3 Strategies for Managing Your Toughest Procurement Challenges

In the high-stakes world of heavy industry, procurement is not just a function to keep the gears turning. A single misstep in sourcing can trigger widespread production delays and significant cost overruns.

You must also be confident that your procurement agreements for all labor, equipment, and materials are contract-compliant. 

Valued in the multi-trillions and employing tens of millions globally, heavy industry often involves large-scale operations and complex machinery, materials, and specialized contractors. Whether your role involves mining, manufacturing, oil and gas, or chemical production, procurement stands out as a universal hurdle.    

Even when doing your best, it is not uncommon for projects to suffer from cost overruns and delays. For example, from 2015 to 2019, upstream and midstream oil and gas capital projects suffered an average delay of 2.5 years and an average cost overrun of 17%, according toBain & Company.  

Building Stronger Relationships

Managing a complex supply chain with highly specialized or limited suppliers and vendors means a procurement manager must always keep costs under control--whether negotiating the best possible deal with vendors or making sure purchase orders are correct and fully compliant. 

The heavy asset industry needs to get its procurement process right to ensure productivity and profitability. Otherwise, meeting production goals is impossible. Missing a project schedule is impactful.

Ultimately, the procurement process functions better when the relationship between project owners and their suppliers, vendors, and contractors is based on trust and clarity. 

For example, how would you answer these questions: 

• Do all of your vendors have fully executed agreements with clear rates, rules, and terms?

• Are all of your agreements easily accessible, accurate, and up to date?

• Do you have a consistent method for contract execution and extension?

• Can you easily view and evaluate spend per contract to ensure compliance?

• Do you have boilerplate contract language where appropriate to speed up execution and avoid unnecessary legal review?

• Are your contracts operationalized and complied to within your ERP so your business partners can utilize them?
   

Being able to identify and mitigate gaps can be a game-changer for keeping projects on track.

Getting Procurement Right 

As we know, supply chain complexity can be challenging when it comes to procurement in the heavy asset industry. 

There are three tough procurement challenges that all in the industry face: 

• Negotiation of terms and conditions 
• Managing vendor disputes or concerns 
• Managing purchase orders.   

How can companies use stronger strategies and tools to get procurement right? How do these challenges impact the heavy asset industry, and how can they be overcome? Let’s take a closer look at three procurement strategies to overcome these challenges: 

1. Improve How You Negotiate Terms and Conditions

Have you ever played the game Monopoly? One of the most fun elements of the game is the trades, which only occur after serious negotiations. Often, the trades determine who will win the game (luck helps too!).  

Negotiating terms and conditions in the heavy asset industry is a major challenge. However, writing a contract that clearly spells out the terms and conditions is perhaps even more difficult. Spelling out the contingencies and specifics so they are agreeable and clear to all sides requires high-level negotiations. 

Contract managers, who are responsible for drafting, evaluating, negotiating, and executing contracts, may deal with hundreds or even thousands of agreements between the owner they work for and the vendor companies they use.  Once there’s a fully executed agreement with rates, rules, and terms, it needs to be enforced. Variations to the agreement terms can have a dramatic impact on the budget. 

Managing the contracts, staying on top of them, and remaining on budget is extremely difficult. The process is simplified (not simple) with digital tools. Digital tools enable heavy industry firms to gain insight into contract fulfillment. 

Is the contractor fully compliant and meeting the negotiated terms? Technology that automates record-keeping empowers heavy industry firms to confirm if contractors are holding up their end of the bargain. Standardizing and managing contracts help owners and contractors ensure that contracts are enacted as negotiated.

We’ve all been frustrated and/or disappointed with a company and decided, “I’ll take my business elsewhere.” This decision is easy to enact if there are multiple places to buy the item. There are a million places to buy a shirt. 

Whether it's buying equipment or securing contract labor, there are few options for heavy industry companies due to specialization. Therefore, forming deep relationships with vendors is a key to procurement. The basis of the relationship is applying fair and transparent business practices and regular communication and feedback. 

While the procurement manager of a heavy industry firm focuses on ensuring a favorable (to the owner) deal, other factors are also relevant. Once the contract is signed, both sides need to act as stipulated. 

Disputes may come up. To minimize disputes and preserve a respectful rapport with needed vendors (who can act as partners as relationships develop over time), heavy industry firms need to track and document the contractor workforce. With documentation that spells out issues, the heavy industry firm can avoid confrontation with vendors as they strive to enforce contracts. 

Spreadsheets and other old-school documentation won’t cut it -- the contracts are too complex. Digital tools that capture everything and document information in an easily understandable way are essential to managing (and minimizing) vendor disputes. 

The documentation from digital tools allows both parties to have a shared version of the truth. Being on the same page enables disputes to be settled respectfully and fosters positive relationships.

 3. Go Digital to Manage Purchase Orders  

The challenge of managing purchase orders for heavy industry firms is all about scale. The procurement manager is responsible for creating and maintaining purchase orders. They may be dealing with thousands of orders. 

Often, purchase orders are created, and there’s little visibility/clarity on the status of POs once issued. Sometimes, POs need to be changed, and their status is left unclear. If the procurement team doesn’t know the status of open POs and which ones have achieved a user-defined threshold, they can’t put out an alert. 

This challenge is exacerbated if the heavy industry firm has multiple facilities. One won’t simply see what is going on. 

A digital procurement platform makes it possible to gain insight into purchase orders and track them. Those solutions that interface with existing Enterprise Resource Planning (ERP) systems can receive and break down purchase orders and work orders in real-time.  

This information gives the procurement manager and their team the information they need to proactively manage purchases.