PROCUREMENT MANAGEMENT – LONG LEAD ITEMS

Procurement is serious stuff, really serious.

Procurement is about half of project quantum. It covers 60% - 70% of Project Capex. If one can control procurement and smart enough to deliver all equipment and material on time, probability for an on-time project delivery is highest! Without items at site, nobody able to support you in any manner!

PROCUREMENT SHOULD HAVE A CLEAR FOCUS BY PROJECT ENGINEER / MANAGER!

This article particularly covers management of Long Lead items which are real threats to the project delivery.

Long lead items are those items which have a lengthier delivery period. It is basically a Supply Chain term which describe items taking a longer time to be delivered (as a thumb rule more than 6 months). However, in my opinion, long lead delivery period is purely relative to the project duration. Let’s say If the total project duration is about 2-3 years then an item, which is supposed to be delivered in more than 6 months at the project planning stage, can be considered as a Long Lead. On the other hand, if it is a minor project of 3-6 months duration than definitely an item having a lead time of 1 month can become a critical one.

Procurement is serious stuff, really serious

Another perspective to define Long Lead items are those items which are identified at the earliest stage of a project to have a delivery time long enough to affect directly the overall lead time of a project OR alternatively Procurement items on a critical path will straight way fall into Long Lead category and need a focussed approach.

You may like to add some critical items in this list which are not supposed to take longer delivery time but are in critical category like some customized equipment or part or a component of an equipment. Put that also in this category to maintain a focus.

Let me present some techniques to successfully monitor the delivery of long lead items based on my experience handling projects. These are sequential monitoring steps to follow:

HOW TO IDENTIFY LONG LEADS: GATHERING DETAILS (FOUNDATION)

List of Long Lead Items should be available as an Engineering deliverable. Ask for it from the Design consultants! After receiving the list, just have a random cross check with project basic flow diagram OR get assurance from the supporting discipline engineers. It is important not to miss out any such item from project engineer’s radar screen.

Sometimes there are small items (mind you not equipment!) having a long delivery date, include it in the list.

The list of Long Lead / Critical items will be a foundation for tracking real serious procurement items, therefore it should be robust and complete!

Ask contractor to create a separate tracking sheet (Excel based) for all long lead items per list and make sure that Project Schedule should also contain long lead items as separate procurement activity with columns "plan date" & "actual dates". Plan dates will be based on experience, benchmark data, historical data etc.

Sometimes there are small items (mind you not equipment!) having a long delivery date, include it in the list.

Activities such as Specification issuance, tendering, bid evaluation, PO award etc. should have planned dates otherwise monitoring is difficult. Get the populated tracking sheet and start monitoring on regular basis. It is a simple comparative monitoring: Planned Vs Actual dates! And make a routine to review this sheet during Progress Review Meetings

KICK-OFF MEETING WITH LONG LEAD ITEM'S VENDORS

You now have identified the long lead items and managed them properly tabulated in a format (An Excel sheet) with planned dates against all major tasks in order to ensure on-time delivery.

Let’s move forward with the very first step post award i.e. meeting with the suppliers!

Please note that I have skipped steps prior awarding including Bid evaluation, procurement specification etc, will share my experience on these topics in separate articles.

Following are some learnings on how to have a first contact meeting with Long Lead suppliers:

a) Conduct a Kick off meeting with the critical item’s vendors

b) Vendor should come prepared with Delivery Schedule, Documentation details (vendor documentation register / schedule) and their Organization

c) Ensure meeting key people and not just vendor reps. Invite project team members (Discipline, Procurement tag, Quality Engineer...) to meet the vendor

d) Clarify PO scope, terms, conditions & specifically delivery dates, one to one. Record it again through minutes of this meeting

e) Fix regular review meetings & submission of progress reports to allow information to flow

f) Understand & know sub vendors and critical stages of the order to focus on (e.g. raw material purchase, casting stage, sub vendors POs etc.)

g) Emphasise on the importance of timely delivery

DOCUMENTATION

For Long Lead items (specially equipment), lot of documentation is involved before vendor actually starts the manufacturing. Project team needs to ensure & approve the documents ASAP. However, this is a time consuming & detail-oriented process. At the same time, this is a major motive behind a LL item delays.

a) Project Engineer should get involved in the process & talk to discipline engineers on routine basis

b) Procurement Tracking Sheet & Vendor Documentation Register (submitted in Kick off meeting) are the good tools to keep the focus. Review it in every project meeting & highlight deviation

c) Don’t let vendors (& Engineering) to exchange more than 2-3 submissions. Else make an intervention to learn the issue for resolution,

d) If there are delays in submissions, discuss with the vendor directly to learn his story. Send invite for a meeting to discuss delays, in the presence of a senior manager, to inject seriousness

e) Infer previously done similar projects & try to implement the same documents in your project scope! This may expedite the process

f) There are instances of order cancellation because of poor document submission from vendors. Therefore, treat this activity a serious one

g) Focus should be to “Get the documentation out of the way”

TRACKING TECHNIQUES

So you have a list of LL items, kick-off meeting is conducted & documentation is under continuous monitoring. Now let’s talk about few tracking techniques to ensure timely delivery OR highlight issues if one foresees delays:

a) Set up regular progress reports from vendors. Let the information to flow!

b) Review and discuss reports during regular progress meetings with vendors.

c) In addition to progress reports, ask for progress evidences

d) Evidences can be sub vendors POs, Raw material delivery notes, fabrication/assembly stages photos etc

Creating WhatsApp groups with the vendor and relevant people to a critical delivery is a good idea to work on, you will get real-time information and updates!

e) Ask for sub vendors list. You may like to cross check progress with sub vendors to ensure actual reporting

f) If practical, visit vendor’s place to see the progress. During visits, observe vendor’s existing work load. Sense, if your order is on time or vendor has other priorities to attend? Ask clear questions & record it

g) If you can’t visit, arrange a 3rd party inspector to visit to submit a neutral report

h) Create a WhatsApp group, ask vendor to share evidences/photos of the progress

i) If there are issues, involve seniors from both sides in a meeting to escalate the matter for resolution

MANAGING INSPECTIONS & FAT

Now let’s talk about management of inspections during the contract period:

a) Stage wise Quality inspections per quality plan (ITP) needs proper organization

b) For critical items, it is a good idea to arrange a full-time resident engineer at vendor’s place. This saves lot of efforts and speed up delivery. A resident engineer can expedite progress as well

c) Attend Non-Compliances & Quality Alerts personally with the support of Quality Engineers. Sometime the issues become serious and leads to technical deviations / variances which then requires top approvals. Means more time, efforts and delays.

d) Factory Acceptance Test (FAT) should also be planned upfront. Who has to attend, date to attend etc. needs to be decided very early to avoid last minutes hassles such as management approvals, FAT procedure, visas etc.

LOGISTICS

It is important to decide logistics mode early. I have seen instances where delivery is ready but logistics arrangements were not made. This is an embarrassing situation & should be avoided:

a) Depending upon contractual terms, keep Logistics’ personnel on toes once order is about to be completed (ideally as soon as FAT is completed)

b) As an evidence & assurance, ask for documentation from the suppliers (shipping documents, Air way bill etc.)

There could be instances that item is ready for delivery and Logistics arrangements are not made. Need to avoid that situation at all costs!

c) Package Documentation (Job books, MRBs etc.) is of importance & should reach before or along with the delivery. It will not clear the receipt inspection if documentation is delayed

d) If package is arriving from overseas, make sure to control the custom clearances, duties etc. Many a times, the item stuck there & there is no one to take care of it.

e) Sometimes, upon delays, you may opt to air lift (depends upon size!) to catch up the lost progress or to expedite delivery. Plan upfront & get approvals for air lift (it costs much though!)

f) It’s a best scenario if equipment can be directly offloaded on its civil foundations. This avoids double handling risks & saves a lot

g) Site personnel should be communicated about deliveries. Arrangements are to be made pertaining to permits, site inspections, decrating, destuffing, ground preparation, resources etc.