Procurement management, or the process of securing or purchasing all products, materials, services, and equipment needed for construction, is a critical aspect of capital project management. A procurement management plan sets the framework for the procurement of all items needed to execute a capital project while providing transparency to the project regarding material readiness and planning. It then serves as a guide for managing procurement throughout the life cycle of a project.
Below, we detail the importance of procurement management plans, key aspects, and the process for completing an effective plan.
The Importance of Procurement Management Plans
Procurement management plans establish a strategic procurement schedule for ensuring timely deliveries to help maintain construction timelines. They determine the timeline for purchasing each item and identify critical procurement milestones, which are updated as the plan progresses to determine the impact on the project. Procurement management plans aid in prioritizing the procurement workload, ensuring the correct packages are procured in the optimal order.
Procurement management plans are more detailed than a typical project schedule. All deliverables are planned at a combined commodity level, providing full transparency of all procurement-related activities. These plans also provide other important elements for procurement success, such as the following:
- A written responsibility matrix detailing who buys what
- A clear purchasing strategy
- Verification of project budgets
- Early supplier selection
- A platform for all stakeholders to understand and review key milestones and requirements
- Full visibility of requirements for each project team member to support the procurement plan and thus on-time project delivery
- Realistic delivery dates for materials to ensure delivery time certainty as well as the mitigation of late purchasing of items with long lead times
- The ability to adjust project schedule activity through procurement planning updates
- Integration of supplier and material management into Advanced Work Packaging (AWP) practices to improve project performance
- Reduction in overall material costs by bundling similar products to maximize purchasing leverage
- The ability to package, buy, and deliver the correct materials and equipment together, further ensuring on-time construction and schedule certainty
- Early identification of inspection requirements to ensure proper resources are available at the time of shipment
- Planning of logistical resources to ensure ships, planes, or trucks will be readily available per the planning shipping dates
- A forecast for procurement staffing as well as indirect project resources, such as site and shop material management personnel
Key Aspects of Procurement Management Plans
Effective procurement management plans have several key elements that are crucial for successful procurement, including project scope, suppliers and sourcing, lead times, engineering deliverables, project schedule, AWP, and logistics planning.
Steps for Creating a Strong Procurement Management Plan
The process for creating a procurement management plan can be broken down into 18 key steps, as detailed below.
- Review the project scope to identify what is being purchased and by who as well as any restrictions that may not be identified in project specification documents.
- Review project engineering deliverables and specifications—such as piping and instrumentation (P&ID) diagrams, equipment list, and preliminary Material Take Offs (MTOs)—to create a list of all required materials with long lead times.
- Review Approved Manufacturers List (AML).
- Determine equipment and material lead times.
- Determine material source locations (global or domestic).
- Identify material ROS dates based on schedule information available at that time.
- Consolidate material requirements by commodity at a requisition level based on ROS dates. Examples: Combine all centrifugal pumps with a similar ROS date into one material requisition or combine all carbon steel gate, globe, and check valves into one material requisition.
- Assign requisitions.
- Determine procurement management plan milestones, such as requisition receipts from engineering, bids received from suppliers, purchase orders (POs) issued to the supplier, and material shipments from the supplier).
- Plan material requisitions backward based on ROS dates, identifying when project deliverables need to be ready to support the procurement management plan.
- Identify material suppliers to determine who to send inquiries to.
- Factor logistics plan to identify where materials are coming from.
- Identify pre-shipment inspection requirements.
- Plan “Top Up” requisitions for changes and additional project scope.
- Review procurement management plan with project management.
- Share the plan with the project team to provide full transparency.
- Update the plan as the project progresses.
- Identify and mitigate any visible project impact as the plan is actualized.
Additional Procurement Considerations
An important procurement consideration is the decision owners may need to make to purchase specific materials and equipment in lieu of including the purchase of the materials in a contractor’s scope. A typical scenario where an owner may need to purchase materials on their own would include a project's requirement for equipment with long lead times. The equipment lead time may not align with the project's schedule to award a contract to the engineering firm or contractor, and it may need to be purchased by the owner in advance to meet project schedule requirements. An owner could issue a partial contract to the contractor to purchase long lead equipment only to elevate the need for an owner to purchase the equipment.
To mitigate such challenges, long lead times can be identified during the proposal or planning stage with the owner and contractor, allowing the contractor to assist the owner with long lead time equipment purchases on a contract separate from the prime contract. Alternatively, the owner can make the initial purchase and novate the purchase to the contractor to manage the order after the prime contract has been awarded. This provides the contractor with the ability to manage the supplier directly and ensures on-time delivery of project deliverables and materials.
Improving Procurement Management Through Innovative Technologies
The utilization of innovative technologies throughout the procurement cycle can simplify and streamline work processes and reduce procurement costs. For example, implementing process automation can reduce costs related to order placement, material receipt, and storage as well as distribution to construction sites. Barcoding and Radio Frequency Identification (RFID) can be incorporated to streamline inventory management and control. Logistics innovations, such as the use of Intermodal Warehouse Systems (IWS), can improve the logistics of material shipments from global sources by simplifying procedures for loading, transporting, and unloading materials and equipment.
Procurement Management is An Exact Science
At H+M Industrial EPC, our diverse and highly experienced Supply Chain Management team and proven work processes allow us to maintain project deadlines by being proactive regarding material and equipment needs. Our team is knowledgeable on a wide range of material types, including mechanical equipment, pipe, valves and fittings, instrumentation, and electrical materials. Our proactive and strategic approach allows us to push your project forward and ensures on-time deliveries to drive project success.
Our procurement team is familiar with both domestic and global logistics compliance regulations as well as a broad range of shipping options to provide on-time delivery of materials to project sites regardless of material source locations. As experts in material storage and preservation, we ensure equipment is in good working order at the time of project completion.
“H+M Industrial creates a detailed procurement plan in advance of the project. We are providing key schedule dates for engineering deliverables to support required on-site dates. The H+M SCM team does not wait for engineering or construction to provide a package for purchase or inquiry. We are pushing the ancillary groups to provide deliverables on time to meet project schedules. We know who we are going to purchase material from well in advance of package receipt. We know if we can meet project schedule requirements before project kick-off. We can identify all risks and develop mitigation plans.”
- Terry Baker, Supply Chain Manager