THINKING OUTSIDE THE BOX—OUTSOURCING CAN REDUCE COSTS AND SPARK NEW BUSINESS GROWTH
Cost reduction is a constant effort for every business. Our typical approach is to sharpen the pencils—and find lower-cost materials, employees and equipment. But in our most recent economic challenge, straight-up cost cutting wasn’t enough. According to industry experts including Deloitte Consulting and Accenture, outsourcing was a strategy that emerged and gained momentum. And it shows no signs of slowing down any time soon.
Outsourcing administrative tasks boosts efficiency
The first major outsourcing trend in construction companies of all sizes was outsourcing payroll and payroll reporting to firms specializing in these services. Construction projects can require complex Certified Payroll, Union, Job Cost and Federal Employment. By working with payroll companies who automate these reports, construction owners not only save the time required for data entry, but also reduce reporting errors and rework. Customized software and networking packages designed specifically for construction add to companies’ abilities to integrate information with a few keystrokes.
Outsourcing strategies reduce the cost of equipment management
Accurately costing equipment is one of the biggest challenges for construction companies. Often the cost of equipment is entered as a percentage of operating costs, so it’s not as precise as it could be. The point is you can’t know if you’re making money with a machine unless you know what it costs you to run and maintain that machine. Below are a few outsourcing strategies that help contractors deal with this problem.
- Outsource some of your equipment maintenance – How this relationship is arranged depends on your fleet and the kind of work you do. You may find it’s more cost effective to do simple routine maintenance yourself, but contract with your dealer to handle the more complex servicing that requires complete fluid changes and disposal. Either way, you can get more control of costs as well as get reports from your dealer.
- Outsource condition monitoring and maintenance – If your fleet is equipped with telematics, you can outsource monitoring and maintenance to your dealer. Using telematics data and scheduled oil sampling, the dealer can precisely manage service intervals so that your equipment is only serviced when it needs it. This reduces downtime as well as maintenance costs. Plus, you get the added benefit of accurate reporting—that you didn’t have to do.
- Think of rental as outsourcing your equipment management – Take a hard look at utilization. If you have equipment you’re using less than 60% of the time, it is likely more cost effective to replace that equipment with a rental. Immediately, the cost of maintaining that equipment is off your books. Plus, if the rental equipment is newer and more efficient, you may lower fuel costs and at the same time increase productivity. Finally, you have less cost accounting to do because bookkeeping for rental machines is not on your to-do list.
How do you know what to outsource?
While the quick examples above are some of the most common outsourcing situations, yours may be different. Here are quick tips for sizing up where outsourcing may be an opportunity for your business.
- Identify areas that are causing your company pain. In most instances, if something is generating frustration, there’s a good reason, and whatever it is costs time and money. Can you outsource it more cost effectively and be pain free?
- What are your competitors outsourcing? Imitation is the highest form of flattery, right? If a competitor is outsourcing something with success, why not consider it for your business?
- Ask for input from experts who know your business. Your team may have good insights into areas where outsourcing would be a benefit. Your accountant sees the numbers on an ongoing basis and may have ideas based on those trends.
Your Cat® dealer team is an excellent resource to discuss how outsourcing may bring added benefits to your business. From rental to equipment management, put their expertise to work for you.