Procurement

How Do You Keep Track of Vendor Accruals?

You thought you had your project all wrapped up when, SURPRISE, vendor invoices just keep coming in.  Whoops, things didn’t go as well as you thought. The costs on your project keep soaring, and you have to keep updating your project reports to your superiors. How does this happen? This happens because vendors rarely invoice you at the time they completed the work, or delivered the materials.  The problem is, if you wait until vendors invoice you to show the cost on your project, then you’re in for a lot of surprises. Here’s a common scenario: Every day your Site Supervisor is asked to approve or sign-off on the work done that day by the various subcontractors on your project – or materials delivered by suppliers. All those approved daily field tickets make their way back to the subcontractor’s Accounts Receivable group; and they then batch them up for invoicing. You of course have a copy too, and it likely sits as a scanned document on a shared drive somewhere. However, this receipt-of-work-done typically isn’t used as a means to record the associated cost on your project. Most often, a project’s actual costs are driven by updates from accounting, or manually input into spreadsheets by a project manager when the vendor invoice is received.  The problem with this model, is that you might not receive that invoice for weeks if not months after the work was completed – so during that time, there’s a discrepancy between what’s showing on your project for actual cost, and what you are in fact liable to pay. This scenario can fill you with surprises since you’re really at the mercy of your vendors’ invoicing cycles.  Not all vendors are

How do you Manage Your Request For Quote Bid Evaluations?

When analyzing and evaluating the various proposals that you receive from vendors during an RFQ bidding process, what benchmarks do you use? Do you just compare price, or do you also have a list of criteria to compare the bids? Criteria such as: Compliance to Terms and Conditions, Shipping, Reliability, etc. How formal is this evaluation process in your organization? Are your RFQ evaluations – and decision around who is awarded the bid – subject to approval by your client? In 4castplus, the Bid Evaluation module allows users to define their own criteria; and go on to weight each criteria element according to its importance to the whole bid analysis. For example, if it’s a schedule-driven project where timing is critical, perhaps you’d weigh Delivery Date as having high importance. You can create as many or as few criteria as makes sense for each RFQ. Once you’ve received your proposals, you can then rank the defined criteria for each received proposal. 4castplus will calculate an overall Score based on your rankings and criteria weightings.  In addition to the criteria, you can also perform a side-by-side comparison of price for each line item on the RFQ. Not everyone needs software to help rank and evaluate bids like that. It’s often the case where it’s a straightforward process of eyeballing the bids and making a judgement call.  Nevertheless, many organizations that we work with have historically struggled with this area of bid management. Especially when any of the following are true: You’re providing procurement services on behalf of your client, and there is a requirement for bid-award oversight by the client The RFQ is connected to a critical path deliverable The RFQ has

Procurement on Construction Projects is, well, Different

To manage the complexity of procurement on large construction projects requires an exceptionally robust technology solution. Most commercial procurement software products are designed to handle general-purpose purchasing for a broad range of businesses and industry applications.  Procurement on construction projects however, is quite different. It’s not at all like buying pencils for the school board, or buying a fighter jet for the defense department. Construction project procurement has many characteristics that place heavy demands on the software that supports it. The differences fall into the following six categories. I’ll go on to discuss each of these in more detail further below: The need to handle High Volume Procurement The requirement to manage Long-Lead Items and Expediting Integration with Project-Level Cost Codes Tie-in with Project Controls The Need for Speed Multi-Discipline Collaboration In case you didn't notice, I've left out any of the hairy legal details that are unique to construction contracts. The contract management side is a whole other beast that is best tackled in another discussion. For this, I'm primarily focused on the procurement process.  I've also avoided the accounting side of the debate with respect to holdbacks, retainage, punch lists, etc. Again, this is an area more related to the contracts and accounting end of supply chain.  So anyway, here is a more detailed discussion around each of the above cornerstones of construction project procurement. High Volume Procurement Large construction projects face an enormous volume of materials, labor services and equipment that all needs to be contracted, procured and successfully delivered to multiple jobsites & warehouses on a very explicit schedule. The procurement teams on larger construction projects can face managing many thousands of concurrent contracts, hundreds of thousands of line-items and hundreds

What is the Difference between RFP, RFQ and Invitation To Tender?

In the world of contract management and procurement, there are a variety of ways the tendering stage can work.  A key part of planning any piece of work to be done, is determining who is going to do that work; and setting out the terms of reference and evaluation criteria for awarding the contract to the winning bidder. Most owners or clients know full well that they will likely not get exactly what they want. Nevertheless, they obviously still require a way to determine the best fit subcontractor or supplier to give them the best value for money.  Of course, in the private sector, choosing a vendor doesn’t always require a bidding process at all – and in many cases a sole-sourced vendor is chosen and a purchase order contract awarded directly.  Often this is not the case of course, and so the owner/client requires some understanding of the types of tendering contracts they have to choose from when going to market to solicit a competitive bid. While each company (or government) has their own policies and contract rules around tendering bids, there are generally three methods of competitive bid solicitation to choose from: Invitation to Tender Request for Quotation Request for Proposals All three methods are identical from the legal point of view and so are contractually binding in the same way. It goes without saying therefore, that the terms, descriptions, power reserved, evaluation criteria, etc. set out in any of the contract types is critical to ensure both a lawful and smooth relationship between client and vendors. What we often get asked, is “What’s the difference between the three?” Invitations to Tender: These are typically used in major

Manage Contracts – Not Chaos!

One of the biggest challenges most procurement professionals face, is managing the day-to-day madness of having too many things to stay on top of, and not enough information to work with.  A very common frustration we hear about from procurement officers is their constant battle with “emergency procurement”.  A feeling as if they are always behind, in an ongoing reactive state – having to make sudden purchases with next-to-no advance planning. This is obviously pretty risky, since for a successful construction project, procurement should be executed from a position of firm control, proactively planning and managing contracts and vendors, with detailed information at their fingertips.  When vendors get a whiff of a client that’s in a state of emergency with little-or-no options, you can be sure they’ll take advantage of that with some highly leveraged negotiations. Good for the vendor – bad for the client. Procurement management software is all about helping purchasing staff eliminate emergencies like that. It enables the team to plan-ahead with planned-purchase-orders, prepared material requests, shell RFQs, and an abundance of planning dates at both the contract level as well as the detail item level (for material, services and equipment). Software that also has the logic built-in to determine all the required-at-site dates – well ahead of time –so that it can notify users about upcoming events or actions that need to be taken. The procurement team that can additionally forecast potential planning gaps so that they can make informed adjustments well before they become chaotic emergencies, is the procurement team that is truly in control. In construction, timing is everything; and information is gold. Managing project procurement using spreadsheets just invites chaos and reactive contract management,

Everyone Likes to Pick a Winner

Risk is everywhere in business. Whether you’re a large or small company; or whether you run large or small projects – you are always running the very real risk that you’re project won’t succeed according to plan. How your business performs on a project however, goes well beyond just your own internal issues of cash flow and resourcing. The interdependencies that are inherent in construction projects means that what you do has a direct effect on your peer organizations and the owner. In other words: what you do is not just your own problem. If you blow it, you may end up blowing it for everyone around you. That doesn’t go over well – people talk. It’s in everyone’s best interest to know who delivers and who doesn’t. There are others out there watching you. Evaluating you. Building a database of metrics on you. Your company’s performance, your productivity, and your ability to deliver at a high degree of quality. You are being continuously monitored by those that are affected by you. One of the most popular features of procurement management software like 4castplus is its ability to gather historical performance metrics on vendors. Every shipment, every completed job, every item of communication from documents to emails, every milestone, every request for extension, every price change; and a ton more things are all captured and available to be reported on. Vendors get ranked. Vendors get compared and evaluated for future jobs. The owners and Engineering-Procurement organizations that are leveraging technology to collect performance information are the ones who are in a far better position to pick the winners in the crowd. It’s in their best interest to pick winners - they

Ever Feel like You’re Buried by Content?

How on earth do we manage to make sense of the chaotic volumes of information that gets thrown at us every day? If you’re anything like me, in any 24-hour period you can get hundreds of emails, documents, txts, tweets and messages filling your inbox and various other mediums. It’s impossible to believe we can do a decent job of cataloging and organizing it all in order to get back to it later. I don’t have any stats on this, but I bet that over 90% of people use Outlook as an information management system – supported by hundreds of folders located somewhere on a company shared drive. And to some degree that works ok. There does come a point, however, when that system simply breaks down. I talk to a lot of people who plan, manage and procure construction projects, and easily one of the biggest struggles they fight to endure is how to tackle the barbaric amounts of information they need to stay on top of. Contracts, drawings, change orders, vendor invoices, daily site reports, budgets, status reports and on and on it goes. Each document and email thread can contain important information that’s critical to a project’s smooth and healthy progress. At some point, engineering and construction companies need to upgrade the systems they use for managing all that project-related content. It’s like when you used to have no kids, and now you have three kids: you have to face the reality that you need to upgrade your two-seater car to something that can haul around the whole family.  I specifically wrote project-related content as opposed to enterprise content. There’s a very big difference. The difference is: Project

Procurement is the Lifeblood of your Project

For any major project, it’s likely that every single dollar spent on that project will have gone through the procurement department. Think about it … the entire project essentially lives in a big stack of purchase orders – contracts that define the supply and services, terms and conditions, and other instructions for vendors.  There’s a lot riding on the successful execution and timing of those contracts. Without a smooth and efficient procurement team – and the right tools – to manage the timely delivery of the volumes of materials and services required; a project could be doomed. Effectively strangled by the overwhelming amount of data and logistics faced by big-project procurement.   Many organizations try to manage the logistics risks by inserting dependencies, milestones and critical-path items into the schedule. But schedules are largely theoretical. If you don’t have visibility and deep reach into how your vendors are performing, you won’t have the key information to modify that schedule (and project budget) to reflect newly forecasted delivery dates that result from delays in supply or service. The information that goes into, and comes out of, procurement is vital to project success. The rest of the project team needs to have continuous detailed reporting on the status of all vendor deliverables. The whole team needs to be in sync with what’s happening beyond their walls and beyond the jobsite. Delays and failures most often occur long before the scheduled delivery date. Delays in fabrication, shipping, customs, or pending labor issues are just a few examples of the types of upstream challenges that can lead to major setbacks in productivity. Just being at the jobsite isn’t going to give you information like that. The

By |October 31st, 2013|Categories: Procurement|1 Comment

Should you Adopt Standards for Project Controls and Procurement?

I was visiting a client yesterday helping them get started with some new projects they were planning. They’re a fairly new client and are still working through some of their internal processes with respect to how they’re going to take full advantage of this enterprise software they've just adopted. They were engaged in a very productive, but heated dialogue about how to manage this transition. The challenges they face are similar challenges that most companies would in this situation, so I thought it’d be worth writing about. To start with, they’re a mid-sized EPCM that is growing fast and taking on bigger and more complex projects. They’d long outgrown the spreadsheets they had been using for project management, project cost controls, procurement and estimating. It was a critical business choice for them to adopt a robust software system that’s designed to take on those activities – otherwise they would have been severely limited in their ability to grow. Still, despite adopting powerful technology, they still had some decisions and challenges to tackle.  As the director of projects put it, “This software will do everything we need and much more. It’s great, we’ll have lots of room to grow to take advantage of its full capability. The problem we have is: us. We pose our own biggest risk to ourselves. We need to establish the processes and the rules and standards so that we don’t create a big mess in this software.” It was good to hear him say that because it’s a message we continuously reinforce with clients new and old. As the consultant in the room, I often try to take the role of helping facilitate the conversation towards people discovering the answer themselves.

Why Intelligent Workflows are so Important

Back in the 18th century there was a period of new thinking called the Age of Reason; or the Enlightenment. The thinkers of the time were moving towards a largely fact-based view of the world and all things in it – using reason rather than sentiment or religion to explain things. Dominated by a well-known group of French Philosophers, it’s this period that has significantly influenced our current scientific approach to our view of the world.  Amongst other things, they described the process of understanding things by breaking them down into individual parts. Like, a bicycle is made up of wheels, a chain, handlebars, pedals, etc. As though all whole things in the universe were merely a sum of their parts.  At the same time as the French philosophers were enjoying their breakthroughs in thinking, there was a smaller group of British philosophers, like Edmund Burke and David Hume, who believed that there was more to it than just Parts. This idea of pure reason clearly breaks down when it comes to living things: like people. It’s far too simplified an approach to say that we’re merely a collection of parts: like arms, head, skin, liver, heart, legs, etc. What Hume & Burke argued to all those Frenchies across the Channel, was that it’s not just the parts that matter, it’s what’s between the parts that also matters. Maybe even matters more. It’s the connections, and the intelligence in those connections that makes the whole much greater than the sum of its parts. I’m telling that story as a simple metaphor about Workflow. We often talk about workflow in the software business, and how important it is in creating easy-to-use and intelligent software.  When describing