DUE DILIGENCE OF SERVICE PROVIDER

Overview

​

One of LMCG’s clients considered outsourcing their maintenance activities, potentially saving £5M annually.  Outsourcing would impact jobs which creates a risk of employee relation problems, and knowing the transition would be complex and drawn-out there was a risk of decreased service levels impacting the clients core business.  It was unclear how the savings would be achieved from an operational perspective, and whether or not the suppliers operating model and assumptions were realistic, so LMCG was asked to conduct due diligence on the suppliers’ proposal.

​

Approach

​

•Created a ‘current state’ picture of the clients’ maintenance operations.  Baseline studies captured job volumes, job completion times, service levels, organisational structures, headcount, and comparison metrics such as cost per job, jobs per day etc.

​

•Reviewed and dissected the suppliers’ proposal starting at £5M annual savings and drilling down to determine the key assumptions used, proposed target operating model and headcounts, and calculated comparison metrics.  

​

•Compared the suppliers’ proposal against the current state, including operating models, headcounts, metrics, assumptions etc.  Pin-pointed exactly how/where the savings would be achieved, and identified the key assumptions that drove the savings. 

​

•The suppliers business case inputs and key assumptions were further validated to understand feasibility and likelihood of success.

​

Outcome

​

•The due diligence exercise identified several areas where assumptions were unrealistic, so the client subsequently requested the supplier to amend their proposal which reduced potential cost savings, and ultimately stopped both parties from entering into a troublesome agreement.

​

•The exercise brought clarity to the suppliers’ proposal as it helped the client understand the detail of how the supplier would operate and exactly where the cost savings would be achieved.

​

•By understanding where/how the cost savings would be achieved, the client has the option of targeting those specific areas in-house if they have the desire and capability.