Reducing Inefficient Outsourcing: 6 Case Studies

Outsourcing certain fleet functions is a good option for fleet managers to run a more efficient operation and keep customers on the move, but the services outsourced won’t always be the same for every fleet. Re-evaluating what work is sent out can improve workflow and efficiency. Here are some ways in which moving work in-house and improving vendor relations was the smarter move.

1. Breaking Free From Fear of Failure

What is being outsourced, and why? John Freuden, fleet manager, Public Works, for the City of Peoria, Arizona, said this was the first factor he examined to determine efficiency.

“Was it a limitation due to service technology, technician skill level, labor availability, the competitive advantage of an outside vendor, or a fear of failure? For us, we found it primarily to be the latter — a fear of failure,” he explained.

He said a mindset had developed where, rather than tackle technically challenging or complex repairs in which there could be a diagnostic or technician error in the process, it would just be simpler to send the repair out.

“Once a change was made in our collective philosophy to have confidence in the skills of our staff and allow some room for inevitable mistakes, which we now view as training, we reduced our outsourced repair budget by over 50% in the first year,” he said.

Examples of work the department now performs in-house instead of sending to a vendor are: major engine repairs, large welding projects such as floor replacements in refuse trucks, hydraulic cylinder rebuilds, transmission and differential repairs, advanced OBD-II diagnostics, and module programming. 

The primary examples of work it continues to outsource include warranty work unless it’s not cost effective when factoring in downtime, accident repair, glass replacement, and alignments (there is a shop close by and the city has limited shop space, otherwise the department would likely retain that work).

Possibilities for efficient outsourcing do exist, so Freuden and his team continually make case-by-case decisions on what is sent out and why.

Freuden said keeping work within the fleet operation produced an average savings of 33% versus what they would have paid to have it outsourced. The primary difference was in labor costs, with in-house work costing about $35 an hour less than outsourced heavy equipment labor on contract. There were savings in parts as well because of sourcing on contract versus the dealer’s service department parts charges.

As one could imagine, this has also saved the fleet operation on downtime. The best way to determine time savings was to compare turnaround time on equipment sent out for repairs versus what was done in-house.

“As we do a large number of involved repairs, that gives us a lot of similarities; though we must account for the fact we also do several PMs [preventive maintenance repairs] that rightfully have a quicker turnaround time. Vehicles sent out for repair in 2020 had 34% returned in less than a day, 17% were one to two days, and 48% were over two days. Whereas for the same period the work we did, 77% were returned in less than one day, 9% in one to two days, and 14% were more than two days,” he explained.

One other significant benefit in reducing inefficient outsourcing is technician satisfaction, he said. Technicians find gratification in diagnosing and repairing vehicles or equipment successfully. The greater the challenge, the greater the fulfillment when accomplished.

“It also strengthens their skills and résumé to advance, hopefully within the division,” he said.

2. Saving Time, Money, and Space with the Right Tools

Craig Boyles, division manager of Fleet and Garage Operations, St. Louis County Department of Transportation, Missouri, enjoys the challenge of keeping law enforcement on the road. Because Police Departments are so important to the community, assisting officers by helping them respond to incidents as fast as possible in vehicles that are reliable and safe to operate is a priority so they can continue doing their jobs.

One of the most beneficial projects he’s worked on that has assisted in this endeavor is installing new lifts in the five garages he oversees. With this also comes new alignment racks, which cut down on work that used to be outsourced.

Although this isn’t work typically outsourced by other fleet management departments, the St. Louis County Department of Transportation didn’t have the equipment needed to do it in house before Boyles’ arrival due to funding and space constraints.

The department averaged about 120 alignments a year before it purchased the lifts, which he noticed was low considering the number of tires it goes through.

“This was telling me that people weren’t doing them as often as they should,” he explained.

He figured it was because of the hassle involved in having to go someplace else to get the alignments done.

“To have a police officer or a tag team of two of our mechanics drive to the dealer or some other place to get a commercial alignment just took too much time. Installing our own lifts has been a big help by improving the time it takes to perform preventive maintenance considerably,” he explained.

Outside alignments cost the department about $89 each time, and Boyles knew the department could get it done cheaper. He estimates a savings of about $10,000 a year, not including all the tires they are saving due to better PM practices.

While some fleet departments have jumped on the concept of contracted parts stores, Boyles said it’s important to determine what works best for your operation rather than hopping on a bandwagon.

It was great if the department was buying common, in-stock parts, but if they had to purchase something out of the ordinary, the contracted company would go to the dealer and upcharge the department.

Instead, Boyles has switched to what he calls a “just-in-time” inventory model to cut down on the number of parts that are purchased and need to be stored.

“We realized we had a lot of parts that didn’t fit anything, which was a result of overstocking. Now, if it doesn’t move within 30 days, we don’t stock it,” he said.

The fleet department works with its parts supplier, which makes two deliveries a day and can sometimes make an important priority delivery if needed. This tactic has helped it reduce inventory by 70%. The team was able to take many of the excess parts it had and turn them in to get credits through its suppliers to help get rid of clutter.

3. Making Better Use of Equipment You Already Have

Back in February of 2014, the City of Milwaukee started its own in-house property demolition crew to raze vacant city-owned properties. Daniel Lewand, fleet operations manager for the Department of Public Works Fleet Services for the City of Milwaukee, said the fleet division was able to collaborate with the city to bring this work in-house.

“Being a municipality, we already owned existing equipment and worked with several departments to piggy-back on their fees to reduce disposal costs. We saved the city money by cutting down the highest costs of sub-contracting which are teardowns, disposal fees, and back-fill debris,” he explained.

Some of the vehicles used included three roll-off trucks from the Department of Sanitation; three tri-axle dump trucks, one excavator, one water truck, and a backhoe from the Department of Municipal Equipment; and a log loader from the Department of Forestry.

During downtime, equipment and operators were assigned to work in other city departments, ensuring maximum utilization.

4. Review Technician Skills and Put Them to the Test

In Prince George’s County, Maryland, Fleet Manager Richard Hilmer, CAFM, said his department has outsourced many of the traditional services government fleets typically outsource. This includes towing, autobody repairs, auto glass replacement, transmission replacement and repair, and emergency equipment upfitting.

The department has always been lean on staffing, so it’s chosen to focus on core services and outsource things that required specialized tools and training. However, a few years ago Hilmer realized he had three factory-trained (GM and Ford) transmission technicians on staff, as well as a new employee who had run a transmission shop for 32 years.

“We were spending a lot of money outsourcing these repairs, so we decided to invest about $15,000 to obtain some specialized shop tools and equipment and began to diagnose and repair malfunctioning transmissions in house. The GM and Ford specialists have cross-trained each other. Since we have a fairly standard fleet, we are setting aside enough cores to be able to drop a repaired transmission into a downed vehicle so we can circle back and repair the bad transmission later at a minimal cost and replace only the needed parts,” he explained.

Typically, when the department would send a vehicle out for transmission repairs, a contractor would drop a rebuilt unit into the vehicle and the department would pay for the cost of the complete unit. Therefore, it wasn’t paying for specific repairs, but the whole unit, regardless of what was broken. Having its own techs go through the transmission and replace only the needed components saves significant money.

For example, a rebuilt unit installed in a Ford Crown Victoria police cruiser might have cost $2,600 on a contract, but the typical repairs on the same unit completed in-house can be done for $1,100. In the first year of moving transmission repairs back in-house, the department saved over $70,000.

Doing the work in-house has also saved a significant amount of time. The department has started taking cores out of total-loss vehicles to build up a stock of the most common units. These can be installed to get a vehicle back on the road in less than 24 hours, whereas using a contractor took three to five days minimum to turn around.

Hilmer noted this will not necessarily work for every fleet unless you have the needed skill sets and equipment in place.

“The point is you need to be constantly evaluating your operation and looking for opportunities. You may hire new staff that bring the right qualifications that you could leverage to reduce some of your outsourcing. Continual self-evaluation is key, but you should also be continually evaluating your vendors. At what point could you possibly do the service cheaper and better? Outsourcing needs shouldn’t be carved in stone,” he explained.

5. Holding Vendors Accountable

While taking back work that used to be outsourced can assist in creating a more efficient operation, fleet managers must ensure when they do decide to outsource it makes sense both in terms of work quality and cost.

John Ferguson, CAFM, assistant director of fleet management for the City of Durham, North Carolina, said creating key performance indicators (KPIs) for vendors, such as average downtime, average supplemental or unforeseen cost increases, warranty returns, billing discrepancies/disputes, etc., and establishing rate maximums like parts markups and shop fees, standardizing labor times, and negotiating task-based hourly rates, has helped improve outsourcing efficiency.

According to Ferguson, downtime for body work has been reduced by 20%. In the past, this work required multiple estimates, which in turn required travel time or waiting for onsite estimators to show up.

“With time and cost standards, we follow the list of vendors as accidents occur. Any supplement or unforeseen circumstance is immediately documented and approved for repair. Time is saved by allowing us to outsource less specialized repairs during high-demand maintenance periods that historically we put on the backburner due to the cost of outsourcing,” he said.

6. Avoiding a Drop in Customer Service Levels

For Steve Healey, shop supervisor for Springville Central Shop, Utah, outsourcing typically isn’t as cost-effective as doing work in-house. However, he sometimes makes use of it since he, like many other fleet managers, is short staffed. The key, he said, lies in striking a balance between knowing when it will improve your overall customer service to send work out.

“If we get a surge of in-house work, we can always send things out if we simply don’t have the manpower to get it up and running promptly. For example, if you’ve got a backhoe down for a week waiting to get into the shop, you’re likely going to get it back in less time if you just send the work out to someplace that’s less busy at that point,” he explained.

Other than that, whatever he can keep in-house is a plus. Before he started running the shop, Springville used to send tire work out. Since the department has brought that work back, it’s reduced costs by about 35%. Having more of a say in the specific tire brands that are purchased controls costs, and not having to take a vehicle to a different shop eliminates extra downtime.

“If the other shop you take the vehicle to is busy, you’re just another customer. Your equipment is just going to sit there until they have time to get to it. There are also times they’ll prioritize you over somebody else, which defeats the purpose of sending the vehicle out in the first place,” he said.

When a fleet department tells a customer his or her vehicle will be ready by a certain time, customer service will falter if a manager ends up having to call and say it’s not ready when they said it would be. If the customer went ahead and scheduled work, and the tool needed to complete the job is still undergoing maintenance, problems can arise.