Outsourcing : understanding the strategic value in the refractory industry

Van der Westhuizen, Carl Johan (2008-12)

Thesis (MBA (Business Management))--Stellenbosch University, 2008.


ENGLISH ABSTRACT: RHI Refractories believe that the process of outsourcing certain activities of a companies’ value chain goes hand in hand with a complete new way of how management think and do things. The process of outsource the refractory activity of a company’s value chain is not just a matter of outsourcing a part of the value chain that cannot influence the company’s performance negatively, but it can stop the process. To achieve a true business relationship RHI and SASOL must have the same goals in their goal setting to make the contract successful. RHI Refractories and SASOL shared goals: • The target to reduce the Total Cost of Ownership involving the refractory material on SASOL. • Both parties need a 100% buy-in in this concept and need to lay down a guideline on mutual profit sharing to end up with a win-win scenario. • RHI to supply SASOL with a competent installation crew and technical assistance in exchange for remuneration. • RHI and SASOL to have a long term relationship to ensure installation crew is familiar with plant conditions on contract work as well as project work. RHI Refractory’s strategy to supply the service has two major advantages: a. these type of contract ensures a constant monthly cash flow; b. It lifts the entry barriers for rival companies that they are unable to compete cost effective on additional project work that’s not part of the outsourcing contract scope. From the financial results RHI was successful in their strategy by securing 100% of all the material and additional project work on the SASOL site. RHI wanted to establish a relationship that can be classified as – NETWORK ORGANIZATION. This relationship would better the marketing position of RHI Refractories, it would secure a long term relationship, both companies would benefit from a shared vision and this would lead to a win-win situation. RHI Refractories definitely benefit from outsourcing contracts as a service provider and in the same way it controls rival companies by setting high entry barriers through cost sharing between contract and project work.

AFRIKAANSE OPSOMMING: RHI Refractories glo dat die proses van uitkontraktering van sekere aktiwiteite van 'n maatskappy se waardeketting 'n kompleet nuwe wyse is waarop bestuur dink en besigheid doen. Die proses van uitkontraktering van die vuurvaste funksie van 'n maatskappy se waardeketting is nie net 'n geval van uitkontraktering van 'n gedeelte van die waardeketting wat die maatskappy negatief kan beinvloed nie, maar dit kan die proses stop. Om 'n ware besigheidsverhouding te verkry, moet RHI en Sasol dieselfde doelwitte in hulle doelstelling hê om die kontrak suksesvol te maak. RHI Refractories en SASOL se gedeelde doelwitte: • Om die Totale Koste van Eienaarskap te verminder ten opsigte van vuurvaste materiale; • Beide partye moet 100% inkoop in die konsep en moet riglyne neerlê vir wedersydse winsdeling wat lei tot ‘n wen-wen verhouding; • RHI moet SASOL voorsien van 'n bevoegde installasie span en tegniese bystand vir vergoeding; • RHI en SASOL moet 'n langtermyn verhouding opbou om te verseker dat die installasie span vertroud is met die aanleg omstandighede, kontrak- en projekwerk. RHI se strategie om 'n diens te verskaf het twee groot voordele: • Hierdie tipe kontrakte verseker ‘n konstante maandelikse kontantvloei; • Dit lig die intree vlakke van mededingende maatskappye in so ‘n mate dat mededingende maatskapye nie koste doeltreffend kan meeding op projekte wat nie deel is van die bestaande kontrak nie. Vanuit die finansiele resultate is dit duidelik dat RHI suksesvol was in hulle strategie deur 100% van alle materiaal en projekwerk verkry het op die SASOL aanleg. RHI wil ’n verhouding bewerkstellig wat geklassifiseer kan word as – NETWERKVORMEND. So ’n verhouding sal ’n beter bemarkingsaanslag vir RHI beteken, dit sal ’n langtermyn verhouding verseker, beide maatskappye sal voordeel trek uit ’n gedeelde doelwit wat sal lei tot ’n wen-wen verhouding. RHI trek voordeel uit uitkontrakteerde kontrakte as ’n diensleweraar en in dieselfde tyd beheer dit mededingende maatskappye deur die intreevlakke te beheer deur kostedeling tussen kontrakwerk en projekwerk.

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