Article

Pros and Cons of Outsourcing Tire Service

November 2005, Government Fleet - Feature

by Christopher D. Amos, CAFM

The process for determining whether a service should be performed in-house or outsourced is no different than analyzing lifecycle costs to determine which competing vehicle should be procured. You must do a comparison both of operational effectiveness or suitability to purpose and then compare the full cost of materials and service.While response times and cost are readily apparent for a contracted service provider, the same is not always true of an in-house operation. Doing a cost-effectiveness analysis for the in-house operation requires an honest appraisal of service level provided versus customer expectations and determining the true cost of delivering that service. Even something as simple as performing tire services may be more complex than it appears.Tire Service Menu
A variety of distinct functions constitute the delivery of tire services to a fleet. The diversity of typical government and utility fleets adds considerable complexity - so, too, does geographic dispersion. Major tire service functions include:Stocking Tires
- Whether from the fleet, tire vendor, or a separate tire service provider, tires must be available when and where they are needed to prevent costly downtime. Maintaining an inventory sufficient to meet normal and emergency operational needs ties up funds and space. Standardizing tire sizes and load ratings across different chassis when specifying vehicles simplifies this function. Having tires readily available at the next higher echelon in the supply chain likewise reduces the need to stock large quantities of tires and allows operating more on a just-in-time inventory basis. Then there is the issue of theft prevention - especially for light-duty tires - requiring physical security for these valuable assets.Re-supplying Tires
- Accurate stock tire inventory must be maintained. Properly establishing reorder levels and quantities ensures that those stocks don’t fall below the operational minimums. Inventory features in most fleet information management systems (FIMS) can facilitate this function.Mounting Tires
- Tires are of no use until they are mounted on the appropriate rim/wheel. Common, high-demand tires can be pre-mounted on spare wheels so they are ready for a quick change in the shop, on the road, or at a job site.Repairing Tires - Simple punctures to the tread of a tire generally can be successfully repaired by plugging them. However, sidewall damage almost always requires tire replacement.Road Service
- Tires have a way of going flat at inopportune times and inconvenient places. Dispatching a skilled repairman in a properly equipped and supplied vehicle gets your vehicles back to work. Response time is a key measure for this critical tire service function and should be addressed as a standard between fleet customers and the fleet in-house or contract service provider.Retreading Tires (Case Management)
- Retreading tires makes good sense both from an economic and environmental standpoint. To maximize the value of tire investment, tire casings must be protected from damage due to under-inflation, curb strikes, moisture introduced with compressed air and even ultra-violet radiation from being stored in the sun. Tires run bald are not only unsafe, they sacrifice the casing which could be re-capped two-three times, saving hundreds of dollars and reducing oil consumption, air pollution, and solid waste. To get the best value out of tires, take the lifecycle approach when purchasing them. Better tires with stiffer sidewalls and long-wearing treads can easily be worth the premium price.Junk Tire Disposal
- Junk tires require special handling and usually incur additional landfill fees to properly dispose of them.{+PAGEBREAK+} Calculating the Costs of Internal Tire Operations
To compare the costs of internal tire operations to those offered by outsource vendors, you must first assign an accurate value to each of the services discussed. Some of the more obvious costs include: salary and benefits for employees performing the services; depreciation and maintenance of special tools, equipment, and vehicles; and supplies consumed from plug adhesive and tire weights to fuel and maintenance for the tire trucks.Less obvious costs include: overhead expenses like the apportioned cost of space used for tire operations and stock; training, supervision, and inventory functions performed by supervisors and support personnel; pagers, on-call pay, overtime pay, and call-out pay premiums for covering after-hours requirements; and direct and indirect costs of employee injuries performing this physically demanding job.If you have an internal tire operation, total up the cost or value of everything that would be eliminated or could be put to other essential uses if you no longer performed tire services. Calculate the per-job cost based on the volume of work performed.If you are considering establishing an internal operation, perform the same analysis, but use the volume of each service performed by the contract vendor. Don’t forget to calculate manpower requirements with position vacancies, vacations, illnesses, and injuries in mind.Finally, for either case, remember to factor in response time requirements. Long backlogs of work keep the tire operation cost-effective. However, long waits may cost the organization much more in lost productivity than you save by not adequately staffing and equipping or supplementing internal staff for peak demand.Contracting Tire Services
Outsourcing tire services is not a cost-free option for a fleet either. Beyond the charge for services performed, there are costs to develop specifications, bid and award contracts, monitor performance, pay invoices, and record transactions in the FIMS.Special attention must be paid to response time standards. Reduced payment provisions in the contract for missed minimums generally provide the necessary inducement to meet response time standards.As with any fleet services contract, excellent communications is one key to success. Vendors need to know historical usage patterns to properly stock tires and staff for service calls. Likewise, they need a “heads-up” when special operations are about to commence so they can anticipate changes to the historical pattern and be prepared to respond accordingly.Fleet service contracts are a partnership between the fleet organization and vendor. Customers rarely care who is at fault when their needs aren’t being met so it is in a fleet manager’s best interests to help the vendor be successful. Multi-year contracts with a provision for cost adjustments also help in establishing positive, long-term relationships. Likewise, an easy-out clause for non-performance is important when things don’t work out as hoped.Comparing the Options
Tire services are not necessarily an all-in or all-out proposition. When comparing in-house to outsourced operations, look at it from many different angles to see how to best meet your fleet’s needs.For instance, you may find it cost-effective to:
  • Run your own tire services while maintenance garages are open, but better to outsource them for after-hours response.
  • Staff an in-house operation for the normal workload if you outsource peak overflow work.
  • Provide in-house tire services in areas where you have large concentrations of vehicles, but not in remote locations.
  • Outsource only specific functions such as repairs, mounting, and unmounting.
  • Outsource only some portions of the fleet such as light-duty, medium/heavy duty, or off-road equipment.
  • Provide in-house support to emergency vehicles (e.g., police, fire, EMS, aerial devices) and outsource the rest of the fleet.
  • Stock tires on consignment, paying for them only when used and having the vendor monitor the stock and resupply as needed.Do the Things You Do Best
    In the final analysis, it is not important who performs any given fleet service, only that it is done so that customer needs are met reliably and cost-effectively. With that foremost in mind, you solicit input from your customers, survey the marketplace, analyze your internal operational capabilities and costs, and crunch the numbers.Fleet organizations should concentrate on doing those things they do best and outsource the rest.
  • COMMENTS

    1. 1. Tom Henderson [ September 20, 2015 @ 05:50AM ]

      I like the article. I see a spot where you recommend stocking tires ion consignment only. Can you name any wholesalers who still do consignments?

    2. 2. Tom Henderson [ September 20, 2015 @ 05:51AM ]

      I like the article. I see a spot where you recommend stocking tires on consignment only. Can you name any wholesalers who still do consignments?

     

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