Working with suppliers on standardizing equipment procurement can lower costs, simplify processes, and save up to 50% in engineering resources.
A key cause of the high costs, detailed and lengthy processes and the large number of resources involved in procurement is the customization of vendor standard equipment. This requires detailed specifications, lengthy request for quotation (RFQ) packages, unique proposals from every bidding supplier, detailed and lengthy proposal reviews, new designs developed by the suppliers, multiple recycle of drawings for review and approval by the engineering-procurement-construction (EPC) contractor, and the users, modified manufacturing processes, frequent factory inspections and lengthy factory acceptance tests (FATs) witnessed by the owners and EPC contractors.
While the process, which has been followed for decades, works by delivering the equipment specified, it also consumes a lot of time and resources, which incurs significant costs and extends the time for delivery of the equipment. Unfortunately, because this process has been followed for decades, the negative aspects are considered normal and necessary. This historical process, however, is not necessary to deliver the necessary goods.
Create standard requirements
Eliminating the costly and time-consuming customization steps requires every user to sit down with their key suppliers one time to agree on a set of requirements for design, quality assurance and quality control (QA/QC), and documentation that will become the standard for each supplier. This can include each supplier designing new requirements or the users accepting differences from their historical requirements. This "standardization" process can consume a lot of time by the users and their suppliers, but it is done once and not on every project.
Agreeing on a standard package of features and options with each supplier and equipment can be bid and ordered with completed datasheets and eliminates the need for lengthy specifications. This also eliminates the need for the very lengthy RFQ packages, the development of detailed proposals by each supplier, the detailed review of the proposals, the development of new designs by the suppliers, the review and comments by users and by the EPCs, the revised manufacturing processes, much of the factory inspections, and fewer (and simpler) FATs.
Simple procurement saves 30 to 50%
Developing completely standard solutions with key suppliers can reduce the cost of the equipment by 30%, reduce the cost of the necessary engineering by 50% and shorten the delivery of the equipment by 30 to 40%. The investment of time and resources by the users and the suppliers one time outside of a project to develop the standard vendor solutions will result in significant savings on every project.
It’s easy to believe that specifying every detail in what was procured and the suppliers delivering exactly what was specified would result in the lowest cost solution every time. However, if the requirements differ from a supplier’s standard solution, they add costs to the equipment as well as increasing the costs, time, and resources in the procurement process. It’s better if the user or EPC never specifies or order anything that is not the standard by the select vendor except in unique cases.
Sandy Vasser is the retired IC&E manager for ExxonMobil. Edited by Mark T. Hoske, content manager, Control Engineering, CFE Media, [email protected].
KEYWORDS: Industrial procurement, company standards
Standard procurement cuts equipment cost by 30%.
Faster delivery by 30% to 40% results from avoiding customization.
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