Facility owners and operators face many challenges in their efforts to minimize downtime and meet financial targets in increasingly competitive and complex markets. Decisions must be made that balance competing priorities affecting both near-term effectiveness and long-term profitability within a dynamic environment and using imperfect information.
As many facilities have limited ability to directly increase product sales, emphasis is generally placed on reducing costs to drive profits. The principles at work are perfectly rational. However, it’s not uncommon that, in this effort to minimize costs, companies in the supply chain may come to be seen as merely costs that need to be managed.
Today’s competitive business climate continues to force companies to focus on core competencies and reduce noncore expenditures. Significant improvements in processes, tools and technology can assist in this effort by increasing overall efficiency, but capital project and maintenance activities depend on materials, equipment and labor that, taken together, represent a substantial percentage of the total cost of those efforts. Further, while material and equipment purchases can be sourced from locations with lower labor and regulatory cost structures, construction and maintenance activities ultimately require the physical presence of a trained workforce to complete the necessary tasks.
To remain competitive, owners and operators have progressed from a self-execution model to a distributed scope framework that engages specialty contractors for some, most or all activities, depending on the business objectives of each company. This has allowed an overall reduction in expenditures as the nonwage costs associated with the labor force, including training, benefits and general management, are shifted to the contractor.
While this execution paradigm achieves a specific set of goals, viewing this as simply a cost-cutting exercise or transfer of lower-value responsibilities to a service provider would mean missing a tremendous opportunity. The distributed responsibility model creates an environment that can offer significant additional competitive advantages for owners and operators.
By engaging a specialty contractor, facility management decision makers are essentially concluding the selected contractor’s knowledge, resources and capabilities related to the identified scope are greater than the facility’s own ability to economically hire and maintain staff for that same scope. If this statement does not represent the foundation of the decision to engage a given specialty contractor, the leadership of the owner or operator likely used criteria other than the long-term viability of the facility during the decision process.
Given that, in the majority of cases, the specialty contractor was chosen based on demonstrated knowledge, resources and capabilities, the relationship between owner/operator and supplier offers incredible potential when viewed as a partnership. By progressing beyond an “on call” mentality to an integrated execution approach, the expertise of specialty contractors can be brought to bear on driving improvements that benefit the owner/operator’s business, perhaps in ways beyond the contractor’s scope parameters. The specialty contractor can progress from simple service provider to trusted adviser.
Service provider or trusted adviser? A personal example
To better understand this scenario, consider a personal example. Imagine that, during a visit to your family physician, something unexpected and unusual is found. While a general practitioner can offer guidance, the likely result is a recommendation to see a specialist, which you do. After reviewing the available test results and other data, the specialist tells you there’s no cause for immediate alarm but, based on his own expertise from years of treating patients with similar profiles, changes are necessary if you’re to lower the risk for long-term illness. The specialist then outlines a plan tailored to your circumstances aimed at improving your overall health and increasing the likelihood of avoiding potentially serious results that may develop if no change is made.
Unless you have some reason to doubt the credentials of the specialist, in which case you would likely have chosen another provider, the rational outcome would be to at least consider the suggested course of action. If, over time, you continue to see the same specialist and experience positive results from his advice, your trust in the specialist deepens. The relationship progresses from solving an immediate problem to working together to proactively avoid future problems.
Owners and operators should expect the same level of engagement from specialty contractors. By entrusting the service provider with a specific scope for the construction or maintenance of a facility, the door has been opened to developing a lasting business relationship that benefits both parties.
To reach this highly functioning execution model, five key elements are necessary.
1. Alignment
The engagement between an owner/operator and specialty contractor is made possible because the facility continues to function under a set of business objectives and metrics that drive operations and decisions. Success is ultimately defined by those objectives and metrics, and failure to achieve stated targets will lead to strained relations in the near term, at best, or dissolution of the relationship, at worst. The owner/operator’s needs have primacy, and the ability to meet and exceed those objectives will form the foundation of trust between the two entities. Alignment and clarity around the objectives must be the first step in building that trust.
2. Recognition
Selection of the specialty contractor is often based on balancing proposed costs with the ability to execute, ultimately forming an understanding of the supplier’s value. Creating a stronger business relationship that can lead to long-term improvements in facility operation requires recognition of the supplier’s expertise based on both their broader industry exposure and knowledge of best practices. Likewise, the specialty contractor must recognize execution environments vary based on owner/operator objectives, and that any proposed improvement may require modification before deployment in a specific facility.
3. Openness
Both owner/operators and suppliers must openly share concerns and challenges if solutions are to be effectively identified and implemented. Just as the facility management team must be willing to discuss objectives and metrics with suppliers as part of the alignment process, suppliers must be able to share their own decision criteria with owners and operators. In addition, both parties should address boundaries and limitations applicable to their organizations. By fostering this level of openness, true win-win solutions can be found.
4. Listening
This may be the most difficult of the five elements. In a business environment characterized by constant activity, a persistent focus on results, task lists that only grow longer and seemingly unrelenting demands for our attention, simply focusing on listening and understanding the needs and motivations of others, especially outside our own organization, has become increasingly difficult. Ideally, the goal is truly understanding the other point of view, and the process of understanding is based on listening. Both owner/operators and suppliers have valuable information and ideas to share, but learning and improvement always begin with an openness to hearing what others say.
5. Trust
Trust should be the outcome of all of these steps. Organizational trust is difficult to achieve, and even more difficult to sustain as individuals come and go in the companies involved in a partnership. While the relationship’s foundation is initially the result of individual commitments between key persons, long-term trust is generally based on an alignment between company cultures, since the culture of an organization is ultimately built on the values the organization embodies. The strongest business relationships occur when two companies share core values, with the affiliation almost becoming self-sustaining.
Capturing supply chain value
As suppliers are engaged to perform facility construction and maintenance activities, owner/operators should expect high productivity and on-time completion in an incident- and injury-free workplace. However, if expectations go no further, owners and operators are missing an important opportunity to leverage the expertise of their supply base in overall business improvement.
Capturing supply chain value requires that both parties align on objectives and metrics, recognize the value each brings to the relationship, be open about business drivers and limitations, actively listen and work toward common understanding, and develop a deep trust based on shared values. Owners and operators that choose suppliers based on both meanings of value — what a company stands for and the delivery of a cost-effective solution — have the greatest chance to engage a trusted partner and gain long-term benefits.
For more information, contact Johnson at daryl.johnson@brockgroup.com or (281) 807-8255.
