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Not your father's outsourcing
More factories are subcontracting out maintenance. Will that help keep good jobs in the U.S.?
December 14, 2004: 10:37 AM EST
By Steve Hargreaves, CNN/Money staff writer

NEW YORK (CNN/Money) - As more American manufacturing jobs are lost to plants overseas, one form of subcontracting may actually help keep U.S. manufacturers more competitive in the global marketplace.

The practice is the outsourcing of factory maintenance to other American companies, but whether this is good for U.S. workers overall remains to be seen.

A recent report by the consulting firm D.F. Blumberg Associates said that servicing industrial equipment, a $69 billion business in 2000, is expected to grow to $99 billion by 2005, an annual growth rate of 7.5 percent. Much of the business goes to firms, typically subcontractors, that specialize in industrial maintenance.

One company cashing in on the trend is Advanced Technology Services. Based in Peoria, Ill., ATS grew out of Caterpillar Inc.'s in-house maintenance division in the 1970s before being spun off and later bought outright by ATS management in 1996.

The company specializes in taking over entire maintenance departments in factories of big manufacturers like GM (Research), Ford (Research), Caterpillar (Research), Toyota (Research) and General Electric (Research). Currently, the 1,300-employee company has deals with 15 major manufacturers at over 100 plants.

When ATS wins a contract, it typically hires a large part of the former in-house maintenance staff, especially workers with skills servicing high-tech equipment.

Those workers stay on site to perform preventative maintenance and to keep assembly lines running, while other less skilled workers like painters and janitors are often subcontracted to other firms.

ATS headquarters in Peoria, Ill.  
ATS headquarters in Peoria, Ill.

For manufacturers, this allows them to concentrate more on core operations, ATS President Jeff Owens said.

"The manufacturer can focus on product development and building the business," said Owens. "We focus on the unglamorous part of the company, which is maintenance."

"The value to me is the increased up-time of the equipment," said Mark Stratton, facilities manager at a Caterpillar plant in Dearborn, Ky. "Our decision was not so much aimed at saving costs as it was in improving the effectiveness of our maintenance organization."

Before the contract with ATS, Stratton said his factory, with 100 people making parts for Caterpillar equipment, employed 10 maintenance workers and two engineers. He said ATS kept some people and let others go.

With the benefits of increased production time, Stratton said, ATS' services are helping his plant stay competitive.

"As technology continues to increase, it gets more and more difficult to maintain that expertise in a small work force," he said. "[ATS] is critical for us to stay ahead of the technology" by keeping the machinery running and containing the related service costs.

What about the worker?

While outsourcing in general is often blamed for the loss of jobs, Owens said jobs at ATS come with competitive wages and benefits.

A spokesman for the International Association of Machinist and Aerospace Workers said third-party maintenance often causes union workers to lose their jobs to lower-paid, non-union workers.

But neither he nor anyone at the AFL-CIO or the United Auto Workers Union was able to comment on the specific operations of ATS.

For its part, ATS claims that through its operation manufacturers get better maintenance and that workers get better training. It is this better training and economies of scale that allow ATS to sometimes provide a cash savings to clients.

ATS President Jeff Owens  
ATS President Jeff Owens

Workers also get to work at a company where there is room to advance, he told CNN/Money.

"The road to the top is not typically through maintenance," said Owens, "At our company, it is."

But not all workers keep their jobs when maintenance is outsourced.

Michael Blumberg, president of the consulting firm, said it's common for lower-skilled workers, like painters, sweepers and others, to see their jobs contracted out. "What it means for the low-level employee is that they have to get the skills to improve," he said.

Further down the line

Owens said ATS sales are growing 15 to 20 percent a year and now top $100 million annually.

While there is no plan to take the company public soon, management hopes to grow revenue to over $1 billion, at which point a public offering may be in the cards, he said.

While outsourcing maintenance may help keep jobs, expecting that it will save American manufacturing or prop up the economy is a bit of a stretch, experts said.

Robert Block, a professor of labor and industrial relations at Michigan State University, said the net effect on jobs is minimal.

"The electricians who used to work for the bigger firms are now working for someone else," said Block. "Yes, it's a growth industry, but essentially it's rearranging employment."

And while outsourcing certain functions could help a manufacturer at the margins, the real decisions about keeping jobs here or moving them abroad are based on core operations.

"I've never heard a company say, 'We're going to move because of our maintenance,'" Block said.

But still, American manufacturers seem like they could use all the help they can get.

"We make factories run better," said Owens. "We feel we can help keep them here."  Top of page




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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.