Cooperation across borders to deliver innovation, better service and lower cost
Occumen helps Fitness Club Chain deploy capital “20% more efficiently” in global refurbishment programme.
Our client was developing designs for a brand new format for its 330 clubs across the world. This refurbishment and re-branding programme was a major component of the group’s global repositioning plan, and the company wanted to ensure that the capital investment of nearly £300m was deployed as effectively as possible.
Historically, refurbishments had tended to exceed the budget and miss deadlines, leading to loss of revenue and a poor experience for customers. Now that such an ambitious refurbishment programme was underway, it was critical to improve the processes for making investment decisions, for selecting and managing contractors and for sourcing materials. Moreover, while the eye-catching new design would create the desired look and feel in the clubs, it was too expensive for all but the flagship locations, and so needed to be ‘cost-engineered’ for the global roll-out.
Occumen first established a cross-functional, cross-regional team called the ‘cost and design forum’ to distinguish elements of the design and refurbishment which should be driven centrally from those best delivered locally using agreed processes and procedures. The former included the global procurement of air-conditioning, flooring, and certain bespoke items key to the new look and feel, while examples of the latter were the engagement of main contractors and provision of ongoing maintenance.
Next, worldwide supply agreements for the centrally sourced materials and services were negotiated, which leveraged our client’s global scale effectively, while still allowing items to be called off by the local operators and their contractors as required.
We then implemented a stage-gate process in each market to manage the process for signing off designs, committing expenditure, engaging main contractors and so on. This set out clear parameters to ensure that designs were complete and tenders awarded before work started on site. Although such a process was theoretically already in place, the fast-paced environment in which it typically operated had, in reality, demanded short cuts, resulting in numerous design changes after work had started, leading in turn to cost overruns and delays. What helped make Occumen’s process successful was the requirement for sign-off by marketing and finance, rather than relying solely on the approval of the property and operations teams, as had happened in the past.
The final step was to agree and implement robust processes for identifying, selecting and contracting with a panel of main contractors in each market, agreeing standard terms and conditions which specified standards of performance, and shared risk more equally between contractors and our client. In addition, by ‘packaging’ the planned work better, our client was able to attract a different type of contractor able to work more effectively as part of a longer term programme.
The work carried out by Occumen has delivered a 20% improvement in the efficiency of capital utilisation
Managing DirectorPrivate Equity Owner of Fitness Club Operator
Speed and certainty of delivery improved significantly. Club refurbishments were completed on time, or even ahead of schedule. For example, Australia’s programme of 45 refurbishments was originally scheduled to take 15 months, but was accelerated and delivered in just 9. At the same time, cost overruns were addressed: refurbishments were completed within budget and the contingency - previously as high as 25% - was reduced to 5%.
Average cost savings of 13% were achieved across the whole programme, ranging from savings of around 6% on professional fees, 9% on main contractors, and up to 30% on some materials and components sourced centrally and/or cost engineered. An outstanding example was the reception desk. The original design called for this to be made from Corian, an expensive, durable material which is difficult to install. By re-engineering it from wood and laminate, the cost to build and install was reduced by about 40%, while the finished product looked identical and was entirely fit for purpose.
In addition, financial and operational risks were mitigated by the new robust contracts which clearly stipulated the party responsible for defects or cost overruns, and for insuring the premises while work was underway, as well as who was liable for any accidents or incidents on site.
This project demonstrated that good management of decision making processes can contribute as much to the bottom line as direct cost reduction
Simon AtkinsonManaging Partner, Occumen