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Term Paper Title: Advantages and Disadvantages of theOutsourcingMaintenance Services In Saudi Petrochemical Company

 

  1. Introduction
    1. Background

Petrochemical industries play a significant role in the economy of a particular nation. They supply raw materials to other industries and final goods and services to the consumers. Petrochemical plants facilitate the production of useful products such as plastics, soaps, and energy products essential to daily life. Petrochemical plants use heavy equipment and machinery to produce light, medium and heavy petrochemicals. The machines and equipment used to serve for a very long period have to be inspected and maintained to ensure proper functioning. The maintenance of the petrochemical equipment can be done on a scheduled duration or immediately after a breakdown. The ultimate goal of any organization involved in the production of goods is to ensure that the equipment functions properly. In case of any malfunction, the equipment needs to be fixed within the shortest time possible and with minimum cost.

More advanced maintenance techniques such as preventive and proactive maintenance have constantly been put in place to ensure that the equipment functions correctly without stopping the production process. In some cases, some equipment requires unique resources to recover the equipment and ensure the equipment’s continued functionality. Most of the time, manpower could be the primary concern that needs to be used to complete the equipment’s recovery. Therefore, this study aims to determine the advantages and disadvantages of outsourcing maintenance services in Saudi Petrochemical Company and determine the effective decision-making that can be achieved concerning outsourcing or not outsourcing the core or non-core business.

 

 

  1. Objective
  1. Determine the advantages and disadvantages of the outsourcing maintenance services inSaudi Petrochemical Company.
  2. Effective decision making of outsourcing or not outscoring the core and noncore business.

 

  1. Scope and limitation

This paper is limited to evaluating the advantages and disadvantages of outsourcing maintenance services by the Saudi Petrochemical Company. Outsourcing of the maintenance services will focus on getting the labor to carry out maintenance services for the company. The paper will also consider the decisions made by various individuals within the company that support the outsourcing maintenance services for the core or non-core business.

 

  1. Statement of problem

In Saudi Petrochemical Company, the age of the equipment used to produce the goods and services needs to undergo scheduled maintenance. Others sometimes experience sudden failure, therefore leading to a declining profit margin of the company. The organization tried its best to restore the equipment to its initial functioning state with minimum acceptable costs. The organization has experienced a shortage of inn manpower, which is required to carry out the equipment’s maintenance. Furthermore, some equipment employs technology that requires specialized personnel to carry out maintenance. The company can also be limited to accessing some resources and special tools necessary to restore the equipment to their initial state. For example, some equipment requires programmed software to operate. Although this might be the reason to consider outsourcing the maintenance services from experienced personnel, some areas do not need to be attended by maintenance personnel from external contractors. Some considerations need to be achieved through decision-making to have smooth and effective utilization of resources.

 

 

  1. Methodology

 

Most Saudi petrochemical companies have criteria of outsourcing. The criteria defied the requirement for outsourcing of maintenance services, where the company seek the support from outside contractor to perform the job depending on these factors as following:

 

 

Case Study: Turnaround (TA) of Polymer Plant

Every company set a strategy any plants that fit with process requirements in order to maintain the plant reliability and extending the life of the plant. In Polymer Plant the Turnaround set to be every 3 years which consider as periodic maintenance which allow for inspections, repairs, replacements and overhauls equipment. This is consider as critical times. Therefore company set a goals for this critical times include:

  • EHSS compliance
  • On time completion
  • Within defined cost

 

This complete plan has is extremely important and product has high demand in market, where the one day shutdown lead to loss 5MM Saudi Riyal. Therefore this is extremely risky to shut down for long period of time. Therefore, there should is a plan fixed before at least 1.5 years for preparation in order to minimize the shutdown time as much as possible. Within this period activates been sorted out and classify based on the following:

  • Criticality (High/Medium/Low)
  • Requirements for Spare
  • Procurements time
  • Requirement of special tools
  • Manpower needed

The scope of work distributed according to the equipment typewhich to be inspected oroverhauling, the identification of this come from the recommendation of the preventive and corrective maintenance, as this is the only change to do the maintenance as the whole plant is shutdown.

 

 Equipment
 Scope Planned
CVs Overhauling
80
PSV’S / R. Discs
117
Exchangers &Eje.
38
Fin fan
16
Sump / Filters
9
Vessels / Tank
28
Columns
15
MOC’s
18

 

Based on this criteria the schedule been placed and critical path been determined. From experience in similar plant industry the maximum time the plant can shut down without impacting the company market share is 28 days. Where within this period the plant has to pass through all maintenance activities and resume back on operation. Therefore this process required hung manpower as total to have 1791 workers to work in 24 hrs in shifts for 28 days. This big number company can’t secure from there direct hire employee to dedicated working on this TA. Therefore the requirements for the outsourcing additional manpower is extremely required at this case.

 

DESCRIPTION MANPOWER
COMPANY 180
CONTRACTORS

(Outsourcing)

1611
TOTAL 1791

 

This 1611 consider as huge number of outsource workers but this choice is beneficial to company if we compare the total cost of labor compare to loos of production for the same period of time and to perform TA with available company manpower.

 

  Out Sourcing In house Plant SD
Manpower 180 Direct Hire+1611 outsourcing 180 Direct Hire  
Cost 92 MM SAR 53 MM SAR 126 MM SAR
Period 28 days 108 days 28 days

 

The advantage of selecting outsource in place of in-house is the cost saving. It right in value wise 52MM SAR is less than 92 MM SAR but the duration is double around 4 times. Where is costing company more as its required 4 times more duration of shutdown the plants to perform the same activities. This indicate to have the benefit as well In increasing the performance of the work and archive more in short duration.

Also the benefit of outsourcing is recreate specialized workers who have technical skills to campmate certain jobs.

 

The observation during the TA due to having huge workers at site at risky plants and performing many maintenance activities that required crane and scaffolding, the safety become the big concerns. The safety department set a procedures for measuring the safety of workers and eliminate any hazard could occur. Due to the huge number the control of workers and their behaviors become more difficult. Where this is one of the difficult things to manage in the outsourcing of the manpower where in this TA around about 259 safety observation been identified. The snapshot of the TA report reflect this number of safety observation.

 

Also the disadvantage here since the maintenance services assigned to outside contractor the company management will be away from oversight the daily activities and achievements. Another area of concerns that has to have more control is the quality of the job, sometimes that contractor due to the time limitation perform work with lack of quality and that can be identify by the company in the quality around at the end of the TA period before the box up of the equipment and ready to start up the plant.

 

  1. Literature Review

Outsourcing is a valid contract between the customer and one or more vendors currently provided internally by the customer to provide services or processes. Outsourcing involves more than simply buying goods and materials that are standardized by intermediaries. It can be described as the long-term, result-oriented relationship of an organization with an outsourcer for operations that would otherwise be conducted out in-house. Insourcing” is the opposite term.” Outsourcing, therefore, includes the company’s “make-or-buy” decision. This can apply either to the procurement of goods or services already carried out within the business by an outside company or to the contracting out of the supply of new products or services that could have been carried out in-house (Al-Mutairi& Al-Hammad, 2015). When the operation has been insourced earlier. Outsourcing often leads to the transition to an external supplier of IT facilities, personnel processes, or applications. The advantages of outsourcing can be significant – from cost savings and improvements in performance to increased competitiveness. The lack of control over the outsourced function, on the other hand, is also a potential business risk. You should thoroughly consider the advantages and disadvantages of outsourcing before deciding to contract any projects or business processes.

Outsourcing services are available in four types: skilled, production, process-specific, and functional. As more organizations look to minimize their operating costs while retaining the same production level or support, each of these services has increased in popularity. Outsourcing costs and advantages must be considered when looking at the Saudi Petrochemical Company’s various forms of outsourcing services. The most important benefits of outsourcing are essential procedures, cost reduction, access to resources, increased efficiency, and flexibility (Al-Mutairi& Al-Hammad, 2015). The significant disadvantages of Saudi Petrochemical Company for outsourcing are the absence of management oversight over outsourced operations, security and secrecy, quality problems, secret costs, and redistribution of existing teams.

In the Saudi Petrochemical Company, outsourcing services for operational activities are far more prevalent than in other sectors. The essence of production provides opportunities to be assigned to outside firms for unique operational activities. Maintenance of machinery and maintenance of facilities may be acquired from contracting firms specialized in special equipment. Maintenance of infrastructure and land maintenance are other forms of operating activities (Al-Mutairi& Al-Hammad, 2015). This increases the emphasis on core business operations. Out outsourcing will free the company to focus on its advantages, encouraging your workers to concentrate on their primary tasks and future strategy.

Access to skills and talent is the most significant reason for outsourcing maintenance in the Saudi Petrochemical Company. This is a noticeable result because specific job positions are requiring particular skills. The next considerable factors are staffing levels. Simultaneously, the emphasis on crucial duties is the third reason why firms outsource because manufacturing companies want to concentrate on their core activities and enable their workers to focus on mechanical routine maintenance while outsourcing workshops and production. Other practical explanations are that some maintenance aspects require particular expertise and knowledge from a third party that is not easily accessible in the business (Warner &Hefetz, 2012). Cost productivity, increased pace, transparency, getting rid of problem functions, greater flexibility, business credibility, goodwill, increased protection, and employee morale is reasons for this.

The lowered administrative and recruiting costs of the Saudi Petrochemical Company: Outsourcing eludes the requirement to hire staff in-house, so hiring and maintenance costs can be drastically reduced. This is one of the biggest perks of offshore outsourcing. Outsourcing often lowers the expense of assets, facilitates key competencies to decrease production expenses, leads to strategic stability, and reduces overhead and operating costs. Outsourcing is a cost-effective alternative that will allow the Saudi Petrochemical Company to increase the analytical knowledge available for the timely development and decision-making of products (Warner &Hefetz, 2012). Outsourcing can continue to play a critical role in improving corporate competitiveness despite the deficiencies.

Asset efficiency and availability are the essential elements that could be achieved by outsourcing in the Saudi Petrochemical Sector. The critical goal of management and personnel is to provide consumers with the assurance of the products’ readiness and efficiency. The quality of the product is to achieve this purpose, and most management personnel believe and consider the satisfaction and demand of the customer as well (Warner &Hefetz, 2012). Unfortunately, even while it is fair, outsourcing is less likely to be done in the protection and environmental criteria. Outsourcing for maintenance is most likely to be implemented and recommended by most manufacturing sectors. Therefore only the resources they require and when they need them are accounted for by organizations. Access to expertise and talent, increased pace, cost-saving staffing level was the top four significant reasons for outsourcing maintenance activities (Connor et al., 1986). Outsourcing of operations for maintenance. Finally, according to the survey outcome, 80% of the respondents recommended outsourcing maintenance activities in the manufacturing companies. Besides, 85 percent said that there are companies in the maintenance sector that conduct outsourcing.

Focusing on businesses’ primary operations and outsourcing offers more leverage than using a specialist job in-house, which is typically performed very occasionally or usually once every year. Contracting out such operational practices or sub-processes that do not explicitly apply to the organization’s core activity in which it is cost-effective and reliable to conduct activities or projects in which the organization wishes not to participate. Outsourcing is subject to managers’ determination to decide if the outsourcing of secondary job activities increases mechanical maintenance or decreases costs. Highly skilled occupations provide other possible fields for corporate process assessments and potential relocation where it is not practical to support the expense and use of machinery (Warner &Hefetz, 2012). A company is likely to use outsourcing at some point. The immediate steps to take are to find out which role is a candidate for outsourcing in a department.

On the other hand, there are drawbacks to the Saudi Petrochemical Company’s outsourcing of maintenance services. Hidden costs: While outsourcing is cost-effective much of the time while signing a contract across international borders, the hidden costs involved with securing an agreement will also present a significant threat.

Some of the reasons why corporations are against outsourcing are integration challenges, weakening their competitive base, opportunistic attitudes, growing transaction and collaboration costs, decreasing innovation, and higher procurement costs (Connor et al., 1986). Many large firms don’t have the expertise, experience, or in-house analytical instrumentation to conduct routine laboratory testing. As such, it’s a common activity to pick a contract analytical services provider.

The threat of exposure to confidential information: If an agency outsources Human Resources, Accounting, and recruitment services, it brings a risk if it discloses confidential business details to a third party.

More complex outsourcing areas involve more expertise in how the Saudi Petrochemical Company works or includes functions that deal with sensitive or confidential areas, as discussed in the outsourcing analysis. It would take extra time to outsource these industries, and businesses are worried about getting some of the functions beyond their command. Generally, outsourcing does not eradicate headaches instead of exchanging one form of headache for another (Connor et al., 1986). You now have the headache of controlling the outsourcer to say little about addressing the negative PR, instead of the headaches of directly managing that feature. It is not unusual for big outsourcing deals to take 6-12 months to be checked and set in place. However, prepared with all this information, an organization should start doing profit analysis and determine what outsourcing makes sense and what the costs and benefits are (Connor et al., 1986). Finally, this report reveals that the expected advantages are more significant than the disadvantages of outsourcing maintenance.

In this part, I will handle effective decision making of outsourcing or not outscoring the core and noncore business. In general, the Saudi Petrochemical Company values the importance of strategic variables when making decisions about outsourcing (Connor et al., 1986). The most significant anticipated outsourcing gains were identified as “freeing resources for core operations,” and “reliance on the service provider” were identified as the most relevant possible risks. It has been shown that the potential risks are more significant than the anticipated advantages of outsourcing.

Outsourcing is regarded by some researchers from the perspective of transaction cost theory. The company’s view of transaction costs argues that decisions are taken by evaluating two types of expenses: (a) the cost of production, or the cost of capital, labor, and equipment; (b) the cost of transactions, or the cost of tracking, control, and management of transactions. Williamson noted that outsourcing companies’ reduced price was accomplished by delivering similar services to multiple consumers due to low wage rates at the offshore facility and economies of scale.

A sourcing decision can be taken from a strategic perspective by considering both the reach and the intent of sourcing. Outsourcing enables the Saudi Petrochemical Company to broaden its capacities, efficiency, and competitiveness without expanding its workforce. It requires the procurement of “work contracts” for contractors’ time and effort to deliver a particular end product or service without depending on the client’s fundamental prerequisites. Usually, these arrangements are referred to as service agreements.

Magagula and Ondo (2018) claim that corporations typically use outsourcing based on the following three strategies: business improvement (cost reduction and productivity improvement), business effect (enhancing commitment to the betterment of businesses inside established business lines), and business exploitation (focus on exploiting technology-related assets).

Outsourcing allows an organization’s resources and skills to be increased by achieving higher quality services and improved performance (Connor, Richard & Tucker, 1986). While outsourcing improves the productivity of market areas that do not provide a unique competitive distinction, it also frees up the available capital and investment capacity in those areas, which give a competitive advantage. It eliminates both direct costs and potential costs. Many producers rely heavily on new production technologies and the idea of just-in-time to maximize the value of the commodity in this intensely competitive environment (Martin, 1997). The outsourcing strategy becomes successful because it is aligned with the company’s long-term priorities.

Much of the outsourcing objections are about lack of authority or that if contracted, the staff would be less loyal to management. Certainly, when considering outsourcing, every organization has to decide, but our observation is that facility managers appear to be too cautious when outsourcing. We would use our scarce resources for leading contract planners and executives when outsourcing technical work and management to slash costs and staff spaces.

By redefinition, strategic outsourcing carries outsourcing to a greater level by asking critical questions about the value of the outsourcing company and its outlook on its future, current, and future core competencies/structure/cost/performance and its competitive advantages. Like any strategic decision, outsourcing must also be evaluated for its effect on competitive advantage and its coherence with decisions (Tarakci et al., 2014). Outsourcing offers new benefits and new challenges to companies that procure or deliver vital services such as IT, finance and accounting, human resources, infrastructure servicing, analytics, and other critical noncore functions.

This breakthrough outsourcing research is the cornerstone of the Saudi Petrochemical Company’s outsourcing maintenance strategy for professionals and managers. The research and the findings can have a huge effect on employee decision-makers and can be a game-changer for practitioners and managers. This would open a door for a more basic or advanced analysis of maintenance outsourcing. The research will also be the baseline and reference point for future extended studies for academics relating to outsourcing and maintenance (Tarakci et al., 2014). To optimize and efficiently decide on their plans for outsourcing, managers should refer to this study. Outsourcing is a beneficial aspect that can play a crucial role in its effectiveness; therefore, it must be carefully researched by assessing the benefits, drawbacks, and the correct criteria for implementation (Tarakci et al., 2014). Outsourcing of work performed during planned shutdowns and outages, which helps minimize the time of outages, is suggested. Besides, hiring talent and highly trained and professional individuals to do some of the unique and essential maintenance activities that often have a low frequency is very costly since it is mandatory to outsource those maintenance tasks. Due to the job’s sensitivity, since they have direct access to the operation, it is strongly supported to have services to be outsourced, although it is not recommended to apply for operational work, particularly to manufacturing industries.

This analysis’s primary goals are to define the possible drawbacks and anticipated outsourcing benefits of maintenance and rate them by managers and maintenance engineers according to their perceived level of significance. The hypothesis was also intended to test whether the benefits of outsourcing maintenance in manufacturing industries are more significant than the anticipated disadvantages (Warner &Hefetz, 2012). The study also shows that enhancing asset efficiency and availability is the most considerable maintenance target to be accomplished by outsourcing. Besides, work performed during planned shutdowns and outages is the level of maintenance that is mostly outsourced, and the entire maintenance role is outsourced. The study’s result has shown that outsourcing maintenance has been one of the Saudi Petrochemical Company’s backbones and has been around from every part of the world for some time long ago. The importance of outsourcing to their business has knowingly attracted professional individuals and managers (Warner &Hefetz, 2012). The study opened the window to the benefits and drawbacks of outsourcing for those involved in outsourcing maintenance, supplying them with smart decision making. Despite the cost and other disadvantages of outsourcing, it is a prodigious view that most manufacturing industries most likely support and recommend outsourcing to Saudi Petrochemical Company for maintenance.

 

  1. Result Discussion
  2. Conclusion
  3. References

Al-Mutairi, A. O., & Al-Hammad, A. (2015). Advantages and Disadvantages of Maintenance Outsourcing in Manufacturing Companies : With Special References to Jubail Industrial City – KSA. European Journal of Business and Management, 7(20), 8–27.

Connor, O., & Richard L. Tucker. (1986). Industrial Project Constructability Improvement. J. Constr. Eng. Manage, 69–82.

Grandgirard, J., Poinsot, D., Krespi, L., Nénon, J. P., & Cortesero, A. M. (2002). Costs of secondary parasitism in the facultative hyperparasitoid Pachycrepoideus dubius: Does host size matter? Entomologia Experimentalis et Applicata, 103(3), 239–248. https://doi.org/10.1023/A

Jain, N., Hasija, S., & Popescu, D. G. (2013). Optimal contracts for outsourcing of repair and restoration services. Operations Research, 61(6), 1295–1311. https://doi.org/10.1287/opre.2013.1210

Khaki, A. R., & Rashidi, S. (2012). Outsourcing and its impact on operational objectives and performance: a study of Iranian telecommunication industries. Management Science Letters, 2(1), 235–244. https://doi.org/10.5267/j.msl.2011.08.013

Kurdi, M. K., Abdul-Tharim, A. H., Jaffar, N., Azli, M. S., Shuib, M. N., & Ab-Wahid, A. M. (2011). Outsourcing in facilities management – A literature review. Procedia Engineering, 20, 445–457. https://doi.org/10.1016/j.proeng.2011.11.187

Magagula, M., & Zondo, R. W. D. (2018). Uncovering the strengths and weaknesses of outsourcing core business deliverables: the case of selected state-owned enterprises in South Africa. The Journal for Transdisciplinary Research in Southern Africa, 14(1), 1–8. https://doi.org/10.4102/td.v14i1.475

Martin, H. H. (1997). Contracting out maintenance and a plan for future research. Journal of Quality in Maintenance Engineering, 3(2), 81–90. https://doi.org/10.1108/13552519710167700

Murthy, D. N. P., Karim, M. R., & Ahmadi, A. (2015). Data management in maintenance outsourcing. Reliability Engineering and System Safety, 142, 100–110. https://doi.org/10.1016/j.ress.2015.05.002

Pahirathan, A. (2017a). A Literature Review on Outsourcing of Services in Universities, 19(12), 47–56. https://doi.org/10.9790/487X-1912044756

Pahirathan, A. (2017b). A Literature Review on Outsourcing of Services in Universities. IOSR Journal of Business and Management, 19(12), 47–56. https://doi.org/10.9790/487X-1912044756

Pascual, R., Godoy, D., & Figueroa, H. (2013). Optimizing maintenance service contracts under imperfect maintenance and a finite time horizon. Applied Stochastic Models in Business and Industry, 29(5), 564–577. https://doi.org/10.1002/asmb.1943

Pascual, Rodrigo, Santelices, G., Liao, H., & Maturana, S. (2016). Channel coordination on fixed-term maintenance outsourcing contracts. IIE Transactions (Institute of Industrial Engineers), 48(7), 651–660. https://doi.org/10.1080/0740817X.2015.1122255

Tarakci, H., Ponnaiyan, S., & Kulkarni, S. (2014). Maintenance-outsourcing contracts for a system with backup machines. International Journal of Production Research, 52(11), 3259–3272. https://doi.org/10.1080/00207543.2013.870361

Tarakci, H., Tang, K., Moskowitz, H., & Plante, R. (2006a). Incentive maintenance outsourcing contracts for channel coordination and improvement. IIE Transactions (Institute of Industrial Engineers), 38(8), 671–684. https://doi.org/10.1080/07408170600692259

Tarakci, H., Tang, K., Moskowitz, H., & Plante, R. (2006b). Maintenance outsourcing of a multi-process manufacturing system with multiple contractors. IIE Transactions (Institute of Industrial Engineers), 38(1), 67–78. https://doi.org/10.1080/07408170500243328

Warner, M. E., & Hefetz, A. (2012). Insourcing and outsourcing: The dynamics of privatization among U.S. Municipalities 2002-2007. Journal of the American Planning Association, 78(3), 313–327. https://doi.org/10.1080/01944363.2012.715552

 

 

 

 

 

 

 

 

 

 

 

(Al-Mutairi, A. O., & Al-Hammad, 2015; Grandgirard, Poinsot, Krespi, Nénon, & Cortesero, 2002; Jain et al., 2013; Khaki & Rashidi, 2012; Magagula & Zondo, 2018; Martin, 1997; Murthy et al., 2015; Pahirathan, 2017b; R. Pascual et al., 2013; Rodrigo Pascual et al., 2016; Tarakci et al., 2014, 2006b; Tarakci, Tang, Moskowitz, & Plante, 2006a; Warner & Hefetz, 2012)

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