Procurement for successful turnarounds

Years ago, I asked a procurement professional what the secret to his success was, and he answered in four words, “Buy low, sell high.” Even back then, I knew there was a lot more to his triumph than that! Maybe such simplicity was adequate 5,000 years ago when history first began recording formal trade. But just like everything else, the science of buying and selling has evolved with time and is taking on ever-thickening layers of complexity, so much so we now rely on trained specialists to navigate those deep waters. One hundred years ago, the National Association of Purchasing Agents was born in America. As organizations have grown, so have policies, procedures and practices. And as experience has increased, so have purchasing rules and contracts. Documentation, data systems and strategies have all become a great deal more sophisticated.

With the quantity and costs of turnaround purchases, procurement is always center stage in a “make or break” fashion. When turnaround procurement is done well, it not only delivers time and cost savings but also fiscal controls, fiscal transparency and legal protections. Unfortunately, procurement is not always well managed, causing turnarounds to sustain considerable losses. There are some common red flags that should be identified and eliminated from turnaround procurement groups such as:

• A lack of familiarity with other project controls disciplines. Procurement professionals should have a basic understanding of scheduling and how procurement affects the schedule, both from a materials delivery standpoint and from a contractor staffing perspective. They should have a basic understanding of how procurement affects cost engineering and how procurement is tied to risk analyses.
• A lack of networking. Procurement professionals must be excellent communicators with an established and ever-growing procurement network. The ability to borrow and lend can reap huge benefits. Group buying, even of dissimilar items, can net substantial volume discounts. They must be willing to share ratings of suppliers and goods in order to drive out substandard deals.
• A lack of customer sensitivity. Buyers must know their end users’ needs and timelines. They must know what substitutes, if any, are suitable for the application. They should be aware of their end users’ preferred sources and give them due consideration. Transparency should be the rule; customers should be informed as much as possible how and why procurement decisions are made.
• Sacrificing quality for price. Without a procurement team, managers often would pay more than necessary for turnaround goods and labor. The downside is procurement sometimes pays less upfront, only to spend more in the end. Several years ago, I saved money by accepting project controls personnel at a very good rate — a grand deal until a competitor hired them away at a most inconvenient time. 
• A silo approach. Buyers cannot afford tunnel vision whereby they live in a bubble of isolation. They must immerse themselves in the broader turnaround team, attend all the important meetings and gain as much field knowledge as possible. They should stay abreast of changes in order to be proactive rather than reactive. They must be seen as approachable, concerned and transparent.
• A lack of supplier accountability. When suppliers don’t deliver what was promised, end users should not be tasked with remediation. Armed with knowledge of the contract and the leverage of potential future work, the procurement team has all the power and must champion the cause of holding suppliers accountable to deliver on their commitments.
• A lack of supplier diversity. Sometimes, suppliers don’t have the best pricing or the best quality, but they are so friendly and easy to deal with. Sometimes, suppliers have developed such an out-standing no-risk reputation, the comfort level makes them a natural “go-to.” If new suppliers are not being introduced on a regular basis, it should most certainly raise questions. 
• A lack of fairness to suppliers. Suppliers will often allow themselves to be taken advantage of in order to develop a business relationship. They will take less compensation and allow payment terms to be delayed longer in hopes of winning future opportunities. Savvy procurement teams seek to be fair in order to develop a relationship that is mutually beneficial, creating a reliable partnership with long-term sustainability. You don’t have a supply chain without suppliers! 

If procurement teams do not identify and eliminate red flags, they may find turn-around teams working around them rather than through them whenever possible. 

For more information, contact Mike Bischoff or Ray Smith at (281) 461-9340, email sales@tamanagement.com or visit www.tamanagement.com.