The second set of factors influencing re-sourcing decisions was found to be related to the external environment in which the purchaser operates. This category consists of ; the incumbent supplier‟s performance, the number of suppliers, their capability and capacity, and infrastructure and institutional elements.
5.3.1 The incumbent supplier‟s performance
The incumbent suppliers performance was cited by all purchaser informants as the backbone of the re-sourcing decision. When asked to describe the events that take place during a maintenance re-sourcing decision, there was consistent reference to evaluation of the incumbent supplier‟s performance as the starting point. Results indicated that the purchaser‟s perception of the incumbent supplier‟s performance determined whether the re-sourcing process duration would be
long or short, whether the purchaser would consider renegotiations only or bidding, and whether they would consider injecting re-sources into search and evaluation of alternative suppliers.
Evaluation of the incumbent supplier was based on post contractual performance and focused on three main elements. The degree to which the supplier met specified service level standards with reference to specified KPIs, the trend of performance from the beginning of the contract to the end, and the costs incurred in ensuring the supplier meets the terms and conditions of the outsourcing arrangement.
Most of the purchaser informants pointed to the importance of meeting specified level performance agreements because of the role equipment availability plays in supporting their competitiveness in the oil market. They argued that if the supplier provides a satisfactory level of performance on this component then they might not consider engaging in the bidding process. In contrast, if the service level agreements have not been met by the incumbent supplier, then this works as a motivation to evaluate alternative suppliers and compare capabilities and capacity to establish if there are alternative suppliers that are capable of providing a better service. If the margin between the incumbent supplier‟s capacity and that of identified alternative suppliers is small or non existent, then further attention will be given to renegotiating with the incumbent supplier if the performance trend was that of continuous improvement.
According to purchaser informants, the fact that one cannot predict accurately what any supplier, and especially the non incumbent is likely to do in the future beyond the decision time often works in favour of the incumbent supplier. This makes post performance results for the incumbent supplier more reliable than the „performance potential‟ predictions for alternative suppliers. Findings indicated that this scenario compels maintenance purchasers to put more effort in analysing the post performance of the incumbent and their suitability for future outsourcing arrangements before focusing on engaging other suppliers in their re-sourcing decision processes.
Although the cost of managing the purchaser‟s outsourcing arrangement was cited as an incumbent supplier performance measure, there was no evidence of a tangible way in which this was measured. The evaluation was mainly based on subjective measures. Purchaser informants used statements like, “you have to run after them”, “you need to call them several times before they can attend to a call” to indicate how much work is put in coordinating the arrangement or statements like “at least we can now breathe”, “the contract manager can now afford a leave” to highlight situations when the coordination requirements had lessened. However, in general, the coordination costs were perceived to be high at the beginning of the contract or when the supplier was serving more than one client. In the latter situation, the purchaser‟s perceived coordination
costs were continuously high because the purchaser was striving to put pressure on the supplier to consider their own maintenance requirements as priority.
Overall, the purchaser was more likely to renegotiate with the incumbent supplier if performance was at an acceptable level. However, the meaning of acceptable was also not well defined and seemed to change depending on other factors such as overall price, and the availability of an attractive alternative at the time of re-sourcing.
5.3.2 Number of suppliers, their capability and capacity
Along with the element of the incumbent supplier‟s performance, informants mentioned number of suppliers in the market and their corresponding capabilities and capacity as another important factor. Purchaser informants identified the limited number of capable suppliers with the required capacity as a big limitation to the flexibility of their decisions. They also argued that the suppliers‟ capabilities and capacity are so dynamic that DMU members can hardly predict what the capacity would be a few months from when the contract is signed that it is hard to guarantee sustainable operations.
According purchaser informants, the low predictability level of this factor stems from the extreme fluidity of the resources from which the capability and capacity of suppliers is derived and evaluated, and the unpredictable approach that the purchaser‟s competitors will take in making their own maintenance sourcing decisions. While the number of suppliers in the region and number of competitors can be known well in advance before a re-sourcing decision is due, the capacity of the suppliers is often continuously changing due to a number of reasons.
Firstly, any decision that a competing purchaser makes regarding maintenance sourcing, serves to either sustain or alter one or more suppliers‟ capability and capacity. For example, another purchaser‟s decision to switch service providers reduces incoming revenue to the incumbent, and might reduce employees‟ willingness to continue working with or joining a supplier who has lost a maintenance contract consequently lowering the incumbents capacity to handle large maintenance contracts. Similarly, due to the relatively high implicit knowledge involved in managing maintenance management contracts, when another purchaser chooses to renegotiate a maintenance contract with the incumbent supplier, this often serves to reduce further the capability of other existing suppliers in the market. Purchaser and supplier informants argued that renegotiating contracts with the incumbent supplier can work to deter the much needed revenue required for establishing and developing capacity from trickling down to those who would be interested in joining the supplier market. This increases the power of the much used supplier, it increases their influence in the market and eventually lower the negotiation power of the purchasers.
Secondly, the capability and capacity of suppliers was also found to be affected by the dynamics in the industry as whole. For example, an increase in the number of downstream oil companies has resulted into an increased demand for equipment maintenance personnel. The downstream oil industry being a safety sensitive industry, organisations operating in it often require maintenance personnel with a reasonable experience in the industry. Small oil companies without the capacity to outsource maintenance to independent service suppliers often recruit technicians from these very independent maintenance service companies. The result is a continuous exodus of technical personnel which alters the capacity of independent supplier firms.
Another force altering the supplier‟s capability and capacity is the ever changing foreign exchange rates, an important factor in an industry whose major supply of spares is outside the boarders of the nation. This greatly affects the capacity of the incumbent often measured in relation to maintenance performance. According to the supplier informants, increasing spares‟ prices especially for fixed cost maintenance contracts can result in delayed salaries, delayed spares‟ purchases and consequently reduced maintenance quality and employee motivation. Where the supplier‟s employees are not well motivated, the turnover is high. All this impacts supplier capacity.
Results showed that unless the incumbent supplier is not willing to continue serving the purchaser, a significant capacity difference between the incumbent supplier and alternative supplier is necessary before any considerations to switch can be looked into. Purchaser informants argued that if the alternative supplier‟s capability and capacity is better than that of the incumbent suppliers but by a smaller difference, then they would be more inclined to remain with the incumbent supplier unless the relationship between them in the soon ending contract was not favourable for future commitment.
All the findings discussed under section 5.2.2 serve to increase uncertainty regarding the capability and capacity of both the incumbent and alternative suppliers. When an informant in Ptero1-U was asked what would happen when other purchasers take on the services of a supplier they have struggled to develop, his response revealed that the purchaser is aware of the industry dynamics and makes reactions based on the impact their competitors have had on the maintenance supplier market at the time of re-sourcing
“These are market forces and these we cannot do away with. Right now the approach we chose to use is working. What we are looking at is what meets our need now.”
This means that purchasers have to continuously monitor the market to develop maintenance sourcing strategies that will sustain their organisations.
5.3.3 Infrastructure and institutional elements
Although this element was cited by very few informants, it highlighted the challenges that purchasers face when trying to collect the information required for their maintenance re-sourcing decision analyses. Among the concerns mentioned under this sub-category were poor telecommunication and road infrastructure. The high telephone charges, very poor reception from most of the mobile and fixed line network providers in the country make day to day communication regarding the incumbent suppliers performance very challenging. Additionally, the retail sites are distributed over a very wide geographical region. Most of the roads to these sites are not good and are often mapped with several potholes. This makes supervision and monitoring of the incumbent supplier‟s performance a very expensive undertaking. Quite often the purchaser has to depend on the information given by the supplier‟s team to evaluate his services. This would have been made easier if there were direct emails from the equipment operators to the purchaser evaluation team to cross check with the information provided by the supplier. However, other means of communication such as use of emails and faxes have not yet been accessed by all retail station operators because it is an extra cost. Therefore having them for maintenance facilitation activities only is not an incentive for making such connections.
Theses two infrastructure aspects make access to accurate and detailed information about incumbent supplier‟s operations and maintenance performance challenging. Poor communication and transport infrastructure also make acquisition of information about alternative suppliers very complex. Purchasers often find themselves depending on self appraisal reports from the suppliers themselves and their self selected references for alternative supplier performance history and capability analyses.
The research findings also indicated that poor transport infrastructure also makes transport and service centre requirements higher than if the roads were better. This is because in order to meet the delivery targets such as response time, the supplier operating in an environment of poor roads has to have more vehicles and establish more service centres within the country. In such environments, the number of individuals and organisations capable and willing to make such investments remain few further limiting the number of alternatives the purchaser can choose from at the re-sourcing stage.
Another external environment element under this subcategory is the influence of education institutions. Informants argued that within the current education framework, the cost of developing entirely new sets of maintenance suppliers is very high. Unlike their other periphery maintenance activities such as generator maintenance for which several technical institutions have generator maintenance and repair as part of their curriculum, skills on petroleum equipment maintenance are often acquired on the job. Therefore even when the purchaser is willing to
support the development of another supplier besides those in the market, the pool from which to get qualified technical personnel is limited. This increases their dependence on already existing suppliers.