Central blends contract with in-house reefer maintenance
Feb 1, 2004 12:00 PM, By Gary Macklin
In a constant search for effective cost control measures, Central Refrigerated Service seeks to blend in-house refrigeration unit maintenance at its five terminal and drop-yard locations with contract service at dealerships when equipment is on the road. This blend of responsibility is an evolution of a system that began with full in-house control of the maintenance program, moved to a full contract service agreement, and now blends the two. The changes have all taken place over the past three years.
During the same years, Central Refrigerated emerged from the remains of Dick Simon Trucking. As the process began, Central — then Simon — had just moved into its new 35-acre terminal on the western edge of Salt Lake City. Shortly thereafter, the company entered a period of almost explosive expansion that culminated with the purchase of Simon by Jerry Moyes. Simon probably was affected by the deep recession in the trucking economy that started in late 1999 more than any of the large truckload carriers of refrigerated freight. That recession led to the bankruptcy of Simon in early 2002 and the creation of Central Refrigerated from the remaining assets.
Prior to the reorganization, Simon maintained its entire fleet of tractors, trailers, and refrigeration units with a network of six maintenance facilities organized around the impressive headquarters shop in Salt Lake City. In a cost-cutting move, the number of facilities was reduced to four comprising Salt Lake plus operations in Atlanta, Denver, and in Fontana, California, on the eastern edge of the Los Angeles metro area. Since the terminal reduction, Central has established a small operation in Phoenix with one refrigeration technician and one tractor mechanic for a dedicated fleet. These two technicians are based at the Swift Transportation location. As the maintenance network shrank, Central saw the need to improve its refrigeration unit maintenance capability to ensure against freight claims that could result from unit malfunctions.
Centralized billing, negotiated pricing
To make sure that the fleet of slightly more than 2,000 trailers and refrigeration units remained in top condition, Central Refrigerated signed a full contract maintenance agreement with SVC, the contract maintenance arm of Thermo King. At the time, Central was the largest single customer in the Thermo King SVC stable. Thermo King SVC offers essentially two levels of service. The first level is a centralized billing program with negotiated pricing for parts and labor throughout the Thermo King dealer network. With centralized billing, services throughout the network are consolidated and submitted to the fleet customer as a single monthly bill, eliminating the need for separate payments to each dealership used. Payment goes to SVC, and SVC pays the participating dealers. The second tier of SVC service is a total fleet management contract under which Thermo King takes full responsibility for unit fleet maintenance and service. All work required under a full service contract is handled by Thermo King dealers and managed by SVC. Fleet customers are never required to touch the equipment. Typically, centralized billing agreements and maintenance contracts run from year to year.
Thermo King SVC has some 33,000 refrigeration units operating under contract maintenance agreements. In addition to major leasing accounts such as Penske and PLM Trailer Leasing, SVC handles some of the maintenance requirements for major truckload carriers such as C R England, Marten Transport, and Prime. In addition to providing a valuable service to fleet customers, the SVC network provides a huge database on unit performance and maintenance costs, allowing Thermo King to find ways to reduce life cycle costs and improve the entire product line, says David Augustine, director of Thermo King SVC.
Negotiated pricing for parts and service is a cost that can be tracked. The convenience of centralized billing is less certain. It is a soft cost, one that the service reduces but that is harder to calculate, Augustine says.
Central Refrigerated operated under a full service contract for roughly two years. With so much change happening throughout the company, the SVC contract brought stability to the refrigeration maintenance program, says Mark Hadley, Central's director of maintenance. “However, a full management contract is a luxury service to us, and we see it priced at a luxury level,” he says.
Blending in-house with contract
As the financial picture cleared and Central returned to profitability during 2003, the company began looking for ways to reduce costs even further. The refrigeration maintenance agreement offered one such avenue. The result is a blended program where Central handles as much refrigeration maintenance as possible in its five facilities and purchases the remainder under an agreement with SVC.
The sheer size of the refrigeration unit fleet compared to the number of service technicians at Central indicates that the majority of the work remains with SVC. Central has four technicians dedicated to refrigeration maintenance in Salt Lake City and only one dedicated technician at each of the other locations. Only the Salt Lake City location operates around the clock, seven days a week. As a result, Central has recaptured only 30% to 35% of its total refrigeration maintenance workload. The remainder is handled, as before, by the Thermo King dealer network at negotiated labor rates and parts prices. The SVC network generates about 1,100 work orders for Central monthly. The entire system — dealers as well as all Central shops — uses only Thermo King parts.
In addition to pricing, the history and cost of all refrigeration maintenance is all contained in a single database. Information from Thermo King dealers is collected as it is entered on a web-based work order collection platform. The web-based system identifies Central as an SVC customer and ensures that charges for parts and labor conform to agreed levels. Data from Central shops enter the system as well, placed there by Charles Williams, a Thermo King SVC consultant with offices at Central maintenance headquarters.
Concentrate on prevention
Central's refrigeration technicians are factory-trained and fully capable of handling any work on a unit from tightening a belt to overhauling an engine. In practice, Central wants to spend its main effort on unit inspections and scheduled service. Problems found during preventive maintenance inspections are handled by company technicians unless the repair is covered by warranty, in which case, the unit usually is sent to a dealer. The shops in Salt Lake City and Fontana are set up for major repairs. Atlanta and Denver are organized to handle inspections and scheduled service work. If a unit requires extensive repairs, normal procedure is to replace it with a spare and take care of the repairs as time at the main shop or Fontana permits, Hadley says.
Central has all its refrigeration units on a 3,000-hour service interval using conventional Exxon XD3 Extra motor oil. This lengthy interval is covered by the Thermo King warranty. In practice, units run an average of 2,100 hours annually, which spaces the oil change interval out to about every 14 months. Hadley says Central is so confident in its equipment and maintenance practices that it sees no added value in requiring an annual oil change.
Preventive maintenance inspections are a different matter. Units are inspected at least every four months. In addition, the automated pre-trip inspection performed by the unit controller is run at every inspection and by the driver before every trip. If the system generates fault codes, drivers are instructed to contact headquarters before proceeding with a load. During inspections, technicians follow up the faults before releasing the trailer for service. Within the Central system, a technician can usually handle an inspection in the space of half an hour. An additional half hour of repair work often follows. Most scheduled unit service work can be completed within 45 minutes, Hadley says.
Computer flags trailers for service
In Salt Lake City, technicians process about 20 trailers a day. Roughly 75% of the work is for scheduled service. Central has an extensive yard management program that uses radio frequency tags to identify trailers as they enter or exit the terminal grounds. An interface with the maintenance program allows the yard management system to flag trailers for inspection or service as they pull onto the property. If scheduled maintenance is due, trailers are not released until the work has been performed, Hadley says.
The goal of the maintenance department is to provide equipment to operations that can run for the entire equipment life cycle without incurring any customer service failures. Proof that the goal can be reached shows up in Central's extended service life for trailers and refrigeration units. As the company worked to pull costs out of the system, the life cycle for trailers and units was stretched from five to seven years. One group of trailers from the 1998 model year is performing so well that they may be kept in service longer than seven years. “Switching to air suspension under trailers has made a difference,” Hadley says. “We're having some discussion about extending trailer life beyond seven years. As trailers are replaced, the standard unit purchase by Central is the new Thermo King SB-210.”
The saving produced by pulling some maintenance responsibility back into company hands comes from reduced spending on labor. Obviously, Central charges itself a lower labor rate than that charged by many dealers associated with SVC. The reason should be self-evident, Hadley says. First, Central charges for maintenance labor at cost instead of adding in a profit as a dealer must. Location factors in as well; competition for technicians in major metropolitan areas such as Los Angeles or the San Francisco Bay Area result in higher labor rates than prevail in Salt Lake.
The blend of in-house refrigeration maintenance at Central facilities coupled with SVC outlets for over-the-road repairs offers a total package for keeping the fleet running at full potential, Hadley says. Central projects that it can save between $70,000 and $100,000 a month by capturing as much refrigeration unit maintenance as possible. However, the fleet is so large that company shops can never perform all the necessary refrigeration work. Given that factor, SVC provides a valuable insurance policy against high road repair and service costs, he says.
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