The Procurement function and its approach has to be always adaptive to take challenges and must be aligned with the fast changing scenario in the World. The technology has to play its role in the organic growth of Infrastructure to cope-up with the swelling demand of Infra-ways the way Internet has played 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 create challenges to the existing players (Vendors or organisations) and also gives an opportunity to the small and medium players to expand and boost their capacities and prove their innovative and dynamic approaches.
The days are gone where any Vendor would approach to their potential Client with the proven track record and repeat the same conventional approach for the new assignments.
Now a days 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.
Disruptive/Innovative technology means a transformative change in the technology and approach to displace existing processes, systems, internal and external collaborations across all the functions etc of the Supply Chain Management arena. This enables innovative solutions, create new businesses, process models, various applications based software etc. This changes the way of doing qualitative and quantitative Analysis, Contracting and Supplies. Blockchain, Artificial Intelligence, automation through 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 the disruptive technology and stay ahead in a rapidly changing world.
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 do 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 have 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 have become a driving factor. The buyer want to control the 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.
The following factors have become of importance in this new scenario while taking the final procurement decision. One has to analyse these factors objectively and integrate them as final product.
- Contracting Strategy – Contract type and Contractor category
- Contract Package formation
- Division of responsibility
- Developing domain /category expertise within the Procurement Managers
- Centralised the procurement function and develop one to one vendor relationship domain
- Close monitoring of post award in terms of supplies and services
- Incentivize the Engineering Consultant for most optimum design
- Payments terms and guarantees.
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 system and processes within the organisation. 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 the World. Now a days, ERP is used to integrate the 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 digitalised 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 tool for the cost effective solution is “reverse e-auction”. This gives an opportunity to each of the bidder/supplier/seller/contractor to know their ranking on-line during the auction process and reduce their prices to improve their ranking and chances of becoming L-1. Now a days the Procurement process have become effectively technology driven through the easy and fast Internet accessibility and various professional sharing platforms like Linked-in, YouTube in terms of new Engineering aspects, Innovations in Construction technology, new material development, Globalization of Companies etc. The buyer need to take into accounts all these aspects while deciding the LCC and to analyse the TCO.
The basic principle on which these are developed are; Safety, Quality, Cost, Timeliness & Sustainability. The cost is analysed 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 standardised 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 raise, what are its pre-requisites, will travel through the built-in tracker system to the Procurement Manager, will go to the bidders and received 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 optimisation 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 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 balancing the conflicting scenarios, the ‘egos’ of the respective self. The Chief Procurement office has to analyse how he could implement new and growing source of information, automise the process and built-in human interactions to categorise 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. Now a days this has become a speedy trend for the organisations. 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 and time overrun).
An innovative development: think the unthinkable
The accessibility at global level to the new technology and innovative development have become instantaneously. The social and professional platforms like Linked-in, You tube and other similar media are sharing these lightning thoughts which happened any corner of the World and are being used as a reference points to invent new approaches.
These young and small player’s 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 these new era of players.
The leadership should nurture and drive an innovative mindset. It require patience, time and a right resource with a clear guide-lines.
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:
- Innovation of new material and technology in construction,
- Manufacturing of construction equipment to maximise the elimination of manpower (which is scarcely available)
- Basic Engineering have become crucial for optimising the resources and crashing the timelines.
- Change in Construction methodology from Cast-in-situ to Pre-cast Concrete and prefabricated structure.
For example the use of new age shuttering and form-work (maywan shuttering) for the mass housing buildings, industrial buildings have changed drastically to get fast erections, less involvement of manpower, fast and early removal and high repetitions. Pre-cast segment are used for elevated highways and erections by launching girders. These are almost twice fast and safe to construct in urban areas specially.
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”. Now a days, 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 (by reducing the pre-qualification criteria) for the bigger jobs and positioned themselves at 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 models to EPC based models in the recent past.
Conclusion: 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 fluctuating market.
Hence, the Procurement team must prepare themselves to become the visionary leader of the organization.