Feasibility of adopting in‐and‐out‐sourcing: A case study of PetroCost for Engineering Investment and Construction Co. Ltd

Abstract

Purpose

The purpose of the paper is to find the “effect of economic value of maintenance cost on the optimum selection of one alternative (either out‐or‐in‐sourcing) through the analysis of a case study of two projects: an existing on‐going project and a proposed bidding project”. In particular, the research is conducted to help PetroCost for Engineering Investment and Construction Company to take a decision on whether to have its own earth moving fleet (and hence maintain it) or rent one including the maintenance service as part of the outsourcing contract.

Design/methodology/approach

This research uses a case study approach whereby cost data and information are collected from two case projects, then presented and analyzed. Economic tools (measures of worth) and excel software were used in the first project, where payback period method and break‐even analysis are used in the second project. The two projects were considered as an integrated (complementary) case study, so different measures were applied to each project, although the three measures could be applied, implicitly, to each of them. The payback method is used as a quick screening method to determine, approximately, how long the project takes to recover the invested outlays. If the period is shorter than the period of time desired by the investor, then a further thorough analyses, rate of return and break‐even, are recommended to be undertaken. Two of the authors were consultants to the study, where the third was the technical manager of the company (PetroCost).

Findings

The results obtained from the analysis of the first case project (existing on‐going project) showed a saving of SDG717,484.31, while the second case study (bidding) showed a saving of 33.4 percent over the out‐sourcing cost, and a break‐even point of 27 days, one third of the recommended project life. Both cases are in favor of having their own trucks while conducting in‐house maintenance.

Practical implications

The traditional in‐house approach is considered by many firms as the best maintenance strategy. Nevertheless, out‐sourcing becomes a recognized challenging competing option, worldwide. However, out‐sourcing option not widely practiced in Sudan. The decision criteria presented in this paper provides a useful management tool for selecting the appropriate maintenance organization strategy. Although the criteria is applied for a truck fleet case in a construction firm, but it can be extended to the management of maintenance activities in the growing oil and associated industries in the country, besides the existing ones, where the skills' shortage of qualified maintenance personnel is evident.

Originality/value

Much of previous and current research on outsourcing focuses on managing outsourcing projects and evaluating ex post decisions' consequences (e.g. output measurability) more than addressing early planning and feasibility study stages. Hence, the paper is relevant in this respect and intended to contribute to the practice of maintenance management.

Citation

Haroun, A.E., Elfaki, E.A. and Mahdi A. M. Beshir, E. (2012), "Feasibility of adopting in‐and‐out‐sourcing: A case study of PetroCost for Engineering Investment and Construction Co. Ltd", Journal of Quality in Maintenance Engineering, Vol. 18 No. 1, pp. 4-15. https://doi.org/10.1108/13552511211226157