Option Selections

From Imrtwiki

Return to Achieving Reliability in New Assets

As asset related projects address the provision of a required function/ providing an added service there will be a number of options to achieve this, some of which may not require capital outlay. The options selection process tries to open the project up to a broader range of options and playing devils advocate to any stakeholder current preferred options.

Options for Suppliers/ Service Providers Arrangements

A core decision on any new asset is who will be involved both in the acquisition project and for the later ongoing operation of the asset. This will include what will be insourced and what will be outsourced and various other ownership and management options. With a greater focus by organisations on LCC, there is stronger motivation to look at other options for service provision such as outsourcing. The comment was made that one of the main reasons for outsourcing of maintenance or operations of an asset’s operational phase is often to get over perceived work practices issues. The obvious reason to outsource during the acquisition stage is the lack of resources and expertise. The key risk generally with outsourcing was suggested to be potential loss of important intellectual property.

Qantas looks for how they can gain more benefits through difference suppliers/ service provider arrangements and looking in more detail at the functional requirement, for example:-

• Outsourcing
• Supply & maintain projects
• Competition between internal and external service providers
• Own or lease assets?
• Power by the hour
• Local or Central control of contracts?

One best practice Qantas identified through its international benchmarking arrangements was Horizon Air in the USA as an innovator in management of its assets. Horizon’s assets are distributed across USA but they maintain a strong and consistent control through use of their CMMS. Qantas recognises that the systems and processes used in Qantas Sydney are not often the same as used in Qantas Perth with the tendency for maintenance Silos and are looking at a more consistent approach as a basis to drive improvement. Qantas’s existing CMMS is being assessed to provide the systems to achieve the same global support approach.

Bluescope suggested they have been caught out in the past when a supplier owns the operational asset and the contract comes to an end. Who owns the asset? Does it have to be renewed? Assets typically last longer than contracts. Another problem highlighted is that initially under a longer term contract or alliance the supplier may provide competent people and all is well but over time these people can be lost for various reasons and the quality of service can significantly reduce. Bluescope have had many positive experiences with outsourcing with the key comment being around the need for strong cooperation and to see the contractor as a partner who needs to be helped. Examples of success with outsourcing in the Energy Services Department were the complete operational outsourcing of their water treatment plant to GE Water and maintenance outsourcing to Atlas Copco of a group of their compressors. The large maintenance Alliance with Transfield was another example.

For Sydney Water their Alliancing of maintenance has worked well but the long term cost effectiveness is questioned. Longer term Alliances such as the OneSteel/WorleyParsons relationship was though to be better and fairer for both parties with their longer term relationships and people stability. Qantas also indicated that their relationships with contactors have evolved. Where previously there had been little cooperation between in-house personnel and contractors, over time this culture has broken down and contractors personnel now tend to be treated as equals and tools are even shared with contractors. Sydney Water has also been building the cooperation between in-house personnel and contractors but they have contractually drawn the line with tools, which the alliance contactor has to provide 100%. They suggested that the difference between a contact and an alliance is that in well constructed alliance the service providers profit is aligned to the goals of the principle. Sydney Water has some experience of cost going up with the move from an in-house service provider to an alliance contractor. Hunter Water gave the example of tendering to outsource their maintenance and allowing the maintenance personnel to quote. The in-house group easily won and then worked successfully as a separate internal service provider. It was suggested that contacting out service provision can work well if people with the required motivation, knowledge and skills are engaged. Snowy Hydro suggested some of the risks that have been observed are:-

• There is a loss of control and influence of key people working for your business. Loss of loyalty of persons working for your business.
  • Over time loosing the personnel who have the required skills to provide the service without the skills being transferred to others.
  • Loss of personnel with key knowledge that is important for your business (intellectual property)
  • The contractor may be able to make more money elsewhere using the key personnel working for your business
• As a service provider market matures the level of competition often drops making contact negotiation more difficult (observed in New Zealand).
• As an employment markets gives more opportunities, choices and $ people with good knowledge and skills can be more easily drawn away.

Leasing

One option that Qantas looks at with asset projects is Leasing v Purchasing. It was suggested by Bluescope that the trend in international accounting practices will reduce the advantages of leasing, with asset values being required to show on a companies books even if they are leased.

Snowy Hydro indicated that they have investigated leasing options a number of times but the option has never been chosen as the most viable option. Qantas discussed some options and history about acquisition of Boom Lifts where leasing was being considered. Bluescope indicated that all boom lifts, mobile working platforms and mobile cranes on its site are hired and this works very well.

Cultural Issues

There are lots of reasons why achievable performance levels for assets are not realized. In 05/06 Qantas systems recorded $250,000 in costs caused by equipment abuse and so are focusing more deeply on the people and cultural issues required to achieve success. Qantas recognises the leadership role Bluescope Steel played in Australia in taking on DuPont’s Safety Culture approach (LTI’s from 60 to 0.4). Qantas and many other organisations have emulated this approach and is an example of the major benefits that can be derived from management focus driving desirable cultural change. There is a major opportunity for management of establish a good organisational culture on a Greenfield site.