These days, to say that more business functions are being outsourced is like saying summertime is around the corner: it’s self-evident, verging on cliché. Companies, already having outsourced a lot of back office functions such as information technology (IT) and human resources management, now are targeting more central business functions, such as accounting and even R&D.
In the chemical industry, maintenance has been performed on a contract (outsourced) basis at many plants for quite some time; likewise, contractors have long handled various aspects of environmental management, such as hazardous waste disposal and wastewater treatment.
However, the level of outsourcing is on the rise in the industry. According to a recent poll on our Web site, ChemicalProcessing.com, nearly half of respondents saw outsourcing increase at their facilities during the last 12 months, whereas only 7% reported a decline.
The push for more outsourcing certainly has not been lost on vendors. Many are expanding or repackaging their offerings so they can win a wider role at plants. An increasing number of suppliers want to go beyond responsibility for their own equipment and take over servicing of both their own and competitors’ units. The ultimate goal is to assume full responsibility at a site for an entire technical area, such as automation and control, fluid handling, rotating machinery or environmental processes.
Implementation of such a broad role depends on plant size. For large sites, a vendor might provide dedicated staff onsite, perhaps even on a round-the-clock basis. For smaller plants, the supplier might send its specialists on a regular schedule to monitor equipment and conduct routine service calls, and have them on call 24/7 for emergencies.
Vendors say the quality and value they provide are incentives for such outsourced service. However, they also cite two other business drivers as strong justifications: Operating companies often lack enough people with the necessary expertise, and outsourcing might allow the companies to treat some expenses as operating costs rather than capital costs, a move that management generally prefers.
“We’ve been providing outsourced wastewater management services since the early 1970s,” says Peter Sesing, general manager for industry outsourcing at USFilter, Warrendale, Pa. “From then to now, you can see that both the facilities themselves and the workforce that manages them have been aging,” he says. “Our ability to bring technical services to these plants is a major asset of ours.”
Many operating companies undoubtedly now have less ability to handle the full range of plant chores. Perhaps this largely is due to an aging and overtaxed staff, which is a common view in the outsourcing community. However, others blame chemical companies for decimating their own capabilities through waves of early-retirement programs, staff cutbacks and the like, making it mandatory to look outside for necessary technical expertise.
During the most recent industry downturn, corporations almost bragged about how severely they were able to cut capital costs. Coming out of that recession, the industry seems conditioned to curb capital spending, even though investment figures have rebounded somewhat. Most of the time, an outsourcing contract is accounted for as an operating cost. Moreover, if the vendor provides equipment or software as part of the contract, those expenses sometimes might be booked against operations.
“We prefer the term co-sourcing to outsourcing,” explains David Spencer, director of global services marketing for Invensys Process Systems, Foxboro, Mass. “Typically, a client calls us in to collaborate with their staff on an enhancement of their existing control system. The fact that the plant manager can justify the project as an operating expense, and that we’re enhancing their capabilities without adding to the client’s own staff, makes the project easier to cost-justify.”
Broader is better
The outsourcing trend has clearly influenced how major equipment vendors position themselves toward their clients. At the beginning of this year, Flowserve Corp., Irving, Texas, realigned a group of related services under the banner of “LifeCycle Advantage.” The program unites related services for fluid-handling equipment, including pumps, seals, piping and ancillary equipment. “More and more, we’re being asked by our clients to provide a way to address all of their needs in fluid handling, not just individual services like spare parts inventory or periodic maintenance,” says Kevin Lancon, alliance program group manager. “Customers are saying, ‘you guys are the experts in this, we want you to deliver it to us.’”
The LifeCycle Advantage program has five parts: equipment analysis; performance and reliability enhancement; structured inventory management; strategic procurement; onsite technical support and troubleshooting; and training.
According to Bob Rich, chemical industry manager for pumps at Flowserve, rationalizing inventory and strategic procurement can lead to considerable savings. “Clients struggle with maintaining the right level of inventory and the costs associated with ordering replacement equipment and parts,” he says. “Very often, we’re able to reduce the inventory count by consolidating 30 or more inventory items into a subassembly, such as a pump power end. That part can be exchanged for upgrade or maintenance and returned for use at much lower cost than dealing with all of the individual inventory items.” He adds that operating companies have been consolidating their list of suppliers for years, and that further centralizing procurement — even when Flowserve acts as the procurement manager for competitors’ and its own products — further streamlines the process.
Modern reliability engineering, which uses tools such as lubricating-oil and vibration analysis to monitor fluid-handling equipment and rotating machinery, can be very successful in making equipment operate more predictably. However, operating companies often are loathe to take on the overhead to maintain such programs. “We have the subject matter experts,” says Flowserve’s Lancon. “We can provide these services when needed, and more significantly, we can help clients determine just how cost-effective they are.”