February 27, 2007
Outsourcing Comments from the MDMH Newsletter
A few thoughts on outsourcing from the February Motor Diagnostics and Motor Health Newsletter.
President, SUCCESS by DESIGN Reliability Services
The whole concept of RCM was started by the airline industry. As a result, it is of concern when reliability issues almost seem to be on the rise with the airlines. I have seen it in numerous cases of the following two issues: Outsourced maintenance and outsourced services.
I have repeatedly mentioned in these newsletters that if a company chooses to outsource either domestically or globally, they are taking on the responsibility and consequences of the quality and reliability of the company that they have outsourced to. In effect, the company directly benefits or suffers from whether or not the vendor does good or bad.
In an effort to reduce costs in order to increase profits, the company may push their vendors to decrease costs while those companies are also looking for ways to increase profits, and so on. At some point, quality and workmanship will begin to suffer. In effect, it makes little sense to expect any significant return WITHOUT an investment.
Over the past few years I have noticed some continued negative changes in a few of the airlines. On one airline, I have experienced an increasing number of delays due to mechanical and/or maintenance problems. When I inquired, I was informed that they had decided to outsource their maintenance or maintenance management function. I will note that I have flown another airline with little difficulty and they have also outsourced their maintenance.
Quite a few years ago, a number of companies outsourced their customer service functions, mainly overseas where labor costs were significantly lower. Initially, the results were good with low cost, high quality labor increasing profits. There was a high level of competition for these jobs. However, the numbers of jobs in these areas have increased and the workers are demanding better conditions and a better standard of living. In effect, costs are beginning to increase with a push from the original client to reduce costs. As the customer begins to hunt for lower costs, the quality begins to drop or services decreased or restricted. All of this in regards to improving profit with less consideration for customer/client satisfaction – which leads to my next case.
On February 8th, I did what I usually do and checked in to my flight online the day before. This gives me the opportunity to use miles or purchased points to upgrade. Earlier in the week, I had used a few points to upgrade on a flight, but when I had arrived the attendant made an error and put me in two seats and upgraded twice. In their effort to fix the seat issue, they ended up ‘zero-ing’ my account which I did not discover until I accessed the account. I contacted the 24-hour customer service line and had a very rough time understanding the person who responded. I explained the situation in order to get it corrected. Several hours later, after requesting supervisors and being hung-up on, I was finally losing my patience. For the most part, the people I dealt with were quite rude and difficult to understand. I finally had one who kept putting me on hold without telling me, who refused to get a supervisor and told me that I would have to go to the ticket counter, where the error was made, find the employees involved and have them take care of it. I asked if she could see the transactions and she said she could but no one would be able to help me and the counter people were another outsourced company! When I asked for her name, I was told it was Anna-Nicole Smith!
What I, as the customer, did not expect, when I purchased my ticket and bought points for my upgrade, was that I was not transacting with two companies (my travel agent and the airline) but at least five companies, not counting baggage handling, fueling, maintenance, etc. The parent company had restricted the ability of each of their contractors to service the customer! In effect, instead of a seamless transaction, and complaint resolution process, it was left to me, the customer, to correct the airline’s mistakes. Following a great deal of effort, I talked to a real airline employee at about midnight. He obtained my information and said he would give it to their OUTSOURCED credit department and that the resolution would take at least 2-3 weeks, requiring me to still have to purchase additional upgrade points for my February 9th flight.
Personally, I am going to think twice before using this particular airline on my next trip. I cannot say I will not use them at all because that is the direction that most airlines seem to be going.
So, what does this have to do with the MDMH newsletter? Well, first, I have a great mouthpiece to complain a bit, but, more importantly, it serves as yet another warning to carefully consider steps when outsourcing. How are you considering performance? Who owns data and materials? How do you ensure quality workmanship? A statement that the outsourced company will ‘go away’ if they underperform is not reasonable. In an effort I was involved in a few years ago, a company was hired to perform motor diagnostics and other CBM work, based upon RCM and MER work. This company was also contracted to perform training and other functions at a certain budget. At a budget overrun of more than ten times, the company did not properly perform their functions and, two years later, the parent organization has their own personnel developing the contracted training. Instead of dropping the contractor, everyone has gone back to the negotiation table to compromise. The direct result is a compromise to the organization’s reliability.
In my final case, a large manufacturer outsourced the manufacturing of key components for their product. In this case, it was outsourced to a local firm. The manufactured the components to the tolerances of their equipment. The manufacturer needed to re-start the closed department and return laid-off workers in order to rework the components. The result: A direct hit on profitability and on-time delivery.
I could go on with similar stories. However, at the same time, there are numerous success stories to outsourcing. However, in every successful case significant though went into the steps and requirements of the outsourced need.
