Construction is inherently a complex endeavor requiring considerable resources in addition to professional oversight in managing process equipment procurement. While many facets of the project itself require a great deal of thought and planning prior to commencement, one element is particularly important to consider: the procurement of the equipment and materials you will need.
Understanding Equipment Procurement
Definition of Equipment Procurement
Equipment procurement is defined as the total process of obtaining the appropriate machinery, tools, and other required equipment for your construction project through effective procurement strategy. In essence, this is not merely the act of purchasing equipment, but includes every activity involved with procuring the right equipment through a well-defined procurement strategy. Some examples include identifying what equipment is required for your project, research of suppliers to identify those who have the best products and services, negotiation of terms and conditions (i.e. price, delivery date) and preparation and issue of a purchase order. The goal of this entire procurement process is to obtain the necessary equipment, at the time you need it, and at the lowest possible cost while ensuring cost-effective solutions.
Importance in Construction Projects
There is no question that effective equipment procurement plays a vital role in determining whether a project is completed on time and within budget. Acquiring the proper equipment has a direct bearing on both the completion time and efficiency of your project. An inadequate equipment procurement decision may result in lost time, excess expenses, and possibly a delay in the project due to poor procurement practices. On the other hand, if the procurement is done correctly, the required equipment will be delivered on-time, allowing for a smooth work flow, a safer working environment and an improved return on investment for the entire project.
Key Components of the Procurement Process
Each stage of the procurement is equally important. The first step is identifying and establishing specific equipment needs and specifications for each piece of equipment. Next, you must conduct research to locate a qualified vendor that meets your requirements. Following research, you must evaluate each potential vendor based upon their reputation, pricing and ability to deliver equipment on-time. After evaluating your vendors, negotiations regarding terms and conditions take place. Subsequently, after reaching agreement with your selected vendor, you prepare and send a purchase order to them. Lastly, you monitor the movement and installation of your new/used equipment to verify it was received as agreed upon. By methodically going through each stage of the procurement, you are able to make informed decisions when finalizing a procurement decision. This ensures that any equipment purchases made (new or used) match your project needs and budget constraints.
The Procurement and Asset Management Connection
Integrating Asset Management with Procurement
It is essential to link asset management with the procurement. This linkage provides you with an opportunity to maximize the longevity of your machines and minimize costly failures throughout their life cycle. This linkage affords you the capability to make procurement decisions without being isolated, but rather through an appreciation for the total life cycle (procure-through-dispose) of your machine. Through this linkage, you are able to acquire machines that support long-term business objectives, maintenance scheduling and performance expectations. Ultimately, this linkage optimizes your processes in terms of schedules and promotes a more sustainable and productive organization.
Benefits of Effective Asset Management
Effective asset management when combined with the procurement process offers numerous advantages beyond just cost savings. It provides you with superior tracking of your machines so that you can assess how efficiently your machines are being utilized and use this information to make informed decisions about future machine acquisitions. By doing so, you eliminate unnecessary expenditures and improve your return on investment in your machines, thereby reducing potential downtime. It provides you with a mechanism for proactively developing maintenance strategies so that you can avoid unexpected downtime caused by unanticipated machine failures. Finally, with knowledge of your machine’s history and performance, you are able to negotiate better prices for your new equipment purchases from vendors and allocate your budgets more effectively.
Challenges in Aligning Procurement and Asset Management
While integrating procurement and asset management provide numerous benefits to companies, it is not without its challenges. Perhaps one of the largest obstacles facing organizations seeking to integrate procurement and asset management is the limited availability of a seamless exchange of data between these two functions. Oftentimes, procurement focuses on short-term cost considerations and/or delivery timing issues, whereas asset management is concerned with longer-term performance and maintenance considerations to avoid poor procurement. The resulting disconnect can cause procurement decisions that do not adequately address long-term operating requirements. To overcome these challenges, organizations must develop solid process designs/policies as well as utilize technology that will enable an integrated asset management approach to manage assets from purchase order initiation through retirement.
The Equipment Procurement Process
Steps in the Process
The procurement process is a multistep process that requires strategic thinking and execution to assure that you get the right equipment at the right time and at the most competitive price to avoid downtime.
Evaluating Equipment Needs
A complete identification of specific equipment requirements is an absolute necessity before initiating any procurement activities. As part of this activity, an accurate determination of the quantity, quality and specifications of equipment should be determined to allow for maximum production levels. If you fail to accurately determine what equipment you need to successfully produce your product(s), you run a significant risk of failing to procure sufficient or appropriately specified equipment. If insufficient or poorly specified equipment is acquired, you will experience inefficiencies in your operations that will likely affect your project schedule and budget.
Supplier Selection and Negotiation
After you have developed a list of potential equipment suppliers, it is recommended that you thoroughly research these suppliers to ensure you are procuring the right equipment. This will help you identify qualified vendors capable of meeting the required delivery dates at reasonable prices.
Vendor evaluation is another extremely important stage in the procurement because it influences what you pay for your equipment and helps in researching suppliers. During vendor evaluations, you should evaluate each vendor based on their ability to meet your delivery deadlines and past history of delivering quality products at reasonable prices. Once you have evaluated all vendors and selected a vendor that meets all criteria, negotiations regarding terms and conditions (such as price) will occur. Any successful negotiation can greatly reduce costs and contribute to achieving higher returns on investments in all equipment.
Addressing the Hidden Schedule in Equipment Procurement
Identifying Hidden Schedules
In addition to the previously outlined three steps in the procurement , there exists a fourth important factor referred to as “hidden” schedules that can arise during different phases of the process. Hidden schedules refer to unanticipated delays or additional time requirements that can arise during different phases of the procurement in addition to original expected time frames. For example, lead times for certain types of equipment may exceed expectations, shipping delays may arise from supplier logistical problems, etc. Early recognition of hidden schedules will assist in protecting your project schedule and ensuring cost-effective delivery timelines.
Impact of Hidden Schedules on Project Timelines
If hidden schedules create unforeseen delays in receiving needed equipment, it creates a cascading effect on other aspects of the project that depend on that equipment. Not only does it decrease productivity but it also generates significant additional expense attributed to increased duration of the project and potential penalty payments. Therefore, it is imperative that any hidden schedules encountered during the procurement are anticipated and mitigated using contingency planning measures such as identifying backup suppliers or utilizing refurbished or secondary market equipment supplies.
Strategies to Manage Hidden Schedules
To successfully manage hidden schedules in the procurement requires a comprehensive approach to finalize decisions and prevent adverse effects on the project schedule. Part of this approach includes performing extensive due diligence during research of prospective suppliers to ascertain realistic delivery timeframes and potential bottlenecks. Another part involves implementing robust process designs with clear communication links between all parties involved (including vendors) to preclude miscommunication errors. Utilization of contingency planning measures such as identifying alternate suppliers or considering secondary market alternatives for equipment can also help mitigate risks associated with hidden delays thereby assuring timely delivery of required equipment while preserving productivity.