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How to make industrial service outsourcing a success

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Transfer of industrial operation or maintenance responsibility, or both, to an external partner requires good preparation. Over the years Maintpartner has carried out this process for about a hundred times and has expertise on how to manage the change. This information package guides you through the process successfully.

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How to make industrial service outsourcing a success

  1. 1. How to make industrial service outsourcing a success? Tips for sound process management
  2. 2. Maintpartner helps you to succeed Transfer of operation or maintenance responsibility, or both, to an external partner requires good preparation. Over the years we have carried out this process for about a hundred times and have certainly learned how to manage the change. This information package guides you through matters that need to be considered – from preparation through tender process to finish. Maintpartner is a leading industrial operation and maintenance company in Northern Europe, and the leading actor in the Nordic energy sector. We help improve productivity and minimize process disruptions. In addition to long-term operation and maintenance contracts we offer project, engineering and installation services to industry. Our digital solutions represent the best-in-class development in the field. Maintpartner Group employs some 1900 persons. Our net sales in 2016 was some 160 million euros. The Group has offices also in Sweden, Estonia and Poland. Further information at www.maintpartner.com Copyright Maintpartner Oy 20182
  3. 3. Outsourcing steps 1 GET STARTED EARLY A well managed outsourcing process takes 1 – 1,5 years 2 SET A GOAL Clarify your strategic intent and goal 3 SELECT THE PARTIES 4 DRAW UP A GOOD INVITATION TO TENDER Select tenderers and consultants Select a smart commercial model. Describe the scope, current situation and types of measurement. 5 EVALUATE TENDERS Is the tenderer offering a credible and applicable model? 6 NEGOTIATE Specifying the tenders 7 SIGN THE CONTRACT Have all necessary items been agreed on? 8 COMMUNICATE Open communication to internal and external interest groups Copyright Maintpartner Oy 20183
  4. 4. Make time for the process A major, well managed outsourcing or competitive tendering procedure takes 1–1,5 years. Reserve time also for meetings during the tender rounds: • Briefing of the invitation to tender to the suppliers • Review of clarifying questions and presentation of the suppliers preliminary service solution (2–3 weeks after the invitation to tender has been received) • Presentation of the tender Copyright Maintpartner Oy 20184
  5. 5. Define strategy and goals The starting point for the process and the future partnership is the company’s or production plant’s target stage which has been derived from the maintenance strategy. Further, the target stage shall be split up in concrete goals and actions. Clarify, why are you planning to outsource: - To focus on your own core operations - To get value added that at present is not possible for you, for example, improved reliability ● cost efficiency ● occupational safety ● predictive and systematic operations ● maintenance management ● management of HR risks ● etc. Keep these goals clear in your mind throughout the process and communicate them clearly also to the partner candidates. Copyright Maintpartner Oy 20185
  6. 6. Define the parties of the tendering process Consider using consultants, if your own resources are not adequate, for • Data collection, • Determining your present cost structure(*, • Comparing suppliers or • Creating reference models. Maintain close contact with the suppliers and share information openly. This helps to base the offered solutions on genuine needs. *) incl. all own costs: personnel, non-wage labor costs, tools, vehicles, occupational health services, share of administrative costs etc. Select only credible suppliers, who can provide you with high quality tenders. Reduce the work load of the tender rounds by narrowing down the list based on the preliminary meetings. Copyright Maintpartner Oy 20186
  7. 7. 7 Invitation to tender What should be considered when drawing up an invitation to tender? Copyright Maintpartner Oy 2018
  8. 8. Describe the target stage in the invitation to tender • Tell what you are looking for with competitive tendering and outsourcing. • Describe the main points how to measure the success. • What are your criteria when selecting a service provider: short and long-term targets. • Decide in good time, for what entity you need a supplier, and whether partial tenders are acceptable. We want to have a partner who takes care of our facility in a professional manner. We want to have a partner who undertakes to develop the activities at our facility. Copyright Maintpartner Oy 20188
  9. 9. Choose an optimal commercial model The most common models for service contracts are Fixed-price contracts: The most demanding to define, joint risk and benefit Contracts with target price: Average, parties share risk and benefit Contract on hourly or accrual basis: The easiest to define, monthly compensation varies If necessary data is not available, the contract can be started with a model requiring less information and move towards a fixed-price contract after one year, for example. Amount of required back- ground data Copyright Maintpartner Oy 20189
  10. 10. Describe the scope clearly Make a synergy analysis and decide on the scope of the services that you will order: what is an economically attractive service entity that can be managed effectively. Pay attention to e.g. your internal costs for supplier management and what kind of flexible resourcing the suppliers can offer. Describe the services in detail, for example with help of responsibility matrices, so that the tenders will be commensurable. You can also ask the suppliers to make a proposal of their standardized services and operational model which bring cost benefits (requires extra work when comparing the tenders). Describe also needs and expectations related to maintenance management systems and system integrations in your invitation to tender. Copyright Maintpartner Oy 201810
  11. 11. Describe the present state in detail In order for the supplier to understand the development needs, workloads and scope of the transition project, an accurate description of the present situation of e.g. the following items is needed: The present state can be identified also through interviews, but that is often challenging due to the scope of the project. Workload, number of staff, shift work arrangements etc. Suppliers (roles, responsibilities, contracts, volumes, etc.) Resourcing Required special competencies Information about scheduled maintenance Information about corrective maintenance work Problems Ongoing and known projects Development plans Copyright Maintpartner Oy 201811
  12. 12. Prepare the indicators for success Define preliminary indicators for monitoring the service already in the invitation to tender. The indicators can be specified as the negotiations go on. Choose indicators that support the progress towards achieving the objectives that are set in the contract and are critical to your production. Good, widely used indicators are e.g. - OEE (availability, performance and quality) - Availability - Occupational safety Copyright Maintpartner Oy 201812
  13. 13. Clarifications on selecting the commercial model In order for the supplier to be able to prepare a reasonable fixed- price offer without disproportionate risks, the invitation to tender should include comprehensive HR data and data from the maintenance management system, like the outcome of scheduled maintenance and fault history. If you wish to include procurement of spare parts and materials in the fixed prices, there must be data available of them as well as reasonable limits in the terms of the agreement. Regarding subcontracting, one good model is to apply management fee to cover the procurement costs. 1 2 3 13 Copyright Maintpartner Oy 2018
  14. 14. 14 Tender evaluation Items needing attention when evaluating the tenders Copyright Maintpartner Oy 2018
  15. 15. Is the proposed resourcing model feasible? The resourcing model proposed by the supplier must correspond to your own objectives. For a comprehensive service scope it is worth to consider a model where the supplier complements the resources through subcontracting and also leads the subcontractors, if needed. If some of your own staff will remain at the site, make sure that both parties are clear about their roles. Ensure that the supplier pays special attention to subcontractors’ safety processes. Copyright Maintpartner Oy 201815
  16. 16. Will the services be developed as needed? Ensure that the supplier delivers services that meet your needs all through the contract period – also, if the business needs change during the contract period. Ask the supplier for a model and resource plan according to which the maintenance activities will be developed all through the contract period. Ensure continuity of operations also in a situation where you want to switch to a new supplier. Take the possibility to switch to a new supplier into account already when defining the service model, responsibilities and terms of contract. Copyright Maintpartner Oy 201816
  17. 17. Find out about the supplier’s processes and tools Pay attention to the supplier’s ability to report the realization of the services and their objectives - Ask the supplier for a description of tools, standard reports and their customization as well as management methods to be able to assess their suitability. Define the roles and interfaces for your cooperation, including the workload that remains with your own organization. Ensure the integration of the supplier’s systems in yours and reserve enough time and resources to implement the integrations. Copyright Maintpartner Oy 201817
  18. 18. Ensure that your EHSQ practices are compatible The supplier’s EHSQ practices are vital in order to achieve your objectives relating to environmental, safety, quality and personnel matters, and to minimize your EHSQ-related risks. Ensure that the supplier’s procedures relating to wellbeing at work and competence management are admissible. If responsibilities towards authorities are transferred to the supplier, these must be brought up as early as possible. Such are, for example, supervision of electrical equipment and responsibility for pressure equipment or chemicals. Engage the supplier in safety work and continuous improvement through KPIs. Copyright Maintpartner Oy 201818
  19. 19. 19 Concluding the contract Payment terms, financing, procurement Copyright Maintpartner Oy 2018
  20. 20. Contract and its terms and conditions Include the most important contractual terms already in the invitation to tender, at the latest during the specifying tender rounds. Bear in mind that also the contractual terms shall be appropriate. The terms and conditions must be based on business needs; modifying standard terms to correspond to the service in question speeds up the negotiations considerably. Some of the terms and conditions impact on prices, which professional actors take into account. When drawing up terms and conditions, the position of the supplier companies in relation to the ordering company must be considered. For example: Suppliers are smaller companies with a light balance sheet. The insurance coverage must be on an adequate level and insurances issued by high-class companies. The financing costs of a supplier may be remarkably high, therefore a long payment term gives the customer only expensive financing. Copyright Maintpartner Oy 201820
  21. 21. Agreeing on procurement principles Make a clear agreement on the roles and responsibilities relating to the procurement of materials and spare parts. The most important aspects are that the work flows smoothly and you avoid a double organization, i.e. the same work is not done by two organizations. There is no advantage in putting the risk of large purchases to the supplier. That way you avoid unnecessary risks and enable cost efficient operations. Remember that in some purchases the supplier may have cost advantage. Utilize the supplier’s contacts and the possible price benefit resulting from scale and scope. Copyright Maintpartner Oy 201821
  22. 22. 22 Personnel and communication From personnel strategy to change management and communication Copyright Maintpartner Oy 2018
  23. 23. Ensure good change management To succeed, the change in operational model requires a well- planned personnel strategy. Start to shape it simultaneously with the planning of the outsourcing project. Remember to include both the remaining and transferring employees. Personnel strategy is part of change management, and will help to steer it. Ensure that the chosen partner has adequate knowledge of change and personnel management. When the personnel strategy is well-thought-out and well implemented, the change process can be carried out in the organization and company culture so that the financial objectives are met – at least more easily. It is clear that persons are replaced over time. Regarding flexible resources, the labor turnover may sometimes be frequent. Copyright Maintpartner Oy 201823
  24. 24. Coordinated communication to personnel Prepare a communications plan (responsibilities, timetable, channels, materials) and main messages: What is happening, why, when and how? Who are concerned? Inform the personnel about the matter as soon as you can, preferably in an internal information meeting. Be prepared to answer questions. Let the new employer’s representatives accompany you. Plan ahead the content for the staff information package - What will change? - What remains unchanged? - How does this impact them? - What kind of development plans does the new employer have? - How is communication handled from now on, who will answer the questions? Copyright Maintpartner Oy 201824
  25. 25. Tell your message also to external audiences Open external communication increases the trust towards the company and offers a possibility to give your view of the matter, in your own words. Therefore the matter should not be hidden. Outsourcing is also a way for the personnel to develop their work. Agree with your partner on communication: - Press release or other type of release (Internet page, etc.) - Share information in social media - In case of major outsourcing contracts, also a press conference is possible Who gives further information? - Spokesperson should reserve time for answering possible questions from the media - Agree jointly on the key messages Copyright Maintpartner Oy 201825
  26. 26. 26 Contact us, we are happy to tell you more! Hannu Leskelä President, Service Agreements, phone +358 (0)40 546 8580 Mika Riekkola Sales Director, phone +358 (0)40 739 6607 E-mail format firstname.lastname@maintpartner.com Copyright Maintpartner Oy 2018
  27. 27. We keep the production facilities of our customers in operation and in good condition.

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