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3 Challenges of Legacy Systems & Data in Contractor Spend

Today's heavy-asset industry has moved from the assembly line to the computing cloud. Yet, there is a persistent demand for more digital transformation. This can include a myriad of tech options—from using digital apps to track hours worked to wearables to track geo-location.  

Despite decades of digital progress, this journey has only barely begun for some in the mining, chemicals, steelmaking, pulp and paper, and oil and gas industries. They still rely on manual solutions, like spreadsheets and paper invoices, alongside digital tools. 

What’s at stake is significant. McKinsey reports that a successful digital transformation can have an impact of up to twice EBITDA. For digital laggards, this may increase by a factor of 10 in other company performance metrics such as employee productivity, customer experience, or return on investment. 

Many different systems and workflows are used today for planning, work execution, and payment. These may cover everything from work orders to timesheets to purchase orders. However, one critical puzzle piece involves how companies can harness the powerful data generated by all these different solutions. 

What is Your Business Risking? 

Most of today's heavy asset operators and producers work within intricate networks of third-party contractors, who use their expertise on various projects, such as turnarounds, shutdowns, and outages, or capital projects. In this intricate network, managing contractor spend, the cumulative expenses incurred from employing third-party contractors, becomes a crucial aspect of operational efficiency and cost management. 

These owners and contractors need to achieve unprecedented safety, efficiency, and productivity. Yet, even among industry titans, their approach can get mired within a labyrinth of legacy systems, data silos, and operational inefficiencies. This can make the efficient exchange of data and insights a slow and complicated process. 

The remnants of legacy systems, outdated applications, and technologies that, while still operational, significantly lag, can impede the flow of critical data and hamper timely decision-making. 

The consequences? These entanglements are far-reaching, often translating into excessive costs ranging from 30% to 50%. It's a conundrum that echoes the adage, "A chain is only as strong as its weakest link." 

3 Challenges in the Age of Digital Transformation   

Within this web of systems lies untapped potential. Let’s explore some of the digital transformation challenges many businesses are facing in the heavy-asset industry. 

  1. Legacy Systems: Many companies continue to rely on outdated legacy systems, compounded by manual analysis of contractor spend. The result? Complexity, increased costs, and a struggle to streamline critical processes.

According to Deloitte, the manufacturing industry typically spends roughly 2% of its revenue on IT—significantly lower than the average of 3.64% paid by all other industries.  

  1. Data Management: The heavy-asset sector generates a vast volume of data related to contractor spend practices. Yet, this data's management, consolidation, and analysis present a daunting task. This bottleneck leads to delayed decision-making, decreased efficiency, and missed opportunities for optimization.

A UK report found almost 74% of manufacturing and engineering companies rely on legacy systems and spreadsheets to get tasks done. These companies believe this inflexible, often out-of-date, disconnected data is sufficient to support corporate decision-making. 

  1. Contractor Spend Inefficiency: The absence of modern data management tools and a reliance on outdated technology can plunge companies into a state of uncertainty. They cannot track, measure, and improve their management of contractor services effectively.

However, leveraging advanced analytics can have a significant impact.  For example, McKinsey says using such data can help businesses understand why machinery breaks and monitor input parameters so they can intervene before breakage happens—or be ready to replace it when it does—thus minimizing downtime. Predictive maintenance typically reduces machine downtime by 30% to 50% and increases machine life by 20% to 40%.

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The Answer? Contractor Data and Spend Management  

How can your plant or industrial site evolve to overcome these challenges? With the right software, you can better understand the intricate nuances of how manufacturers manage contractor services. By fostering these insights, your business can improve safety, productivity, and profitability. 

Without leaning into the right digital tools, your company will end up making decisions in the dark—unable to measure, track, or make informed decisions. Relying on disparate data to navigate complex projects is risky. In this scenario, contractors hold an unchecked purse, relying solely on paper-based, manual procedures for verification. 

Helping to reshape this issue for many manufacturing and industrial site operations are solutions for Contractor Data and Spend Management. 

Creating a Win-Win with Digital Transformation 

How does Contractor Data and Spend Management software help? You create a win-win situation when you have real-time insights into your contractor relationships. The result? Greater contract compliance, ensuring hours and funds are accurately calculated and seamlessly integrated into your enterprise resource planning (ERP) systems.  

Meanwhile, contractors receive prompt and precise payments, with labor and hours verified through state-of-the-art access control and gated systems. 

The impact of a successful digital transformation using Contractor Data and Spend Management software is undeniable. Heavy-asset industry sites and plants will reap the benefits of substantial cost savings, stronger operational safety and efficiency, and freedom from error-prone manual processes. 

Unlock the Savings  

By embracing innovative tools and shedding outdated practices, companies can keep pace with the changing landscape and flourish in the era of modernization. 

As the heavy-asset industry evolves, the imperative for embracing digital transformation becomes clear. The opportunity to revolutionize the owner-contractor relationship promises to reshape the industry, optimize costs, and foster a future defined by efficiency, safety, and innovation. The choice is yours: remain entangled in the past or seize the transformative power of technology to usher in a new era of excellence. 

How much is at stake? Companies who take the leap of reimagining their Contractor Data and Spend Management solutions can unlock a 10% to 15% increase in annual savings. While the path to transformation is not without its challenges, many in the heavy-asset industry have begun to lean into harnessing the power of Contractor Data and Spend Management. 

If you'd like to learn more, be sure to download our new e-book, Simplifying the Complexities of Contractor Spend Management now.