Contractor Management: Multi-Site Analysis in Latin America

A German special chemicals manufacturer supplemented its portfolio in Latin America as part of its international expansion. Due diligence revealed significant cost reduction opportunities with 1,600 contractors in three locations with an annual order volume of approximately 20 million euros. Here are the key results:

c

Analysis of organizational deficits and determination of necessary core functions

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Development of Key Performance Indicators to evaluate and manage contractors

36-42

Weeks payback period

3:1-4:1

Estimated Return on Investment (ROI)

Approach

On account of the complex problems, T.A. Cook included all functional areas and core problems related to contractor management, such as procurement, legal, and core processes such as maintenance, production, and logistics at the sites, one after the other. The analysis focused on the four major impact areas: contracts & data, processes & structures, productivity and benchmarks. T.A. Cook critically examined contractor agreements in accordance with the 80/20 rule. Predefined assessment guidelines facilitated comparisons of best practice and locations.

T.A. Cook was able to identify current patterns and areas where future action was necessary:
- Existing contracts that are not based on need of demand and performance
- Many core functions within the organization had not been established and there was a lack of consistent  
   responsibility for contractors
- The operative execution of services, e.g. in maintenance and production support showed critical losses in
   efficiency causing frequent down times; resources were at times only used 30% productively
- Robust schedules of maintenance tasks were missing, demand management with structured definitions of  
   needs and set priorities did not exist, resulting in approximately 90% reactive, corrective maintenance.

Achievements

T.A. Cook revealed improvement potential of €3.8 to 4.8 million.

In order to leverage this potential, the following was defined:
- Rework of contractor agreements in accordance with SLA principles as service packages
- New definitions and implementation of an optimized contractor management process
- Definition of future needs in outsourced services in logistics, maintenance, production, taking into
   account production strategy, planned technical optimizations and targeted productivity gains
- Optimization 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.


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