Here’s a well-known secret. An EPC’s biggest bug bear is the procurement process, not engineering, nor construction but procurement. Managing receipts, meeting scheduled timelines, creating material requisitions and data sheets, identifying appropriate vendors that have to be vetted by the end client and myriad consultants, takes time and a toll on productivity. In days long past, lean procurement processes were not a priority for these multi-years, multimillion-dollar projects. Long gestation periods were an acceptable risk in this industry. Not anymore. Competitive pressures, fight for resources, move towards fixed price deals, globalization and remote operations have made margin pressures acute for EPC operators.
Project financial controllers and Operations heads are very aware of costs and margins. Even a marginal improvement in procurement time could translate into 3 to 5% improvement in gross margins. Though seldom understood, time is the big cost that projects fail to allocate adequately or over-compensate for.
Processes that begin with a procurement engineer involve sourcing COEs and discipline engineers across various disciplines like mechanical, electrical, instrumentation, chemical and civil, besides third-party providers, suppliers and quality engineers.
At any given time, a procurement engineer and a sourcing COE could be supporting multiple projects of various sizes, with dozens of vendors and third-party services. Projects by their very nature are generally not the same and the engineering specifications that are drawn up could be significantly different. This in turn demands several rounds of discussions, requirements gathering, evaluations and negotiations.
At the same time, Discipline engineers are spending hundreds of engineering hours in evaluation, data entry, data replication, offline discussions, deviations management, exception handling and the like. Consider this for projects that have up to 100 to 200 Material Requisitions running into thousands of pages and one can easily gauge the enormity of their problem.
Successful EPC teams have seen this and are seeking to introduce multiple time saving measures to alleviate this and make themselves very competitive with respect to other EPC companies.
What tricks do they have up their sleeve? We analyzed some successful EPC companies and here are some tricks that you can use.
Traditional wisdom would say that you settle for the first fit to save time. It’s like that time in recruitment where you would be thrown 200 candidate resumes and you would look at the first 10 and settle for the first one that fit the job, but maybe the star candidate was in the pile that you did not see. We have also seen procurement staff engage in the analysis paralysis mode going through months of vetting and negotiations to buy a simple motor. Both these sets of behavior are due to lack of effective automation and timely digital help for the harried procurement engineer. Depending on project timelines, they are either, looking at only the first three vendors, when maybe the 6th, 7th and 8th give better deals or they are spending months looking at lots of vendors. Another aspect of this is that procurement keeps a list of preferred vendors and choose from them to save time, despite the potential of preferred vendors not being the most competitive. In all these cases, the project takes a hit in terms of cost. Here’s where a digital assistant that can pour through tons of documents can help. Somebody like Rudy with its intelligent task ability and micro AI skills, who can help the procurement engineer look at many, vendors in a fraction of the time that they would otherwise have taken.
Increasingly these small kaizen-like improvements could significantly improve a project’s bottom line. That’s trick number 1, automate the receipt, evaluation and comparison of technical responses.
Consider the item mix
An EPC project typically contains a mix of low, medium and high complexity items. The sourcing COE and the discipline engineers spend the same time evaluating and negotiating all types of items. That’s definitely not the best use of an engineer’s time and because the engineer is also doing core engineering work, the evaluation process gets delayed, resulting in longer timelines and higher project costs.
AI driven automated assistants are exceedingly good at comparing low and medium complexity items. Use a Digital assistant. Rudy, an AI digital assistant has been trained extensively over years to read documents and is very good at the low and medium complexity items, so much so, that it saves around 95% time in reading, comparing and listing deviations.
That’s trick no. 2. Focus on getting the low and medium complexity items evaluated by your digital assistant. Get a lot of time back in your schedule for complex items that need focused engineering effort and other higher impact activities.
There’s a lot of opportunity to save time for discipline engineers, not just in the bid evaluation process but also for the broader purpose of procurement.
In many EPC projects, engineers across various disciplines are disproportionately called on to check, validate and verify technical bids, often between competing vendors and with respect to project and industry standards. Compliance, Deviations and Exceptions analysis require significant expertise, cross discipline collaboration and multi- functional input. Many of these transactional activities are still done manually via paper or via ineffective digital methods like email or file exchanges. Multiply this with dozens of material requisitions and hundreds of data sheets. The volume of work is overwhelming and extremely time consuming.
But this can change now. There are many digitizing opportunities that can quickly transform this collaboration and evaluation exercise. Simple tools that can assist you. Easy wins include use of Rudy for technical bid evaluation and cross functional and multi-discipline collaboration.
In a survey of over 50 EPC leaders, a majority saw Rudy reducing the time to evaluate a technical bid by over 85%. Automating technical bid evaluation, with a collaboration suite is proven to save time for operations departments, engineers, procurement analysts, and suppliers alike.
You have it. Trick no. 3 is to collaborate in real time digitally using the same source of truth for vendors, engineers and procurement staff.
To conclude, here are the three tricks to get better deals and save time in Procurement:
- Automate the bid evaluation and offer comparison process.
- Have Digital assistants like Rudy help with low and medium complexity items to free your time for more complex items.
- Replace manual collaboration and CDE analysis with Rudy’s collaboration suite.