2020Case16Mercury

Contents Lean Construction Ireland Annual Book of Cases 2020 Ca e 16 relationships and rarely involved standard industry practice in terms of bid analysis (BAS) methods and objective negotiating techniques. By now the traditional approach of having one primary “issue for construction” (IFC) design package and a schedule that was based on all systems being completed prior to handover, had been replaced with multiple IFC design releases and systems being completed for handover progressively throughout the project. This led to systems being handover while the majority of the project was still in construction. This necessitated a sea change in how “material take off” (MTO) was being completed and material procured. It is fair to say that this change was still being implemented and consequences understood at the initial stages of the project which led to traditional bulk MTO being completed and which did not necessarily accommodate the early systems material requirements. Obviously the partial IFC design release also necessitated placing orders for long lead material prior to “issue for fabrication” (IFF) being achieved. In summary, large volumes of material were ordered, but to ensure the correct material was ordered in time, a change in the process was needed and quickly. The initial fix was to create an Excel spreadsheet that would capture all MTOs as they were being completed for each part of each system on the project and in line with design release. The engineering function designed this template for use by the engineering and construction teams. That spreadsheet became known as the “engineering materials report (EMR)”. This served as a tracker to ensure MTOs were being done and to also ensure that orders were being placed on time against each MTO. Estimated lead-times were factored in for critical materials, and PO required dates were calculated on field-need-date (FND) less the estimated lead time. This model served us very well, and still does so to this day with many tweaks and small improvements since. Within six months of its introduction, the project team was satisfied that all materials that should have been ordered were ordered. This brought materials ordering up to date and the next challenge was to design, implement, and maintain an ongoing and efficient set of processes that would ensure consistency and standardisation in the long-term. The procurement “RFx” encompassed the entire formal request process and included “request for quote” (RFQ), “request for information” (RFI), and “request for proposal” (RFP). Into the RFx process itself consisted of numerous methods – none of which were contained in an SOP and all of which were subjective in terms of market engagement. A root cause analysis (RCA) identified that a person with experience would approach the vendor market in a completely different manner to a junior with little or no experience. There was literally no control over who should and should not approach the market place, nor how they should do so. Decision-making was uncontrolled to the extent that vendors could receive verbal instructions to any value. These methods manifested in a lot of wasted time for engineering, construction, procurement, and finance. Ultimately, procurement people who were tasked with ensuring suppliers received their POs and that materials arrived on time, were faced with a relentless flow of last minute requests. This resulted in large volumes of POs being issued to market on the basis of quotations received by numerous people outside of the procurement department. Analysis found that up to 40 people were involved in the RFx process, including four buyers. Furthermore, due to the late nature of POs, the supply chain itself was formed out of discrete knowledge that vendors had about the project and around specific relationships forged as a result. Ultimately, the procurement function was at the mercy of its supply chain and could only rely to a large extent on those personal relationships to achieve any level of satisfaction that project timelines could be met. There was a very clear need for a strategic, objective, operationally excellent, and consistently applied standard work approach to procurement. Utilising Pareto analysis on spend, we categorised at a high level not only where the spend was going but how much effort was associated with each category. It was notable that 80% of total PO spend was awarded to 10% of the total vendor base, with one vendor accounting for 17% of spend, and 312 vendors accounting for the remaining 83%. A further drill-down of the top seven vendors (totalling 49% of spend) to examine why and how spend was allocated, found the following: • Procurement was not involved in most of the big decisions and were not involved in the initial product submittal and approval phase. Client approval takes time, and Procurement needs to be involved at the earliest stage to provide alternatives for submittal. Figure 1. Vendor Pareto Analysis