WHEN IT COMES TO his refuse truck maintenance, Paul Ruthenberg uses a “hybrid” strategy, meaning that his technicians handle some of it, and some is outsourced.
“It's a fairly simple equation,” says Ruthenberg, president of Inkster, Mich.-based Midwestern Sanitation, which operates a fleet of about 35 residential refuse packers. “It comes down to what we can handle in our shop in the most time efficient matter, and what's better for us to send to the local truck dealership.” The fleet is slowly being converted from Ford refuse packers to Sterling heavy-duty trucks.
Ruthenberg says his company uses the strategy to control both maintenance cost and vehicle downtime. “For example, we do all the packer body work in-house — hydraulic work, welding, etc.,” he says. “That's because our turnaround time for packer body repairs and service is typically four hours, whereas at a dealership handling larger volumes of such work, turnaround time might be a week.”
At the same time, he sends major truck repairs down the road to his dealer.
“There's a few reasons for that,” Ruthenberg says. “First, we buy extended warranties for our new trucks, covering as much of our expected five-year ownership period as we can. If some major fails, typically it'll be covered by warranty, and the dealership is best for that. They also have much faster access to both parts and service information than my shop does.”
He still keeps his options open, however, especially if the dealership gets swamped. “The big challenge with outsourcing maintenance is getting our equipment back in a timely manner when they are busy,” Ruthenberg says. “Maximizing our vehicle uptime — making sure it's out on the road working — is how we generate revenues. We don't earn money if the truck is sitting in the shop.”
Sorting it Out
Outsourcing some or all of a refuse operation's maintenance has been a growing trend for some time now, especially as trucks have grown more sophisticated and more costly to repair and service.
An annual truck maintenance survey conducted by the Heavy Duty Manufacturers Association (HDMA), Research Triangle Park, N.C., found that maintenance outsourcing occurs in almost one-third of all private truck fleets and that 46 percent of the outsourcing goes to dealerships.
The HDMA survey also found that fleet maintenance managers expect maintenance outsourcing to increase by 7 percent between 2004 and 2007. While 63 percent of the private fleets in the survey claim they can perform most maintenance and repair tasks, only 21 percent say they operate a fully equipped machine shop — due to a combination of the longer life expectancy of newer engines and transmissions, better warranties and shortened trade-in cycles.
Overall, HDMA's survey found that routine maintenance and emergency repairs often are taken care of in-house, while more infrequent tasks such as engine overhauls and transmission repairs generally are outsourced.
“More and more fleets are deciding to leave the headaches of truck maintenance to someone else,” says Bob Post, national sales manager for service at Kirkland, Wash.-based Kenworth Truck Co. “In today's environment, it's becoming more difficult to run a shop, especially considering ever-changing environmental regulations, a shortage of truck repair technicians and the recent introduction of engines with EGR [exhaust gas recirculation] technology,” he says. “Our figures show nearly half of all fleets currently outsource some maintenance. That's up significantly from just a few years ago, and we expect the trend to continue.”
Darry Stuart, president of Wrentham, Mass.-based consulting firm DWS Fleet Management Services, says refuse operators are outsourcing parts of their service operation to drive overall fleet maintenance efficiencies, but he adds that no one formula exists for operators to determine what to keep in house and what to outsource.
“You have to pick and choose what gets outsourced and that's different for every fleet,” says Stuart, a veteran fleet manager who spent five years of his career with Browning Ferris Industries. “In general, you're going to send out components that take a lot of time to repair, that you don't have the expertise to handle, and items covered by warranty — with the caveat that you establish with the outside shop when you are going to get it back.”
Stuart believes many fleets underestimate how their shop labor costs line up with industry averages. “Dealerships aren't cheap — their operations typically cost between $85 and $100 per hour,” he says. “The most efficient in-house shop is going to run about $48 an hour, but an inefficient one is going to cost a lot more than a dealership. So you need to make the best decision in terms of the complexity of the repair and the total number of days your asset might be out of service in your shop versus an outside vendor.”
“The maintenance manager must understand the fleet's business needs and the needs of the asset, taking emotion out of the equation,” he adds. “You need to balance those balls in the air every day without getting emotionally involved in the decision.”
Calculating the Cost
For Bill DeRousse, fleet superintendent for Everett, Wash., figuring out the dollar difference is what drives the decision to keep maintenance in-house or outsource it.
“When we look at our repair situation, we really look at how much it'll cost us to perform a repair versus someone else,” he says. “By that rule of thumb, we do not do engine and transmission rebuilds, body or paint work, radiator work, nor upholstery or glass work. Specialty shops close by to us can do those kinds of jobs quicker and for less money than we can. Just handling the PM [preventive maintenance] and minor engine repair work keeps us more than busy.”
However, DeRousse says, one critical issue should come into play when the pendulum starts to swing in the direction of outsourcing: how close the outside vendor is to your operation.
“That's a vital factor, especially as our maintenance operation works on a time and material basis,” he notes. “For us, we don't get paid unless we are working on equipment. Now, when we outsource equipment, the distance to their shop becomes part of the cost equation. If they are two hours away, at $80 an hour, we're already $160 into a job, and we haven't even touched the equipment yet.”
Another issue to consider: Not only have vehicles, especially refuse trucks, become more sophisticated — they have also become more reliable, requiring less major work and offering longer service intervals. That, too, influences the outsourcing decision, DeRousse says.
Meanwhile, fleet budgets remain constrained, so maximizing the use of every dollar is always critical. “Whether you are a private waste hauler or a municipal operator, fleet budgets are tight,” DeRousse says. “For example, while it may be ideal to replace vehicles at a set time — be it based on miles, hours or years of service — the reality is we must analyze how we're going to maintain a piece of equipment longer than our planned ownership cycle and what impact financially that might have on our operation.”
“Without meaning to, many fleets under-maintain their vehicles because they lack the resources to track maintenance,” says Kevin Coughlin, manager of contract maintenance with the customer support division of Portland, Ore.-based truck maker Freightliner.
“Or a fleet may have increased [its] business, and as a result, the proper service levels aren't being kept up. That's why fleets should take a hard look at outsourcing maintenance.”
“Some fleets — especially fleets with a high percentage of aging vehicles — may overestimate their ability to work on their vehicles,” Coughlin adds. “They may not have the training and tooling to do top-notch maintenance.”
Clouding the maintenance picture further for refuse operators in both the private and public sectors are a growing shortage of technicians and the complexity of new emission control requirements.
The technician shortage currently numbers around 38,000, says Paul Taylor, chief economist for the McLean, Va.-based National Automobile Dealers Association (NADA).
Furthermore, underlying the surge in demand for technicians are two worrisome trends: the retirement of the “baby boom” generation and the dwindling interest in the vehicle technician career path by the far smaller replacement population, termed “Generation X.”
“Look at the overall demographic shift here — you have 78 million baby boomers that start retiring in 2008 being replaced by Generation X, which is comprised of only 45 million workers,” says Richard White, vice president of marketing and communications for the Silver Spring, Md.-based Automotive Aftermarket Industry Association. “Basically, you have a lot of people retiring very soon and not enough people to fill the jobs they are leaving.”
At the same time, vehicle maintenance is poised to grow more complicated as new emission control technology gets added to trucks in the 2007 model year.
“Increasingly, customers are recognizing that outsourcing their preventive maintenance needs to a reputable and reliable dealer network not only makes sound economic sense, but also helps create soundness of mind,” says Dan Sobic, General Manager for Denton, Texas-based truck maker Peterbilt Motor Co.
“We know trucks are going to become more complicated in 2007,” says Midwest's Ruthenberg. “For starters, there's going to be new computers controlling the interface between the engine and the exhaust aftertreatment system alone. So educating our technicians on those changes and keeping them up to date is going to become a much bigger task. That's why as we get further into 2007 and start looking at the 2010 emission landscape, we'll probably start doing some more outsourcing as well.”
Sean Kilcarr is senior editor at Waste Age's sister publication, Fleet Owner.
SHRINKING THE OWNERSHIP CYCLE
San Diego's Environmental Services Department is attempting to cut its rising vehicle maintenance costs off at the pass by decreasing its ownership cycle from seven to five years.
“What we're trying to do by shrinking our vehicle ownership time is remove all the maintenance dollars we'd be spending to rebuild major components, such as engines, packer bodies, transmissions, etc.,” says Sam Mendoza, fleet engineering manager for San Diego's refuse operation. “Though we'll be paying more up front for the vehicle on a five-year plan than one on a seven-year cycle, we figure we'll be saving much more on the maintenance side by not having to spend nearly as much on expensive and time-consuming rebuilds.”
San Diego's Environmental Services Department operates 177 refuse packers that cost roughly $200,000 each. The keys to driving maintenance costs out of the equation lies in turning the trucks over before they reach the peak times for component rebuilds, which are not only costly repairs in and of themselves but a drag on the overall availability of the truck, Mendoza explains.
“Downtime is horrible. That's what really costs us,” he says. “Right at the start, you're looking at $25,000 to rebuild a refuse body or automatic collection arm device. Then you add in how many days that truck is out of service, and it can really hurt the bottom line.”
Suspension repairs, differential work, and transmission and engine rebuilds are other repairs the fleet hopes to avoid by dropping to a five-year ownership cycle.
Mendoza adds that maintenance savings can be generated in other areas, too. “To support equipment into its seventh, eighth, and ninth year, you need more sophisticated diagnostic tools — equipment costing anywhere from $30,000 to $50,000 a piece, and we'd need two or three of them to properly service our fleet,” he says. “Under a five-year ownership cycle, we wouldn't need those tools.”
The kinds of maintenance San Diego's shop would perform would shift as well — moving to less expensive and less time-consuming preventive maintenance services such as oil, fluid and filter changes and brake work — while ditching more complicated repair and rebuild operations.
“That helps us in terms of the technician shortage,” Mendoza says. “Now we'd only need a few with in-depth specialized knowledge of certain components, whereas the rest can focus on simpler maintenance tasks. We also don't need as many technicians in the shop, so as current staff retires, we aren't as pressed to get the same number of replacements.”
The move to a five-year cycle would even improve resale values, Mendoza says — even though seven-year old units are typically in better condition, since they feature rebuilt components. “The age of the unit counts towards the resale value, as well as the fact that we didn't have to spend money rebuilding components,” he explains. “That's simple number crunching for us.”
In the end, the department hopes it all adds up to money in the bank for the fleet and the city. “Any city deals with budgetary issues, so we're always thinking outside of the box for ways to husband our fleet dollars,” Mendoza says. “It we save a dollar here and there and are more efficient with the dollars we spend, then we're saving money for the city as a whole.”