Contract Engineering with Innovative Technologies Leads to a Right Solution on Services and Supply Procurement

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The Procurement function and its approach has to be always adaptive to take challenges and must be aligned with the fast-changing scenario in world. The technology has to play its role in organic growth of infrastructure to cope-up with the swelling demand of Infra-ways, the way Internet has played a role for IT-ways.

When we talk about the booming infrastructure, basically it means all the associated factors across all the sectors are expanding. This creates a challenge to the existing players (vendors or organizations) and also gives an opportunity to the small and medium players to expand and boost their capacities and prove their innovativeness and dynamic approaches.

Days are gone where any vendor would approach their potential client with the proven track record and repeat the same conventional approach for the new assignments.

Nowadays client and developer/vendor have become partner and more daring to talk with the fresh and young blood, start-ups, second-generation young dynamic professionals and ready to take risk by giving them the opportunity to prove themselves.

Innovative or disruptive technology means a transformative change in the technology and approach to displace existing processes, systems, internal and external collaborations across all the functions of the Supply Chain Management arena. This enables innovative solutions, new businesses, process models, various applications based software, etc. This changes the way of doing qualitative and quantitative analysis, contracting and supplies. Blockchain, AI, automation through the latest ERP applications duly woven within suppliers and sourcing are some of the latest development to handle the procurement more effectively. Following are the ways to lead through disruptive technology and stay ahead in a rapidly changing world.

Innovative / Disruptive Technology: A Strategic Procurement

The procurement trend is showing a paradigm shift in the contracting strategy from a sub-contracting basis to a collaborative basis. The client does not want to depend upon the discretion and wisdom of the sub-contractor and thus to pay overhead and margin on that. Rather, it would be a prudent approach to work along with the best available consulting engineering company, the best structural based consultancy firm and evolve the best-engineered crafted solution in terms of basic theme/concept, methodology, cost and schedule. Make your working contractor agree on the proposed solution and then plan optimum resources and time in terms of manpower and machinery.

In the changing scenario, contracting strategy has become utmost critical and objective. In order to manage the cost and schedule, the dynamic change in division of responsibility between a buyer and seller has become a driving factor. The buyer wants to control big-ticket items like construction machinery, steel, cement, etc. under their control to mitigate the financial risk of seller and thus ensuring the smooth progress at site without any conflict and without letting the contractor into a financial crisis.

A Collaborative Approach through Cross-functional Excellence: An Integrated Path

No company which is in the progression and expansion mode horizontally and vertically can survive without consistent and uniform systems and processes within the organization. It is always a progressive path since last more than a decade wherein companies could develop all the cross-functional systems bench-marked with the best practices in world. Nowadays, ERP is used to integrate cross-functional communication amongst engineering, user, project management, buyer, financial concurrence, budget control, etc. There are various other tools and software/platforms which can be linked with SAP or any other ERP. This has made the process hassle-free, fast and trackable at each point of interference. With this, SLA can be fixed for each function’s dependability and accountability. In the digitalized global economy, global supply chain can be managed effectively only with internal and external collaboration.

A Technological Approach: A Progressive Path towards Excellence

One of the most important technical tools for a cost-effective solution is “reverse e-auction”. This gives an opportunity to each of the bidders/suppliers/sellers/contractors to know their ranking online during the auction process and reduce their prices to improve their ranking and chances of becoming L-1. Nowadays procurement process has become effectively technology-driven through easy and fast Internet accessibility and various professional sharing platforms like LinkedIn, YouTube in terms of new engineering aspects, innovations in construction technology, new material development, globalization of companies, etc. The buyer needs to take into account all these aspects while deciding the LCC and to analyze the TCO.

The basic principle on which these are developed is – Safety, Quality, Cost, Timeliness & Sustainability. The cost is analyzed not only on the individual parameter “Cost” but it is valued at “Total Cost of Ownership (TCO)” and “Life Cycle Cost (LCC)”. All the procurement systems are standardized in form of documents and in electronic form and built-in and controlled by the various software platforms of ERPs. There is a seamless link right from raising the requisitions by the user, in what form it is to be raised, what are its pre-requisites, will travel through the built-in tracker system to the buyer, will go to the bidders and receive on-line through a well-defined encrypted system, reverse e-auction, till the completion of internal approvals and award to the vendor. With this system, there is a good potential of optimization of engineering, specifications, obtain the best rate and fair level playing field through the reverse e-auction process for all the potential bidders.

Value Engineering: The Optimal Tool 

‘What could’, ‘what would’ are questions that usually shake to leadership to bring value engineering into the system. To overcome that buyers are encouraged to challenge engineering with his sheer knowledge and experience and exposure to the universe of vendor and new product by virtue of his function and interactions with the external world. The tattoo of working in isolation of boundaries are gone. Leadership has to play a pivotal role in balancing the conflicting scenarios, the ‘egos’ of the respective self.  The CPO has to analyze how he could implement new and growing source of information, automize the process and built-in human interactions to categorize the information and reach to the respective buyers or sellers.

‘Think out of the box’ is simply to say but should be supported morally by the senior management to absorb the risk and ready for the mitigation plan. Nowadays this has become a speedy trend for organizations. Procurement strategies are being made on optimistic approach rather than a pessimistic approach (loading with all factor of safety and thus leading to the heavy cost an time over-run).

An Innovative Development: Think the Unthinkable

The accessibility at global level to the new technology and innovative development has become instantaneously. The social and professional platforms like LinkedIn, Youtube and other similar media are sharing these lightning thoughts which happened any corner of the world and are being used as reference points to invent new approaches.

These young and small players’ echoes are creating a new level field of competition in manufacturing and infrastructure sectors. The role of a procurement person has become more challenging and alerting to use this new era of players.

The leadership should nurture and drive an innovative mindset. It requires patience, time and a right resource with clear guidelines.

A New Constructive Approach: Agility

Disruptive technology is basically a synonym of a new constructive approach of technology which is replacing the conventional thought process and overall approach in many ways. Some of these are:

  1. Innovation of new material and technology in construction;
  2. Manufacturing of construction equipment to maximize the elimination of manpower (which is scarcely available);
  3. Basic engineering has become crucial for optimizing the resources and crashing the timelines;
  4. Change in construction methodology from Cast-in-situ to Pre-cast Concrete and prefabricated structure.

For example the use of new-age shuttering and formwork (maywan shuttering) for the mass housing buildings, industrial buildings have changed drastically to get faster erections, less involvement of manpower, fast and early removal and high repetitions. Pre-cast segment is used for elevated highways and erections by launching girders. These are almost twice fast and safe to construct in urban areas especially.

A Change Management: Flexibility and Speed

“What is the rule of negotiation?” Somebody asked me. I told him that the first rule of negotiation “there is no rule of negotiation”. Nowadays, the way Procurement and specially Contracting is done have been changing rapidly. In India, this is supposed to be the boon time for the Infrastructure Sector and all related construction and its enabling industries. The so-called big companies are overloaded and leading to non-performance zones. The middle size construction companies are becoming larger and being saturated. The small contractors are qualified for the bigger jobs and positioned themselves at a threshold to be launched in the next category.

In my personal opinion, with all these dynamic changes in booming Infrastructure scenarios, one has to be at their toes to keep up with the razor-edged margins and on top of that bring value engineering into their system to cope up these thin margins. This brings huge amount of pressure on the contracting person. In India, the model of awarding the Projects have changed substantially from a profit/cost-sharing model to EPC based model in the recent past.

The Bottom Line

Technological adoption is the success driver of the future and should be envisioned by the procurement managers. The success of future procurement lies with the competitive workforce, encouraged digital innovativeness, understanding of the principle of change management, organizational zeal, understanding users’ requirements and most importantly ability to adapt dynamics of the fluctuating markets.

Hence, the Procurement team must prepare themselves to become the visionary leader of the organization.

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