What Do You Mean Equipment Deliveries Are Holding Up My Project?
In my early days of project management, I learned that if you want to get a project done on time, you have to get the equipment / material to the contractor. Now, I'm sure most have you have been involved in a project that has gone off track because the equipment was late, holding up the contractor which resulted in your missing schedules. Some causes of equipment delay are;
- lack of planning for purchase of long lead items
- the procurement cycle
- drawing approvals
- lack of vendor response.
In this article, I want to talk about some of these procurement issues to help you improve on your project execution and get the material there on time.
There always seems to be confusion as to whether we are working with a Request For Proposal (RFP) or Request For Quotation (RFQ). Here are the standard definitions for them:
Type of bid document used to solict proposals from prospective contractors for products or services. Used when items or services are of a complex nature and assumes that negotiation will take place between the buyer and the contractor. You use it when you want inout from vendors / contractors on how to do the work. You want both competition and creative input from th emarket. It details what and why but not how as that is up to the vendor.
Similar to request for proposal but generally with a lower monetary amount involved in the procurement. Used to solicit proposals from prospective contractors for standard products or services such that negotiations may not be required.
You Buy It, No You Buy It!!!
One of the first things you have to do on your project is determine who buys what. Typically, the owner will buy the engineered equipment and the contractor will buy the bulks. You should set up a Procurement Responsibility Matrix outlining the material you know has to be procured and who is responsible for procuring it. This takes all the guess work out of the procurement effort. This document can change as the project progresses but it is clear in outlining the effort. Once you have determined who buys what, you have to look for the long lead items. Review your equipment list and determine the on site delivery date for each piece of equipment. Working backwards from that date, you will be able to determine when you have to procure it. Work back from that date to determine when you have to have your design complete and presto, you will have determined you are already late.
You have to determine where you are in your project life cycle (assuming you use one), and how you will fund the purchase of long lead items. We are currently on a fast track project and are buying an electrical substation. We have to combine phase activities so the purchase order is ready to go when management approves the project, but not the final funding. In order to get the substation on to the vendors’ order book we will have to procure it before we have final funding so we are seeking enough funds now to place the order, get the engineering started, and to purchase of some raw material. If management decide they do not want to do this project, then the order will be cancelled and company is not out a lot of money. These types of procurement decisions go on all the time.
If you work in the project life cycle environment, your team members should understand the deliverables required for each phase. This allows you to overlap phases in order to procure long lead items. Our projects follow the project life cycle and in order to keep our projects on track we go out for formal quotations on equipment in the Define Phase. Then, when the project is funded we can immediately order equipment minimizing delay.
When preparing your bid documents one of the required documents that I talked about before was the Vendor Data & Drawing Requirements form (VDDR), which tells the vendor what drawings you require and when. If you don’t spell out exactly what you require, you are at the mercy of the vendor for drawing deliveries. Also, if you have progress payments tied to drawing deliveries make sure you have all the disciplines input on what drawings they need for this first issue. Once the progress payment has been made, you loose whatever influence you had over the vendor and required drawings could be weeks off, delaying your schedule. Other documents that will speed up the drawing review is issuing the Plant Standard Component List and data sheets outlining exactly what you want. During the drawing review is not the time to tell the vendor what you require.
Where Does It Start?
When you get pricing from vendors, they will quote different starting points for the manufacture of the items. You have to understand what they are referring to and consider them in your procurement / design cycle. One of these is ARAD, “After Receipt Of Approved Drawings”. This means the vendor will not start manufacturing until they have a drawing from you stamped “Certified For Construction” or similar wording. The cycle goes like this;
- procure item
- receive drawings for approval
- review drawings and mark them up
- return to vendor for re-submittal
- receive drawings second time for approval
- review them to make sure your comments from the previous issue were picked up
- mark them up again
- return to vendor stating “Released For Fabrication Subject To Comments” or similar wording.
Most people figure this is the end of the cycle and drawings are good to go. However that is not necessarily the case. Most vendors will not start fabrication until they have a clean drawing stating Issued For Fabrication. This means you have another round of drawing reviews.
Another manufacturing starting point is ARO “After Receipt Of Order”. This means the vendor will start the manufacturing process once he has a purchase order in hand. The substation mentioned above had a delivery of 52 weeks ARO. In this case the vendor had the schedule pretty well thought out. All schedules depend heavily on the owner’s engineers drawing reviews being done on time with minimal changes. This requires vigilance on the project managers part to monitor the drawing review cycle and collecting of information. There should be no changes other than safety issues that you may have missed. Other than that, no changes. Any additions or slip in the review process could delay the delivery.
What Do You Mean He’s On Vacation!!!
Another issue with ARO is when is the order received and by who. One would expect this to be the manufacturer. If there is a middle man involved, like a manufacturers’ representative this can delay the ARO date. We just went through this where we sent the purchase order to the manufacturers’ representative, but he was on Christmas vacation. He had arranged for someone else to look after it for him. Drawings were supposed to be 3 - 4 weeks ARO. When drawings did not show up, procurement went after them and found out that the order had fallen through the cracks and the order did not get placed with the manufacturer until the representative came back from vacation. The ARO did not start until about two weeks after we figured it should have started. Of course this was a fast track job! Within days, you should get a confirmation from the manufacturer that the order was placed.
Procurement issues and the procurement process needs to be constantly monitored as the results can jeopardize the success of your project. I will continue with this topic next month.
Upcoming Workshops by The Project Doctor
Fundamentals of Project Management
May 4, 5, & 6, 2011
Info at: www.bmoj.com
Register at: https://www.peice.com/eventdetails.aspx?event=106489
EPC Project Management For The Oil And Gas Industry
September 12 – 16, 2011
Info at: www.bmoj.com
Register at: www.epic-edu.com