Strategic procurement in construction: Towards better project outcomes

[edit] Introduction

According to a recent survey, 75% of Chief Procurement Officers (CPOs) anticipate implementing a digital procurement strategy within the next five years. The concept of "procurement strategy" is highly desired amongst the procurement community. Nevertheless, developing a strong and pertinent procurement strategy is a challenging task.

When signing off a construction contract, procurement managers are enforced to balance numerous variables and factors. This includes:

• Saving time and money
• Meeting strict deadlines
• Exceeding client expectations
• Managing risks and regulations
• Adhering to rebate agreements
• Ensuring accountability

[edit] Types of Procurement

Various construction procurement types can be utilised in different situations. The choice of procurement type depends on several factors, such as available resources, project scope and budget, and client requirements.

[edit] Conventional Method

In this procurement method, the client chooses a contractor and negotiates a contract. Thereafter, the contractor takes charge of procuring and managing materials and suppliers to simplify the process. This approach is ideal for smaller projects with low levels of risk and complexity.

[edit] Design-bid-build Method

A procurement method that's been used for a long time for big projects, where the client first chooses a designer to create project plans. Next, the designer solicits bids from contractors to complete the project.

The client prefers the contractor with the lowest bid to complete the project. Therefore, this procurement approach is suitable for such projects.

[edit] Design-build Method

A procurement method known as design-build involves the client hiring a single firm to handle the entire project, from design to construction.

The firm takes responsibility for both the design and building phases. Design-build is a suitable option for projects that have tight timelines or limited budgets.

[edit] Construction Procurement

This procurement method involves hiring a construction manager to supervise the project for complex projects with diverse phases and multiple contractors.

The construction manager assumes responsibility for managing the project, choosing subcontractors, and managing the budget.

[edit] What are the Challenges of Procurement?

The construction procurement process can pose complexities and difficulties. The following are some of the prevailing challenges often encountered in construction procurement:

[edit] Managing Time and Budget

In construction procurement, it is crucial for the client to oversee both the project timeline and budget to ensure timely completion and adherence to the budget.

However, this can pose problems if the client needs more resources or expertise in managing the process, especially in budgeting and cost estimation.

[edit] Choosing the Right Contractor

In construction procurement, choosing the right contractors is crucial for success. Unfortunately, the client may lack the expertise to evaluate and choose the right contractor. It is crucial to understand whether the contractor shares your vision.

[edit] Using Incorrect Software

You may be using outdated project management software that lacks procurement features. As a result, you will need to spend time finding the right contractor.

[edit] Steps to Create an Effective Procurement Strategy

To achieve a successful procurement strategy, it is critical to follow four key steps. These steps will help minimise errors, eliminate rogue spending, identify cost-saving opportunities, and ensure policy compliance. A strong procurement strategy is crucial for achieving these goals.

[edit] 1. Determine business needs

To develop a procurement strategy that delivers optimal outcomes, it is crucial to have a clear understanding of your organisations' requirements.

Conducting a thorough analysis based on factual data can facilitate the alignment and prioritisation of your procurement strategy with other functions and business objectives.

By engaging in thought-provoking discussions that challenge traditional understanding and explore alternative options, contractors can uncover additional opportunities for cost savings.

The use of tools such as a category positioning matrix can assist in determining the critical business needs that will inform the procurement strategy's development.

[edit] 2. Evaluate market conditions

After completing the internal analysis to determine your business needs, the next step is to focus on the external factors, which involve examining supply markets and their conditions.

Again, collecting crucial data from suppliers and potential suppliers is vital to ensure relevancy.

Organisations can utilise methodologies such as Porter's Five Forces and SCOPE analysis to aid in this analysis.

In addition, following procurement best practices and gaining a better understanding of the market and suppliers can make this step relatively easy to execute and maintain up-to-date data.

[edit] 3. Define Procurement Policies

After identifying the areas that require improvement, it is important to devise a set of procurement best practices to address the current inefficiencies effectively.

One way to begin this process is to revise your procurement policy to mitigate the risks identified during your SWOT analysis.

To create a procurement policy for your company, it is advisable to avoid starting from scratch. Instead, consider adopting an existing procurement policy template to suit your organisations specific needs.

A comprehensive procurement policy should guide fair practices for all parties involved in the process and outline remedies for potential violations.

[edit] 4. Implement procurement software

Organisations that rely on manual procurement processes are at higher risk of overspending due to human errors, payment delays, and missed deadlines.

By implementing appropriate construction procurement software, you can enhance employee productivity and minimise errors by eliminating manual data entry and inefficiencies. Moreover, it enables you to streamline the procure-to-pay process from beginning to end. Opting for a cloud-based platform can also assist you in identifying and resolving process gaps and enforcing policy compliance without any manual intervention.

[edit] Conclusion

Effective procurement can be a crucial factor in the success of construction projects by enabling businesses to overcome current challenges. With the appropriate approach and resources, construction procurement can be efficiently managed to achieve desired outcomes.

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[edit] External Links

https://www.projectpro365.com/