care
of the crash repairs?
What is my proposed Budget?
What is budget comparism to 2017 (same time)?
What is happening to Maintenance Cost? Is it going up? Why? 17

2018 Budget & Analysis
What Did I Learn From The Analysis?
18

Analysis Of The Previous Year Up To Date
Budget…
Yrs Km/Y Repair Service Total Spent
Maint.
Ratio
Per Year
1 00012 Mercedes Benz 38,666 2014 3 12,889 120,000 264,915 384,915 45% 128,305
2 00013 Toyota Prado 40,200 2015 2 20,100 66,800 288,855 355,655 23% 177,828
3 00014 Toyota Prado 120,222 2009 7 17,175 149,513 356,895 506,408 42% 72,344
4 00015 Toyota Prado 98,756 2010 6 16,459 112,500 356,895 469,395 32% 78,233
5 00016 Toyota Camry 48,901 2015 2 24,451 53,009 619,920 672,929 9% 336,465
6 00017 Toyota Camry 180,885 2013 4 45,221 138,922 619,920 758,842 22% 189,711
7 00018 Toyota Camry 168,564 2011 6 28,094 245,290 619,920 865,210 40% 144,202
8 00019 Toyota Camry 34,987 2015 2 17,494 48,000 354,480 402,480 14% 201,240
9 00020 Mercedes Benz 66,488 2014 3 22,163 160,780 522,416 683,196 31% 227,732
10 00021 Mercedes Benz 98,654 2014 3 32,885 811,700 760,078 1,571,778 107% 523,926
23,693 6,670,809
2017 Spending 6,670,809 85%
2017 Budget 7,850,897 86%
2018 Budget 9,131,565
19

Maintenance Centers KPI
Drawing the KPI on Maintenance
In drawing a KPI for Service Deliveries the following Key Indicators must be considered:
 Cleanliness
 Delivery Timing
 Communication
 Correspondence
 Reception
 Quotation Time
 Meetings
 Value Of Service
 Permissible Return Jobs
20

 Cleanliness: Indicate your interested in having a clean vehicle returned to you. And carries a
mark
 Delivery Timing: Indicate that agreed delivery time should be strictly followed and any
unfavorable disposition towards failure must be conveyed 48 before your delivery time.
 Communication: Indicate effective communication with timing and recipient
 Correspondence: Indicate that any written correspondence is followed by written response
and not phone conversation. Acceptable (email, letter and memos..)
 Reception: Indicate your expected waiting time for drivers that either come to drop vehicles
or come to collect vehicles.
 Quotation Time: Indicate you acceptable and agreed response time on quotations.
 Meetings: Indicate periodic meetings at both side to discuss KPI and other matters.
 Value Of Service: Indicate the ceiling for routine service and demand authority for extended
spending with reasons.
 Permissible Return Jobs: indicate your policy on return job ceiling. (International ratio is 3%).
Drawing the KPI on Maintenance
21

Maintenance Centers
Your KPI should automatically direct you to the type of places that you want to
use for your maintenance services. In addition to your KPI points, there are other
important factors that you have to consider:
 Maintenance Level Equipment
 Maintenance Level Skill
 Maintenance Procedures
 Added Value to Services
 Source or Sources Of Parts
 Service Warranty
These points gives you the idea of valued proposition of the company that will
handle your Budget for you. There are so many cheap centers, it is your choice
to pick “Cheap” “Comfort” “Satisfaction” “Quality” any three of the for your ideal
service delivery and convey the same in writing to your service suppliers. 22

 Budgeting & Controls
 Safety, Security & Environment
 Service Deliveries & Added Values
 Customer Service Satisfaction
 Compliance to Agreed Timings
Evaluating Service Centers
Your KPI evaluation has to be by quarters and a review of the performance of
your Service Provider is measured and submitted at a meeting that will be
agreed to by both parties. Content of evaluation differs from company to
company but the criteria is almost similar.
With the inclusion of Budget & Control, virtually all other factors are the same.
23

 Budgeting & Controls: Look at your spending in the 1st quarter and relate
it to the weight of job that was performed by the provider according to
Routine Maintenance. Measure it against the KPI
 Safety, Security & Environment: Is the garage secured to protect your
vehicle against thieves and buglers? Check yourself.
 Service Deliveries & Added Values: Measure service delivery according to
delivery timing, quotation, return jobs. Evaluate compliance to
agreement.
 Customer Service Satisfaction: Evaluate CS according to reception,
communication, correspondence and job satisfaction by users.
 Compliance to Agreed Timings: Also evaluate according to agreements.24

Spare Parts and Maintenance Materials (Quality and Sources of Parts / Materials).
For an effective maintenance, the Spare Parts played a crucial role. Especially when
it comes to timing, pricing and quality of maintenance. As it is today, many vehicles
are placed under RPP (Repairs Pending Parts). Not only is that, the sources of parts
very unreliable. The table below will convince you.
Supply Trains Sources Classification Risk Factor Patronage Recognition
Genuine Dealers 1 Genuine
Low but
available
18
Dealership
Dealings
Roadside
Suppliers
5 Uncertain High 42
Recognition
Unavailable
Tokunbo Market 1 Used Parts High 40
Recognition
Available
Stolen Vehicles 1 Used Parts Very high Unknown
Between Tokunbo
Market
Gross Supply 8 100 Very Unpredictable
25

Consequences Of Non Quality Dispensation
The Overall Cost Of Mis-Management Of Maintenance: Taken from the view of not
the right processes of maintenance management, the effect and cost can be felt through
physical breakdowns, excessive cost of maintenance and excessive customer service
complaints. Overall cost of bad maintenance management will lead to Loss of use due to
frequent breakdowns, fuel consumption, high cost of maintenance, loss of comfort, non-
achievable Budget, loss of user-staff contribution, low lifespan and low efficiency. But let us
put value to these phenomenon.
Index Values Attached To Index
2008 Using The Corolla As A Basis 4,800,000 1.34 4 Com. Use
Factor Of Mis-Management % Cut Months Cost Policy U Normal
1 Warranty 4% 3.36 192,000 7 0
2 Process & Procedures 6% 5.04 288,000 7 0
3 Parts 10% 8.4 480,000 7 0
4 Maintenance Materials 10% 8.4 480,000 7 0
5 Skill 8% 6.72 384,000 7 0
6 Total Cut 38% 32 1,824,000 84 2.7
Total Comfort Use Of Car 62% 52 2,976,000 52 4
26

Advantages Of Planned Maintenance
If Vehicle Maintenance is well planned, the following positive result will be
achieved.
 The uncontrollable business attributes of the contract maintenance, will be
shifted to controllable business culture.
 Determination of the end of use application will be appreciated and takeover
plan (disposal + outsourcing + replacement) can be planned years ahead
profit.
 Down time on operational time is practically removed to a high extent
 Stress attached to various operating processes will be shut down
 There will be a high level of relationship in inter business
 There will be a high level of enlightenment and understanding
 Evaluating KPI on both sides will be easy
 Quality Standard will be achieved
 Executive Independent will be guaranteed. 27

Evaluation Achievement Level Target.
The organizations achievement level is determined by the
independent assessment of resources in terms of Finance,
Human Resources and Machine on the followings:
 Highest Obtainable Level Of Utilization
 Established Comfortable Usage & Management Process
 Reasonable Cost Of Maintenance
 Best Lifespan Available
 System
28

Investment InVehicularTransportation In Africa – Nigeria in
Perspective
INDEX CONTRIBUTION AFRICA NIGERIA
POPULATION 15% 1,246,504,865 191,835,936
VEHICLE POPULATION 16% 104,413,936 16,306,055
PERSONS PER VEHICLE AVERAGE 12 12
INVESTMENT $0t 10% 17.9 1.8
PRODUCTION NONE NONE
COLAPSE RISK LEVEL POSSIBLE 72%
29

Questions?
30

Thank You!
31

The true cost of outsourced maintenance

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