By Beroe Inc.
By Moumita Sen
Chemical and other process industries face the challenge of maintaining their industrial services in-house as they lack proper technical expertise and knowledge. In the past decade, subcontracting of services have gained popularity as they allow the company to focus on the core business and also to save the cost of maintaining a skilled in-house maintenance team. This article deals with the need for subcontracting and the industry best practices adopted while subcontracting services to a third-party service provider.
In the past few decades, subcontracting has become increasingly important for companies to manage services that are not their core competencies. Companies engage with a service provider who in turn employs a subcontractor who is entrusted with responsibilities necessary for the completion of the final product. This allows the main contractor to attain higher levels of specialization in the designated field and scope.
Types of Subcontracting
This type of subcontracting is carried out when the main contractor does not have the required capacity to carry out the desired function. The main contractor has arrived at a capacity limit in its production process and in order to meet the market demand, the function has to be subcontracted to an external specialized party for a temporary period of time.
There is an increasing focus towards training in-house employees as clients are emphasizing speedy delivery of services.
Mid-size service providers are making big investments to establish training centers for their internal staff to stay competitive.
Large service providers have a robust in-house maintenance team and only 25% invest in establishing training centers for their employees
Benefits of Subcontracting to Main Contractors
Benefits of Subcontracting to Subcontractors
The numbers, in the finest detail possible, must be used to back up the opinions expressed in the article and also to quantify the level of impact a particular trend will have on the industry. Graphs, charts, etc. can be used to represent the same.
Key services that can be subcontracted are:
Points to be kept in mind by the buyer/client while subcontracting:
Ideal Engagement Practices
What are the key questions to be kept in mind before engagement?
If the job is recurring in nature and frequency varies from time to time, the task of entrusting the contract lies with the local body
If the job is one time basis, and same project team is supervising at multiple locations
Scenario 1:- Location specific
If the contract value is less and the service provider does not give any discount, then should the contract be awarded regionally or on a local basis?
However for a contract value over 5 million, where a discount of 10% can be availed, what should be the ideal engagement practice?
The client can engage with two service providers: One global supplier that can cater to industrial services across the client’s locations and the other service provider that is experienced in providing IFM services in the client’s locations.
For example, in Europe, clients can engage with Bilfinger Berger or Interserve for Industrial Services and Johnson Controls or Vinci Facilities for IFM – Hard Services.
The idea of subcontracting is increasingly getting popular over time due to the fact that companies want to focus on their core business and outsource these additional services to a specialized player that is capable of providing better quality service with higher technical expertise and skilled workforce. A recent survey has revealed that in the European region, almost 50-60% of companies outsource their indirect services to subcontractors to be able to focus more on their core competencies.
Beroe is a global provider of customized procurement services specializing in sourcing, supply chain visibility, financial risk analysis and environmental impact to Fortune 500 organizations. With nearly 400 dedicated procurement specialists in 38 domains, across 9 industries, Beroe proactively invests in knowledge assets to build valuable, real-time procurement insight. For more information, visit Beroe Inc. online.
George E. Krauter
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