Skip to main content Skip to Footer

LATEST THINKING


A strategic approach to procurement in Australian capital projects.

With increasing demand and rising construction costs, companies need to take a more dynamic approach to managing their capital program.

Overview

This paper is designed to help companies understand the benefits of taking a more strategic and comprehensive procurement approach in their capital programs. This method, known as ‘Project Sourcing’, is a systematic, fact-based approach that aligns the goals of the procurement organisation with those of the capital project team. This approach has already been used around the world to reduce costs, help keep projects to schedule and decrease risk in acquiring the necessary goods, services and skills required to successfully complete capital projects.

This report also identifies a number of key areas where organisations can apply strategic, dynamic procurement principles to drive successful capital projects.

Background

In recent years, Australia’s resource riches have made the country a focal point for major capital projects. In 2012, the Australian resources sector invested more than A$95 billion in capital projects – four times the investment seen in the next biggest industry, manufacturing.

Traditionally, capital project teams have used tactical procurement to support their projects. This tactical approach, though good for small, well-defined projects, can be restrictive for larger, less defined projects in a market with limited resources. A lack of strategic procurement experience has meant that project teams fail to focus on the benefits of involving procurement in the initial design and do not recognise the challenges of changing markets or the need to integrate a strategic approach throughout the lifecycle of a capital project. This traditional approach of applying tactical procurement principles for projects of any size can be costly, leading to inefficient buying arrangements that are not aligned with the goals and objectives of the project. It can also prevent capital project teams from using the full range of commercial contracting and procurement leading practices available.

Recommendations

We have identified a number of key areas where organisations can apply strategic, dynamic procurement principles to drive successful capital projects. These key areas are the following:

  • establishing project partnership structures with suppliers early in the design stage;

  • identifying, managing and mitigating supply-chain risks;

  • managing demand by developing technical specifications and commercial terms;

  • selecting contract types that blend risk and are aligned with the project vision;

  • improving materials management in the extended supply chain;

  • managing supplier development and selection; and

  • adopting a total lifecycle approach to project contracting.

By taking a more strategic approach to procurement across each of these areas, companies can increase the efficiency and effectiveness of the overall capital project and create a capital project team that acts as a centre of excellence which is in control of cost, schedule, quality and risk.

Authors

Amrish Bhatia is a Sydney-based Managing Director and part of the Operations Management Consulting leadership team. He leads Accenture’s Sourcing & Procurement Business Services for ANZ, and can be contacted at amrish.s.bhatia@accenture.com.

Dr Rajat Dhawan is a Sydney-based Senior Manager with the Operations Management Consulting practice. He works with business leaders to improve operational effectiveness of supply chains and can be contacted at rajat.dhawan@accenture.com.

Fred Vitale is part of Accenture Global Capital Project Services Practice and has over 33 years of experience in developing and managing capital projects in more than 25 countries. Fred is also responsible for developing and managing Accenture’s project sourcing offering, which Accenture has used to apply strategic procurement principles in organisations around the world. Fred is a member of the North American Sourcing and Procurement Leadership Team and is based in Washington DC in the US. He can be reached at fred.m.vitale@accenture.com.

Olaf Schatteman is based in Sydney and is the Managing Director for Accenture’s Operations Consulting Business in Asia Pacific. He is also a recognised thought leader in the field of operations consulting; has published numerous articles and contributed to several supply-chain management reference books; and regularly presents at conferences. Having previously worked for Philips and Accenture in Europe, Olaf has extensive experience helping clients improve operational performance and bottom-line results, particularly in the areas of supply-chain strategy, service management, operations management, and sourcing and procurement. He can be contacted at olaf.schatteman@accenture.com.