OUTSOURCING MAINTENANCE: Thought About it Recently?

Sometimes called the forgotten discipline, the maintenance of a port’s equipment often barely appears on management’s radar. That’s a mistake says KCI Koneport’s general manager Arnoud Versteden: “Often management believes maintenance is a small and troublesome issue. What they often don’t realise is that if you take the total life of a crane, the capital investment is only a small proportion of the total cost of operating it.

“The traditional way of reducing maintenance is to cut the maintenance budget, ” he says. “In this case only high-priority corrective maintenance (repairs) will be done. Maintenance becomes an uncertainty. The result of this is that breakdowns with all their knock-on consequences, are much more expensive then preventive maintenance. That can lead to the notion that maintenance is a cost instead of an investment in the crane.”

This and other entrenched attitudes in the port sector point to it lagging behind other industries in the treatment of maintenance as a key part of a port’s performance – a view voiced by all the Outsourcing Maintenance Contractors (OMCs) Port Strategy spoke to.

Another familiar lament comes from Steve Barlow, general manager for southeast England at Barloworld. “Does the port have a handle on its maintenance costs?” asks Barlow. “Often they don’t. What usually drives a port to look at the subject of outsourcing is first and foremost, they can’t find sufficient skilled labour themselves.”

Outsourcing maintenance from a labour point of view is cost effective on several levels explains Barlow. “For example if a terminal runs its own maintenance department, it may need to double up with, say, two electricians to take account of time off for training courses, holidays, sickness, etc. You get this doubling up right across the manning levels. We don’t have this problem because we can replace an electrician from our field service operation when he needs time off. This gives an immediate 35-40% difference between the port’s manning levels and those we would apply to the operation to do the same work.

“Furthermore, ” he continues, “the terminal will probably not cover all the skills needed with their own labour force. Lloyd’s underwritten welders for example, who are very expensive to bring in on an ad hoc basis. But in our operation they’re part of the team anyway because all of our work is Lloyd’s underwritten.”

As to manning levels, Barlow says: “It’s not a downsizing exercise.

It’s just we use people in a different way. Typically if a port had ten engineers we would take, say, seven back into the port and the others would be placed in our field team because we have an ongoing demand.”

Damage is another big factor. “Manage the damage and you can manage a huge part of the cost, ” he argues. So Barloworld’s equipment is fitted with a driver access entry operation which is downloaded to their own and to their customer’s pc. “This means you can restrict access according to skill-sets so general forklift truck drivers do not get access to reach stackers for example.”

This is part of an oft-cited issue: the misalignment between operations and engineering personnel in the port. As Barlow puts it: “They never see eye to eye. Operations want it all the time. Engineers say yes but you just broke it, why don’t you operate it more carefully? We offer advice both ways. We look at why the damage is being caused. We make design or operational changes where possible to rectify the situation. We’re in the middle of a political hot potato and the port’s managing director values a non-political opinion, which we give him.”

Jukka Ruotsalainen, responsible for contract maintenance business at Kalmar makes a point here. He believes that in large busy ports such as Rotterdam where there is a continuous flow of ships and containers, terminal managers should start to think of their business as a process industry.

“In such industries there’s a wide variety of methods to improve productivity such as Total Productive Maintenance – the cooperation between operation and maintenance teams to establish a methodology for working together. There can be a crossfertilisation of ideas between industries here to generate new ideas, ” he believes.

Trust needs building on all fronts. “Once we’ve done an inspection, ” says Koneports’ Versteden, “there’s a long list of items. If you fix that list you will find a much more reliable crane. The terminals are afraid because they’re not sure we can manage that. So we offer a trial.

Then they discover that it works. So you build trust. You start with one crane, then two, then more.” Recent feedback from two new customers indicated that specific repair and maintenance tasks were carried out at least five times more quickly and therefore more cheaply, than with the terminal’s personnel.

Efficiencies can also be gained on the equipment itself. “If the port wishes we will buy all of their equipment and replace and lease back some of it as part of a planned replacement programme over a number of years, ” says Barlow. “Many ports tend not to replace equipment when they should due to economic and budgetary constraints. So the fleet ages and deteriorates. With this route the cost is already programmed into the port’s business plans and forecasts. If a port buys equipment, it’s on its books. They’re writing it down and they don’t have the flexibility whilst we can simply take unneeded equipment away and change it.”

There are other ways the OMC can help too says Barlow. “If a customer is looking at a new cargo with a new carrier, new warehousing and design layouts, then within our package at no extra cost, we provide our logistics management team along with CAD support, to advise.

Kalmar’s Ruotsalainen picks up on this theme stressing the conceptual side of the business: “It is a question of how to manage and develop the site (the terminal). How can we do it better? So what is better? Is it a cost question or a quality question too so the customer’s own operation be improved. In my opinion it is both so there can be cost benefits but more and more we focus on improving the performance of the customer’s own operation because that’s where the big money is spent. The cost of outsourcing may even be slightly higher but the performance is so improved that it’s worth the investment.”

Making a direct cost comparison between in-house and outsourced maintenance is not straightforward but as Ruotsalainen says: “If we give a price of 100, the reaction might be that it’s so high. But the interesting part is when you ask what are you comparing it with. Are you looking at the whole cost structure: direct and indirect costs? These are sometimes difficult to measure. Once we establish a close partnership spirit with the customer, we can find that they do not know exactly what their maintenance costs are but if you outsource it then you will know. You will get your monthly invoice and you will have cost transparency.

“Finding skilled people is a headache for port management, ” he adds. “If you can’t find them you must train them. This takes up management time. So management is thinking of this instead of its core operations. So the return on management time is not as high as if it focuses all its energy on the operation where the big money is.

“We try to look through the customer’s eyes and a step further, through the customer’s customer’s eyes. So a key factor is the equipment’s uptime. We try to make the best maintenance and inspection routines to create that uptime. With this our customer gets a better production flow and more satisfied customers himself.

IDENTIFYING UPCOMING PROBLEMS “Secondly, with this routine we try to reduce costs. We identify upcoming problems at an early stage so that the repair is not huge and can be tackled at a reasonable cost. The third factor is extending the lifetime of the equipment by proper maintenance and inspection.

If with a good maintenance programme you can avoid one breakdown, we have shown that the cost of the maintenance contract is earned back at least twice.”

Ruotsalainen also makes the point that if the terminal outsources its maintenance then the OMC must perform or lose the business whilst if the terminal’s own maintenance department under-performs it will be much more difficult for it to downsize.

To cater for customers’ variable demands, the OMCs offer flexible packages. Koneports contract with the HHLA Group in Hamburg for example, provides the customer with fifteen staff on a permanent basis whilst other terminals require simply an annual inspection service. What all its contracts have in common is Koneports’ MainMan programme – an inspection tool comprising a databank containing all possible components and parts from which can be drawn a lifetime status report of a crane’s performance.

Portek of Singapore also offers a menu. The firm is a turnkey provider of equipment services and solutions for the port industry and also operates some small container terminals in Indonesia.

Marketing manager Michael Tang explains: “We can offer a comprehensive maintenance service, meaning the total package including supply of spare parts, consumables and a skilled maintenance team to do the preventive and predictive maintenance services. Portek will keep on site a set of running spares and assist in procuring the spares when needed. The advantage of this type service is that we normally guarantee the customer a certain availability of equipment. For example, for used equipment we may guarantee them 90% uptime and 95% for new equipment. We agree on a certain number of days to carry out the maintenance work. If the availability falls below these agreed levels then there could be a penalty.

“Normally, ” Tang continues, “for such a service the contract needs to be at least two years because the hand tools and servicing equipment is typically supplied by the contractor. He needs to amortise such items over time. And there’s often an agreement that at the end of the contract, even if it is not renewed, then the parts may be handed over to the terminal at an agreed price prior to expiry so they can ensure continuity either with another team or by themselves.”

Tang explains another option: “If for example a medium size terminal has more than 30-50 pieces of equipment, it may outsource its maintenance to two teams both bound to kpi’s. That way the terminal keeps its overheads down and if the contractor fails to meet its kpi’s it is his responsibility to increase the manpower to a level where they can be met.”

MEETING THE KPI’S In the case of very large customers, such as the bigger terminals with more than 500 pieces of equipment, the customer will likely have its own personnel to procure the spares and consumables. “It doesn’t make sense for the OMC to buy these items as we may not be able to get them cheaper. So in such situations we’re looking at a labour-type supply maintenance service which comes in two packages: supply of labour but with all spares and consumables supplied by the terminal with a certain equipment availability guaranteed; but if the costs are incurred through non-availability of parts, then the contractor cannot be penalised.

“Secondly, labour-type supply maintenance service but with no equipment availability guarantees. This is normally the case if the terminal has its own maintenance personnel but only requires specialist technical labour support.

Another point Tang makes is that servicing intervals are specified in the maintenance manual of the original equipment manufacturer and this can have a bearing on the terminal’s agreement with the OMC. “But there are some tolerances so this is often negotiable. For example, you cannot say you must change a wire rope based on a certain timeframe. You should change it based on specified running hours, a certain number of TEUs the crane has handled or by means of certain fatigue calculations.”

Problems can arise with warranties on new equipment. Tang points out that they are often ‘off-site’ warranties which can mean delays in repair. Also the terminal might find itself arguing with the manufacturer as to whether there is a claim under the warranty or not – again, the risk of downtime and delays. An OMC can assist here too in helping to file the warranty claim.

A common and fundamental argument against outsourcing is that the terminal may simply not want to relinquish control over its equipment in the long-term. To counter this the OMC may offer a transfer of technology after the contract’s duration of, say, five years, or an arrangement whereby the terminal’s own people understudy the contractor’s team in preparation for taking over after the five years.