fircroft proactive cost reduction - may 2015

Fircroft Proactive Cost Reduction – May 2015 Enquiries: 08 9262 6212 1

Fircroft Australia

Proactive Cost Reduction - May 2015


Contents

EXECUTIVE SUMMARY 3

DRIVING SUSTAINABLE GROWTH THROUGH COST REDUCTION 4

COST-SAVING OPPORTUNITIES AND OPTIONS 6

FIRCROFT GLOBAL MANAGED SOLUTIONS (FGMS) 11

IN COMMERCIAL CONFIDENCE 12


Executive Summary

The oil and gas and mining industries are experiencing a noticeable market change. The

current climate is challenging companies to lower labour costs as the price of resources

has plummeted, with no foreseeable lift in the near future. The outcome of this market

change is the operating landscape has radically shifted and companies need to respond

by cutting costs whilst maintaining deliverables. Fircroft believes the key to cutting

labour costs is to take a holistic approach, not a knee jerk reaction that can result in a

failure to deliver lasting savings.

The purpose of this white paper is to set out to show how the adoption of managed

labour solutions can result in an 8 to 18% reduction, in direct costs in the first 12

months with further bankable savings in year two, three and four. The white paper has

also been written with time reduction in mind - meaning that Supply Chain, Procurement

and Category Managers are not wasting their time with administration, freeing themselves up to perform more meaningful tasks.

Fircroft has achieved the above outcome with 14 companies across its global customer

network and is managing in excess of $700m AUD of client spend via its Fircroft Global

Management Solutions (FGMS). FGMS services are typically configured to meet specific

client employment program objectives regarding the recruitment of specialist contractors

or permanent employees either managed via Fircroft or independently by a company.

Fircroft is the only dedicated managed service recruitment provider in the oil & gas and

mining sectors for technical, engineering and ancillary professionals across Australia,

Asia, Europe and North America. To assist potential customers with their thinking and

how they might respond to this rapidly changing market, Fircroft has attached a link to a

self assessment tool on page 11, which has been designed to allow you to determine

how much additional time and money you may be able to save your business.

We encourage you to take the time and ‘click-on’ the self-assessment tool and start

saving. Click here to take the self-assessment or turn to page 11 to read further.

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Driving sustainable growth through cost reduction

The majority of natural resource companies are currently going through significant

change. The need to maintain a focus on cost reduction to remain competitive is crucial

following the recent and unexpectedly dramatic drop in the prices of oil and iron ore.

This current period of instability and uncertainty has come as a bit of shock to our

industry, with many sector analysts taken by surprise by the speed of the price drops

and the market reactions to it. Supply chain teams are looking to work closer with their

suppliers to gain a fully transparent view of their cost base, to drive new and sustainable

ways to release cash - from within their businesses - to drive both growth and deliver

efficiency.

However, cost reductions should not be viewed in isolation in a single area or element of

the cost of contingent labour. Instead, a review should be taken of the entire cost of

providing, delivering and the utilisation of contractors. When cost reduction programmes

are approached strategically, they can produce rapid and sustainable savings. However,

they are all too often one of the most challenging activities an organisation can carry

out; if they are approached as a one-off activity, they can consistently fail to deliver

lasting savings.

There are a number of areas where supply chains can take action now to drive

immediate cost reductions and efficiency. For example, dealing, engaging with, and

managing multiple suppliers creates inefficiency. This is due to the sheer amount of time

spent on engagement and administration, the variable day-rates and terms of business.

Migrating to a managed solution, for example, providing just one central contact point

through which multiple suppliers can be accessed is ideal. Alternatively, a solution with a

reduced number of core partner suppliers will deliver the significant cost and efficiency

savings currently sought over the short term, but that are equally sustainable over the

medium and long-term.

“Delivery of over $3.5M of savings in the next 12 months on their manpower costs in the

Australia and the UK, additional savings in the pipeline from day-rate savings,

anticipated to be in the region of $5m-$6m.”

It is understandable that companies are looking to uniquely positioned suppliers to be

able to help their supply chain teams meet these market challenges head on. By

proactively working together they can help each other through these challenging times

and become partners of choice.

To ensure alignment with this dynamic marketplace, Fircroft has put together a

cost savings initiative program to support businesses globally.


Some areas of opportunity for cost reduction include:

Cost Saving Area (Opportunity) Impact Timescale

Immediate = 0-3 months

Medium Term = 3-6 months

Long-Term = 6-12 months +

Consolidate manpower supply base and

transition workers

Immediate

Client sourced contractors (nominations) Immediate

Benchmarking exercise to review rate cuts Immediate to Medium Term

Regional contractors v Ex-Pat contractors Immediate to Medium Term

Retention of skills – Flight Risk Model Immediate to Long term

Volume Discounts Medium Term

Workforce planning Medium Term

Process efficiencies Medium to Long Term

Managed Service Solutions Medium to Long Term

Q: In this challenging climate, could your organisation benefit from lower people costs

and enhanced operational contingent workforce outputs?

Continue reading the whitepaper to analyse how you could reduce your costs.


Cost-saving opportunities and options

IMMEDIATE SAVINGS

Consolidation of the manpower supply base and contractor transition

Numerous companies use multiple agencies to supply contract workers, either in

specialist sectors or in geographical locations. This has led to complexity in the supplier

base which can be difficult to manage, especially for central corporate contract holders.

One strategy to consider is consolidating suppliers and appointing just one supplier with

one set of terms through one contract holder, which can deliver exceptional cost and

time savings. This type of strategy can often strip out the complexity of global working

and give one point of contact for the entire supply of contract workers.

“By consolidating the supply base, we reduced non day-rate related costs by over 50%”

Working with one supplier does not mean that service levels are diminished, in fact it is

quite the opposite with one supplier often utilising several secondary or specialist

suppliers. This leads to an increase in the level of service, and an ability to supplement

where different skillsets are required.

By reducing your supply base and transitioning the compulsory contractors

from the de-selected suppliers to a single provider will provide significant

savings. The savings will be in both the agency margin as well as the day-rate

to the contractor (see day-rate benchmarking below).

Example: For one IOC we will be delivering over $3.5M of savings on non day-rate

related costs over the next 12 months under such a model.

Client sourced contractors (nominations)

Where a candidate is clearly “introduced” to Fircroft – i.e. we have not sourced the

candidate via our recruitment teams - represents a saving in our overheads, and can be

reflected in a reduction in our overall charges to you for that individual.

“Fircroft has transitioned across over 900 contractors as part of cost saving initiatives

over the past 12 months.”


IMMEDIATE to MEDIUM TERM SAVINGS

Market Intelligence - Day-rate benchmarking to the current market-rate

Transparency of contractor rates and knowing the exact and correct levels can control

costs through management information of global pay rates, providing transparency

across the business. This type of transparency can be delivered by Fircroft, who has the

knowledge of both the local and global markets, especially in this time of uncertainty.

Regular benchmark rates can be used in this way for hiring managers to have an

understanding of a benchmark rate on the ground in order for them to control costs at

the very start of the recruitment process.

“By using our global market knowledge, we proactively identified a client could safely

implement a 15% contractor day-rate cut.”

Regional v Ex-Pat contractors

Delivered in tandem with the initiative above, by delivering the same technical skills via

a regional contractor compared to an ex-pat can deliver significant savings in the overall

day-rate to a business.

For example: A mechanical engineer who is a regional contractor can be

sourced at up to 50% lower cost than the equivalent ex-pat.

Volume discounts

Concentrating contractor supply through a single or reduced number of preferred

suppliers allows the supplier(s) to make a reduction in overheads and operating costs

and hence offer opportunities for savings. These savings can be passed back to you in

the form of volume discounts.

“Regional contractor (Mechanical Engineer) $900/day, ex-pat equivalent £1,800/day – a

potential 50% saving on the day-rate.”

There are many options for calculating volume discounts based on headcount, sales,

margin etc. There are also variations on how companies may choose to recoup these

savings – corporate, regional, project by project etc.

As volumes and sales increase globally, so do the discounts offered to you.


IMMEDIATE to LONG TERM SAVINGS

Retention of key skills (flight-risk analysis)

The flight risk model has been devised to measure the key parameters that can impact

upon a contract worker’s risk of leaving a contract. It is not a definitive assessment, but

highlights those contract workers we believe to be at

the highest risk.

Knowing the market is a key skill for any business.

Furthermore, utilising a global recruitment supplier

with a global footprint allows companies to access

independent knowledge to who’s doing what and what

projects are ramping up or slowing down. Being aware

of this type of market intelligence informs companies of

the possibilities of skills shortages and/or timings of

increased demand, helping with workforce planning.

Companies should include this type of external knowledge and understanding when

developing initiatives to retain their top talent, which is even more important in today’s

market climate. Independent and outward focused information can supplement the work

being undertaken within organisations and should cover all types of workforce planning

for a project, including staff and contract workers.

MEDIUM to LONG TERM SAVINGS

Process efficiencies

By moving from manual processes for time and expense capture to on-line provision, not

only makes the entire process more efficient, but also saves cost in terms of the

transactional cost as well as in people cost.

Example:

Process Cost to Process Manually Cost to Process On-Line

On-line time and expense

capture

c$30 per timesheet /

expense

$1.50 per timesheet

Please note this is not an exhaustive list – other areas of process can benefit in the

adoption of technology or more efficient ways of working.


Workforce planning

Fircroft works with companies to identify and analyse what the current and future

organisational needs will be in terms of the number, skills, experience, knowledge and

quality of workforce to achieve its objectives. It is a process used to generate business

intelligence to inform the organization of the current, transition and future impact of the

external and internal environment on the organization enabling it to be resilient to

current structural and cultural changes to better position itself for the future. As well as

the traditional workforce planning, one of our key aims is to ensure there is no

duplication of cost.

Other areas for consideration, and which would also generate significant cost savings

include:

Ancillary services

One of the key areas Fircroft could propose to look at on your behalf is the cost of the

ancillary services required to deliver the requisite talent. These services (or requirements

- if pooled and sourced collectively rather than through a number of providers) could

provide significant savings. Areas we would target include:

Cost of visa/work permit provision

Cost of flights in/out of country - Fircroft recently saved a company $3,200 on a

business class fare between Perth and London

Accommodation - Fircroft has saved companies up to 35% on accommodation

rates for city based hotels and even greater savings on rates for rooms located in

a city's immediate surrounds

Transport - with assistance from you, Fircroft would negotiate “preferred” prices

with based on the existing company agreement

Medical cover

Inoculations

Shipping - with assistance from you, Fircroft would negotiate “preferred” prices

with hotel chains based on the existing company agreement

Shorter term assignments

Due to country regulations, expatriate assignments can become very expensive. In order

to minimise this cost, Fircroft could set up an expert team with different disciplines

willing to travel the world on short term assignments. The length of the mission will

depend on each country’s laws.

Compliance is the key for Fircroft; regulations and limits regarding income tax, business

visa duration, employer & employee social burdens etc. will need to be fully respected in

both the home and the assignment location of the individual.

Localisation

We are aware of the dynamics of the recruitment market and the constraints of supply

and demand of qualified technical and management staff across the globe. Fircroft is

committed to local workforce attraction - each of our offices uses a sophisticated process

of local candidate attraction methods to both attract and retain local talent. Companies

are also offered additional internal costs savings by utilising:

Invoicing in-country

Banking in-country

Payment receipt in local currency


Early payment discounts

If you have the facility on Projects to make payments quicker than those currently

agreed, Fircroft may be able to offer invoicing discounts based on faster payment times.

The principal being the earlier the payments are received the greater the discount

available to a business.

Fircroft margin pay back scheme

Fircroft can enter into a formal “back-to-back” contractual arrangement with a

niche/specialist supplier whereby the supplier “lends” Fircroft their candidate for the

duration of the assignment with you. We then place the candidate onto a Fircroft service

contract and then on assignment with you. You are then able to enjoy the protection of

all their contractors being engaged and administered under the same contractual terms.

Fircroft would then transfer to the niche/specialist agency the margin element of the

charge to you on either a weekly or monthly basis, Fircroft would payroll the flexible

employee as normal whilst on the assignment with you.

When the “loaned” contractor’s assignment finishes, the candidate then returns to their

original agency.

As the candidate is engaged under our contractual terms, we will have the responsibility

for their performance and quality whilst on assignment with you.

Our service maximises the value to you by embracing your important suppliers and

which will provide local stakeholders with confidence that they can access all the

required skills to enable them to fulfil their project’s outcomes.

Our recommended solution will also allow us to achieve savings with these

niche/specialist suppliers by a mixture of supplier renegotiation that is based on their not

having to complete some of the more labour and time intensive elements of the

contractor management process. These targeted reductions can be mutually agreed

between a company and Fircroft.

How can Fircroft save you money through this solution?

Savings can be made with these niche/specialist suppliers through margin reductions. By

implementing this supply chain solution, Fircroft remove much of the cost associated

with delivering the service directly to you by the niche/specialist suppliers, namely:

No on-going contractor management

No chasing of timesheets

No credit control required

Cost of payroll – the supplier no longer needs to fund the contractor’s payroll

each month

Simpler administration – Fircroft will automatically provide a payment to each

supplier equivalent to the margin the contractor would have earned the supplier

through our self-bill process

No associated administration – eg visa/work permit application, HSSE support,

on-boarding, travel provision, meet & greet etc.

Therefore, by making these savings, Fircroft is able to work with you to reduce the

margin to the suppliers over the course of the contract to an appropriate level, e.g. a

finder’s fee spread over the lifecycle of the assignment.


Fircroft Global Managed Solutions (FGMS) Fircroft Global Managed Solutions (FGMS) is part of the Fircroft Group and is the only

dedicated managed service provider in the natural resources market sectors for

professional technical/engineering recruitment.

In these overly competitive times, Fircroft has strategically focused its attention on

managed solutions as its clients increasingly looking for greater collaboration and higher

value services from Fircroft as their recruitment partner on a regional and global basis.

Aided by 43 years of knowledge and experience recruiting, Fircroft has both led and

moved with business changes and market dynamics with Fircroft Global Managed

Solutions being specifically embedded within the business to support both regional and

global clients to deliver global solutions, locally.

“Typical savings from the adoption of a Managed Service are between 8%-18% of your

total contingent labour spend.”

FGMS core workforce management solutions include:

Master vendor

Vendor neutral

Blended (or hybrid) model

RPO (Recruitment Process Outsourcing)

All FGMS services are individually configured to meet specific client program objectives

and we are confident our services deliver enhanced operational, tactical and strategic

service outputs for all client stakeholders as well as contractor and recruitment supplier

user groups. Typically these solutions incorporate a bespoke service model that includes

requisition and recruitment of specialist contractors or permanent candidates

(underpinned by market leading technology) either directly via Fircroft or independently

via an approved supply chain of multiple recruitment providers.

Additionally, FGMS delivers services across the full recruitment and talent cycle including

for example; workforce analytics, coordinated and managed provision of contractor

mobility, logistics services (visa/work permit, travel accommodation etc.) and on-

boarding compliance services (e.g. HSSE compliance, company specific policies, right to

work information etc.).

“For one O&G client with a contingent labour spend of $15M we identified over $2.4M of

bankable cash and efficiency savings”

Today Fircroft has 14 managed service clients globally managing in excess of $700m of

client spend. Why not run a self-assessment tool via our partner, Italics to give you an

idea on how much you could save via the models mentioned above. Click here to take

the self-assessment

Cost Savings via a Managed Solution

Our experience shows that a managed service will save our clients anywhere from 8% to

18% of their total contractor expenditure (from the initial baseline cost) within 12-15

months of implementation. The cost savings detailed above are based on the 14

programs we have implemented and currently manage.

http://www.italicms.com/

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In commercial confidence

All information contained herein, including but not limited to information provided in soft

copy format, and any amendments to this proposal howsoever provided, is information

of commercial value and is provided in strict confidence for the sole purpose of

adjudication of this Cost Savings Proposal provided by Fircroft by you the client. This

document shall not be used for any other purpose and shall not be copied or disclosed

wholly or in part to any other party without the prior written approval granted by an

authorised representative of Fircroft Engineering Services Limited, and shall be held in

safe custody. The restriction does not cover information that is published, or known from

sources other than Fircroft Engineering Services Limited, provided that it is not made

known in breach of any obligation of confidence. This is an unpublished work the

copyright in which vests in Fircroft Engineering Services Limited. All rights reserved.

Primary Fircroft contact

Secondary Fircroft contact

Name: Mark Pearce

Position: Client Relationship Manager

Tel No: +618 9262 6212

Mobile: +614 5225 5018

Email: [email protected]

Name: Sharon O’Flaherty

Position: Account Services Manager

Tel No: +618 9262 6246

Email: [email protected]

mailto:[email protected]

mailto:[email protected]

fircroft proactive cost reduction - may 2015

Documents

time reduction

lower labour costs

noticeable market change

oil gas

challenging companies

direct costs

market reactions

changing market