In South Africa large amounts of money are presently being spent through the public sector, especially on commodities such as infrastructure. “Procurement for these projects is a key function, the integrity of which can mean the difference between millions saved or wasted, time commitments met or missed, and social development requirement compliance or non-compliance. Traditionally, these projects are handled inefficiently since procurement usually buys commodities based on price, therefore removing all advantage by buying too much ‘just-in-case’ and ignoring the value of the integration of activities”, Rob Stuart, a Procurement Specialist at Volition Consulting Services, told SmartProcurement.
Apart from the daily procurement challenges, the question arises as to whether procurement fully understands the complexities and frustrations around project procurement and the steps that are required to do it successfully. Now you might be asking yourself how ‘project procurement’ differs from normal day-to-day procurement since the same steps seem to apply. Well there are, in fact, quite distinct differences between these types of procurement, the most important three of which we will now discuss.
I know what I am going to need
The simple truth is that procurement is probably not sure of the exact bill of materials that was agreed upon. Certain questions thus need to be answered. In most tender processes the bill of materials will be drawn up long before the actual work starts. This could mean that (possibly) newer technologies have been created or maybe some of the equipment is no longer found in a local context. Therefore a possible re-specification of otherwise agreed upon equipment and materials would be needed.
The above does not sound too difficult to overcome, but one major factor that is currently strangling the South African economy is skills shortages. “Often management does not spend sufficient time ensuring that they get the right skills on board. The skills shortage currently makes finding those skills even more difficult. Compromising on these skills in terms of sourcing the correct item can be costly and can lead to both financial and time constraints”, Stuart continued. The following points are important to remember when trying to mitigate this risk:
- Distinguish between the ‘absolutely-must-haves’, the ‘probably-should-haves’ and the ‘nice-to-haves’.
- Concentrate on the detail: It will not be ‘alright on the night’, so try to anticipate the obvious inhibitors.
- If you cannot find sufficient content-specific skills then at least find people who can deliver, and flock them around those who are content experts. Strong methodology and process will consequently see you through.
- Match the more complex commodities to the more senior / expert specialists. Ensure they are supported with contract experts where they lack knowledge.
- Ensure that a ‘fit for purpose’ mindset is established and try to always challenge the content experts to unlock additional value.
- Make sure that the procurement team has a good understanding of the type of work that needs to be performed and the type of equipment needed so that the right decisions can be made.
I know how much I am going to use
This step is usually relatively well thought through during the tender stage, but may still require some revisiting to ensure that all the variables are accounted for. The biggest challenge is to stick to the budget as much as possible as this will be the main measurement tool used to judge the procurement team’s performance. As stated previously, requirements may change and thus procurement thinking needs to be flexible and have the ability to see possible economies of scale. There are many tricks that can be used to assist with quantity uncertainty. Some of these include:
- Has this been done before, even if only similar in scale? This may provide a departure point.
- How wrong are estimates normally? Should you not apply a standard forecast error so that you are at least consistent in your estimates and therefore your planning, negotiation, etc?
- Group the commodities practically and logically to encourage efficiency and momentum. Switching to disparate commodities regularly impairs concentration.
- Get a sound understanding of total cost of ownership to ensure that accurate calculations are made in terms of product lifecycles. This can aid in drastically reducing overall spend and improve overall saving opportunities.
I know where the items need to be
Again, this step sounds relatively easy. The fact, however, is that with any project procurement exercise many different parties are involved and thus delays happen. “Logistics and task integration are often overlooked and this ‘silo-mentality’ will hurt the organisation. To explain this a bit better, let us take a practical example: If an organisation is busy procuring for a construction project, the organisation is procuring all the items that need to go into that facility. As we know, procurement always tries its best to get the best lead time on equipment and the ultimate goal is thus to match these lead times with the construction schedule. Now delays do happen and it is not the easiest thing in the world to ask suppliers to hold stock. For this reason it is important that the procurement team looks into these aspects and plans with the supplier accordingly, thereby making sure that possible delays are catered for in the contract. This is critical to keeping overall procurement costs down and to ensure that you do not have a case of machinery, material etc. arriving and having to store it at your own cost”, Stuart concluded.
Considering the following can assist to manage the above mentioned risks:
- Marry materials management and procurement: Ensure that you know where materials will go, how it will get there and what happens when it does.
- Always have alternative storage plans in place in case of delays or changes in the overall programme.
- Establish how much space will be required to ensure that materials are well catered for.
- Keep in constant contact with suppliers to ensure their progress and commitment to lead times. This may have a direct effect on the location where the goods need to be stored. For example, if equipment arrives before you need it, you will have to put it somewhere.
Project procurement can be a highly rewarding procurement sphere with lots of things going on at the same time. It can also be highly stressful and time demanding. The success of project procurement thus depends largely on the processes that are put in place and the identification and securing of the right resources at the right times. It is also critical that long before entering into project procurement planning needs to happen with large amounts of detail. Procurement furthermore needs time to plan commodity complexity adequately in order to identify possible high risk areas and lead time requirements that need to be catered for.
Many tools exist to assist procurement in order to achieve the desired objectives of the project and it is recommended to use these tools to give the procurement team direction and to also effectively measure the overall performance of the team. The greater the transparency and quantity of information, the greater the chances of success.