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Contractor Management: Multi-Site Analysis in Latin America (Case Study) |
Background
In the course of international expansion, a German special chemicals manufacturer acquired a company based in South America. Due diligence revealed areas in Contractor Management where significant cost reductions could be achieved. Up to 1,600 contractors were employed at three different locations in administration, logistics, technical services, maintenance, production, support and Capex. The total costs for these services amounted to approximately 20m euro per annum. With the support of an external expert, an estimated savings potential of 15% to 20% could be achieved, but this needed to be evaluated in detail and defined in terms of it could be implemented.
The task
The client commissioned T.A. Cook to conduct a multi-site analysis as a basis for the planned optimisation. Productivity potential had to be worked out in detail and evaluated financially. T.A. Cook was to define key levers for the optimisation and put together a roadmap of activities for the implementation process. A team of five consultants completed the project over the course of 11 weeks.
The approach
On account of the complex problems, all functional areas and core processes related to contractor management were incorporated into the evaluation. Both central functions such as procurement and legal departments as well as the decentralised functions of maintenance, production and logistics were assessed at all sites. Each location was analysed separately so that individually established processes and structures as well as best practice solutions could be determined.
The analysis focussed on the four major impact areas Contracts/Data, Processes/Structures, Productivity and Benchmarks. T.A. Cook examined contractor agreements in accordance with the 80/20 rule. Predefined assessment guidelines facilitated comparisons of best practices and locations. In this way, T.A. Cook was able to identify current patterns, and areas where future action was necessary:
• Existing contracts were mostly on a take-and-pay basis and neither based on need or performance. Project orientation dominated instead, and there were few service packages. SLA principles, performance indicators, measurement criteria or a joining together of pay and the actual achieved result was completely lacking.
• Many core functions within the organisation had not been established, e.g. Contract Managers, Planners & Schedulers or the function had been filled by contractors. There was a lack of transparency, performance orientation and Intergrated technical and commercial responsibility for contractors.
• The operative execution of services, e.g. in logistics/warehousing, maintenance and production support showed critical losses in efficiency causing frequent down times. Resources were at times only used 30% productively.
• Only the rudiments of core processes such as planning and scheduling were in place. Work force management was left to the contractors. Basic elements of planning were missing such as sales quotas and work orders.
• Robust schedules of maintenance tasks were missing, priorities were mostly established ad hoc and often changed. Demand management with structured definitions of needs and set priorities did not exist. Because of this c. 90% of maintenance was reactive and corrective.
• Work preparation was poorly set up. Jobs were often below standard or not completed. Maintenance and plant availability was low.
• Productivity Management, performance controls and shortterm follow up were only partially in place. Proactive management did not exist. In part, the contractors managed and controlled themselves and each other.
Benefits and conclusions
T.A. Cook’s analysis revealed improvement potential of between
3.8 and 4.8m euro – which corresponds to 19% to 24% of contractor costs. In order to leverage this potential, the consultancy worked with the clients to define the focus areas of the implementation project as Contractor Strategy & Contracts, Demand & Basics, Supply & Organisation and Control & Sustainability and established the following goals:
• Wherever possible and of benefit: rework contractor agreements in accordance with SLA principles as Service Packages.
• New definitions and implementation of an optimised Contractor Management process - from the initial job description and requirements to performance evaluation and regular reviews.
• Definition of future needs in outsourced services for logistics, maintenance and production, taking into account production strategy, planned technical optimisations and targeted productivity gains.
• Optimisation of core processes in maintenance, engineering, planning & scheduling as well as work force management.
• Definition and appointment of key functions such as Contract Manager, Planner, Scheduler etc. at headquarters and the different locations.
• Development of a control system for the productivity management of contractors on the basis of Key Performance Indicators.
T.A. Cook was also commissioned to conduct the implementation project simultaneously at three locations over a period of nine months.
For more information contact:
Rupert Clark
Marketing Manager
Direct: +44 (0) 1183 260 229
Mobile: +44 (0) 7792 926 696
r.clark@tacook.com
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Benefits
• Greater transparency in contractor costs and
assessment of true value added
• Identification of potential
to sink contractor costs
by 19% to 24%
• Analysis of organisational deficits and determination of necessary core functions
• Critical evaluation of core processes in Contractor Management and development of concept for
restructuring
• Development of Key
Performance Indicators
to evaluate and manage contractors
• Definition of work areas,
key levers, required measures and a roadmap for
implementation
• Estimated Return on
Investment (ROI)
3:1 to 4:1
• Payback period of
c. 36 to 42 weeks
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Contractor Management: Multi-Site Analysis in Latin America »