Resource Origin: BCG Perspectives
“Despite the economic challenges that markets all over the globe continue to face, many industries—including basic materials, oil and gas, and utilities—have large-scale projects in the works. Over the next four years, for example, the top ten mining companies together plan to spend more than $200 billion on capital projects related to spending categories such as machinery, infrastructure, and engineering services.
Such capital projects are typically very large investments, often representing more than 10 percent of a company’s annual revenue, depending on the industry. Notably, too, external capital spending can represent 80 percent or more of a project’s total budget. Many companies have established dedicated capital-procurement functions and have put project-specific procurement teams in place. Those companies regularly update their supply strategies for important equipment and service categories and clearly define core processes such as cost escalation estimation and claims management (the process of negotiating paybacks related to changes in project plans, unexpected cost increases, or quality problems). Standard project procedures and handbooks mandate that project compliance be monitored closely. (See “The Dos and Don’ts of Capital Procurement.”)
The Dos and Dont’s of Capital Procurement
In our experience, companies with successful capital-procurement programs ensure that ten elements are in place and avoid ten common stumbling blocks.
Successful companies do the following:
• Establish the transparency of category spending across the project portfolio. • Ensure the involvement of the procurement function as early as the concept phase of every project. • Streamline project approval processes to ensure that procurement has sufficient lead-time to secure the best possible proposals from suppliers. • Develop a clear profile of accountabilities and required skills for project procurement managers, especially in the case of large projects. • Build a dedicated team of procurement experts focused on both overall and project-specific procurement. • Clearly define cross-functional procurement processes as part of a project handbook. • Establish a total-cost-of-ownership perspective with regard to key equipment and investment decisions. • Track project and partner performance based on KPIs that address project performance and progress, as well as procurement effectiveness and supplier cost performance. • Systematically evaluate alternative contracting models and incentive schemes on the basis of project complexity and size. • Actively monitor compliance with procurement processes, including subcontractors that assume procurement tasks…”
https://www.bcgperspectives.com/content/articles/sourcing_procurement_engineered_products_project_business_capital_procurement/#chapter1
Contributors: Open SourceCategories: Industry Articles, SIG U Resource
SRC Type: Procurement Operations