Companies choose to utilize, contractors, more and more as a part of their operating models. However, still most performance and effectiveness tools focus primarily on equipment, labour and materials.
Companies measure the achievement of contract outputs, delivered by Contractors, and compare with KPIs in the agreed contracts. Beyond that, few have a method of evaluating and improving the effective use of Contractors.
At En-Sync 8020 we developed the framework for Overall Contractor Effectiveness (OCE) as a tool to improve the effectiveness of Contractors and Contractor Management.
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Why is it the time for contractor management?
The survey conducted by En-Sync 8020 among General Managers, across a variety of industries shows that companies in overwhelming numbers, use Contractors and plan to contract out more of their value chain activities to them.
What is Overall Contractor Effectiveness?
En-Sync 8020s study of multiple contractor engagements across multiple industries involving interviews
with contract sponsors, contractor owners, and contractors, brings a conclusion on to the effectiveness of contractor management to three main losses. These have a critical impact on the effectiveness
of a Contractor:
% of inputs from Contractee to Contractor produced to the standard (Quantity,
Quality, Time and within required Cost)
% of contract outputs delivered by Contractor to Contractee to the specified standard (Quantity, Quality, Time and within
required Cost) and accepted (handover)
by Contractee
% of the outputs produced by Contractor the performance of which were validated over specified period (achieved and
maintained specific parameters)
- Contractor Integration – a failure of the Contractee to integrate Contractor and provide the Contractor with all the required inputs, in line with specified input standards (Quantity, Quality, Time, Cost) to avoid delays caused by Contractee.
- Contractor Performance – a failure of the Contractor to deliver the outputs to the Contractee, in line with specified output standards (Quantity, Quality, Time, Cost) that are accepted by the Contractee.
- Performance Validation – a failure to validate the performance of the outputs delivered by the Contractor and accepted by the Contractee, to the specified requirements over a specified time (failure to achieve the optimally required performance level).
OCE as the Big Unknown
Based on our survey, shown below in Figure, Production and Operations managers are very well familiar with Overall Equipment Effectiveness, less with Overall Labour Effectiveness and Overall Material Effectiveness, and, utterly unfamiliar with Overall Contractor Effectiveness.
and managers who… Heard something about… Think they know how to calculate… Frequently use...
and managers who… Heard something about… 13% Think they know how to calculate… 6% Frequently use... KPIs from the contract approved
and managers who… Heard something about… 92% Think they know how to calculate… 92% Frequently use... Cost per unit
and managers who… Heard something about… 41% Think they know how to calculate… 22% Frequently use... Labour Productivity
and managers who… Heard something about… 92% Think they know how to calculate… 73% Frequently use... OEE
The Logic Behind Overall Contractor Effectiveness (OCE)
Effective contractor contribution is the result of effective contractor management standardisation and execution for all contractor engagements (contracts) that can be analysed through three critical elements of Overall Contractor Effectiveness:
- Contractor Integration
- Contractor Performance
- Performance Validation
The OCE Diagnostics Framework can be represented in the following way with mature Contractor Management System as the foundation.
Regular evaluation of OCE, real-time monitoring,
diagnostics and reporting;
Delivery of inputs to contractors, outputs from contractors and validation of outputs; effective control assurance over these three elements
Delivery of every contractor management stage for
every contractor engagement in compliance with the requirements of Contractor Management System
Contractor Management Policy, Stages, Standards and Procedures per Stage, Contract Ownership Structure, Contractor Management Training
Identifying which Contractor Engagements (Contracts) have Low OCE or with negative trend in real-time
Identifying which of three elements of OCE failed for a contractor engagement or which control failed
Identifying at which stage of contractor management non-compliances caused the failures of three elements of OCE
Identifying the elements of Contractor Management System that failed and require improvements
Benefits of Overall Contractor Effectiveness
Using Overall Contract Effectiveness and backing them with the power of Contractor Management diagnostics provides real-time monitoring of the cumulative effect of contractor management elements. Just as contractors influence performance of the Contractee, Overall Contractor Effectiveness (OCE) can quantify the effects of their actions.
OCE helps managers develop an effective contractor management system and contractor-contractee working relationships by helping them identify where Contractor management need better processes, standards, controls, software support. It is a useful tool for managers that helps them manage better as they utilise contractor resources with better value.
