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Heavy equipment has evolved
in size and complexity, and so has the challenge of keeping it maintained,
consistently and affordably. Manufacturers and dealers have responded
to the task with a profusion of service agreements and long-term
warranties; almost unknown a decade or two ago, they’re now
critical to many dealers’ business strategies.
But deals for servicing
are rarely what you’d call, at first glance, a bargain. Labor
will run you $65 an hour and up, fluids and filters typically will
cost several hundred dollars more, and some customers think these
expenses recur too often. If you have good operators or mechanics
on the payroll, shouldn’t they be able to save you these costs
by performing basic equipment servicing themselves?
Besides, since heavy
equipment is by far your most critical investment, you surely should
develop an in-house knowledge base about it. You’re more or
less compelled to understand your equipment by necessity, so why
not do the service work yourself?
Then again, the sheer
profusion of new equipment types and their increasing sophistication
seems to argue in favor of letting the dealership professionals
keep it running for you. It’s an increasingly popular worry-free
strategy. Outsourcing makes life easier, and it’s surprisingly
cost-effective—say its adherents. In this two-part series we
examine both sides of this debate: Should you buy the servicing
plan—or do it yourself? To help you decide, we asked dealers
and manufacturers to explain just what they offer; we also surveyed
a variety of contractors for views and opinions about the results.
In this first part we explore whether service deals are panning
out as dealers promise and, if so, how you can get the most bang
for your maintenance buck. In part two we’ll look at the alternative:
whether and how you can continue doing high-quality, low-cost maintenance
as part of your in-house operation.
Not long ago, any self-respecting
contractor would perform routine maintenance as a matter of course.
His mechanic (or an operator, doubling as one) drained the old fluids
and unpacked the new filters, casually inspecting the equipment
for signs of wear. Then in the 1980s or so, along came dealer-designed
service agreements, which initially received rather mixed reviews.
One dealer whom we talked to recalled, candidly, that service agreements
in that era “used to be considered a rip-off, so to speak,”
and probably for good reason. Dealers and manufacturers still battle
this perception but have made tremendous strides. Maintenance plans
and options now have become progressively more attractive—giving
greater flexibility, more customization choices, more professionalized
work, and tangible end results. They’ve solved many, if not
all, of the initial shortcomings and added new enticements. For
example, such vendors as CNH, Caterpillar, and John Deere have worked
to persuade dealers to offer standardized servicing packages, with
the key goals being to offer high-value maintenance from coast to
coast and one-stop servicing; that is, they’ll take care of
any equipment brand, whether new or used.
That said, the actual
performance of these services still tends to be “only as good
as the dealer himself.” It is highly dependent on the quality
of dealership personnel and their level of service commitment. In
our informal inquiry, we found dirt contractors who were very satisfied
with the dealership service work and others who were much less so—even
with maintaining similar equipment in the same market.
Just What Do They
Offer?
Whether it’s outsourced or done internally, the driving force
of maintenance work probably derives from the following scenario:
A skid-steer loader, a backhoe, or a dozer, for example, breaks
down; often, other pieces are impacted too. Digging at the job site
might even grind to a halt. Your equipment operators are now standing
around taking extra-long cigarette breaks. And the general contractor
or builder—who just happens to show up now—is most displeased
with the scene.
If it’s an engine
failure, you also will have to wait for a trailer and must winch
the machine precariously up the ramp for hauling to a repair shop.
There, replacement parts might take days to arrive. Installation
and testing will set you back another day or two. The work schedule
falls behind even further. Cumulatively
your cost impact from this one failure probably has climbed into
the thousands, and inevitably you’ll be asking yourself, If
I had spent the money and time to service this piece properly, would
this have happened?
Enter the extended warranty
and/or service agreement. As Mike Enderle of Modesto Tractor, a
central California dealer, notes, once an earthmoving contractor
has experienced this kind of breakdown trauma, “it becomes
much easier to persuade him to buy some sort of protective coverage.”
Well-conceived plans
combat the crisis scenario with a range of remedies. Not only do
they ensure that your equipment has clean fluids and filters, but
the latest and greatest programs provide things like recurring chemical
measurement of fluid quality, which can (the dealers claim) serve
as predictors of severe impending problems. In addition, you’ll
benefit from the know-how of factory-trained dealer mechanics who
have polished their skills by doing consistently thorough inspections
day in and day out. Often they bring along predictive maintenance
benchmarking tools, which, again, can assess impending parts failures.
Their access to data about new part upgrades and alternatives, manufacturers’
service bulletins, an ongoing list of new things to check, and so
on, are major elements of the service you’re buying. And these
are tough for your own mechanics to match.
Of course, breakdowns
always happen, even to the best-maintained equipment. But having
a service agreement in force seems to lessen the frequency and likelihood
of “unexpected expensive ones,” says Enderle, who now
manages servicing for about 300 pieces of equipment.
Still More in the
Mechanic’s Tool Chest
Besides all this—as the outsourcing argument continues—there’s
much more to today’s maintenance package than you might realize,
notes John Strangberg, services marketing manager for Case Construction
Equipment (part of CNH) in Racine, WI. When the mechanic arrives
for the incremental fluid change, he relates, there’s usually
a 30- or 40-point checklist he brings along, which often has been
customized for the particular equipment, at least in the CNH service
program. He’ll look for loose belt tensioners, leaky coolant
lines, or electronic controller chip malfunctions (“Mechanics
can read the codes stored in onboard diagnostics—which owners
usually can’t or don’t,” Strangberg points out);
worn pins, bushings, or bucket teeth due for replacement; and so
on. By contrast, when your own operator/mechanic performs the preignition
walk-around, he’s typically in a hurry to get the machine going
on the day’s production goals. Instead of noting and correcting
problems at once, says Strangberg, “he’ll wait until the
boom wiggles a foot each way” before taking it out of service.
By then, instead of requiring a $300 pin and bushing replacement,
you are looking at an $1,800 casting.
Of course, you’re
also paying for the added peace of mind gained by this dealership
expertise. Typically you’re shelling out relatively high hourly
labor costs (ranging from $62 to $85, in our small sample) plus
travel time—and the dealer contributes his own profits too.
Advocates of outsourcing answer this by pointing out that, in fact,
your costs for fluids, filters, parts, and often labor are going
to be fairly comparable either way. And several manufacturers now
will help with financing your entire maintenance package at low
interest, especially when purchased as part of a new-equipment deal.
Dealers also will tell you that your outlay for servicing will be
recouped in a significantly extended equipment life span and by
the higher resale value you’ll get. One North Carolina construction
executive, who has done servicing both in-house and with outside
help, points out, “Doing your own oil changes will mean, number
one, that you have to have your own $60,000 service truck. And you
will have to put a man on the payroll who knows what he’s doing.
To get that here in our market, you’re probably going to spend
$35,000 to $40,000 a year. So from economic standpoint alone, it
usually doesn’t make sense to get into the maintenance servicing
business.”
He adds, “If you’re
a roads-and-bridge contractor who shifts equipment long distances,
it makes even more sense to outsource.” Large dealership networks,
such as Caterpillar’s, now are honoring servicing agreements
reciprocally so that your service needs can be provided wherever
the vehicle travels. Doing this long-distance service work yourself
means you’ll incur the potential liability for your trucks’
oil or fuel spills on the highway—not to mention paying mechanics
for their road time.
“It’s Worth
the Money—Sort Of”
It’s
tough to generalize about whether every service agreement will pan
out because dealers and local market conditions vary. Opinions also
vary according to whom you happen to ask. We took a quick survey
of nearly a half-dozen contractors and found an interesting range
of experiences. Here are some typical ones:
Ken Porter, a contractor
in North Fork, NE, owns twin-engine Cat scrapers, Cat and Komatsu
excavators and dozers, graders, and various dump trucks. Concerning
service deals, he does buy them and considers them “good insurance
policies.” He adds, however, that it’s always a gamble
as to whether the cost of the perceived “protection” is
justified. He is not entirely convinced.
As for extended warranties, Porter buys them too, albeit reluctantly,
but thinks that manufacturers should offer longer, more comprehensive
coverage for free. Instead of “tacking on a couple thousand
dollars more to a machine cost, just do the warranty service,”
he says.
How about the quality
of scheduled maintenance service provided by his Cat dealer? Porter
remarks that he is fairly happy with it. “We felt [the agreements]
were worth the money.” He also observes, “It seems like
if you’ve purchased an agreement, it may be easier to get what
I would call ‘warranty work’ done than it otherwise would.”
Once, he recalls, a potentially costly repair on a Cat 330 excavator
was fully covered. He was glad he’d bought the agreement but
wondered if the dealer would have honored it if he hadn’t.
Other contractors expressed similar views to us.
In any case, the right
time to purchase an agreement or an extended warranty, Porter believes,
is when you buy equipment new, rather than when the manufacturer’s
warranty is almost expired. “If you put the [extended service
warranty] right on there so that you’ll have it, the machine
is good for five years, worry-free.”
Leo Reiken of Reiken
Construction Inc. in Henderson, IA, expresses a more jaundiced opinion.
“[Dealers] just come out with these panic letters about how
my final drives are contaminated,” he relates, and they expect
him to buy a maintenance deal for his John Deere scraper, skid loader,
track hoes, excavators, and three Cat 977L track loaders. He points
out that final drives on Cats lack a filtering system anyway, “so
they’re always going to have a little bit of dirt and stuff
in them, even if you change them every week.” And this “normal”
dirt isn’t sufficient to warrant buying a maintenance commitment.
Reiken, who is 60 years old, points out that he has been moving
dirt (and maintaining all equipment himself, satisfactorily, along
with employees’ help) since his youth.
Bob Taylor, equipment
manager at McLeod Land Services in Sarasota, FL, oversees 100-plus
heavy-equipment pieces and buys new ones quite frequently. In recent
years he’s noticed a big push by dealers for extended warranties
and service agreements. It’s a buyer’s market—and
he’s a major buyer. So a short time ago he persuaded dealers
to give him their longer, more comprehensive warranties, worth $5,000
apiece, for free.
Taylor recently bought
some Kobelcos and Kawasakis, which still are under the original
equipment manufacturer warranties and haven’t broken down (save
for a hose). He rates the quality of scheduled maintenance service
and assorted fine-tuning by his dealer (Great Southern Equipment
Company based in Jackson, MS) as “excellent.”
Bill Cornett, vice president
of Showalter Construction Company in Charlotte, NC, has used Cat’s
Customer Support Agreement for scheduled maintenance on all of his
two-dozen–plus earthmoving pieces since the plan first was
introduced to him in the mid-1990s. All in all, he says, dealer
performance has been outstanding. He’s a thoroughly satisfied
customer.
Cornett finds that one
of the biggest benefits is that the dealer will dispatch his mechanics
for equipment servicing during off-hours, including weekends or
after- or before-work time. Thus, rarely is equipment ever taken
out of action for routine maintenance. This alone makes outsourcing
extremely valuable. In contrast, Cornett recalls an experience with
his previous employer—a large regional grading contractor—that
did its own preventative maintenance (PM) and repair work. These
items constantly were going by the wayside, Cornett recalls, due
to production priorities. When Cornett moved to Showalter Construction
some years ago, he already was convinced that outsourcing was worth
the cost, both to ensure that PM does get done and to avoid interrupting
productive time.
A second key benefit
has proven to be the checklist of to-do items given to him by the
mechanics after each PM. “[This consists of] things needing
repair or corrective attention, like broken exhaust pipes or smokestacks
and leaky hydraulic cylinders,” he says. The dealer, Carolina
Tractor, sends him the same two mechanics month after month. “They’ve
gotten to know the equipment very well,” Cornett adds. “They
provide us with another set of eyes to see equipment problems that
our troops may see every day but just get used to seeing and do
not report.”
The dealer’s mechanics
also give Cornett oil sampling reports on each machine. By analyzing
contaminant levels over time and consulting with Carolina Tractor,
he will sometimes determine that it’s wise to order a prefailure
engine replacement (i.e., a brand-new engine) even before the old
one crashes. Other managers might think he’s going too far,
but—given that replacements probably are inevitable—Cornett
thinks it’s better to do them on his own terms and timing.
He also believes (like
Porter) that buying a service agreement probably avoids disputes
that otherwise would arise over out-of-warranty breakdowns. On three
separate occasions, he recalls, Cat and Carolina Tractor have provided
him with new engines or other major replacement parts gratis, even
months after the warranty had lapsed. (He did pay for the labor.)
“Caterpillar,” says Cornett, “has given us what you
might call an additional consideration by our having our equipment
on a customer service agreement.” This—along with his
dealer’s willingness to do servicing off-hours—are two
very big plusses.
For these benefits Cat
charges Showalter Construction a fixed cost that ranges from $550
to $650 per visit, depending on the equipment being serviced. This
works out to roughly $2–$3 per hour of equipment use, which
is at the high end of a reported industry norm. To simplify the
accounts, this flat fee covers all servicing types, whether for
a 250-, 500-, 1,000-, or 2,000-hour increment. If the servicing
must take place outside a limited zone around Charlotte, a modest
travel surcharge applies.
How does Showalter log
the equipment hours efficiently and report the cumulative time?
This is a perennial problem for all scheduled equipment maintenance.
To solve it, Showalter’s dealer provides Cornett with a spreadsheet
listing the equipment make, model, serial number, equipment ID number,
date of last servicing, previous hour-meter reading, and latest
hour-meter reading. Showalter’s site foremen collect operating
data weekly or monthly. Completed sheets then are faxed to Carolina
Tractor’s service department, and every 250 operating hours
or so, they’ll call to ask what time would be convenient for
a visit and where to hook up with the equipment.
In summing up their case
for PM outsourcing, devotees also would tell you about a few of
the perceived disadvantages of the do-it-yourself route. At the
top of the list, there’s the burden of hiring and training
competent personnel, obtaining and internalizing the knowledge affordably,
retaining what you’ve learned, and how and where to get refresher
courses and bulletins. Paradoxically, manufacturers seem surprisingly
helpful to owners in supplying helpful materials, considering that
they really want you to buy the dealer’s servicing. They’ll
provide you with manuals, bulletins, and various resources and even
access to classroom sessions by request.
In any event, many contractors
who might have started out with the best intentions of doing their
own maintenance simply discover, once they’re into it, that
they’re too short-handed, too busy, or lacking in know-how
to keep up with the profusion of technical data. Nor do they know
precisely what resources are available or where to get them. Nor—given
all the costs and inconveniences—are they confident that the
in-house strategy has saved them money after all. As Cornett observes,
“With labor shortages of qualified people, we need to train
people to make money for us rather than train them to perform maintenance.”
Then there are additional
issues, such as worker safety; increased liability; the cost and
upkeep of tools; environmental disposal fees; space for equipment,
oil, and servicing trucks (and their upkeep); shop utilities; and
insurance. For a growing number of equipment owners, the bottom
line seems to point to signing on the dotted line—that is,
taking the “buy-it-and-forget-it” strategy through outsourcing.
In the universe of small-business headaches, “This option will
give you one less thing to worry about,” as one buyer put it.
Of course there’s
another side to the story. In the next part of this series, we’ll
examine ways of doing high-quality, low-cost, in-house maintenance
and servicing while saving money on repairs.
La Mesa, CA–based
author David Engle frequently writes on construction-related topics.
GEC
- November/December 2003
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