Your suppliers are crucial as they typically have a very large part to play in the Project and subsequent operational performance; although methods of purchasing vary around the world what you are seeking to achieve is not. The aim is to bring suppliers on board that will share your objectives, can deliver the necessary requirements and work with you in a positive manner; for you to achieve this they will also need a share of the benefits. This is particularly true in the mainstream of the Project where a wide variety of people have to share information and work together. At the fringes straight competitive purchasing can take place particularly for commodity items but even here performance has to be carefully monitored. The key in selection is to match requirements with capabilities and culture. The suggestion, as for any relationship, is to spend time getting to know each other before major commitment.
Let’s explore what happened on two Chemical Plant Projects, one in the US and the other in Japan. Both of which largely used the same process technology with a large number of packaged items required, two of the biggest were a fridge set and canned pumps. To give some idea of scale; a fridge set was in the region of $2-5m and a canned pump, of which a number were required, was in the region of $100-500k each, depending on the size.
In the USA a classic competitive tendering approach was used with a detailed technical specification, supported by a very large number of additional documents and drawings. Generating the specifications was a very complex undertaking, consuming considerable scarce resources with multiple internal interfaces to be managed, even before we got to assessing the responses from the short list of suppliers. If we take the fridge set, the net result was a very expensive, complex system was put in place which was difficult to start and didn’t perform very well. For the pumps the original specification had requested them to be single stage and high speed; when they arrived they were expensive, noisy and not very reliable.
In Japan we were provided with a list of approved suppliers from our JV partner we prepared an outline of the requirements; a performance specification along with some process details. This probably ran to a couple of pages with a simple outline drawing for both items. What came back was very interesting, the supplier suggestions were for a simple fridge set and multiple stage, slow speed canned pumps, both of these were significantly cheaper that the USA options. When installed the fridge set started up immediately and the canned pumps were both quiet and reliable.
The point here is that when you have good suppliers who are dedicated to delivering a high performance to their customers, trusting them is the way forward. In this environment you can then jointly explore the best solutions for your Project, the reality is that the supplier will know far more about their product or service than you do, the issue is optimisation and alignment, which requires open discussions.
Footnote: After the Japanese Project had been operational for some time it was noted that one of the pumps did not sound ‘right’. A discussion was convened next to the pump with the operational team and the supplier, the result was that the supplier delivered a spare and the maintenance team pulled the pump that night, which was shipped to the supplier for investigation. Some time later a package was received from the supplier containing some new washers with a note thanking the company for allowing it to improve its product.