Procurement is a term describing the purchasing process for goods and services. In building construction, material procurement is the process by which the materials required to construct a building are selected, ordered, invoiced, paid for and delivered to the site. The objectives of material procurement are stated as buying the best item at right Quality, Quantity, Time and Cost.
However smaller companies can have little or no process for material procurement and management systems. As a result these companies incur additional but avoidable costs. Some of these costs are due to;
- Paying premium price for materials
- Excess ordering of material,
- Large delivery times for materials,
- Lack of tracking of materials costs fluctuations.
Let’s take a look at things to consider in the process
- Consider procurement at the design stage
- Looking beyond the purchase price
- Project specific Prices
- Staffing the procurement function
- Selecting the right technology
Consider procurement at the design stage
Having good working relationships with suppliers is a very important requirement of any contractor. Respect; Trust; Mutual benefit; Fairness; and Honesty. Building a strong partnership should take into consideration when selecting suppliers. The track history and reliability of a supplier will be key in ensuring that a procurement can be delivered. It is one thing to give a great price but can they deliver?
Based on the specification given it can be worth agreeing to alter the spec to reduce the potential risk with unknown suppliers thus reducing costs in the process.
Looking beyond the purchase price
Successful procurement is not obtaining the lowest price, but in fact by getting the right specification at the right cost from the right supplier. A focus on total cost allows a move from just an eye on the purchase price to the complete cost of using an acquired material or service. Rather than depend on a decision solely based on price quoted, it is a better idea to consider all costs such as availability, reliability, storage, transportation and the costs of disposal.
Project specific prices
Small to medium contractors can sometimes miss the opportunity for a better rate on their materials due to the temptation of using a day to day ordering process. The average material order in LiveCosts is €350. A small amount for a supplier given their size. By grouping the materials together at the start of a project rates can be agreed specific to the volumes required. This does not necessarily mean ordering all at once but applying an agreed rate to that project based on the agreed volumes.
Incoming invoices would need to be monitored to ensure that the correct rates are being applied to the project. More about this later.
Staffing the procurement function
There are many possible solutions for a successful procurement process. Largely depending on the size of the contractor, some will choose to employ for this role and others will spread the responsibility. Either way the right structure needs to be in place at company level and be followed by each.
An example of rules at company level could involve:
- Establishing project specific prices for volume discounts
- All orders to be approved by a manager
- 3 Quotes required for purchases over 1k
Employees with the power to order need to understand the potential savings that can be made with some strategic thinking and a value focused approach. If your ordering is done from site check out our previous blog 6 Methods Of Managing Material Orders On Site
Selecting the right technology
Companies must understand that not all the procurement software will automatically improve efficiency, and these require to be assessed by the current process first. This is so in order to understand where improvement is needed, and then by selecting the right software to meet the requirement. The right system will allow data to be taken in and meaningful information to be retrieved.
With the volume and availability of data, new technology makes it easy to track decision-making processes. Furthermore, historical data can be used to create benchmarks for future performance as well. With the help of technology, procurement agility can be increased and provide value to the organizations. The LiveCosts catalogue and purchase order system can help in establishing these simple procedures.