Involve Procurement Early:
Procurement should be involved as early as project inception. In addition to being able to develop holistic project-level sourcing strategies, this allows for supplier pre-qualification, aggregation opportunities, budgetary quotes, and identifying incentive opportunities.
Use a Team Charter:
Establish a baseline up front including schedule, stakeholders, roles and responsibilities, savings methodologies, approvers, resources, and key issues to align expectation and minimize risk.
Create Realistic Sourcing Schedules:
Too often sourcing and contracting are compressed because of business requirements which results in less than desirable cost and additional risk. Early Procurement engagement can help make sure that proper sourcing timelines are weaved into overall project timelines.
Develop Well Defined Scopes of Work and Specifications:
The less defined the scope of work, the greater the supplier risk and therefore the potential project cost. Time spent up front defining scope will help to save time and money later in the project.
Establish Strong Boilerplate Contracts with Pre-Agreed “Guardrails”:
Sourcing time can be greatly reduced if agreements already exist for primary sourcing strategies. With upper and lower acceptable limits established for frequently contested terms, legal teams can negotiate faster.
Compare Total Costs of Ownership:
Suppliers should be evaluated on more than acquisition costs. Consideration should be given to the total life cycle cost of an asset or service (travel/freight, warranty, training, energy use, etc.).
Agree upon Supplier Evaluation Criteria:
Ideally every supplier is evaluated technically (quality, capability, longevity, etc.) and commercially (price, schedule, financial strength, etc.). Criteria should be established prior to receipt of any supplier proposals.
Utilize an Electronic System to Manage Proper Toll Gates:
A formal toll gate process will help to minimize Procurement bypasses. Compliance should be measured regardless of process.
Implement a Supplier Performance Evaluation Program:
Building long-term relationships with strategic suppliers can be mutually beneficial. One mechanism to monitor the ongoing quality of those suppliers is a formal, periodic evaluation process.
Establish Long Term Contracts with Pricing, but Confirm Fair Value Annually:
Suppliers prefer volume certainty and owners prefer cost predictability. Locking in pricing during turbulent times can help owners manage costs, but pricing should be reviewed annually to evaluate whether pricing is appropriate given market conditions.
Incorporate Benchmarking and Market Intelligence into Sourcing Decisions:
Real-time market intelligence will help drive appropriate sourcing strategies and confirm the best value is achieved.
Integrate Energy Efficiency and Corporate Responsibility (CR) into Sourcing Criteria:
Sometimes an untapped opportunity, such as savings around energy efficiency or energy credits, can drastically change a project’s Return on Investment (ROI). Utilizing suppliers that have a formal CR program will help mitigate risk.
Improve Aggregation and Reduce Single-Source Situations:
Leverage is the number one contributor to driving better overall value. Consider aggregation across business units, categories, and projects.