If you have read a book on strategic sourcing, advanced purchasing practices, supply chain management, or spend analysis you will find many cutting edge ideas on how to elevate the purchasing profession and provide value to an organization... if you work in manufacturing. Purchasing personnel in the construction industry have been left out in the cold not just in print but most topics related to professional certifications. Case studies zero in on how manufacturing identifies bottlenecks, implements JIT inventory processes, Kaizen practices, or buys in to ERP software but there is scant mention of the unique problems of purchasing for construction projects.

Construction, by the nature of the work, cannot take advantage of the full impact of the many new strategies developed over the last 20 years. It is up to the procurement leaders and staff of each company to apply the overall lessons of volume pricing agreements, supplier management, cost reduction strategies, score carding, etc.

Three distinct differences exist between construction and manufacturing procurement.

1. The unplanned nature of the work. Few construction companies know where they will be doing work a year from now, including what materials and equipment will be required for the project. Some items, like PPE or hand tools are standard for any job and can be leveraged or have strategies applied… but what about pipe or electrical material. There just isn’t any way. A manufacturer making widget “X” today will probably be making widget “X” next year and have plans in place for 3 – 5 years. This allows for concentrated efforts to reduce costs, add value, or increase profitability by planning, partnering with suppliers, and looking at every element of cost in their dock-to-dock process.

2. Supplier management. The main office of a construction company in no way indicates where their work will take place. A contractor in California can be building a bridge in Utah, or a contractor in Illinois could be building a factory in Louisiana. Every separate location will need local suppliers who can deliver the various materials, tools, equipment, and services required. It’s hard to build manageable relationships when your project will be over in 9 months! How do you discuss partnering, early pay discounts, consignment buying, or carrying a particular item your company prefers to use on a project with the dozens of separate suppliers you will be dealing with for just a short time? Manufacturing has certainly learned the lesson of involving their suppliers in their manufacturing process. They can plan on many years of service, have continuous improvement meetings, and implement quality control processes for each/any supplier that is critical to their operation.

3. Technology. No industry lags in technology advancement more than construction. Far too many contractors still live in the world of file cabinets and fax machines. Much of the supervision in these organizations are old-timers who still enjoy mechanical pencils and have never used a scanner. Until the senior management of these organizations implement better computer equipment, cost reporting tools, and communication devices then provide training these companies will miss out on information sharing and data analysis that highlights where they could be more efficient. The purchasing department is affected by not being able to electronically store PO’s, hand writing the many forms involved, difficulty communicating with field personnel, and wasting too much time on the phone. Manufacturing has been leading many of the technology advancement requirements of the last 50 years. From robots to software, manufacturers have driven innovation and improved the operations of innumerable processes. Most manufacturing companies would say they must rely on technology just to keep up with their competition. These technologies allow manufacturers to produce less expensive products, at a higher quality, for more profit.

I don’t want to just present the problems without proposing some solutions. The answer to all three is to develop procurement methods that allow for fast responses to new work or changing conditions (emergencies), employ purchasing agents who can negotiate quickly and easily with most local and national suppliers for those times a project takes the company to new locations, and begin discussing how a new piece of technology would make various jobs or tasks easier and faster to manage and list the benefits that could be realized.

Just don’t expect any help in a book.

Best regards,
Travis