Outsourcing Industrial Services: Strategic Choices That Matter

New Zealand manufacturers face a persistent tension between maintaining in-house capability and leveraging external expertise. I have seen plants swing between extremes, from fully insourced teams stretched thin to over-outsourced arrangements where institutional knowledge evaporates. Neither approach wins because the right answer lies in disciplined segmentation, rigorous cost modelling, and governance structures that protect safety while driving performance.

Manufacturing contributes roughly ten percent of national GDP, with food and beverage plus machinery and equipment dominating value-add. New Zealand's manufacturing Purchasing Managers' Index (PMI) returned to expansion in early 2025, reading 51.4 in January and 53.9 in February after a prolonged downturn. This recovery intensifies pressure on maintenance backlogs and project pipelines at the exact moment engineering talent remains scarce, and Engineering New Zealand estimates a national shortfall of 1,500 to 2,300 engineers annually, which makes outsourcing industrial services not just attractive but, for many plants, necessary.

Most plants carry a patchwork of historical contracts, informal favours, and ad hoc internal teams that no one has stepped back to rationalise. Outsourcing works best when you consciously decide what you need in-house, what you can buy, and how the two will work together.

Define Industrial Services Clearly To Target Outsourcing Where It Delivers The Most Value

Industrial services encompass the recurring and project-based activities that keep production and logistics assets safe, compliant, and available. This scope excludes build-to-print contract manufacturing. I focus here on services wrapped around assets through their lifecycle: specification, installation, operation, maintenance, modification, and decommissioning.

For example, a mid-sized dairy plant might use external partners for vibration analysis, statutory inspections, and major shutdowns while keeping shift electricians and mechanical fitters in-house. Thinking in terms of service categories rather than departments makes these decisions easier to explain, budget, and adjust over time.

Common Categories

  • Mechanical: rotating equipment, conveyors, packaging lines, fabrication, welding, machining

  • Electrical and Instrumentation: switchboards, drives, PLC/SCADA, calibrations, safety instrumented systems

  • Reliability and Asset Management: reliability-centered maintenance (RCM) facilitation, failure modes and effects analyses (FMEAs), criticality analysis, condition monitoring, spares optimisation

  • Project Delivery: machine moves, brownfield upgrades, commissioning, compliance upgrades

  • Facilities: utilities, HVAC, compressed air, water treatment, building services

Managing interfaces matters as much as managing scope, and information technology and operational technology (IT/OT) boundaries require attention to computerised maintenance management system (CMMS) integration and network segregation. 

Quality systems such as Good Manufacturing Practice (GMP) and Hazard Analysis and Critical Control Points (HACCP) in food and beverage, or qualified weld procedures and non-destructive testing (NDT) in metals, impose documentation requirements that contractors must meet. Regulatory compliance around electrical licensing, pressure equipment codes, and hazardous substances cannot be delegated through vague contract language or assumptions.

Segment Work With Kraljic And TCE To Decide What To Outsource And What To Keep In-House

Effective segmentation needs two lenses: Transaction Cost Economics (TCE), which evaluates governance frictions by looking at asset specificity, uncertainty, and transaction frequency, and the Kraljic matrix. The Kraljic matrix classifies service categories by supply risk and business impact into four quadrants: non-critical, leverage, bottleneck, and strategic. Used together, these frameworks highlight which work suits external providers and which demands internal capability that you should protect and grow.

Do not turn segmentation into an academic exercise. A structured workshop that maps your top twenty spend categories, their outage impact, and available supply options will quickly show where outsourcing creates leverage and where you need a core internal team.

Three Worked Examples

Vibration analysis for rotating equipment typically falls into the leverage quadrant. Asset specificity is low, outputs are measurable, and multiple capable providers exist, so you can outsource with clear routes, reporting formats, and explicit data ownership terms. The main risk is vendor lock-in through proprietary data formats.

OEM service for safety instrumented systems sits in the strategic quadrant because technical specificity and safety implications are both high. Consider long-term relationships, dual-skilling internal technicians, and detailed competence assurance to manage that risk. Retain some in-house diagnostic capability so you are not completely dependent on the supplier.

Fabrication and machining for fixtures can range from non-critical to bottleneck depending on your production constraints. When drawings are standard and tolerances moderate, outsource freely. When lead times choke your bottleneck line, pre-qualify fast-turn local shops with agreed priority windows.

Red and Green Flags by Quadrant

  • Non-critical: Green: unit pricing and simple service level agreements (SLAs). Red: hidden mobilisation fees that inflate small jobs.

  • Leverage: Green: competition and standardised specifications. Red: black-box data formats that make switching providers difficult.

  • Bottleneck: Green: surge capacity and clear escalation paths. Red: single-technician dependency that creates fragility.

  • Strategic: Green: joint improvement roadmaps and shared metrics. Red: lock-in without knowledge transfer or succession planning.

Treat HSWA Duties As Non-Negotiable When You Bring Contractors Onto Your Site

Under New Zealand's Health and Safety at Work Act (HSWA), you can't contract out of your duties as a person conducting a business or undertaking (PCBU). You must consult, cooperate, and coordinate with other PCBUs that share overlapping duties. Maximum penalties reach three million dollars for organisations engaged in reckless conduct, with significant penalties for officers and individuals, so these obligations rightly command executive attention.

Regulators expect to see how that cooperation works in practice, not just in contract wording. Site walk-throughs, shared toolbox talks, and joint incident investigations all demonstrate that overlapping duties are understood and actively managed.

Operationalising Overlapping Duties

Map the contracting chain and explicitly assign PCBU roles in both the contract and the mobilisation plan. Require supplier pre-qualification via a Tōtika-recognised health and safety scheme such as SiteWise, Qualify365, or Avetta. Verify site-specific competencies and licences before any work begins.

Mandate site-specific risk assessments, inductions, and worker engagement processes for both employees and contractors. Define incident escalation paths and reporting timelines clearly so no one hesitates to raise issues early.

Before any high-risk work starts, run a pre-start checklist that confirms permits are valid, isolations verified, supervision ratios set, and stop-work authority briefed. This discipline prevents the incidents that attract regulator attention and cause major operational disruption.

Build Your Outsourcing Business Case On Downtime And Whole-Of-Life Cost, Not Hourly Rates

Hourly rates tell you almost nothing about true cost because unplanned downtime usually dominates the economics of outsourcing industrial services. A 2025 Fluke and Censuswide survey found average incident costs ranging from US$400,000 to US$1.7 million per hour, with many outages lasting up to twelve hours. Your business case needs to reflect that order of magnitude, even if you use conservative assumptions for your site.

Downtime numbers also hide knock-on effects such as missed customer deliveries, damaged brand promises, and strain on frontline teams asked to recover lost production. Quantifying even cautious estimates of these impacts usually strengthens the case for higher service levels, specialist diagnostics, or additional surge capacity.

A Worked Example

Consider an Auckland canning line that produces 36,000 cans per hour with a contribution margin of thirty cents per can, so lost throughput alone equals $10,800 per hour. Add idle labour for ten operators at $40.65 per hour with twenty percent on-costs at roughly $488 per hour, plus $500 per hour for expedited logistics during recovery. Indicative downtime cost now approaches $12,000 per hour before you consider scrap, rework, or customer penalties.

Compare an internal response that averages six hours mean time to repair (MTTR) against an outsourced partner with surge capacity that achieves three hours MTTR. The avoided cost per event approaches $36,000 before you even consider quality and yield improvements on restart. That calculation justifies premium pricing for faster, more capable response.

Whole-of-life considerations extend well beyond the immediate downtime bill. Factor in asset life extension from better lubrication and alignment, energy savings from optimised drives, and reduced scrap from correctly calibrated sensors. Also account for transaction costs such as pre-qualification, supervision, travel, and governance, then design contract models that minimise avoidable overhead.

Align Contract Models With Risk, Uncertainty, And The Outcomes You Expect Suppliers To Deliver

Match pricing and risk models to uncertainty and the outcomes you want, using time and materials (T&M) with not-to-exceed caps for exploratory scopes or emergent work. Include rate cards, travel rules, and conversion triggers that move work to unit-rate or fixed price once scope stabilises. Fixed price or unit-rate schedules then suit stable, measurable volumes such as routine preventive maintenance routes or periodic inspections.

Outcome-based contracts tie fees to availability, defect rates, or asset health metrics rather than hours worked. Use fee-at-risk and earn-back mechanisms linked to key performance indicators (KPIs) such as MTTR, operational availability, and overall equipment effectiveness (OEE). Set symmetric incentives with fee at risk up to ten to twenty percent and earn-backs for sustained improvements that both parties can verify.

For plant modifications, consider NZS 3910 standard contract terms adapted for industrial brownfields with access constraints, outages, and commissioning tests. Define change control clearly with variation thresholds, approval workflows, and dispute resolution steps that align to your chosen contract form.

Set Service Levels And KPIs That Directly Support Asset Reliability And Plant Performance

KPIs must map to asset criticality tiers, and you should use Society for Maintenance and Reliability Professionals (SMRP) definitions for mean time between failures (MTBF), MTTR, and availability so results are comparable across sites and suppliers. Track overall equipment effectiveness (OEE) on bottleneck equipment and supplement it with first-time fix rate, schedule compliance, and quality defect rates. Include safety leading indicators such as permit compliance, observations, and near-miss quality, not just lagging total recordable injury frequency rate (TRIFR).

Resist the temptation to overload contracts with long KPI lists. Three to five well-chosen metrics per service line, tied to clear baselines and data sources, will give you sharper focus and better conversations with suppliers.

Example SLA Targets

  • Critical assets: Availability at least 98%, MTTR under four hours, priority 0 (P0) response within sixty minutes, first-time fix at least 85%

  • Important assets: Availability at least 96%, MTTR under eight hours, schedule compliance at least 85%

  • Non-critical assets: Response next business day, backlog limits by age category, rework under 2%

Run Procurement And Pre-Qualification To Reward Safe, Capable, And Financially Stable Partners

New Zealand's fifth edition Government Procurement Rules took effect from December 2025 and remain a useful benchmark even for private firms. Rule 16 requires at least twenty clear business days for suppliers to respond to procurement notices, so use this as a minimum for complex requests for proposals (RFPs). Rules 34 and 35 require agencies to maintain contract management systems and right-sized contract management plans with governance structures and performance metrics.

Require Tōtika-recognised health and safety pre-qualification to streamline cross-recognition and cut duplicated audits. Specify mandatory insurances, drug and alcohol policies, and licence requirements so bidders understand non-negotiables upfront. Structure evaluation with balanced weights such as technical capability at 35 percent, health and safety at 25 percent, past performance at 20 percent, price at 15 percent, and broader outcomes at 5 percent.

Use A Structured 90-Day Mobilisation Plan To Avoid Outsourcing Performance Dips

A disciplined mobilisation plan accelerates time-to-value and reduces safety exposure during the early learning curve. Divide transition into three phases with clear deliverables.

Days 0 to 30: Complete Tōtika checks and site-specific inductions, and finalise risk assessment and method statement (RAMS) documents for the top ten risk tasks. Validate the asset register and criticality ranking, and integrate the vendor into your CMMS with user roles and APIs. Agree a RACI (responsible, accountable, consulted, informed) and escalation paths so people know who to call when issues surface.

Days 31 to 60: Run a pilot on a representative line and measure MTTR, first-time fix, and schedule adherence. Hand over key documents such as as-builts and updated preventive maintenance (PM) routines, and refine unit rates based on observed effort.

Days 61 to 90: Scale to the full scope and publish the first monthly dashboard. Hold the first quarterly business review (QBR) with trend analysis, improvement proposals, and fee-at-risk reconciliation, and confirm knowledge transfer gates are completed.

Use Local Supplier Options And Specialist Consultants To Boost Responsiveness And Depth

Local specialist consultants compress response times on time-sensitive, asset-specific work. When urgency and asset specificity are high, a nearby mechanical engineering consultancy can mobilise quickly and coordinate with in-house teams to shorten MTTR. If your Auckland plant needs surge capacity for machinery installation, brownfield upgrades, or emergency breakdown support, consider mechanical engineering consultants Auckland for fast on-site support that aligns with HSWA controls and your CMMS workflows.

Brief local consultants for success by sharing recent failure modes, CMMS history, and critical spares lists before the first site visit. Agree escalation paths and decision rights for go or no-go calls during commissioning. Embed knowledge-capture deliverables such as updated as-builts, preventive maintenance (PM) routines, and a post-incident report within five business days.

Avoid Common Outsourcing Pitfalls By Tightening Scope, Data Rights, And Governance

Vague scope and poorly specified SLAs create disputes and underperformance. Classify assets by criticality first, then set response and MTTR targets per tier with clear evidence rules that both parties understand. Protect yourself against vendor lock-in by specifying data ownership, formats, and API access in the contract, with export obligations at termination.

Unmanaged subcontractors and weak health and safety onboarding create unnecessary liability. Require Tōtika status, site-specific inductions, and explicit subcontractor approval rights. Avoid price-only awards and runaway T&M by using balanced evaluation weights, capped T&M with conversion triggers, and market testing after year two of multi-year agreements.

Treat Outsourcing Industrial Services As A Capability Multiplier, Not A Pure Cost-Cutting Play

Start by classifying your assets and service categories using the Kraljic matrix and TCE. Build the business case with downtime and whole-of-life costs tailored to local wage and throughput assumptions, then select contract models that match uncertainty and tie ten to twenty percent of fees to KPIs that move OEE and availability. Operationalise governance with a monthly and quarterly cadence so issues surface early and improvements get tracked.

HSWA duties can't be outsourced. Align contractors through Tōtika-recognised pre-qualification, site-specific RAMS, and worker engagement to keep people safe and plants productive. Done well, outsourcing industrial services becomes a capability multiplier rather than a gamble.

Revisit your make-or-buy decisions every two to three years so your outsourcing mix evolves with technology, labour markets, and your product mix.