Successful outsourcing of maintenance in the mining ... · While a mining business can take...
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TITLE SUCCESSFUL OUTSOURCING' OF MAINTENANCE IN THE MINING INDUSTRY - METHODS AND PRINCIPLES BY CHRISTOFFEL JOHANNES VISAGIE SHORT DISSERTATION submitted in partial fulfilment of the requirements for the degree of MAGISTER IN PHILOSOPHIAE in ENGINEERING MANAGEMENT in the FACULTY OF ENGINEERING AND THE BUILT ENVIRONMENT at the UNIVERSITY OF JOHANNEBURG SUPERVISOR : DOCTOR J.L.COETZEE Johannesburg May 2005
Transcript of Successful outsourcing of maintenance in the mining ... · While a mining business can take...
TITLE
SUCCESSFUL OUTSOURCING' OF MAINTENANCE IN THE MINING INDUSTRY - METHODS AND
PRINCIPLES
BY
CHRISTOFFEL JOHANNES VISAGIE
SHORT DISSERTATION
submitted in partial fulfilment of the requirements for the degree
of
MAGISTER IN PHILOSOPHIAE
in
ENGINEERING MANAGEMENT
in the
FACULTY OF ENGINEERING AND THE BUILT ENVIRONMENT
at the
UNIVERSITY OF JOHANNEBURG
SUPERVISOR : DOCTOR J.L.COETZEE
Johannesburg May 2005
ABSTRACT
Production uptime and plant availability is the primary aim of present-day maintenance
strategy making. In the past, this was accomplished by building in redundancies and
excess production capacity, or by following an aggressive schedule to rebuild or overhaul
critical systems. Both approaches are inherently inefficient. Redundant systems and
excess capacity tie up scarce capital that could otherwise be deployed in a producing
activity.
Today we live in a world where change is not only common, but also inevitable. Mining
companies and their people are all exposed to the massive scientific and technological
explosion occurring and will need to adapt to be competitive or be doomed to oblivion.
The mining businesses that are not prepared to change, will very quickly find that they
have priced themselves out of the market and will be relegated to being dinosaurs from the
past.
Maintenance has undergone a metamorphosis in the past few decades and is now
entrenched as a vital part of the industry. The availability, reliability and operability of
assets have become imperative, demanding that maintenance methods and strategies
become even more sophisticated. Excessive downtime and breakdowns of assets have
become critical factors to the point of being totally unacceptable. Maintenance thus needs
to become more efficient, contributing maximally to the profitability of the industry by
coordinating operational readiness with production demand. The purpose of this study is to
investigate the successful use of outsourced maintenance methods, principles as a way of
achieving this efficiency. It furthermore seeks to identify the benefits of such an
outsourcing approach to the mining industry.
1
While a mining business can take advantage of transformational outsourcing at any point in
its life cycle, "once a business leader has decided change is required, (whether, as a course
correction or in response to economic cycles), outsourcing becomes a viable alternative
business strategy to enable that transformation more rapidly, with less risk and with more
flexibility" according to Jay Ward, from the outsourcing institute. Outsourcing delivers
value beyond cost reduction. During the outsourcing process, the maintenance
organisation of a mine is really looking for results such as improvement of its profit
margin, by such things as inventory reduction, increased maintenance service efficiency,
reduced cycle times, reduced meantime between failures, improved operating performance,
and the availability of expert skills and cutting edge technologies. The question that this
dissertation seeks to answer is: "how does the maintenance outsourcing process work in the
new maintenance world, and what and how much maintenance should the mine
management outsource?"
The study focuses on the changing world of maintenance, maintenance policy making and
World Class best practice maintenance strategies. It looks for ways of closing the gaps
that exist in present maintenance practice in mining organisations, through maintenance
outsourcing as one of the "best practice" drivers through which such organisations can
position themselves for present economic realities. It thus serves to guide the individual
mining business to be able to chart its own course to achieve flexibility and accelerate its
business in ways that consistently minimise risk while delivering value to stakeholders.
2
OBJECTIVES OF THE STUDY
To review existing maintenance principles in general in as far as they are relevant to
maintenance outsourcing.
To determine the extent and impact of the growing maintenance outsourcing trends
To evaluate current maintenance management and maintenance outsourcing strategies and
philosophies in the mining industry (specifically limited to the Zululand region of Kwa-
Zulu Natal)
To examine the viability of the outsourcing of core, as well as non-core maintenance
functions.
To make meaningful conclusions and recommendations
3
ACKNOWLEDGEMENTS
Conducting this study was only possible with the assistance of many others and I would
like to express my sincere gratitude and appreciation to the following people:
To my wife Stephanie and my two sons, Louis and Pieter for their patience,
understanding and support during my study time.
Dr J.L. Coetzee, my study leader for his expert guidance, direction and quick
response.
Dr J. Taylor, for technical guidance and proof reading of this document.
Ms. J. Elrix, for the many hours of typing.
My dad, Louis that kept on asking, "When will the work be completed?"
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TABLE OF CONTENTS
1 PROBLEM IDENTIFICATION AND BACKGROUND 12
1.1 Terms of reference 12
1.2 Aim of the study 12
1.3 Introduction 13
1.4 Background 14
1.5 The importance of this study 15
1.6 Problem statement 17
1.7 Research methodology 18
1.8 Overview of chapters 18
2 LITERATURE REVIEW 20
2.1 Introduction 20
2.2 The nature of maintenance 20
2.2.1 The objective of maintenance 21
2.2.2 The global approach 21
2.2.3 Making the only choice in maintenance: pro-activeness as principle. 22
2.2.4 Trends in maintenance management 23
2.3 Outsourcing maintenance as a viable strategy for improvement 23
2.3.1 World trends and views 23
2.3.2 The challenge of maintenance improvements 25
2.3.3 Maintenance outsourcing overview 26
2.3.4 Core activities and core competencies 26
2.3.5 Strategic maintenance outsourcing considerations 28
2.3.6 The strategic outsourcing model 29
2.3.7 The tactical outsourcing model 31
2.4 New outsourcing paradigm 31
2.4.1 The outsourcing concept 31
2.4.2 Outsourcing the maintenance of production assets (equipment) 33
2.5 The outsourcing argument 37
2.5.1 The argument for outsourcing 37
2.5.2 The argument against outsourcing 39
2.5.3 The outsourcing decision 39
2.6 The union issue 41
2.6.1 The 21 st century union approach 42
2.6.2 Overcoming the unions' negative perception of outsourcing 43
2.7 Conclusion 43
3 A HOLISTIC VIEW OF OUTSOURCING
44
3.1 Outsourcing principles 44
3.2 The outsourcing process and method 45
3.2.1 The outsourcing lifecycle 47
3.2.2 The conceptual approval phase 47
3.2.3 The feasibility phase 53
3.2.4 The design phase 53
3.2.5 The implementation phase 54
3.2.6 The maintainable phase 55
3.3 The people 'issues' when outsourcing 56
3.4 Outsourcing considerations 58
3.4.1 Weaknesses in the outsourcing process 58
3.4.2 Important issues in the outsourcing process 58
3.4.3 Benefits of outsourcing 59
3.4.4 Policy and strategic overview 60
3.4.5 Management approval 61
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3.4.6 Strategic decision making 61
3.4.7 Decision making process 61
3.4.8 The outsource initiative 61
3.4.9 Contractual issues when outsourcing 62
3.4.10 Labour issues 63
3.4.11 Change control 63
3.4.12 Implementation plan 63
3.4.13 Role players 64
3.4.14 Pilot plant 64
3.5 Conclusion 64
4 RESEARCH METHODOLOGY
66
4.1 Introduction 66
4.2 Present situation 66
4.2.1 Interviews 67
4.3 Internal verification 69
4.4 Secondary data sources 70
4.5 Comparison 70
4.6 Conclusion 70
5 RESULTS AND INTERPRETATIONS 72
5.1 Introduction 72
5.2 Statement of the maintenance management results 72
5.2.1 Maintenance manager / plant engineer 73
5.2.2 Plant manager / plant superintendent 74
5.2.3 Maintenance supervisors and planners 77
5.2.4 Commercial managers 78
5.3 Statement of the maintenance outsourcing results 78
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5.3.1 Reasons for outsourcing maintenance 81
5.3.2 Maintenance functions 82
5.3.3 Contractor performance measurement 83
5.3.4 Performance improvement of contractors. 84
5.3.5 Cost change results. 85
5.3.6 Change in contractor numbers 86
5.3.7 Factors for successful outsourcing 86
5.4 Interpretation of results 88
5.5 Lessons learnt
89
5.5.1 The results from the interviewing schedule 89
5.6 The reasons for adopting a maintenance outsourcing program 91
5.6.1 The benefits for adopting a maintenance outsourcing program. 91
5.6.2 The disadvantages for adopting a maintenance outsourcing program 91
5.6.3 Outsourcing program reduces total cost 92
5.6.4 Maintenance key performance indicators. 92
5.6.5 Successful maintenance outsourcing key factors 93
5.7 Conclusion 94
6 THE GAP, CONCLUSIONS AND RECOMMENDATIONS
96
6.1 Introduction 96
6.2 Boundaries of the study 96
6.2.1 The growing expectations regarding the results of maintenance 96
6.2.2 Geographical area. 97
6.2.3 Economic empowerment 97
6.2.4 Mining industry 97
6.2.5 Service providers 97
6.2.6 Union issues 97
6.2.7 Area constraints 98
6.2.8 Gap between mining and factory industries 98
6.2.9 The change control process 99
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6.3 Conclusion 100
6.3.1 Maintenance evolution 100
6.3.2 World trends 100
6.3.3 Outsourcing 101
6.3.4 The role of the unions 102
6.4 The gap 102
6.5 Recommendations 104
6.5.1 Generic recommendations 104
6.5.2 Outsourcing recommendations 105
6.6 Considerations for future research 106
7 REFERENCES 108
8 APPENDICES 118
8.1 Appendix A: Interviewing schedule on outsourcing of maintenance 118
8.2 Appendix B : Maintenance outsourcing interview schedule 119
8.3 Appendix C : Maintenance strategy comparison 126
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FIGURES
Figure 1-1: Typical outsourcing decision-making process 16
Figure 2-1: The maintenance outsourcing model 29
Figure 3-1 : The outsourcing objective tree 44
Figure 3-2 : The outsourcing roadmap 46
Figure 3-3 : Planning the outsourcing process 48
Figure 3-4 : The contract implementation process 49
Figure 3-5 : The strategic maintenance function outsourcing model 50
Figure 3-6 : The level of outsourcing maintenance model 52
Figure 3-7 : Outsourcing phases 56
Figure 5-1 : Maintenance labour complement 73
Figure 5-2 : Maintenance costs 74
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TABLES
Table 2-1: Growing expectations of maintenance 21
Table 5-1 : Responses by industry sector 79
Table 5-2 : Responses by country 80
Table 5-3 : Responses by job title 80
Table 5-4: Reasons for outsourcing maintenance 81
Table 5-5 : Maintenance functions 82
Table 5-6 : Contractor performance measurement 83
Table 5-7 : Performance improvement of contractors 84
Table 5-8 : Cost change using maintenance contractors 85
Table 5-9 : Change in number of maintenance contractors 86
Table 5-10 : Factors for successful outsourcing 87
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1 PROBLEM IDENTIFICATION AND BACKGROUND
1.1 Terms of reference
Coetzee (1997) states that the subject of maintenance is one of the oldest known
to mankind and until relatively recently, the subject was thought of as a very
basic action for which only the most basic knowledge is needed. To have
maintenance organisation at all was deemed to be a necessary but costly luxury.
He further explains that this view of the maintenance function totally ignores the
fact that a properly managed maintenance function creates and maintains a high
level of availability, reliability and operability of plant and that these high levels
translate directly into production capacity, productive output and thus
organisation profit.
1.2 Aim of the study
The aim of this study is to investigate the successful outsourcing of maintenance
in the mining industry and compare it with outsourcing of maintenance in other
industries operating in the global market. The results of the study will be used to
develop a maintenance-outsourcing model for the mining industry.
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1.3 Introduction
There are certain factors to keep in mind if mining organisations want to benefit
from outsourcing one or more of the business processes or functions:
The very first of these is to understand the total maintenance process
(supply chain)
The second phase is the rationale behind the outsourcing decision itself.
The worldwide tendency regarding outsourcing (like the organisational
reengineering tendency).
The lack of quality maintenance versus the control of maintenance.
The union issue.
This study will focus on maintenance outsourcing methods, principles and the
benefits to the mining industry, with specific focus on specialised maintenance
functions.
Does the maintenance management of a mining organisation really understand
the maintenance process, maintenance policymaking, maintenance strategies,
world trends in maintenance and the outsourcing process? Does it understand
what gaps there are in their maintenance process, and how to address these?
Is maintenance outsourcing just a quick fix, a method to close these gaps or are
there really significant cost saving benefits? Or is industry just pursuing another
fashionable craze of the time, a puff of 'thin air' [William Shakespeare (1611)]
The outsourcing guideline [Rio Tinto (2001)] indicates that there are two critical
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considerations to be taken into account when maintenance outsourcing becomes
an important improvement initiative namely:
Should maintenance be done internally or (inside the organisation) or
externally (using OEM's or other maintenance contracting organisations)?
Are the specific mining plants for which outsourcing is considered, capable
of addressing the challenges of maintenance?
1.4 Background
The most important issue for maintenance management to bear in mind is that it
should not decide to outsource, or select a particular outsourcing supplier, only
intent on saving money — the money saving objective is in fact mostly a bad
motive for handing business functions to outsiders. The key issues why
management should choose to outsource should rather be one or more of the
following:
To increase value.
To increase competitiveness.
To improve service levels.
To reduce cycle time.
To reduce meantime between failures.
To improve operational performance.
To have access to needed expertise, skills and technologies.
To be able to focus on the core business following the outsourcing of non-
core functions.
Outsourcing is a process. Organisations no longer outsource to save money, but
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rather to gain access to outside providers [Mulder (2003)]. Organisations
should, therefore, understand the current maturity level of maintenance
outsourcing, the growth process, the outsourcing process itself and service level
agreements (SLA). Benchmarking against research and gap analysis of local and
international organisations, will allow them to gain inside information into
global discrepancies.
It, therefore, follows that no outsourcing decision should be made until the
maintenance management has an in-depth understanding of the organisation's
internal processes and how they interact within the organisation. Until a total
understanding of how the business processes interact and operate is attained
maintenance management will not be in a position to decide which processes to
outsource.
1.5 The importance of this study
In the rapidly changing world of maintenance, new methods of maintenance,
new strategies and new methodologies are the order of the day. This ensures
optimum economical execution of the maintenance function.
The typical flow of decision-making regarding an outsourcing decision as it is
practiced in most organisations is indicated in figure 1-1
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Identification of a maintenance activity that is costing money.
Someone suggests "let's outsource"
1 A supplier is chosen on the basis of cost.
Source: van der Heijden, T (2003)
Figure 1-1: Typical outsourcing decision-making process
Although this may seem a good way of making the outsourcing decision, there
are several problems that could result in a bigger headache, namely:
Does maintenance management have a clear understanding of why the
particular activity is a problem?
Does maintenance management have enough detail about the activity and the
problems they are experiencing to understand what an outsourcing partner
should be doing to provide the better service?
Has maintenance management considered the issue of executing
maintenance as usual and compared expected costs and delivery standards to
what the outsource partner is proposing?
Does maintenance management understand how the outsourcing of the
activity will impact on the rest of the organisation?
Does the organisation understand that the list of criteria given above in
paragraph 1.4 is to be considered rather than basing the decision on cost
only?
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Bannister (1998) contends that one of the strategies to use to achieve
maintenance World class best practice is to align with quality external contract
maintenance service providers. But, the decision to use such service providers
needs to be based on sound business planning.
The road to maintenance outsourcing is long and difficult. There are no
shortcuts to success and top management should consider supporting outsourcing
strategies over a fairly wide front, with the objective of fmding the outsourcing
`gems'.
1.6 Problem statement
In the mining environment, rivalry amongst competitors is fierce and forces the
mining industry to continuously drive down costs in order to stay competitive in
the global market. The high cost of maintenance, increased sophistication of
plant equipment (assets) and the complexity of the maintenance function
requires a sound and dynamic maintenance system to ensure adequate levels of
availability, reliability and operability of plant assets and equipment.
This forces maintenance management to not only continuous improvement
practice methods, but also to search for step changes in maintenance strategies
and maintenance plans. Outsourcing of functions provides the opportunity for
such step change. There is thus a need to investigate the possible cost
competitive outsourcing of maintenance functions, which will reap benefits for
the mining industry.
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1.7 Research methodology
The university of Johannesburg postgraduate study guide states that
"Methodology is a specification of the approach, which you have adopted to
carry out the research for your dissertation". In this study, data for the research
will be sourced from primary as well as secondary sources. Primary research
will be in the form of interviews with key role players in the plant. Secondary
research will be in the form of literature reviews and information obtained,
conference papers and reports.
The purpose of this study is to align maintenance philosophies, strategies and
methods regarding outsourcing and determine the maintenance outsourcing
methods and benefits.
1.8 Overview of chapters
Chapter 1 gives a general introduction that highlights the rationale behind the
outsourcing of maintenance functions. The chapter explains the objective of the
study, the importance of the study, the problem statement and a brief description
of the research methodology.
Chapter 2 outlines the literature review of the study and examines the evolution
of maintenance, the maintenance process, maintenance policymaking and
strategies. The chapter discusses the outsourcing process, the gap in the
maintenance process and how to improve maintenance in the light of
outsourcing.
Outsourcing methodology is discussed in chapter 3. In this chapter the reader
will find the phases in the outsourcing process, the people issues and
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Outsourcing considerations.
Chapter 4 discusses the research methodology used in this study. It deals with
the objectives of the research, the source of data, the design of the research and
an overview of descriptive statistics.
A presentation and analysis of results is provided in chapter 5, with a discussion
and comparison with world class best practice benchmarks.
Chapter 6 consists of a number of conclusions and recommendations.
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2 LITERATURE REVIEW
2.1 Introduction
Sharp (2001b) states: "Maintenance in the future, has to be a value-adding
activity and, therefore, has to fully complement the organisation's strategy.
The various ways that maintenance can be organised, including outsourcing,
will have significant effects on the staff carrying out maintenance".
Today's fast-changing environment, with its premium on knowledge,
flexibility and performance, is causing mining organisations to rethink their
maintenance paradigms [Greaver (1999)]. Mining organisations are
questioning whether the traditional paradigm of "owning" the maintenance
function is the best way to achieve competitive advantage. The outsourcing
concept of moving activities out of the maintenance organisation to where
the experts exist, as opposed to owning all of the resources forms the basis of
this study.
2.2 The nature of maintenance
Moubray (1997) explains that over the past twenty years, maintenance has
changed, perhaps more so than any other management discipline. Changes are
due to an increase in the maintenance function to support the production process.
Throughout the era of change the maintenance department has been dragged
along for the ride.
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Table 2-1: Growing expectations of maintenance
FIRST GENERATION SECOND GENERATION THIRD GENERATION
• Higher plant availability and reliability.
• Greater safety.
• Better product quality.
• No damage to the environment • Higher plant availability. • Longer equipment life. • Longer equipment life. • Greater cost effectiveness
• Repair when broken. • Lower cost.
1940 1960 1980
Source: Moubray, J. (1997) Reliability-Centred Maintenance.
Today, maintenance has rapidly gained recognition as an integral part of the
manufacturing process. Griffin (1997) states that maintenance is critical to a
mining plant's ability to successfully compete in a globalised market
environment, not only on the basis of quality and delivery, but also on the basis
of cost.
Maintenance has responded to changing expectations. This includes a rapidly
growing awareness of the extent to which equipment failure affects safety and
the environment, a growing awareness of the connection between maintenance
and product quality and an increasing pressure to achieve high plant availability
and to contain costs.
2.2.1 The objective of maintenance
The maintenance objective is to support the production process with adequate
levels of availability, reliability, operability and safety at an acceptable cost
[Coetzee (1997)].
2.2.2 The global approach
With increased global competition, mining plants constantly seek ways to gain
competitive advantage with respect to cost, quality, service and operability
[Pearce (1997)]. Therefore, successful maintenance requires advanced strategies
21
to drive the continuous improvement of critical process systems in a highly
competitive sector. Maintenance engineering is in an excellent position to take a
leadership role in achieving this goal.
World class best practice maintenance performance does not happen over night
[Rio Tinto (2000)]. Maintenance needs a dogged determination to continually
reach for maximum asset uptime, using stretch targets and a robust measurement
system to check progress.
2.2.3 Making the only choice in maintenance: pro-activeness as principle.
The use of expensive, complex and highly developed plant equipment and
machines (assets) in the mining industry, triggered by demanding objectives in
achieving high quality products, longer asset life, high plant asset (machinery)
effectiveness and safe operation processes, are the main factors motivating
improved maintenance practices within the mining industry [Bayside Aluminium
(1999), Richards May Minerals (2001)]. Therefore, management must realise
that to compete at international level, a pro-active maintenance approach to
maintenance planning can add value to the bottom line. But, it is the
responsibility of the maintenance manager / engineer to communicate and prove
to management that pro-active maintenance leads to increased availability,
reliability, operability and decreased maintenance costs. To become more pro-
active, the maintenance engineer should optimise his people (maintenance staff),
establish time values, continuously train his people, understand the importance
of maintenance planning and learn to manage his inventory more efficiently
[Sivalingam (1997)].
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2.2.4 Trends in maintenance management
In less than 20 years, technology has drastically changed the way human beings
think and act, [Bannister (1998)]. The rapid pace of change means that today the
maintenance management must be up to date regarding manufacturing and
maintenance technologies, as well as maintenance methods and philosophies.
The following important factors, [Pintelon (1997)] can be pointed out as critical
success factors for maintenance management in the future:
Thorough knowledge of maintenance technology.
Management skills regarding planning and control (human resource
management, materials and warehouse management, industrial economics,
forecasting, risk management, replacement versus new equipment decision
making).
Flexibility to exploit opportunities and trends, (integration of systems,
operations across the traditional function barriers, right first time on time,
benchmarking, performance measurement).
We could possibly add to this list: The outsourcing of core and non-core
activities [Chase (2001), Dunn (1998)].
2.3 Outsourcing maintenance as a viable strategy for improvement
2.3.1 World trends and views
The burning trend to outsourcing all maintenance activities (core as well as non-
core) is certainly on the foreground in the mining industry. Outsourcing, is
therefore, becoming more and more a strategic issue [Chase (2001), Dunn
(2001b)].
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As mining organisations seek to cut cost to improve productivity, the idea of
outsourcing selected maintenance functions has become an acceptable, even a
chosen method of driving efficiency in an organisation. This is especially true
for those activities that do not fit the individual organisational prescribed
definition of a "core competency" [Welch (2002)].
Thanks to heightened interest in management theories from Japan and
downsizing pressure from top management, maintenance is experiencing
dramatic, fundamental changes in structure. In addition to downsizing the
workforce, maintenance management must also reduce total maintenance costs.
Outsourcing has become a popular option. Specialisation and economics of scale
often give outside organisations (shops) a cost advantage.
Current indicators indicate that the future of maintenance services is outsourcing
[Allahmanli (2002)]. In addition to this Pearce (1997) states that outsourcing, or
the use of a source other than an own internal capacity to accomplish the same
maintenance task has become a major operational tactic in today's downsizing-
orientated mining industry. Outsourcing is based on the notion that strategies
should be built around core competencies.
The use of the term 'outsourcing' refers to the practise of soliciting the support
of external component suppliers to accomplish selected work / task packages
[Blanchard (1998)]. Experience indicates that there is a greater use of external
suppliers than in the past.
The debate on outsourcing raises serious questions. Should mining plants
outsource a core maintenance function? Can an external maintenance service
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provider manage part or parts of the maintenance function better? Does
maintenance outsourcing save money? What risks does outsourcing raise? What
benefits does it bring?
Not every situation falls into a well-defined formula. The situation is usually
different for every mining organisation. However, there are some common
aspects organisations should consider and general outsourcing rules and steps
that should be followed.
2.3.2 The challenge of maintenance improvements
The desire to reduce costs and improve levels of service has led many mining
plants to review the way their maintenance work is carried out. Such reviews
typically begin by defining an appropriate maintenance strategy for the business
and evaluating the most effective and efficient way to resource this strategy.
Traditional approaches to respond to these challenges was to replace the
incumbent maintenance manager, train the maintenance staff in new (and
sometimes not so new) techniques, improve/replace the Computerised
Maintenance Management System (CMMS), redesign or develop a preventive
maintenance program, introduce RCM, RCMII and / or many other philosophies,
techniques, systems and technologies. Pintelon (1997) lists the following areas
in this regard:
Maintenance leadership.
Maintenance technology.
Information management.
Procurement.
People.
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Cost.
Outsourcing.
2.3.3 Maintenance outsourcing overview
Outsourcing is becoming more and more a strategy issue with great importance
for the survival of the business [Van Weele (2002)]. Outsourcing is the act of
moving some of the business internal maintenance activities and decision
responsibilities to outside/external providers [Chase, Aquilano & Jacobs (2001).
As with many services, there are basically two alternative resourcing options,
carry out all the maintenance or, outsource all or part of the work.
Outsourcing has gained popularity over recent years as the mining industry focus
on a limited number of core businesses and skills and divests themselves of
services that are not "critical enablers" of their core business. When to
outsource and at what level (%) should be driven by the business and a
disciplined approach should be undertaken in defining the role of the outsourced
provider, based on specific business related criteria.
2.3.4 Core activities and core competencies
In recent years the growth of contracting has lead to the popularisation of the
idea of a business 'core activity' [Domberger (1998)]. Conventional wisdom
states that core activities stay within the organisation (in house) and non-core
activities can be contracted out.
There are four meanings commonly associated with 'core activity':
Activities traditionally performed by the maintenance department.
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Activities critical to business performance.
Activities creating current or potential competitive advantage.
Activities that will drive future growth innovation or rejuvenation.
The idea behind the notion of core competencies was originally developed by
Prahalad and Hamel [Milgate (2001)]. They argue that the real source of
competitive advantage lies not in products or organisational form, but in
"management's ability to consolidate corporate wide technologies and
production skills into competencies that empower the individual business to
adapt to changing opportunities".
Milgate (2001) provides three tests that can be applied to core competencies:
A core competence provides potential access to a wide variety of markets.
A core competence makes a significant contribution to the perceived
customer benefits of the end product.
The core competence should be difficult for competitors to imitate.
Outsourcing is a relatively new approach, gaining acceptance as a method for
mitigating some of these risks [Greaver (1999)]. It forces change and forces
organisations and mining plants to come to grips with outdated business
practices and why they should be challenged.
Maintenance has become very complex, Coetzee (2001b). For mining plants to
produce at the correct asset name plate capacity within budget, the maintenance
function has to embrace the correct policies, strategies, managerial procedures,
business planning methodologies, measurement methods, etc. Maintenance can
be core or non-core or a combination thereof.
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2.3.5 Strategic maintenance outsourcing considerations
Mining organisations should consider outsourcing maintenance only after
identification that there could be a strategic or competitive advantage.
Where the maintenance budget forms a significant portion of the cost of
production i.e., greater than 40%, outsourcing may be considered because the
function forms such a significant component of the overall plant budget. Where
plants rely heavily on the performance of maintenance the function should be
kept by the maintenance department. If benchmarked and the organisation has
determined maintenance to be of strategic importance, but not competitive with
maintenance services available in the market place, then serious consideration
should be given to re-engineering the maintenance operation and retaining the
function within. When, then does it make sense to consider maintenance
outsourcing?
The top ten strategic reasons, [Chase, Aquilano & Jacobs (2001), Pearce &
Robinson (1997), Melnyk & Denzler (1996)] to consider for maintenance
outsourcing are:
Improve maintenance business focus.
Access to world class - best practise capabilities.
To gain competitive advantage.
Accelerated re-engineering benefits.
Shared risks
Higher maintenance quality.
Overcome internal resource limitations.
Improved management focus.
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Strategic Non-Strategic
Competitive
Non-
Competitive
(Needs As Is discussion)
Re-engineer Outsource
• Improved fmancial, revenue and cost focus.
[Phelps (2002)] refers to strategic outsourcing, and tactical outsourcing.
Strategic outsourcing refers to the high level decision making and for this the
Dunn model will be used. Tactical outsourcing refers to the low level decision
making and for this a good task planning process should be in place.
2.3.6 The strategic outsourcing model
Dunn, S (1998) states that there are a number of critical issues to be taken into
account when outsourcing becomes an improvement initiative. Strategic decision
making in terms of what is to be outsourced and what not to outsource is
essential. In order to assist with this strategic decision-making, Dunn suggests
the use of the outsourcing model as illustrated in figure 2-1
Source: Dunn,S (1998)
Figure 2-1: The maintenance outsourcing model
The outsourcing decision is examined along two dimensions. The first, strategic /
non-strategic, considers how important the activity proposed for outsourcing is
to the organisation in achieving long term strategic competitive advantage in it's
chosen market place. The second dimension, competitive / non-competitive,
29
relates to how competitively the function being considered for outsourcing is
currently being performed compared to the external marketplace. Combining the
two elements gives four possible outcomes, namely:
The upper left hand quadrant. Those functions that are of strategic importance,
and which are currently being performed competitively requires no further
action. The status quo should be retained.
The bottom left hand quadrant. Those functions that are of strategic importance
to the mining organisation, but which are not currently being performed
competitively with the external market place, should be re-engineered. It is
possible that, as an interim measure to speed the transition process, a tactical
decision is made to outsource the function in the short term, but as stated
previously, in the long term the function, as a source of potential competitive
advantage, should be retained by the maintenance department.
The bottom right hand quadrant. Those functions that are not of strategic
importance to the mining organisation, and which are not currently being
performed competitively with the external market place should be outsourced.
There is little value in investing to improve this function.
The final combination. The upper right hand quadrant. Those functions that are
not of strategic importance, but which are being performed competitively with
the external marketplace are more interesting. A number of options exist for this
function, which include:
Selling the function as a going concern.
Extend the function to provide services to external customers.
30
Outsource the function, i.e. outsource the function completely or appoint a
contractor to execute the function.
2.3.7 The tactical outsourcing model
The tactical outsourcing model [SAP (2004)] includes the following but is not
limited to:
Daily maintenance planning, which includes routine, preventive, predictive
and corrective work orders.
Small capital work i.e. typically less than one million rand.
Shut down maintenance.
2.4 New outsourcing paradigm
2.4.1 The outsourcing concept
In 1982, Tom Peters and Bob Waterman introduced the idea that when an
organisation concentrates on the core business, better results will be achieved
[Coetzee (2001b)]. This idea has been fully internalised by the business world.
Outsourcing which has already infiltrated many administrative functions i.e.
human resources, IT departments [Schimmoller (1998)], is now starting to make
a significant dent in the maintenance environment by using third-party services
and personnel who can concentrate on maintenance, freeing the business to focus
on core concerns.
While outsourcing is widely accepted as a viable business tactic to reduce costs
and improve efficiencies, the nature of outsourcing best practises is evolving yet
again [The Outsourcing Institute (2002a)]. Progressive mining organisations are
31
now leveraging new outsourcing models and collaborative partnerships between
buyers and service providers as key catalysts to drive strategic and per say
tactical business transformation. Instead of attempting to control change, a
"transformational" approach to maintenance outsourcing focuses on managing
uncertainty, affording both the mining organisation and service provider
(contractor) greater flexibility and shared risk to meet and match ever-changing
market dynamics [Van Weele (2002)].
While an organisation can take advantage of transformation outsourcing at any
point in its life cycle, once a business leader has decided change is required,
whether as a course correction or in response to economic cycles, outsourcing
becomes a viable alternative business strategy to enable the transformation more
rapidly, with less risk and more flexibility [The Outsourcing Institute, (2002b),
Murphy (2003)].
Transformational outsourcing delivers value beyond cost reduction and,
therefore, is characteristically more integrated [The Outsourcing Institute,
(2002a), Dunn (1998)].
Because of the pressure for return on investment that business and for that
matter, the mining industry, are facing, Dunn believes that the transformational
outsourcing relationship will be critical for organisations to move forward in a
volatile marketplace.
The coming shortage predicted beyond 2000, of experienced trained
maintenance people will force mining organisations to align their maintenance
strategy with outside vendors/contractors [Geaslin (2002)].
32
2.4.2 Outsourcing the maintenance of production assets (equipment)
For many reasons maintenance on production equipment is particularly well
suited to outsourcing [Rio Tinto (2000), Coetzee (2001b)]. While standardisation
has removed the necessity for maintenance staff to have detailed knowledge of
the history of a specific plant asset (equipment), specialised maintenance skills
have become increasingly important. On the other hand, the growing complexity
of modern equipment, and the diversity of the skills required to maintain plant
assets (equipment), make it difficult for many mining organisations to justify
employing specialist maintenance staff. Furthermore, to remain valuable to the
company, these staff has to keep their knowledge up to date.
Carrying out many maintenance activities requires significant investment in
facilities, equipment and training, and unless the services are heavily used, the
overhead cost is prohibitively high.
Organisations and / or plants create a great deal of flexibility when utilizing
outside services when additional resources are required for short periods of time
or when speciality type services are needed. This approach allows the mining
organisation to keep overheads low and in certain situations overcome business
performance issues. In response to this demand, a growing number of contractors
have set themselves up to provide specialist maintenance functions and services
at competitive prices.
Although outsourcing of production maintenance should be considered as an
option, there are a number of standard arguments used in production concerns
proposing why outsourcing should not be practised regarding production
equipment:
33
Production equipment maintenance is too important to outsource.
Control of maintenance will be lost if it is outsourced.
Outsourcing maintenance would be an admission of internal failure.
Maintenance can be improved faster and better by using internal resources.
These will now be discussed in more detail:
2.4.2.1 Production equipment maintenance is too important to outsource.
The idea that production equipment maintenance is important is absolutely true
[Kelly (2000), Wiseman (1990)]. If critical plant / assets are down, the mining
plant will suffer. But, the very idea that good maintenance is essential to plant
success is the reason it must be considered for outsourcing. Current strategic /
tactical thinking no longer associates "important" with "doing it internally." All
activities deemed important cannot be accomplished internally [Welch (2001)].
The internal resources are insufficient in today's streamlined mining industry.
Activities as important as maintenance need ongoing investment, research and
focus so that best practice will drive continuous improvement and for that matter
re-engineering.
As the mining industry make choices about core competencies, the activities that
will receive the necessary focus does not usually rise to the top of the priority
list. Therefore, if maintenance is not going to receive the internal focus
necessary to establish and sustain maintenance best practices and it is recognised
as being extremely important, then outsourcing must be a consideration.
2.4.2.2 Control of maintenance will be lost if it is outsourced.
Regarding the loss of control of the maintenance function (total function, part of
34
function), one of the six key components of effective maintenance that must be
incorporated into any successful maintenance strategy is something called
organisational alignment. Organisational alignment means that the goods and
objectives of maintenance must be squarely aligned with the goods and
objectives of production [Chase (2001), Tomlinson (1998)]. This element must
be present whether maintenance is done internally or outsourced. Therefore,
even if maintenance is contracted, the maintenance strategies and tactics of the
contractor must be established and carried out with the objectives of production
squarely in focus [White (1996)].
2.4.2.3 Outsourcing maintenance would be an admission of internal failure.
Traditionally, United States organisations and, in some cases, South African
organisations would look to outsource a function when it was being performed
poorly or the processes in that function were out of control. Traditional,
outsourcing has been a "reactive" response to unacceptable performance
[Melnyk (1996)]. However, in today's marketplace, there is a totally new
paradigm regarding outsourcing, one that focuses on using outsourcing as a
"pro-active" measure that allows best practises to be accomplished in both core
and non-core functions in a plant [Coetzee (2001a)]. It is a valuable tool that
management can use to increase manufacturing productivity and efficiency.
In describing the new paradigm for maintenance outsourcing the CEO of one of
America's largest corporations said, "Not too many years ago, to outsource was
to admit mistake, error and incompetence. Now outsourcing is viewed as
intelligent, as a recognition of the new dynamics of business" [Welch (2004)].
35
2.4.2.4 Maintenance can be improved faster and better by using internal resources.
There is no question that maintenance can be improved by utilising internal
resources. Maintenance best practices are not well-hidden secrets that are
inaccessible to people other than outside contractors. However, achieving
maintenance excellence is a complex and difficult objective. Most maintenance
organisations believe that they can solve their maintenance issues by hiring more
or better people. However, making significant improvements in maintenance
requires focus on the entire maintenance process, and the various challenges
associated with key elements of maintenance.
The challenges of maintenance [AST (2003a)] are generally categorised into the
following elements:
People.
Leadership.
Processes.
Spare parts and procurement.
Planning and scheduling.
Cost.
Most mining plants / maintenance organisations do not have internal resources
with the broad knowledge of maintenance best practices that are necessary to
make the needed improvements. The other difficult issue is that a plant /
maintenance organisation cannot address only one or two of the challenges and
let the other ones go because they are so intertwined with each other.
Therefore, if maintenance is going to be improved, either internally or through
36
outsourcing, all of the challenges must be addressed and they must be addressed
in a relatively simultaneous timeframe.
2.5 The outsourcing argument
2.5.1 The argument for outsourcing
2.5.1.1 The risks involved in outsourcing
Despite powerful arguments in favour of maintenance outsourcing (see
paragraphs 2.3 and 2.4 above), there are considerable risks associated with
outsourcing maintenance [Coetzee (2001b)]. Maintenance organisations that
first consider outsourcing in times of recession (down economy) or opt for
outsourcing as part of a short-term cost reduction exercise or even to minimize
the impact of third parties (unions) and associated restrictive work practices
often neglect the real issues.
The decision to outsource maintenance activities is often taken in an ad-hoc
manner. There is no consistent analysis of the suitability of tasks for potential
allocation to contractors, nor is there consideration of whether maintenance staff
have sufficient resources, training or expertise for the tasks allocated to them.
Contractors may initially carry out work at cost (or even below cost) to secure an
order, but once a maintenance contract is secured, or as the demand for their
services rises, they will increase their prices in line with market forces. This
leaves the mining plant in a difficult position: once the decision to outsource has
been taken, it is often difficult to reverse, not only because the skills and
equipment are no longer available but also because of the credibility problem of
a change in philosophy. Hence, mining plants have to live with the market costs
37
or find an alternative supplier that, in the case of remote mining plants, can be
problematic or even catastrophic.
From the maintenance outsourcing model (refer figure 2-1, paragraph 2.3.6),
right bottom quadrant for this 'outsourcing' quadrant, the maintenance function
or activity can be completely outsourced or the function can be performed by a
contractor.
All decisions with regard to outsource services incur risks, but costs [Van Weele
(2002)] are likely to remain competitive for services offered by multiple
suppliers, whereas specialised maintenance services offered only by one or two
specialised suppliers can command a premium price.
2.5.1.2 The lack of quality maintenance by the own maintenance organisation
The challenge facing the mining maintenance department is to improve the
collective performance of the maintenance functions. Strategically, maintenance
management will focus on its core maintenance competencies and outsource
other work. When outsourcing, [The Outsourcing Institute (2003b), Bellis
(2004)] maintenance management should look for the following attributes in the
outside contractor(s):
Strong technical skills in the specific function.
Strong expertise in their respective differentiating fields.
Best in class and results oriented.
Innovative value-added service that the maintenance team is unable to
provide.
38
Solid project management and the ability to complete work and manage
workflow effectively.
Quick response to strategic change in the organisation.
Demonstrate effective cost control and accurate planning skills.
Willingness to embrace modern / updated technology, in order to supply an
effective service.
2.5.2 The argument against outsourcing
Many maintenance departments consider outsourcing to be a bad idea.
According to Ford Motor Co. contractors deserve a trip to the woodshed for a
number of costly, boneheaded mistakes [Murphy (2003)]. To rectify the
problem, Ford reclaimed strategic engineering responsibility.
Many production concerns in the United States opted for maintenance
outsourcing as a very fast solution [MSI (2003)]. However, the three
automakers, Ford, VW and GM are re-evaluating their outsourcing models with
a particular focus on maintenance. One option in the outsourcing model
recommends bringing back contractors inside the plant to share space with
company employees.
2.5.3 The outsourcing decision
Maintenance departments are increasingly asked by management to demonstrate
the added value they bring to the industrial organisation. The question from
management is whether an outside contractor would be preferable since
maintenance work appears to have many positive characteristics supporting an
outsourcing strategy [Rio Tinto (2001)].
39 .
In the face of such challenges, maintenance organisations need to be able to
articulate the benefits for the outsourcing strategies.
2.5.3.1 The right mix of maintenance
Successful mining organisations use outsourcing arrangements, combined with a
strong maintenance department focusing on core maintenance services as a key
component to cost and value maintenance management [Hillside Aluminium
(2000), Rio Tinto (2000)].
Many mining organisations of our day favour preferred partnering relationships
with selected contractors, together with a maintenance department that
concentrates on core maintenance services.
Targeted outsourcing under the right set of circumstances, can reduce cost, better
accommodate the workload and ensure that a mining plant receives expert best
practice service where resources may not be adequate.
2.5.3.2 The Pareto principle (80 / 20 rule)
What is the right mix for outsourcing maintenance? This is not a simple
question and the answer depends on the specific type of organisation and
geographical area. There are a host of considerations involved, including: the
specific industry, organisational characteristics, corporate and departmental
leadership preferences and the nature of the maintenance work, management
preferences and organisational models.
It makes sense to outsource that 80% of maintenance, which is least 'core' and to
focus maintenance activity on the core activity [CIO Insight (April 2004)].
40
According to Overby (2003), many organisations in the U.S. used outsourcing
choices as part of their overall portfolio of resourceful practices. Most are
utilising a combination of maintenance options to successfully meet business
demands.
2.6 The union issue
As far back as 1991, General Motors (GM) set up an agreement with unions
regarding outsourcing, stating in the introduction: "The Corporation will work
with the union at both the local and international levels to preserve jobs, replace
jobs which may be lost" [Yokick (1990)]. Today, fourteen years later, General
Motors is investigating the maintenance methods of the engineering function. It
would seem as if the union is correct in stating: "Every month it seems there's a
new management scheme being introduced" [UE's Information for Workers
(2004)].
Under countless names i.e. Kaizan, Work Out, ISO 9000, Just In Time, Win-
Win, Quality Circles, Sourcing and now Transformation, bosses are constantly
trying to reorganise the workplace to promote maximum efficiency, maximum
productivity and maximum output.
Today, unions are continuously under pressure from their members to develop
alternative solutions to the outsourcing fad. The result is that alliance and co-
operative union bodies are being established across the world under umbrella
protection, overseeing issues of strategy importance, such as outsourcing, safety,
work conditions, work hours, leave, etc. Together with this, unions are
developing a counter propaganda media campaign and examples are the
41
following articles:
"Union fights outsourcing" [Labour, 2004].
"BHP Steel reaches agreement on Maintenance Outsourcing" [New @ BHP
Billiton, 2001].
"Outsourcing abroad puts worker at risk" [Professional Engineering, 2004].
"Outsourcing Dirty Little Secret" [Computerworld, 2003].
With these statements, the unions are developing their own guidelines on
outsourcing, regarding what they will accept from employers [Community and
Public Sector (February 2004)].
2.6.1 The 21 st century union approach
It is clear that unions have learned from the outsourcing boom. Outsourcing,
subcontracting, privatisation and transformation — for workers these terms mean
lower wages and lost jobs. Outsourcing has always been an issue, but now the
drive to increase profits has meant outsourcing is hitting all-time highs and
finding new forms.
Some are saying that unions in the mining industry have some catching up to do
on outsourcing. Such warnings raise the general question of whether and how
well the unions are prepared for structural change in order to take part in the
dialogue for outsourcing [Mansel (1998)]. Their experience with
codetermination stems from large factory related organisations, where they have
enjoyed great success. Consequently, union policy is still slanted heavily
towards such major corporations. This must change, according to Roland Issen,
chairman of the German DAG union. [Mansel (1998)]. If unions do not succeed
42
in making this shift, the union activities run the risk of becoming worthless.
2.6.2 Overcoming the unions' negative perception of outsourcing
The sceptical attitude to outsourcing is fed by the mainly negative past
experience of unions with this type of restructuring. Organisational motives in
the past mostly had nothing to do with facing the transformation process to
ensure long-term efficiency. The usual aim was merely to react to shareholder
pressure for higher dividends and to cut costs using all available means. These
means included, apart from outsourcing certain activities, the transferring
activities to a low-wage country, or to a sector covered by a weaker collective
bargaining agreement or none at all, or alternatively, employees are pressured
into a fictitious independent status where they are no longer covered by
collective bargaining regulations i.e. working hours, vacation regulations or
remuneration. These do not leave one to wonder why unions take the negative
stance towards outsourcing that they do take.
To understand the aims of a planned outsourcing measure and the consequences
it will have for the employees concerned and for the specific mining plant, the
union must examine the proposal closely at a very early stage [Mansel (1998)].
Since outsourcing can be seen as a typical consequence of structural change,
unions must change their way of operating to be in a position to work
successfully within the new situation that employees face.
2.7 Conchision
Chapter 2 discusses maintenance outsourcing literature.
43
3 A HOLISTIC VIEW OF OUTSOURCING
3.1 Outsourcing principles
In order to build a solid business case for a maintenance outsourcing strategy, it
is important to first have a clear picture, refer figure 3-1 of what the maintenance
needs really are.
Source
ost effectiveness
N t:\ ("
: CJ Visagie
rs.
Organisation Reliability Objective "AN- Quality
4_41 Availability
111P Maintenance ------r Reliability
Objective l'it4141■
k Operability k 41 ,_,
11,“ •A C
ost ....__O Maintenance
4 I r
Business Process Safety
Maintenance Service Level
Agreement (2003)
Figure 3-1 : The outsourcing objective tree
To achieve these overarching organisational objectives, the mining organisation
has various maintenance business processes in place. Many mining plants rely
on intuition and experience and assume their processes are designed well enough
to meet production objectives [Laszkiewics (2004)]. To avoid this pitfall, a good
first step is to conduct a broad-based assessment of the maintenance and
engineering processes. The objective is to identify any factors / issues that
inhibit equipment performance.
44
Often, the root cause of a performance is hidden by how problems manifest
themselves in the process. Can the plant consider maintenance outsourcing?
The following principles [The Outsourcing Institute (2003b)] should be in place
for successful outsourcing:
Set reasonable and obtainable expectations.
Understand the outsourcing objectives, both strategic and tactical.
Calculate the true costs of the function(s) and process(es) to be outsourced.
Carefully qualify and evaluate service providers and select more than one if
necessary.
Communicate often with internal staff (employee's) regarding outsourcing
and maintenance objectives and intentions.
Develop measurable and achievable service level agreements.
Define performance standards and reporting.
Design a flexible enough contract to reflect changes, services, yet explicit
enough to lay out terms and framework.
Establish a formal and empowered contract.
Use a competitive bidding process.
3.2 The outsourcing process and method
Dunn (2001b) states, "outsourcing is an alternative means of performing the
necessary functions, process or service". Dunn further says, "outsourcing is not
a means of relinquishing responsibilities for sound business management".
From figure 3-2, the outsourcing roadmap, it is evident that the outsourcing
process requires the completion of five interrelated phases [Nickolas (1990),
45
A. 4. 4. 41‘
00 8
Implementation
Phase
Feasibility
Phase
Design
Phase
Concept
Phase
Maintainable
Phase
RBM (2002)].
The maintenance outsourcing phases [Nickolas (1990), Visagie (2003)] are:
Concept phase.
Feasibility phase.
Design phase.
Implementation phase.
Maintainable phase.
The outsourcing of maintenance function(s) or activities start from the
maintenance outsourcing model, figure 2-1, (paragraph 2.3.6) and the tactical
outsourcing model (paragraph 2.3.7), where mining plant maintenance
management, in conjunction with top management, set the outsourcing direction.
Refer figure 3-2.
Source: Dunn, S (2001)
Figure 3-2 : The outsourcing roadmap
46
3.2.1 The outsourcing lifecycle
The outsourcing process commences with an idea and develops through a
conceptual phase, which ends in the completion of the Concept Approval
Request (CAR) document.
The outsourcing process moves on to a feasibility phase, Approval for Design
(AFD), culminating in the application for the development of the outsourcing
process. This leads to a document covering the total outsourcing scope of work,
which leads to the authorising of the specific outsourcing ffinction(s) and / or
activities.
The outsourcing process matures into the design phase, Approval for
Expenditure (AFE), which ends in the detailed plan and final approval to
proceed.
The next phase develops into the implementation phase. Once the outsourcing
contractor is on site, the process develops into the maintainable phase.
During the maintainable phase the outsourcing function(s) or activities get
handed over to the responsible mentor, who will manage the outsourced
function(s) and / or activities for the duration of the lifecycle.
3.2.2 The conceptual approval phase
The CAR phase commences at the "light bulb" stage, i.e. when the idea is
conceived and involves the generation of an idea or the noting of a problem
[RBM (2002)], using the maintenance outsourcing model, refer figure 2-1
paragraph 2.3.6) as guideline (but not necessarily limited to the model if there
are other factors which make a specific type of outsourcing attractive). The
47
Steps 1 and 2 involve planning. Use strategic / non-strategic grid to identify opportunities
Prioritise according to factors such as:
your organisation's readiness to implement change; and the market's ability to meet your requirements expected benefits from contracting out
Step 1
Step 2
Step 3
Step 4
Identify and assess opportunities.
Short-list and prioritise
candidates for market testing.
Specify service and performance requirements.
Test market and decide.
outsourcing process starts with maintenance functions being identified as non-
strategic, non-competitive. This is the phase were planning and analysis takes
place [Solopek (1998)].
Maintenance function(s) and / or activities are listed as per figure 3-5, the
strategic maintenance function outsourcing model. Items listed in the quadrant
for outsourcing get tested for outsourcing compliance. Figure 3-3, planning the
outsourcing process, details the preliminary steps in the outsourcing process.
Dunn (2001) emphasises steps 1 to 2, in order to make a business decision about
outsourcing. The main objectives of these first steps are to ensure that the
maintenance organisation has a clear view of what it wants to outsource and why
the maintenance function for this should be outside.
Source: Dunn, S (2001)
Figure 3-3 : Planning the outsourcing process
48
Steps 3 and 4 involve implementation. Specify outcomes required using performance specifications over prescriptive specifications
Meticulously enforce the principles of fair competition, probity and competitive neutrality in tendering.
Choose the option that provides the optimum value-for-money means of achieving your mission, objectives and policies
Step 1
Step 2
Step 3
Step 4
!den*. and assess opportunities.
Short-list and prioritise
candidates for market teNtina.
Spectb• service and performance requirements.
Lest market and decide.
Use can be made of the strategic / non-strategic grid to identify opportunities.
Prioritisation could take place based on factors such as:
The mining plant's readiness to implement change.
The market's ability to meet the requirements.
The expected benefits from contracting out.
Steps 3 to 4, figure 3-4 involve the implementation phase. Specify the
outcomes required using performance specifications over prescriptive
specifications. Meticulously enforce the principles of fair competition, integrity
(probity) and complete neutrality in tendering.
Choose the option that provides the optimum value-for-money-means, achieving
the mining plant mission, objectives and policies. Deciding whether or not to
contract out and the process should be based upon consideration of strategic
issues. Dunn (2001) further suggests tailoring the criteria of suitability to suit the
mining plant.
(2001)
Figure 3-4 : The contract implementation process
Source: Dunn, S
49
The strategic evaluation model, figure 3-5 can be used to identify maintenance
functions that are candidates for outsourcing in terms of figure 2-1 (paragraph
2.2). Maintenance functions depicted on this model are only an indication and
will vary from mining organisation to mining organisation.
Source: Dunn, S (2001)
Figure 3-5 : The strategic maintenance function outsourcing model
From figure 3-5, it appears that items listed in the non-strategic competence gap
quadrant could be outsourced. However, all items closer to the centre of the
matrix should be discussed in more detail before final placement on the matrix.
It could mean by re-engineering the activity, placement could change to another
quadrant. Items in the far corners of the matrix conform clearly to the decision
matrix and could be implemented without further discussion.
The next step is to determine the level of outsourcing maintenance. Dunn, S
(2001) used the level of outsourcing maintenance model to determine the level
50
of maintenance to be outsourced. Depending on the resource flexibility and
resource control complexity, the mining organisation can use this model to
determine to what extent the maintenance function(s) can be outsourced.
Outsourcing service level agreements can vary from:
Full ownership by the contractor.
Partial ownership by the contractor.
Joint development between the mining maintenance organisation and the
contractor.
A retainer contract, i.e. fee paid in advance to secure service for use when
required.
Long term contracts, i.e. to supply a specialist service.
Call options.
Short term contracts.
A combination or hybrid [Tomback (2003)].
Depending on the strategy the mining organisation wants to follow, the
outsourcing service level agreement can vary. The mining organisation can now
implement the following levels of outsourcing, refer figure 3-6, once it has
decided which maintenance activity to outsource.
51
•
Full ownership
Partial ownership
Joint development
Retainer
Long-term contract
Call option
Short-term contract
Resource flexibility
yV
Source: Dunn, S (2001)
Figure 3-6 : The level of outsourcing maintenance model
The final CAR document covers, but is not limited to, the following items:
Scope of work (maintenance function(s) and / or activity to be outsourced).
Options (alternatives).
Opportunities.
The risk assessment plan.
The business case.
The cost / budget plan.
The level of the outsourcing plan.
The recommendation.
The request to proceed.
52
3.2.3 The feasibility phase
In this phase various options, scenarios, opportunities, benchmarking analysis
and cost savings will be investigated. The outcome of this phase will give top
and plant maintenance management the direction, the scope of work and the
potential savings anticipated. This phase will also address the change control
methodology. (This study does not address any [Kotter (2000)] change control
issues). The deliverable document for this phase is called the Approval for
Design (AFD) and requests management to approve the next phase.
The feasibility phase [RBM Project Manual (2002)] is where the "design" of the
outsourcing process develops and contains the following steps:
Development of the business case.
Scope of work (what to outsource).
Evaluation of options.
Benchmarking.
Risk analysis.
Change control methodology.
Establishment of resource outsourcing team.
Option evaluation.
Define the appropriate action plan.
Determine the Return on Investment.
3.2.4 The design phase
In this phase the complete scope of work, activities, etc. will be documented.
The detailed business case will be attached, the risk assessment associated with
the various options will be discussed and management will be asked to approve
53
the recommended option to proceed with the next phase. The deliverable
document for this phase is called the Approval for Expenditure (AFE).
This phase consists of the following tasks [RBM Project Manual (2002)],
namely:
Development of the business case.
Refine the scope of work.
Refine the desired option, full outcome / change.
List possible option studies.
Refine the option.
Refine cost to ± 30% accuracy.
Select best option with motivation.
•• Define scope of option selected.
Define project work plan (project methodology).
Define outsource work plan.
Approval to proceed.
Tender preparation.
Tender evaluation.
Establish project schedule.
Define the change control plan.
Define the transition plan.
3.2.5 The implementation phase
This phase consists of the following tasks, [RBM Project Manual (2002)],
namely:
54
Planning and conducting of pre qualification.
Tender clarification.
Tender awarding.
The transition process.
The change control plan.
3.2.6 The maintainable phase
This is the final and last phase. On tender awarding, an official "agent" or
mentor within the organisation takes over the control and management of the
contractor. This does not end the process as the reporting and performance
feedback loop drives the continuous improvement loop.
This phase [Gay & Essinger (2002), White (1996)] is where the execution of the
outsourcing process takes place:
Contractor takes over control, custody and are of equipment.
Mentorship.
Auditing and reporting.
Administration.
Measurement.
Figure 3-7 gives a holistic approach / method to maintenance outsourcing. This
method gives management a systematic approach to proceed with the
outsourcing process. If at any time in the process there is doubt, the process can
be stopped without any large losses, leaving room to explore new alternatives.
55
Content Opportunity Business Case
Outsourcelnsource Options
Control Budget to do the next phase
Content Scope of Work Options Selected options Final Business Case
Risk Assessment Benchmarking analysis
Change control methodology
Control budget Resource Implementation Team
Content
Scope of work Cost analysis
Risk analysis Project methodology
Outsource plan (rid Org
plan) Recommendations
Approval to proceed
Detailed Business Case Tender preparation
Tender evaluation
Content Approval to place order
Transition plan Change control
Content Signed Take Over Care Control and Custody by
Mentor Audit performance
Administering and measurement
START
Concept Phase
The Initiating Process
Strategic direction Tactical direction
Outsourcing
models Strategic
evaluation
Present Inhouse
performance The What, Why, How Who and
When
fi Another Phase If more work is
required to complete a phase, then raise
another phase.
fi
CAR DOCUMENT
Feasibility Phase
1104r
AFD DOCUMENT
Do as many phases required until you
the information to
e
Design Phase
AFE DOCUMENT
Scope Change Deliverables:
Revised Study
Why What Change
Impact Time Resources
Cost
Implementation Phase
COMPLETE
IMP DOCUMENT
Maintenance Phase
MAN DOCUMENT
Source: RBM Project Manual
Figure 3-7 : Outsourcing phases
3.3 The people 'issues' when outsourcing
Many people consider outsourcing to be an unethical practice Bragg (1998), as it
uproots large numbers of employees, either by shifting them to a supplier or by
retrenchment. This is certainly a valid concern.
56
The old saying "people are our most valuable asset" is more than catch-phrase
marketing - it is an economic reality. In today's information-based economy,
much of an organisation's value resides in its people. It is people, processes and
technologies that are an organisation's source of innovation and competitive
advantage [Coetzee (2001c)].
Creating a win-win outsourcing relationship is probably one of the most complex
of all business challenges [Boyd (2003)]. The fact is, when a successful
implementation is realised, when the production line is running smoothly and the
maintenance team is functioning at full capacity, few employees question the
value of contract maintenance. It is the initial fear of the unknown that causes
the greatest anxiety for most employees. Although contracts and services vary
from plant to plant, a structured plan can help alleviate employee concerns and
lead to a successful, thriving partnership between the plant, its people
(employees) and the service provider.
Burton (2003), Gay & Essinger (2000) recommend the following steps to
success:
Ensure that a well-trained manager oversees the implementation process.
Include the human resources department on the start-up and implementation
team.
Do a formal group announcement to the employees impacted the most
Do not force an immediate identity change.
Provide time for the employees to get to know the service provider.
Enter into a partnership with the service provider to develop and launch a
start-up and implementation plan.
57
Develop a clear contingency plan [Trash (2003)].
The decision to outsource maintenance brings dramatic change and, in many
instances fear of the unknown. Plant management needs to educate employees
and share information to alleviate this fear. Although the above steps provide a
start, no 'do-or-don't' list is valid across the board.
3.4 Outsourcing considerations
3.4.1 Weaknesses in the outsourcing process
Some of the major weaknesses [Bragg (1998), and Gay & Essinger (2000)] that
must be taken into consideration during the outsourcing process:
Schedules are determined by political imperatives, not by an understanding
of due process or likely outcomes.
Change drivers are not clear.
Non-financial aspects of performance not considered.
Information technology and / or human resource issues are not clearly
understood.
Asset management implications are not realised.
Maintenance costs are not clear and often difficult to determine.
Tender development and contract management skills are inadequate.
3.4.2 Important issues in the outsourcing process
Important issues [Olive (2004)] that need to be kept in mind regarding the
outsourcing process could be summarized as follows:
58
Align the outsource strategy with the business strategy, underpinning the
vision, mission and objectives.
Identify and assess all risks involved. This would be risk in terms of
physical, operational, financial, time and control.
Reduce risk by outsourcing only when the foundations are laid.
By developing the acquisition strategy, keep in mind the two "golden rules",
namely, the client always accepts some risk and the client always pays.
Preferably use one of the commonly used price based contract models,
namely fixed price, schedule of rates or incentive price. Performance
incentives can promote overachievement and continuous improvement, so
both parties benefit.
3.4.3 Benefits of outsourcing
Outsourcing provides opportunities to utilize the unlimited potential of
specialized outside services [Gay & Essinger (2000)]. Outsourcing enables the
potential for growth as specializing specific functions will give the opportunity
to overcome its limitations of resources, expertise and services. Outsourcing
limits liabilities through risk sharing [Sharp (2001b)]. Normally, with
outsourcing there is a smaller involvement with labour resources resulting in
savings on overhead cost. With outsourcing specific expertise and skill can be
outsourced to specialized organisations that are capable of achieving high quality
results within the time and cost constraints. Outsourcing can provide the
necessary flexibility to adapt and respond to changes in terms of demand and
supply chains.
Outsourcing allows the mining plant to focus on its core business [Welch
S9
(2001)]. The core business can, therefore, be maintained with sufficient
resources to achieve high plant availabilities, reliability, operability, and quality
at low levels of safety and environmental risk and at acceptably low maintenance
cost.
Outsourcing adds more value to both parties. Parties agree upfront on commonly
used cost structures, performance, key deliverables and the milestone plan.
Outsourcing gives access to off-balance sheet fmancing [Vogt, Pienaar and de
Witt (2002)].
In summary, Resnick (2004) states that outsourcing increases budget flexibility,
allowing the maintenance management to pay only for those services required.
It eliminates the need to hire and train specialised technicians. Outsourcing
brings a degree of flexibility and engineering expertise that would not be
possible otherwise. As maintenance needs evolve, so does the service
agreement.
3.4.4 Policy and strategic overview
Issues such as the underlying premise, policies, strategies and key success points
should be considered as part of the policy and strategy overview.
Implementation issues such as setting targets, impacts on staff and the
organisation, priority and neutrality, maintenance cost and comparisons and the
use of benchmarking would be considered. Under the structured approach,
issues such as, key steps, criteria of stability, prioritisation and the "Go / No Go"
decision should be considered.
60
3.4.5 Management approval
Approval needs to be obtained from top management and requirements need to
be defined in detail. Acquisition strategy and management plans need to be
developed and followed by the development of all commercial documentation
and the tendering process. Finally, measuring systems need to be implemented
in order to administer and maintain the contract as well as the continuous
measurement of performance.
3.4.6 Strategic decision making
The next step in the outsourcing process would be to decide what to outsource.
The recommendation would be to outsource non-core maintenance activities.
Core maintenance activities are too close to the production process and
outsourcing could rather be considered in a later phase of the total process.
3.4.7 Decision making process
To eliminate bias in deciding between core and non-core maintenance activities
the maintenance outsourcing model, refer figure 2-1 (paragraph 2.3.6), as
explained earlier in the dissertation, could be used. Assess the present
maintenance performance first. The outsourcing decision focuses on the
strategic needs and the competitive position evaluation framework.
3.4.8 The outsource initiative
The outsourcing initiative will have several impacts on the specific mine.
Financially, some of the outsourcing initiatives could be costly to investigate and
to implement. This would include benchmarking locally and overseas,
investigation and feasibility studies. Quite a large number of senior personnel in
61
key positions would be required during the investigation and launch of this
initiative.
3.4.9 Contractual issues when outsourcing
The key to maintaining a good and long relationship with service providers lies
largely in how the Service Level Agreement is structured and managed [van der
Heijden (2003)]. The following are some of the key factors to keep in mind to
ensure success when outsourcing [Greaver (1999), White (1996)]:
Scope of Service.
Terms and conditions.
Performance standards [Wiseman (2004)].
Pricing schedules.
Factors of production.
Management and control.
Service changing requirements.
Information flow requirements.
Critical legislative requirements.
Staff and asset transfer agreements.
Accommodation agreement.
Billing and payment terms.
Termination provisions.
Other general contractual issues.
62
3.4.10 Labour issues
From a labour force point of view, this initiative needs to be handled with utmost
care. Being insensitive about outsourcing issues could create fear and insecurity
amongst personnel, which could have a major impact on the morale of the work
force. This could lead to major implications regarding the implementation of
this initiative.
3.4.11 Change control
"The core of the matter is always about changing the behaviour of people, and
behavioural change happens in highly successful situations mostly by speaking
to people's feelings" Kotter (2002).
Two issues that need attention are:
The people issue, and
The change in the new business methodology itself.
Resistance to change should be embraced and handled with sensitivity to ensure
successful implementation [Gay & Essinger (2000)1 The new business
approach in itself should ensure better methods, performance, output and returns.
3.4.12 Implementation plan
Implementing the strategies could comprise of several phases. The important
issue is dealing with the human dynamics and rushing the process could
jeopardise smooth implementation. This initiative should be treated as a
maintenance change project under the leadership of a steering committee, a
project leader with the assistance of a task team consisting of key role players in
all affected areas of the plant.
63
3.4.13 Role players
The project or task team would be required to get together on a regular basis if
not seconded full time to the change project under the chairmanship of the
project leader. This first phase would be to develop the strategy and obtaining
all relevant information using the outsourcing model in all sections. The second
phase would be to develop a plan of action and to communicate and negotiate
the strategy and plan of action with all stakeholders and top management.
3.4.14 Pilot plant
The actual implementation should not take place at once on a plant wide basis.
Starting with one section, it should be rolled out to other sections only after
successfully being implemented in the previous section. Executing the rollout
plan this way, gaps could be identified and adjustment by the work force will be
ensured and there will be a gradual transition phase from the present situation to
the future situation. Duration of the implementation of the process should not be
quicker than between 24 to 48 months. Intensive training would be required
with most of the initiatives recommended, which will cause a shortage of staff
required to undertake the run of plant maintenance to maintain the plants /
mines. This could be alleviated by the assistance of labour hire and contractors
in the short term. However, contractors and labour hire would require safety and
operational training beforehand.
3.5 Conclusion
Chapter 3 highlighted critical aspects in the changing world of maintenance.
World trends and views of international maintainers indicate that maintenance
could become more cost effective by outsourcing non-core functions to selected
64
service providers.
Outsourcing of the maintenance function(s) or parts thereof is here to stay.
Success can be achieved based on good management of the transformation
process. The unions lack the transformation knowledge but are rapidly closing
the gap with guidelines and rules.
The following chapter discusses the research methodology and the approach
used in the study. It explains interview methods used to determine the present
situation in the mining industry and concludes with an attempt to link the
secondary research data with the responses to determine benefits of new
outsource versus traditional maintenance methods.
65
4 RESEARCH METHODOLOGY
4.1 Introduction
The mining industry with regard to the outsourcing of production equipment
maintenance competes with the global market forces (i.e. all other industries).
Outsourcing of maintenance has become a viable alternative as the mining
industry undergoes re-engineering and in many cases down-sizing.
The mining industry was holistically compared with the global KwaZulu-Natal
industry i.e. steel and aluminium producers, paper manufacturing, coal export
and other medium size plants.
Different to the expectation, a close similarity is observed in the application and
execution of maintenance methods in all manufacturing industries. The same
maintenance strategies, philosophies, approaches, methods, and practices are
commonly used throughout the industry, and observing results in all industries
are valuable for future prediction and perfection in this field.
Maintenance has become an integral part of the operation of a mining plant.
Improved maintenance methods could be the cutting edge of competitive
advantage. One such method could be to outsource parts of the maintenance
process. An alternatively approach could be to execute maintenance via a
contractor.
4.2 Present situation
In determining the present situation in the mining industry, KwaZulu Natal
Northern Region, it was required to gather information from various mining
66
plants and / or factory industry. Validation of the current maintenance
management and maintenance outsourcing process was essential in order to do
some meaningful comparisons. Comparisons were required and were done to
make recommendations — however, they are deemed to be applicable only to
mining industries in this specific area. This was done by means of an
interviewing schedule as listed in Appendix A and supported by the theory
underpinning the study.
4.2.1 Interviews
Primary data was gathered by using the interviewing schedule. Interviews were
conducted with key role players in the maintenance, procurement and other
departments involved with maintenance [Forrest (1990)1 The key informant
interview technique was mainly used where an interview was directed to
individuals based on their expert knowledge, rather than a random sampling
approach. Interviews conducted can be summarised as follows:
Interviews were conducted with maintenance managers and maintenance /
plant engineers. This group was specifically selected due to their expertise in
the field of maintenance and maintenance outsourcing. There are key role
players in design, modification, direction giving, planning and
implementation of maintenance. Interviewing this group was essential to
determine the focus and direction of the maintenance function.
Further interviews were conducted with plant managers and plant
superintendents. This group was specifically selected due to their
responsibility and accountability for first line maintenance. They are also the
67
core production custodians and are responsible for plant availabilities and
plant throughput.
The main objective of the interview questionnaire was to gain information
regarding current maintenance management process trends in the mining
industry. Other objectives were to establish the knowledge of the users and
whether they understand the dynamics of the maintenance outsourcing
process and how the outsourcing process fits into the maintenance
management process. Also, good interaction between production and
maintenance is essential.
Thus, questions were designed in such a way as to first of all obtain the
required information, secondly, highlighting the interviewee's knowledge of
the current maintenance management process, and, thirdly to measure the
effectiveness of the communication between the role players. An evaluation
of the understanding and simplicity of the process is important. In many
instances, processes are so over complicated that no one understands the
process, hence the measure of failure perceived.
During the interviews, the interviewer tried to establish candid views of the
individuals regarding the future of maintenance in the industry and / or
plant. This was handled with utmost care as validity of the answers
depended, to a large extent, on the maturity and honesty of the respondent.
• Interviews were also conducted with commercial managers (procurement).
The purpose of these interviews was to establish the interface relationship
and effectiveness of the integrated supply chain (ISC).
• Additional interviews were conducted with maintenance supervisors and
maintenance planners. This group was selected for their maintenance
expertise. They are the users of the system and it was essential to determine
their objective views regarding the practicality of maintenance and
maintenance outsourcing. It was also important to establish their knowledge
of the maintenance process and maintenance outsourcing process, methods
used to sustain the knowledge and how changes in the process were dealt
with.
Production knowledge of the maintenance management process was tested
and customer satisfaction was measured. This would be an indication of
efficiency and effectiveness between the production and maintenance
departments.
• Separate interviews were held specifically with plant managers and
maintenance managers regarding maintenance outsourcing only. This
information was compared to a 2001 maintenance outsourcing survey done
by the Plant Maintenance Resource Centre and served to compare these
world benchmark results with the localised outcome in this specific region in
South Africa.
4.3 Internal verification
Internal verification was conducted by studying internal company procedures
and policies available on the intranet and internet. The main purpose of this
study was to determine reliability of internal responses received during the
69
interviewing process. Reports on adherence to procedures and systems were
investigated and validated with official results achieved by the maintenance
department. Results were obtained from standard maintenance control reports.
4.4 Secondary data sources
Secondary sources [Forrest (1999)], firstly involved accessing data via the
internet. Secondly, it involved a study of various literature sources, namely:
textbooks, journals, proceedings and conferences, workshops and seminars by
reputable maintenance consultants and specialists in the world. Reports
available on other mining industries and manufacturing companies were also
studied and all relevant maintenance management information extracted.
4.5 Comparison
The primary research and information gathered during the interviews were
tabulated and summarised. Information obtained from the secondary data
sources as well as information obtained from the benchmarking exercise were
also tabulated and summarised, including pointing out similarities and
differences.
4.6 Conclusion
Although a relatively small selected group of respondents were interviewed in
the KwaZulu Natal northern region, as these were the major participants in key
positions of the companies.
70
Companies used in the research methodology.
Richards Bay Minerals (mining plant).
Ticor (mining plant).
Hillside and Bayside Aluminium (process plants).
Mondi (process plant).
In the first part of the following chapter, responses received from interviews,
using the interviewing schedule, and results obtained during the study are listed.
In the second part, an attempt will be made to analyse these responses and results
in order to make recommendations in the final chapter of the study.
71
5 RESULTS AND INTERPRETATIONS
5.1 Introduction
This chapter deals with the results derived from the investigation using the
interviewing schedule in Appendix A. The contents are sub-divided into two
main sections.
The first section deals with the maintenance outsourcing interpretation and the
analysis of results. The mining industry in the KwaZulu Natal region (KZN)
will be compared to international in this chapter.
The second section of the chapter deals with the interpretation and analysis of
results. This section highlights the significant importance of the study and forms
the vital link to the final chapter where conclusions and future recommendations
are made.
5.2 Statement of the maintenance management results
The results of the study are summarised and divided into four sub sections.
Responses received from respondents being interviewed, as per the interviewing
schedule, Appendix A, are listed first. This is followed by a discussion
regarding verification of responses with internal procedures and reports. The
section concludes with a comparison with the manufacturing industry in the
region. Responses are illustrated in the form of written answers to the questions
directed to the respondents as well as tables, diagrams and bar graphs.
72
1000 900 900
750 800 675 650 700
600 500 400 300 200 100
0 1999 2000 2001 2002 2003
Year
Labo
ur
Co
mp
lem
ent
5.2.1 Maintenance manager / plant engineer
Responses from this group are as follows:
• The labour force was reduced on average by 5% to 10% per year over the
past five years and cost was reduced at an average of 5% to 10% per year
over the past five years as depicted in figures 5-1 and 5-2.
Figure 5-1 : Maintenance labour complement
Figure 5-1 indicates on average that the maintenance budgets for the KwaZulu
Natal northern region declined over the last five years.
This trend is forecast to continue over the next three years. See figure 5-2.
73
200 180 171 162 154 146 150
100
50
0 1999 2000 2001 2002 2003
Year R
ands
in M
illio
ns
Figure 5-2 : Maintenance costs
A measurement to ascertain the specific maintenance department's position
seems difficult to determine. In general, all plants drive towards continuous
improvement, getting things done quicker at lower cost. The deliverables
production requires and the deliverables maintenance can supply seem to be
problematic in the mining industry. The supply chain between maintenance
and materials management seems to be complicated due to the wide span of
requirements.
The typical maintenance department's biggest concern is the loss of talented
individuals and the shortfall of skilled artisans.
5.2.2 Plant manager / plant superintendent
The same interviewing schedule was used for production plant managers and
plant superintendents. The general response of the production group is listed as
follows:
The general response received from most respondents was that the
maintenance philosophy in the plants is to focus on planned maintenance in
order to perform preventive maintenance.
74
Present plant maintenance conditions are geared towards a reactive mode
type (breakdown) maintenance approach.
The maintenance budgets are designed for a planned maintenance
environment where reality in plants is reactive mode.
All responses indicated production and maintenance interface on a daily
basis, normally in the form of a daily production meeting where current plant
problems are discussed.
Most of the responses rated the effectiveness of the maintenance department
on average depending on the type of maintenance work.
Responses revealed that the production department's understanding of the
maintenance procedures is generally good.
The following is a list of the most common maintenance complaints received
from production representatives in order of magnitude:
Breakdown turn-around time too long.
Poor maintenance planning.
Incorrect spares.
Conflict between ownership of problem.
Too many repetitive failures.
Response time on breakdowns too slow.
Too many reworks.
Maintenance has too many procedures.
Maintenance systems delay the job.
10 Shutdown overruns.
11. Maintenance lack of knowledge.
75
The following is a list of most common maintenance complaints reported by
the maintenance representatives in order of magnitude:
Breakdown turn-around time too long.
Response time on breakdown too slow.
No follow up.
System problems.
Maintenance lack of knowledge.
Too many reworks.
Incorrect spares.
The general feeling from the production respondents was that in future the
maintenance function would be integrated with production if not already in
place. Non-core maintenance functions will be outsourced, i.e. where the
non-core maintenance function is outsourced the appointment of a
specialised contractor.
The group of respondents indicated that the maintenance function could be
improved by regular strategic sessions between production and maintenance.
The optimisation of long-term plans was needed.
Maintenance performance indicators and reports adherence was low or non-
existent. From a production point of view, plant availability and reliability
was considered as most critical to production. However, feedback to the
maintenance department from production is still lacking.
76
5.2.3 Maintenance supervisors and planners
The summary of responses received from this group were:
All respondents lack a clear understanding of the maintenance department's
vision, mission and in some instance the objectives.
All respondents indicated that the effectiveness of the maintenance
management system, in most scenarios, i.e., the SAP system, were poor.
Some of the more pertinent responses were:
Systems were in place, but lack the control needed at ground level.
Take too much time.
Knowledge of systems varies from user to user. The planner group
seems to be the group understanding the ERP system the best. The
production maintenance users seem to be the group with the poorest
system knowledge.
Most responses indicated that the maintenance control philosophy is that of a
high percentage of planned work versus a low percentage unplanned work.
Most respondents indicated that adherence to the daily / weekly schedules
remain the biggest obstacle to complete work on time.
Most of the maintenance foremen complained that the ERP system kept them
too busy. The biggest complaint was the lack of equipment knowledge,
which leads to poor planning.
One of the biggest problems seems to be defining the scope of work by
production.
This group will not outsource maintenance functions.
77
5.2.4 Commercial managers
Interviews with this group indicated the following:
Materials / procurement management interface with maintenance on a daily
basis via the ERP system, e-mail or telephonically.
The respondents indicated that the maintenance system integrates very well
with the materials system in theory; however, from a practical point of view
there are serious shortcomings. This is mainly due to a lack of adherence to
procedures from the maintenance side.
The biggest problem in the integrated supply chain is the lack of
maintenance contracts and scope of work.
Materials management believe that outsourcing maintenance core and non-
core functions would render a better service to production.
5.3 Statement of the maintenance outsourcing results
The KwaZulu Natal Northern (KZN) survey was only conducted in the Zululand
Richards Bay area. Hereafter referred to as KwaZulu Natal Northern (KZN)
region.
The KwaZulu Natal Northern (KZN) mining industry maintenance outsourcing
survey was based and compared to the Plant Maintenance Resource Centre 2001
(PMR) Plant Maintenance Outsourcing survey [Plant Maintenance Outsourcing
Centre (2001)].
78
The 2001 PMR Plant Maintenance Outsourcing survey was conducted during
July and August 2001 in 25 industries across 10 countries. The results are
available on the Worldwide Web at www.plant-maintenance.com .
The 2004 KZN Plant Maintenance Outsourcing survey was conducted in 2
mining industries and 2 factory industries in the region during September to
November 2004 by the author of this dissertation. There are only 2 mining
industries in the KZN area.
The Industry comparison responses were:
Table 5-1 : Responses by industry sector
sector 2001 PMR responses
2004 KZN responses
1. Manufacturing — metal products 3 0
2. Mining — coal 2 0
Manufacturing — wood and paper products 2 1
4. Mining — metal ore 1 2
Manufacturing — aluminium products 0 1
Others 21 0
Total 29 4
79
The country responses received were:
Table 5-2 : Responses by country
Country 2001 PMR responses
2004 KZN responses
1. United States 8 0
2. Australia 8 0
3. Indonesia 2 0
4. Canada 2 0
5. United Kingdom 1 0
6. South Africa 1 4
7. Singapore 1 0
8. Philippines 1 0
9. New Zealand 0 0
10. Other 1 0
The job position responses received were:
Table 5-3 : Responses by job title
Job title .
2001 PMR responses
2004 KZN I responses
1. Maintenance managers 12 6
2. Plant / maintenance engineers 6 7
3. Maintenance foremen 2 5
4. Maintenance planners 1 0
5. Maintenance technicians 1 0
6. Production / operations managers 1 4
7. Procurement managers 0 3
8. ERP support professionals 1 2
9. I T managers 0 2
10. Other 2 0
Total 26 29
80
The results of the study are summarised and, as far as possible, presented in
tabular format. In each table, the description, column 1 shows the reason,
factor, activity, measure etc., and is benchmarked against the 2001 PMR survey
results shown in column 2.
5.3.1 Reasons for outsourcing maintenance
Table 5-4: Reasons for outsourcing maintenance
Reasons for using contract maintenance services
2001 PMR Survey
results in order of priority
Survey
2004 KZN
results in order of priority
1. Increased labour productivity 1 2
2. Reduced maintenance cost 2 1
3. Focus personnel on "core" activities 3 3
4. Reduced management effort 4 4
5. Obtain specialist skill not available 5 5
6. Level fluctuations in workload 6 8
7. Increased access to specialist equipment 7 7
8. Improved equipment uptime / plant maintenance 8 6
9. Reduced risk 9 10
10. Improved labour productivity 10 12
11. Don't know 11 13
12. Improved work quality 12 9
13. Reduced influence of trade unions 13 11
14. Improved environmental performance 14 14
15. Keep pace with rapidly changing technology 15 15
The respondents had to prioritise the measurement (one being the highest and 15
being the lowest).
81
It is interesting to note that these reasons largely relate to cost reduction
initiatives. It is also interesting to note that both the surveys mostly correlate
with regard to items 1 to 4 in table 5-4 above.
5.3.2 Maintenance functions
Table 5-5 : Maintenance functions
Functions / Activities
2001 PMR Survey results
2004 KZN Survey results
Use contractor in this role?
Use contractor in
i this role? YES NO N/A YES NO N/A
Total maintenance services 4 22 3 0 4 0
Minor capital work 22 2 5 4 0 0
Labour hire 22 2 5 4 0 0
Shutdown planning and management 4 18 7 0 4 0
Painting / surface protection 18 7 4 4 0 0
Scaffolding 0 0 0 3 1 0
Sandblasting 0 0 0 4 0 0
Offsite overhauls and repairs 21 4 4 4 0 0
NDT / condition monitoring 20 4 5 1 3 0
Others — please specify 0 0 0 2 0 2
Both the 2001 PMR and 2004 KZN survey results indicated that NO plant would
outsource the total maintenance service. Both surveys strongly advocate the
outsourcing of minor capital works such as labour hire and non-core
maintenance tasks such as sandblasting, painting, conditioning, monitoring,
offsite repairs, etc. This correlates with figure J-5 (paragraph 3.2.2), the
strategic outsourcing model.
82
Both surveys clearly indicate that the control or management of shutdowns will
and must be retained within the business.
5.3.3 Contractor performance measurement
Table 5-6, contractor performance measurement, measures the contractor on-site
performance results. The survey questionnaire gave the measurement and
respondents had to prioritise the measurement from highest to lowest (one being
highest and ten being lowest).
Table 5-6 : Contractor performance measurement
Measurement 2001 PMR
Survey results 2004 KZN
Survey results
1. Safety performance 1 2
2. Price / cost 2 1
3. On-time performance 3 4
4. Equipment reliability 4 5
5. Environmental performance 5 7
6. Equipment availability 6 8
7. Work quality / rework 7 3
8. Cost reduction 8 6
9. Industrial relation management 9 9
10. "Boss" said so 10 10
Both the 2001 PMR and the 2004 KZN survey results clearly indicate that when
a contractor has been appointed, the main emphasis is on safety and cost / price
performance. The 2001 PMR survey focused on on-time performance, where
the 2004 KZN survey focused on work quality as the next major reason for using
contractors. Perhaps the reason for this is that the mining industries have good
shutdown management controls in place and would like to reduce shutdown
turnaround times.
83
It is interesting to note that although price / cost was seen as being of great
importance as shown in table 5-6, most respondents felt that the cost benefits
they had achieved to date were only moderate. It should also be noted that the
safety improvements were not always seen to exist and even less so when using
contractors. Should the answer for making use of contractors then rather lie in
work quality and / or in on-time performance? Perhaps the measure both
surveys misunderstood completely is the issue of cost reduction.
5.3.4 Performance improvement of contractors.
Table 5-7 refers to the performance improvement of contractors when on site.
The survey questionnaire gave the measurement and respondents had to
prioritise the measurement (one being highest and ten being lowest).
Table 5-7 : Performance improvement of contractors
Measure 2001 PMR Survey results
2004 KZN Survey result
1. Price / cost 1 1
2. On-time performance 2 2
3. Equipment availability 3 4
4. Project management 4 3
5. Equipment reliable 5 6
6. Work quality 6 5
7. Cost reduction 7 7
8. Safety performance 8 8
9. Industrial relation management 9 9
10. Environmental performance 10 10
When table 5-7 results are evaluated on the basis of what the contractor then
contributes to the mining industry, it becomes clear that the answer lies in the
Price / cost issue, followed by:
84
On time performance by the contractor.
Project management.
Plant availability.
Equipment reliability.
The question then becomes whether one can then surmise that the mining
industry and, for that matter, the manufacturing industry, should appoint
contractors purely for the cost benefit. Or is it a self-fulfilling prophecy? Is it a
matter of getting from contractors what you expect from them — a 'what you
want is what you get' fulfilment of your needs?
5.3.5 Cost change results.
Table 5-8 refers to the cost change in expenditure when maintenance contractors
are appointed.
Table 5-8 : Cost change using maintenance contractors
Cost Change over the past 3 to 5 years
Past 3 to 5 years Forecast cost for next 3
to 5 years
2001 PMR Survey results
2004 KZN Survey results
2001 PMR Survey results
2004 KZN Survey results
Increased significantly 2 1 2 2
Increased slightly 1 2 1 1
Remain about the same 3 3 3 3
Decreased slightly 5 5 5 5
Decreased significantly 6 6 6 6
Don't know 4 4 4 4
Table 5-8 clearly indicates, in both the surveys that, while contractors are
appointed on the basis of cost reduction and labour improvements, expenditure
on new contractor appointments and maintaining existing contractors typically
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increases either slightly or significantly. This clearly says: "Cost on contractors
contracts will increase in the next 3 to 5 years".
5.3.6 Change in contractor numbers
Table 5-9 refers to the change in the number of maintenance contractors being
appointed in the next 3 to 5 years.
Table 5-9 : Change in number of maintenance contractors
Change in the number of maintenance contractors
Past 3 to 5 years Forecast for next 3 to
5 years
2001 PMR Survey results
2004 KZN Survey results
2001 PMR
Survey results
2004 KZN
Survey results
Increased significantly 4 1 4 2
Increased slightly 1 2 1 1
Remain about the same 2 3 2 3
Decreased slightly 5 5 3 5
Decreased significantly 6 6 6 6
Don't know 3 4 5 4
Both the PMR and KZN surveys indicate that the number of maintenance
contractors increased during the past 3 to 5 years. Similarly, both also forecast
that the number of maintenance contractors will continue to slightly increase
during the next 3 to 5 years. The result will be an increase in expenditure on
maintenance contractors and an increase in contractor costs. It, therefore, clearly
sets the objective for a structured approach on contractor appointment. Hence
the reason for the outsourcing phase model, refer to figure 3-7 (paragraph 3.2.6).
5.3.7 Factors for successful outsourcing
Table 5-10 refers to successful outsourcing factors.
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Table 5-10: Factors for successful outsourcing
Factors for outsourcing
2001 PMR Survey results
(in order of priority)
2004 KZN Survey result
(in order of priority)
1. Understanding company goals and objectives 1
2. A strategic vision and plan 2 2
3. Selecting the right vendor 3 3
4. Ongoing management of the relationships 4 5
5. A properly structured contract 5 4
6 . Open communication with affected individual / groups
6 6
7. Senior executive support and involvement 7 8
8. Careful attention to personnel issues 8 9
9. Financial justification 9 7
10. Use of outside expertise 10 10
Successful outsourcing is linked [Tomback (2002)] to a structured approach.
Both surveys listed the factors required for success as follows:
Understand the plant goals and objectives.
The plant must have a strategic vision and mission and feasible executing
plan in place.
When outsourcing, the correct vendor must be selected to do the job.
A properly structured contract must be in place, supported by management
on a ongoing basis.
Good ongoing communication between both parties must take place ie
reports, KPI's etc.
Senior management must continuously support the plan.
Each contract must be based on a full financial justification, and
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• Management must give attention to the outsourcing process.
5.4 Interpretation of results
In this section the responses and results listed in the first part of this chapter are
interpreted. Implications are discussed and the key points listed. These are used
to point towards the final chapter, where the conclusions of the study will be
listed.
Section 5.4 is sub-divided into two sections. The first sub-section discusses the
main points derived from the internal plant interviews conducted. This is
followed, in sub-section two, by verification of responses as supported by the
theoretical foundation
It is evident from plant interviews that there was a continuous drive in
maintenance departments to reduce labour and cost over the past five years. This
trend confirms literature review information that maintenance is becoming an
integral part of the business contributing to the profitability of the organisation
and / or plant.
On the negative side, the drive towards reductions in the labour force creates a
fear of job losses, and specialised skills and expertise could be lost. Hence the
reason to maintain core maintenance competencies within the production core
and only outsource non-core maintenance via performance contracts.
As plant availability and effectiveness of systems is high on the agenda in order
to stay competitive, it confirms the necessity for maintenance functions and / or
people to become specialists in certain aspects in the maintenance function rather
88
than generalists. This trend contributes to the outsourcing model. The thought
pattern is not to try to do yourself what others can do better. Rather outsource,
stay in control and create a competitive advantage.
It is also evident from the interviews that integration with other departments i.e.
materials management, is essential and communication with the customer needs
to be done on a regular basis. As the trend to improve utilisation of equipment
grows, availability and reliability becomes a more important measurement of
maintenance at optimum cost.
5.5 Lessons learnt
The decision to outsource is a very significant event and the process to actually
outsource should be treated with care and thoughtfulness.
5.5.1 The results from the interviewing schedule
The results and outcome of the interviewing schedules outline the following:
Firstly, the study demonstrated that this approach to outsourcing analysis is a
valid one, which shows what the industry experiences. Secondly, improvements
and recommendations were tabled. Thirdly, the study provided a number of
lessons that future implementers should be well advised to heed.
Conduct a thorough upfront assessment. Be sure to capture the full range of
activities.
Benchmark the process or activity. Talk to the right people. To develop the
process map requires talking to people who do the work in each part of the
organisation.
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Consider carefully when to talk to staff presently doing the work. Do not
include the staff in the outsourcing analysis process too early or too late,
depending on the situation.
Be thorough in identifying costs. There are many possible cost factors and
combinations of costs associated with a part under consideration for
outsourcing.
The scope of work or additional requirements can easily distort the total
process. Ensure that all involved in the process are on the lookout for
additional requirements and understand the boundaries of the process.
Retain some key employees as process and client managers. The plant still
needs to provide enough management and direction to the outsource partner
to ensure success.
During the tender process, watch for escalating and non-standard costs.
Accurate quotes must reflect reality. No surprises.
Be aware of opposition to outsourcing. Personnel sensitivities and loyalties
reinforce one another to dynamically oppose outsourcing. Deal with change
management.
Suppliers' quotes during the tender process can vary significantly. Set a cost
comparison and deal with deviations.
During the tender process watch for unnecessary or exaggerated
requirements. People often exaggerate requirements or add unnecessary
requirements into the mix.
Normally the billing systems are not equal to cost factor analysis for
management purposes. Understand the fundamental differences during the
cost analysis study.
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Ensure that the complete maintenance process is understood and where the
specific maintenance outsourcing activity will fit into the maintenance
supply chain.
5.6 The reasons for adopting a maintenance outsourcing program
5.6.1 The benefits for adopting a maintenance outsourcing program.
Access to industry best practices.
Flexible work force that minimises labour cost.
Tools cost and tool control by contractor.
No training cost.
Continual productivity assessment and improvement.
Unnecessary maintenance work not done just to keep the work force busy.
Maintenance work is warranted. Rework is at contractor cost.
Accountable warehousing / stores program.
Total transparency of the maintenance contract, if it is managed properly.
Less duplication of duties and responsibilities. Reduced overheads.
Allows the mine to downsize staff without sacrificing quality if the
contractor's work quality is managed closely to ensure conformance to
requirements.
5.6.2 The disadvantages for adopting a maintenance outsourcing program
Perceived loss of control of maintenance function.
Lack of specific skills.
Lack of plant specific experience.
In South Africa hard to attract skilled artisans to remote plants.
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Shortage of trained artisans.
5.6.3 Outsourcing program reduces total cost
There is a potential for significant savings in the following areas:
The cost of running a large interface team.
The cost of training maintenance staff.
The inefficiency caused by inexperienced staff.
The time wasted familiarising new staff / contractors.
The cost of downsizing and re-assigning new staff.
Warranty work — rework is at contractor's cost.
Contractor provides tools and equipment.
5.6.4 Maintenance key performance indicators.
What are the key performance measurements and indicators to ensure that plant
maintenance is done effectively over the long term with maintenance outsource
program?
With efficiency, effectiveness indicators and measurements the drive is to ensure
that the necessary maintenance effect is achieved with the minimum level of
resource use. Effectiveness measurements will indicate whether the contractor
has met specific requirements. Both parties must understand and agree on the
measurements and reporting principles. Typical maintenance performance
indicators include the following:
Safety — these are normally well established.
Cost effectiveness — cost effectiveness factors include but are not limited to:
92
Work order actual costs versus planned cost.
Maintenance cost versus maintenance budget.
Maintenance contribution to cost per unit of production.
Equipment performance — equipment performance indicators include:
Process downtime due to maintenance.
Rework required from maintenance.
Productivity performance - productivity performance factors include but are
not limited to:
Actual productivity as measured by accepted measurement techniques.
Planned versus unplanned maintenance.
Actual man-hours versus planned man-hours.
Backlog maintained within agreed limits.
Schedule compliance with planned work.
Number of breakdowns.
5.6.5 Successful maintenance outsourcing key factors
The key factors that contribute to a successful maintenance outsourcing program.
Clear and well defined scope of work.
Well-defined facilities and services supplied by the mining plant.
Transparency of transactions.
Clear understanding of contract payment terms.
Items of disagreement are resolved immediately with adjustment made on
next billing.
The mining organisation may consider outsourcing of maintenance when any
one and / or combinations of the following factors exist:
93
Maintenance cost is higher than best practice.
New technology is installed requiring higher specific skills.
Ageing work force.
There is a strong maintenance supplier in the neighbourhood.
A green field start-up situation exists.
The main expertise is development and production of the final product.
The production equipment is not highly complicated.
Operation downsizing.
There are other business reasons to have a separate skill force.
5.7 Conclusion
Traditionally there are several options open to maintenance management with
regard to improving the maintenance functions [Visagie (2003)]. In order to
achieve the maintenance objectives and to develop and improve to best practice
world class standards, mining plants cannot afford to underestimate the impact
of maintenance outsourcing.
To improve the maintenance function(s) and to progress to best world class
standards, increased complexity is unavoidable. But, understanding that growth
toward best class takes time (instant growth and "fast tracking" methods in
outsourcing have not yet been invented) a road map or plan toward success is
necessary.
Outsourcing can add value to mining plants if approached and implemented in a
94
responsible manner. Performance incentives can promote high levels of
achievement and continuous improvement, from which both the mine and the
contractor will benefit. Outsourcing decisions should be taken with a thoroughly
strategic perspective. All mining plants need a sound business perspective on
outsourcing and proven principles and processes to guide the outsource drive to
successful implementation of the outsourcing arrangements.
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6 THE GAP, CONCLUSIONS AND RECOMMENDATIONS
6.1 Introduction
In this chapter, recommendations for maintenance outsourcing for the mining
industry for the KwaZulu Natal northern region will be made and the benefits
thereof will be discussed. The chapter discusses the limitations to the study,
followed by conclusions made from all relevant information obtained during the
study.
Thereafter, the gap between maintenance and the outsourcing of maintenance
will be discussed, followed by the benefits and the impact of the
recommendations. The last section will discuss a recommended implementation
plan and the chapter concludes with important considerations for future research
in this field.
6.2 Boundaries of the study
The author acknowledges the following boundaries as revealed in the study:
6.2.1 The growing expectations regarding the results of maintenance
The growing expectations regarding the results of maintenance will force
maintainers to continuously move towards more and more incident elimination
(zero defect), while working faster, better and cheaper. Skills (people), assets
and systems integration will become part of the game plan. Although the next
generation of maintenance practice is not yet supported sufficiently by
maintenance experts, nor proven in theory and practice, future development is
96
unavoidable [Coetzee (2001b)]. Part of this process is to find where
maintenance outsourcing fits in the holistic maintenance process.
6.2.2 Geographical area.
Due to the geographical area of the region, mining in the KwaZulu Natal
northern region is limited to open cast mining. Environmental issues play a
major role in this region.
6.2.3 Economic empowerment
The area's economic and industrial empowerment cannot be measured and
compared against big industrial areas such as that of Durban or Johannesburg.
6.2.4 Mining industry
Due to the lack of many mining industries in the KwaZulu Natal region, the
maintenance practices of the present two mining industries were compared to
two factory industries in the region.
6.2.5 Service providers
High technology service providers are not yet established on a full time basis in
this area, resulting in high service provider costs.
6.2.6 Union issues
The existence of labour unions complicates an outsourcing initiative
significantly [Greaver (1999)]. Where unions are involved, outside advisors are
more necessary and the cycle time for the initiative should be extended.
In the KwaZulu Natal Northern region various unions play a significant role and
are not united regarding their policy concerning outsourcing.
97
However, this will soon change when unions in the KZN northern region
affiliate with European and / or bigger unions in South Africa. This will give
local unions access to generic policy settings and structures.
6.2.7 Area constraints
Due to the case study method and methodology employed in the study and
because of the constraints under which it was conducted, recommendations are
specific to the mining industry in the KwaZulu Natal northern region and do not
necessarily have a generic application to the mining industry in South Africa.
6.2.8 Gap between mining and factory industries
The gap between the mining industry and the factory environment with regard to
maintenance outsourcing is not so big - actually there is similarity.
Within the KwaZulu Natal northern region, both the mines in the area recover
ore bodies via a concentrator system. These concentrators feed the various
remote-processing plants via road or rail systems. Both these mines concentrator
and processing plants are 'factory' type industries. If these various plants are
compared to the 'factory industries, similarity [Bayside Aluminium(1999),
Hillside Aluminium (2001), Richards Bay Minerals (2001), Mondi (2000) and
Ticor (2001)] is found in:
Management leadership, commitment and accountability.
Health, safety, environmental regulatory and facilities management.
Organisation and human resource management.
Measurement and reporting systems.
Cost management and reporting.
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Materials management.
Reliability engineering.
Planning and scheduling.
Preventive and predictive maintenance.
Contractor management.
Maintenance technologies.
6.2.9 The change control process
Change control is an important aspect on the road toward successful
maintenance outsourcing.
The most important consideration when outsourcing maintenance is to focus on
improvement [Welch (2003)]. Bringing a business perspective to maintenance,
[McCully (2003)] will improve the contribution of maintenance to the
production effort. It is impossible to improve the productivity of the equipment
(assets) if change does not occur. The challenge of the change, which occurs
when maintenance is managed as a business, is to ensure that the business
disciplines of planning, measuring and reporting will foster continuous
improvement in the mining plant. If managed correctly, the information
supporting investment decisions in the maintenance business will be available
and the mystery surrounding maintenance's contribution to the bottom line in the
served organisation will have been solved.
99
6.3 Conclusion
The conclusions that follow will motivate the recommendations for successful
outsourcing of maintenance in the mining industry in the KwaZulu Natal
northern region.
6.3.1 Maintenance evolution
It is clear from the evolution of maintenance theory point of view that
maintenance in general is evolving quite fast [Coetzee (2001a)]. One of the
factors driving this development process is the outsourcing of maintenance.
Experience indicates that there is a greater use of external suppliers today than in
the past [Blanchard (1998)]. However, moving successfully into the fourth
generation (People Centredness [Coetzee (2001a)] requires firm establishment of
third generation issues (System Centredness [Coetzee (2001a)]. Maintenance
principles such as: Root Cause Failure Analysis (RCFA), Total Productive
Maintenance (TPM), Reliability Centred Maintenance (RCM), Service Level
Agreements (SLA) and sourcing agreements with unions, between customer and
supplier, should be firmly in place. Over and above the normal maintenance
strategies, these maintenance principles and a union agreement should form part
of the maintenance methods implemented in the organisation.
6.3.2 World trends
Latest world trends indicate that maintenance outsourcing, or part of the
activities will be one of the main discussions around maintenance strategies in
the near future. Maintenance in the future must be a value-adding activity and,
therefore, has to fully complement an organisation's strategy [Hides (2001)].
Benchmarking will become one of the most common and effective methods in
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maintenance to measure and compare performance in order to determine
competitive advantage in the market place.
Audits conducted by 'International' consultants and / or 'Experts in this field'
will become more prevalent in the next decade in order to stay abreast of the on-
going changes that take place in the ever changing world of maintenance.
6.3.3 Outsourcing
Outsourcing of maintenance has been singled out as one of the most important
topics in maintenance circles for the next decade. As maintenance becomes
more a part of the integrated organisation effective and efficient maintenance is
required for smooth operation of the plant [Tomlinson (1998)].
From a cost and safety point of view, it is not likely to be beneficial for the
maintenance department to execute maintenance functions in areas where
specialised outside facilities exist.
Maintenance skills are expensive and are difficult to obtain and retain. This is
likely to be even more so in the next decade or more. Maintaining non-core
maintenance activities becomes uneconomical and more feasible to outsource at
lower cost to the organisation / plant.
Outsourcing non-core maintenance activities creates the opportunity for
maintenance to concentrate on core maintenance functions, which directly affect
the organisation's cost structure.
101
6.3.4 The role of the unions
The unions are aware that organisations outsource maintenance activities /
functions to bring back on site the same activity / functions at a cheaper cost.
Hence the unification of unions on the outsourcing issue in Europe [Mansel
(1998)]. This will have an impact on the South African unions' position on
outsourcing. No evidence could be found that the unions in the KwaZulu Natal
northern region are so advanced with regard to outsourcing policies as their
European counter parts.
As outsourcing surfaces more and more in the next decade, with the loss of
skilled maintenance personnel, unions will probably take a stronger position with
regard to outsourcing.
Unions will use all means available to maintain wages at the same level where
people perform the same work. The unions are also clear in their policy that
they will not allow big organisations making the same mistakes through
expensive outsourcing initiatives, i.e. reorganise now and outsource to later re
employ or loss of job security versus casualisation of the workforce [O'Connell
(2003)].
6.4 The gap
There is a distinct gap between how organisations use outsourcing now and the
strategic possibilities it offers. The majority of businesses outsource
maintenance functions as a cost-cutting measure [The Outsourcing Institute
(1998)] — also see table 5-9 (paragraph 5.3.4).
According to Laszkiewicz (2004), there is in many cases a significant gap
102
■
between the current level and sophistication of maintenance activities and what
maintenance managers regard as being ideal.
It is essential that management understand the business process of maintenance
well. Only when the maintenance process, function and activity are fully
understood in the maintenance supply chain and is running relatively smoothly,
can these activities or part thereof be outsourced successfully.
The forces in play here are firstly financial results driving for quick positive
wins, through outsourcing, and secondly (on the other side) the realism of the
present state of the maintenance supply chain, limiting the amount of success
that can be achieved in the short term. The balance between the two is the
"people issue" (achieving full-blown People Centredness as described above in
paragraph 6.3.1), and the mechanism that should keep this balance in place is the
realism of the company's maintenance managers.
Should an imbalance develop, gaps develop between the outsourcing strategy
and the outsourcing reality. Hence the reason for a good, solid outsourcing
model and procedure.
Unions are aware of the risks at hand with outsourcing, the impact on jobs and
wages. As a result, a pro-active strategy is required to negotiate these principles
with unions upfront.
103
6.5 Recommendations
Based upon the literature review and the findings of the dissertation, preliminary
recommendations can be made to the mining industry in the KwaZulu Natal
northern region. The first of these concerns some generic recommendations
suggesting the application of outsourcing maintenance methods and principles,
while the second will focus on outsourcing of non-core maintenance functions
and / or activities.
These will now be expanded upon:
6.5.1 Generic recommendations
The mining industry could consider the following generic recommendations:
Implementation of a formal maintenance strategy, which is aligned with the
production strategy.
Implementation of a formal planning and scheduling strategy for work order
execution.
Implementation of a formal maintenance key performance measurement
strategy.
Implementation of the relevant applicable elements from the Total
Productive Maintenance (TPM) philosophy, Root Cause Failure Analysis
(RCFA) principles and Reliability Centre Maintenance (RCM) methodology,
including the training of all relevant parties.
Implementation of a formal Condition Monitoring (CM) programme on
critical equipment to prevent failure and over maintenance of equipment.
104
Implementation of a formal Risk Assessment (RA) on all plant and new
equipment and critical maintenance tasks.
Implementation of a formal Service Level Agreement (SLA's) between
production and maintenance departments. The most important issue around
successful implementation of SLA's is that objectives must be controllable
and attainable. Regular review and feedback sessions would ensure keeping
the system alive.
Benchmarking and auditing should be implemented as part of the
maintenance function.
Implementation of a formal Service Level Agreement (SLA) on outsourcing
issues with the local union workforce [Mulder (2003)]. Since outsourcing
can be seen as a typical consequence of structural change, unions must
change their way of operating to be in a position to work successfully within
the new situation the mining industry faces. The most likely route to this
goal is via good communication structures.
6.5.2 Outsourcing recommendations
The mining industry competes globally and as such, in light of the theoretical
framework and the analysis of the results, the following recommendations,
although tentative in nature, can be made:
Develop an outsourcing model, policy and strategy for a specific plant. The
outsourcing policy should be supported with procedures and training
material.
105
To eliminate bias in deciding between core and non-core maintenance
activities, use the outsourcing model as explained earlier. Start with
assessing the present maintenance performance first.
Parallel to outsourcing, implement a suite of maintenance tools such as Root
Cause Failure Analysis (RCFA), Total Productive Maintenance (TPM) and
align maintenance strategies with a knowledgeable work crew.
Align the Service Level Agreement (SLA) between production and
maintenance with agreed performance indicators.
Outsource the non-core maintenance functions to be in line with world
trends. Ensure proper implementation.
Appoint an outsource project champion to drive the outsourcing initiatives.
Follow the rules — there are no shortcuts in the outsourcing game.
All outsourced projects must formally be handed over to a plant mentor who
will monitor output.
6.6 Considerations for future research
What was excluded from this dissertation was complete outsourcing of the
maintenance department. There was no evidence from the benchmarking
exercise that any mining plant has outsourced maintenance completely, or is
heading in that direction. Future research for the KwaZulu Natal northern region
should explore this dimension more fully.
Further investigation and research is required in the critical area of outsourcing
core maintenance functions or the maintenance function in total. Maintenance
performance indicators should be properly and completely developed. These
indicators should be incorporated into the outsourcing process.
106
There is evidence that the mining industry is moving towards outsourcing, hence
the reason for Rio Tinto and BHP Billiton setting guidelines in this regard.
Future research should explore this dimension more fully.
Complete outsourcing versus present maintenance performance of the
maintenance core functions could be explored further in the future by means of
strategic alliances or joint ventures.
107
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Implementation, and Control. (6th Edition) Irwin, 1997.
Phelps, T., Strategic Outsourcing Decision Guidebook Altaram Institute, 2002.
Pintelon, L., Gelders and Van Puyvelde, F. Maintenance Management, Acco,
1997.
Plant Maintenance Resource Center., Maintenance Outsourcing Survey
Results — 2001. [Online]. Available: http://www.plant-maintenance.com .
Accessed 2 February 2004.
Rattey, T., Asset Management Rethink your Assets. MMS MAG, September
2004.
Resnick, C., Intelligent Maintenance. How Asset Management and
Maintenance Outsourcing Reduce MRO Cost and Increase ROA. ARC Advisory
Group, 2004.
Richards Bay Minerals., Asset Management and Maintenance Practices, COP
51. Internal Maintenance Management System, 2001.
Richards Bay Minerals., Project Manual, 2002.
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Rio Tinto., Maintenance Strategy, 2000.
Rio Tinto., Asset Utilisation Guidance Note, In-house versus Outsourcing
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Salopek, J., Outsourcing, Insourcing, and In-Between Sourcing, Training and
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SAP., Outsourcing Maintenance Services. 2004.
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Shakespeare, W., The Tempest, 1611.
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114
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The Outsourcing Institute., The Outsourcing: The new Business Model for
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116
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117
8 APPENDICES
8.1 Appendix A: Interviewing schedule on outsourcing of maintenance
OUTSOURCING OF MAINTENANCE IN THE MINING INDUSTRY
TO: AS PER DISTRIBUTION LIST FROM: CJ VISAGIE DATE: 15 NOVEMBER 2004
Dear Respondent
Re: Outsourcing maintenance interviewing schedule
With reference to our telephonic discussion on the above topic, I would hereby like to
thank you for the willingness demonstrated by you by making time available for this
interview.
Very little research has been done in respect of the outsourcing of maintenance in general.
Attached you will find a copy of the interviewing schedule for your perusal and your
preparation. The meeting will be arranged within one week from today and I would really
urge you to prepare in advance. This will create the opportunity to have a very fruitful
discussion regarding the outsourcing of the maintenance function or part there of.
Feel free to contact me at any time should you have any queries with regard to the
questions in the schedule. My contact details are:
Telephone number: 035 901 3886
Fax number: 035 901 3555
Cell number: 083 252 0812
E-mail address: [email protected] Once again, thank you for your cooperation and I look forward to your valued input. Yours sincerely Chris J Visagie
118
8.2 Appendix B : Maintenance outsourcing interview schedule
Describe your job position / role?
Describe your organisation and / or department size with regard to crew / craft /
trade people?
Presently, what percentage of your maintenance budget do you spend per year on
maintenance contractors?
Describe your plant maintenance vision and mission?
Explain your maintenance labour complement over the last 5 years. Did the labour
increase, decrease, average age of maintenance crewmembers, labour turnover etc.
Explain your maintenance cost expenditure over the last 5 years. Did cost increase,
decrease taking into account escalation. Explain your CAPEX expenditure over the
last 5 years. Did the CAPEX increase, decrease taking into account escalation.
Please explain reasons for movement either way.
Explain your plant maintenance philosophy.
Explain your present maintenance approach. Reactive, planned, failure / defect
elimination, run to destruction.
Explain your present maintenance department effectiveness.
List your most common maintenance complaints.
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11. Where do you see the maintenance department in the future? In the core function,
service provider, outsourced, etc.
12. Explain your maintenance department compliance to the:
Planning and scheduling process.
Work execution.
Maintenance reports.
Maintenance measurements.
Following the SAP system procedures.
13. Have you outsourced maintenance functions and or activities in your plant? If yes,
give details. What, why. Did you follow a business plan approach when you
outsourced? Did you compare present maintenance cost versus the outsourced
cost?
14. Where outsourced contracts exist, do you have service level agreements in place?
If yes, give details and key indicators.
15. Where do you see your maintenance department in the next 3 to 5 years? Use the
maintenance maturity graph or any other model.
16. Using table 1, what is the reason(s) for using contract maintenance service? Give 1
for most important reason and 15 lowest important reason.
120
Table 1— Reasons for outsourcing maintenance
Reasons for using contract maintenance services
Most important reason
1 Increase labour productivity
2 Improve work quality
3 Reduce management effort
4 Reduce maintenance cost
5 Reduce risk
6 Reduce influence of trade unions
7 Improve labour productivity
8 Don't know
9 Focus personnel on "core" activities
10 Obtain specialist skill not available
11 Keep pace with rapidly changing technology
12 Improve equipment uptime / plant maintenance
13 Increase access to specialist equipment
14 Level fluctuations in workload
15 Improve environment performance
Source: Plant Maintenance Resource Center — Maintenance Outsourcing survey results — 2001
17. Using table 2, for what of activities are maintenance contractors used? Please
complete each activity type. Please add others and specify.
121
Table 2 — Contractor activities / role
Contractor activity / role Use contractor in this role? YES NO N/A
1 I Total maintenance services
2 Minor capital work
3 Labour hire
4 Shutdown planning and management
5 Painting / surface protection
6 Scaffolding
7 Sandblasting
8 Offsite overhauls and repairs
9 NDT / Condition monitoring
10 Others — please specify
11 Other
12 Other
18. Using table 3, which of the following measures were the reasons for selecting a
contractor to do the maintenance function? Give 1 for most important and 10 for
least important.
Table 3 — Contractor performance measure
Measure Important
1 Safety performance
2 Price / Cost
3 On-time performance
4 Equipment reliability
5 Environmental performance
6 Equipment availability
7 Work Quality / Rework
8 Cost reduction
9 Industrial relations management
10 "Boss" said so
122
Using table 4, when using a contractor what improvements were better? Please
complete each measure.
Table 4 — Performance improvement from using contractors
Measure Significantly
better Slightly better
_ No
change Slightly worse
Significantly worse
No opinion
Equipment availability Equipment reliable Environmental performance Industrial relation management Safety performance Work quality Price / cost Cost reduction On-time performance
Using table 5, from your experience, what trend did you notice in contractor costs
over the past 3 to 5 years? Please complete both horizontal columns. Give 1 for
most and 6 for least.
Table 5 — Change in expenditure on maintenance contractors (last 3 to 5 years)
Change in expenditure over the last 3 to 5 years
Past 3 to 5 years next 3 to 5 years Forecast cost for
1 Increased significantly 2 Increased slightly 3 Remain about the same 4 Decreased slightly 5 Decreased significantly 6 Don't know
Using table 5, what expected expenditure changes do you forecast for the next 3 to
5 years? Please give 1 for most and 6 for least. If you would like to add please
specify and add.
Using table 6, from your experience what trend did you notice in contractor
123
numbers on site over the past 3 to 5 years? Please give 1 for most and 6 for least.
Table 6 — Change in number of maintenance contractors used over the last 3 to
5 years
Change in the number of maintenance contractors
Past 3 to 5 years
Forecast for next 3 to 5 years
1 Increased significantly
2 Increased slightly 3 Remain about the same
4 Decreased slightly 5 Decreased significantly 6 Don't know
Using table 6, what expected number changes do you forecast over the next 3 to 5
years? Please give 1 for most and 6 for least.
Using table 7, in your opinion and from the table below, please prioritise the 10
successful factors for outsourcing. Please give 1 for highest and 10 for being the
lowest.
Table 7 — Factors for successful outsourcing
Factor for outsourcing Priority
1 A properly structured contract
2 Open communication with affected individual / groups
3 Understanding company goals and objectives
4 A strategic vision and plan
5 Selecting the right vendor
6 Ongoing management of the relationships
7 Senior executive support and involvement
8 Careful attention to personnel issues
9 Financial justification
10 Use of outside expertise
Source: The Outside Institute — Top ten Outsourcing Survey
25. Have you managed a complete outsourcing activity before? If yes specify type of
124
activity and financial benefit.
26. Lessons learnt from outsourcing projects?
125
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