SCT: Spend Consolidation

 

                                  North American Lodging Optimization

Consolidating external spend with a few key suppliers is a fast and measurable way to achieve immediate cost savings. It allows companies to leverage their purchasing volume for better pricing, negotiate favorable payment terms and secure strategic partnerships with critical suppliers. SolomonEdwards’ consultants are experienced at identifying spend consolidation opportunities and managing change to achieve cost savings and meet business needs.

This case study analyzes a North American oil and gas service company that had 2,400 field employees staying in hotels for a remote project in the Permian Basin. High transportation costs were caused by inflated room rates and employees’ frequent three hour commutes to the job-site. 

As hotels required upfront fees with guaranteed room blocks, lodging rates for this location were forecasted as the highest in North America. Additionally, the long commutes and offsite lodging caused several quality of life complaints and high attrition rates, hampering recruiting efforts and resulting in numerable alcohol related incidents.

The goal was to provide lodging at a reduced cost, improve living conditions and decrease exposure to safety risks. To accomplish this, an innovative lodging solution was created using modular housing quarters for on-site employee housing. SEG team members partnered with company procurement professionals to:

 Identify the requirements for lodging
 Map out the center of gravity for potential locations to house employees
 Evaluate lodging options (e.g. hotels, hostels, build housing, apartments and employee lodging)
 Develop solution strategies
• Conduct RFPs to consolidate housing in North Dakota and Southern Texas
 Implement change management to move employees to new lodging locations 

The actions above saved the company $53M over three years. Sourced modular on-site lodging was created for 1,350 employees, reducing the average cost from $145 to $110 per night and providing higher quality housing, which resulted in improved retention and employee satisfaction.

This centralized approach also increased collaboration and problem solving by increasing employee interaction. Additionally, alcohol related incidents and safety risks were nearly eliminated by housing personnel on-site and by removing expensive and extended daily commutes.

For more information on Spend Consolidation:
Contact article contributor Joshua Hirshman at jhirshman@solomonedwards.com or visit http://www.solomonedwards.com/supplychain.