Nilesh Kanakraj, Sr Vice President, ONESIS.
How does the structure of manufacturing clients and their facilities affect contract tenure? Ask Nilesh Kanakraj, Sr Vice President, ONESIS.
Multiple stakeholders
In the IT sector, for example, it is the facility head who makes the decision of which service provider to engage, along with the procurement team. In the manufacturing sector, there are many more stakeholders involved in the decision.
For example, in a heavy engineering plant, there may be ten different departments involved – plant heads, engineering heads, shop floor managers, EHS teams etc – who will be involved in discussions about the FM contract. Each of these stakeholders will have a say; in such situations, it is common for the client to engage a service provider for one year, so that all the stakeholders can assess the performance, and then take a call on extending the contract.
Internal disconnect
The procurement team which negotiates the contract and the end user on the client side may not be on the same page. In an automobile engineering plant, for example, the paint shop is the most critical area. Its FM requirements are completely different from the assembly line. This team may not be involved in the initial discussions during the negotiation of the contract, but once our work starts, their requirements also have to be met.
We may not be able to meet these requirements (justifiably so) because we weren’t prepared for them; the client becomes dissatisfied. This too has an impact on the tenure of the contract.
Specialised equipment
Certain machines – like vacuums or scrubbers – can be used across various types of facilities. The equipment used at a manufacturing facility tends to be more specialised than that used at other facilities. For example, a large road sweeper that is used to clean the external area of a factory is unique to manufacturing FM. After making a Capex investment in this, if the contract ends in just one year, that machine cannot be redeployed at any other kind of facility. As a service provider, we need to safeguard ourselves as well, so the cost to the client goes up.
Machine maintenance
Some clients may prefer to procure machines themselves, and change service partners every year. What they may not realise is that owning a machine comes with its own set of challenges. When the service provider owns the machine, we also provide maintenance, spares, training and other associated services; when the machine manufacturer sells directly to a manufacturer plant, all this becomes the latter’s burden. They will need to engage a service engineer separately to manage their machinery.
When a machine breaks down, the service provider will have planned for such situations and can provide replacement machines for uninterrupted services. If the manufacturing facility has procured machines, this is unlikely to be the case.
Glide path savings model
In long term contracts, we become partners. When the client commits to a longer duration, we too offer benefits by investing in mechanisation and technology, improving the productivity of the staff etc. With this, we can offer the client pricing benefits too. We’ve been able to actually demonstrate to some of our clients that the longer the duration of the contract, the more mutually beneficial it is for both of us.