Imagine three people are planning a family reunion. One is in charge of selecting the menu, one is in charge of making the shopping list, and the third is in charge of buying and preparing the food. If the person planning the menu fails to consult with the people responsible for making the shopping list and buying the food, the job might get done, but the dinner on the table won’t match the menu.
Unfortunately, this approach of separating core responsibilities is what often occurs inadvertently in many companies during procurement of CAPEX projects. When an organization allows the Technology function, the Project management function, and the Procurement function to operate in separate silos, a given CAPEX project may be completed, but the results are often sub-optimal. This is one of those intangible risks as nobody knows that information has gone missing. One of the most valuable assets any organization has is information. Collaborative procurement is about maximizing information sharing and improving the way CAPEX projects are executed thereby reducing these intangible risks.
Biggest Risks of CAPEX Projects
There are three major risks to any CAPEX project:
- The project will be over budget
- The project will take longer than expected to be completed
- The project will underperform
When the Technology team develops a requirement and technical specifications in isolation from the Project management and Procurement teams who have their own documents and agendas, opportunities for recognising both risks and advantages are missed. This process wastes the institutional knowledge of all the teams. Giving all 3 teams full-time, up-to-date access to all discussions and information across departments allows for better decision making and negotiating all viable alternatives and strategies that will result in the best outcome.
Procurement needs to integrate/collaborate tightly with Technology and the Project team so as to be able to execute a proper Value Engineering exercise and thereby achieve the best bang for your buck.
Things can be even worse on the supplier side when the salesman closing the deal and negotiating the final spec and price is far removed from the engineer producing or delivering the product. This information gap can lead to customers not getting the meal they thought they selected from the menu.
How Collaboration Saves Time and Money
Collaborative procurement maximizes the institutional knowledge of the Technology team, the Project management team, and the Procurement team.
Collaborative procurement also shortens the timetable for the project because Technology, Procurement and Project management can work very much in parallel and share crucial information during development of the requirement, the necessary agreements and the project milestones. This becomes crucial during the final phase of negotiations with the short-listed suppliers – who at that point become part of the collaboration – to ensure that there are no ambiguities remaining regarding any aspects of the project. This leads to a reduction in variation orders later on and also fewer disputes that often end up in litigation.
Collaborative procurement also has one other key benefit. It gives everyone in the organization more of an incentive to buy into the project. A CAPEX project no longer feels like something the Technology team is responsible for. Procurement is no longer just a cog in the machine. Project management has a more active role and is not just the guy who has to handle the mess down the road. Instead, everyone feels and has ownership over the project. Everyone has more incentive to make sure the project meets the budget target, is completed on time, and is executed properly so that it meets its financial performance targets. Fewer blame games are the result.
Collaborative procurement is not just a trend or buzzword. It is the future of CAPEX projects. Leading organizations such as Shell, SABMiller, DP World and others – in a variety of industries – are implementing collaborative engineering/procurement tools and methodologies as a way to lower costs, shorten timetables for delivery, and to improve the financial performance of the projects. Any organization that does not begin using collaborative procurement in CAPEX projects will be at a severe competitive disadvantage.