Element 3: Integrated, Automated Procurement and Supply Network

Tactical Plan

Scope

Provide a fully integrated, automated procurement and supply management system (i.e. tools and processes for planning, controlling, including financial controls for the procurement process.)

Founding Team

ABB Lummus Global, Richard Haines
Aker Kvaerner, Jeanean Slamen
Bechtel, Jim Dilworth
Bentley Systems, Barney Jones
Burns & Roe, Michael Clark
Chalmers University of Technology, Dr. Hans Bjornsson
ConocoPhillips, Alan Tough, Bart Neighbors and Robert Trosper
Consolidated Contractors Company, Zuhair Haddad
DuPont, John Osby
Emerson Process Management, Lance Boudreaux and Geoff Flisher
ENC Corporation, Ismail Nalwala
ePlantData, Tom Teague
Febris, Stuart Sutherland
Fluor, Clay Coffee and Vincent Grindlay
Ford, Bacon & Davis, John Fish
General Motors, Laird Landis
Hanyang University Ansan, Saumya Swain
Hatch, Martin Blyth
Intergraph PPM, Michael Buss and Chuck Gill
Jacobs Engineering, Jay Jean
KBR, Buddy Clark and Troy Muller
Lean Construction Institute, Greg Howell
Morpheus Technology Group, Randy Nolan
Mortenson, Jim DeLeo
NIST, BFRL, Mark Palmer
NRX Global Corporation, Andy Carroll and Scott Frazer
OnTrack Engineering, Mike Milinusic
Otepi, Antonio Villaluenga
Pathfinder, Mickey Collins
The Procter & Gamble Company, Gil Torres
S&B Engineers and Constructors, David Anders and John Cook
Saudi Aramco, Louis Archuleta
Skire, Paul Verveniotis
Software Innovation, Ray Simonson, Scott O'Neill and Paul Sunderland
Target, Steve Lord
Texas A&M University, Jorge Vanegas
Washington Group International, Michael Cate
University of California, Berkeley, Dr. Iris Tommelein
University of Texas-Austin, Dr. William O'Brien
VTT, Arto Kiviniemi
Zachry Construction Company, Steve Richardson

Vision

The Vision statement describes what is wanted in the future.

The procurement system of the future will be seamlessly integrated with the project design system, project management and control system, finance system, field materials management system and the global supply network. This will enable enterprises and project teams to optimize work packages, select products, identify qualified suppliers, and procure the best products at the best prices with complete confidence and ability to deliver on time and within budget. These linked systems will automatically track every order through delivery to the job site, orchestrate the flow of resources for optimal build efficiency and provide instant visibility of progress and variances against technical, schedule, and cost requirements throughout the selection, delivery and payment processes.

The opportunity for the integrated procurement and supply system is to enable automating sourcing and supply chain interaction, from determination of needs to delivery of to-spec orders on time and within budget to point of need. The vision is centered on a project design system that seamlessly interconnects with the supply network and enables rapid completion of detailed facility designs. The system will enable automated specification of procured items based on parameters defined by the project planning system (cost, schedule, quantity) and by the design system (technical requirements). The output of the design system and the procurement system will be a total procurement package that accurately specifies all needed materials and components, cost and schedule. Automated and integrated tools to support bid solicitation, vendor certification, source selection, and contract negotiation will slash procurement cost and time. The supply network will be directly integrated with the capital project design and management systems, providing continuous visibility into status and progress of every supplier activity across multiple capital projects being managed by the enterprise.

The vision defines a globally integrated supply network that will securely deliver stock and custom assemblies and materials as dictated by the master project schedule for respective construction steps, reducing the need for on-site storage. Automated procurement systems will coordinate delivery in accordance with the evolving demands of the master schedule. Standardized construction items will become commodity products designed for rapid build.

The principles of lean manufacturing and demand-based product pull that have transformed the manufacturing sector will become the underpinning of the procurement and staging functions for capital projects. The ultimate vision for the integrated supply network relies on accurate and complete electronic procurement packages including 3-D product definitions, product specifications, procurement format standards, and supporting analytical models. This product data will be output from the design system and delivered to the vendors and fabricators along with cost and schedule requirements. The global electronic procurement network will automatically identify and solicit qualified bidders and support evaluation of source capabilities and assured ability to deliver. The project management system will interface with the suppliers' systems to maintain continuous visibility of schedule progress, remote inspection, witness testing and inspection results, enabling the project managers to identify any schedule or quality issues as soon as they arise. This will also enable the project team to collaborate with suppliers to solve problems before they impact the project schedule. Similarly, the system will enable rapid creation of new delivery schedules validated against supplier capabilities should there be changes to site construction schedules.

The master schedule, linked to the Asset Lifecycle Information System, will be continuously synchronized with the actual progress of the project. The site monitoring and tracking system will compare daily construction progress against the plan and coordinate the continuous flow of materials and assemblies to the point of need. The Asset Lifecycle Information System for a facility will be continuously be updated to reflect actual status, while flagging any variances for management attention. The site asset tracking and control system will enable workers to instantly locate the resources they need and get them delivered for immediate use.

The capital facilities industry will interact in a distributed electronic commerce environment that enables suppliers and subcontractors across the world to seamlessly "plug in" (with appropriate security) to any project, identify business opportunities, and exchange requirements and bid information. The integrated procurement system will automatically identify and solicit qualified bidders, evaluate source capabilities, and ascertain ability to deliver. Suppliers of materials, parts, equipment, tools, and other products will maintain on-line knowledge bases of their products complete with performance specifications, tolerances, cost, supply lead times, options, available quantities) and material properties captured in "multi-D" product models that designers can plug into the Asset Lifecycle Information System as it evolves.

The product design system will output a total procurement package including bill of materials, schedule, cost targets, delivery requirements, and performance specifications for every element of the project. The users of the procurement system will use this package to canvass the supplier community, solicit and evaluate bids, make source selection recommendations, place orders, and track status through to delivery and acceptance. The system will accommodate and efficiently communicate and inform all affected parties of proposed and implemented changes and flag the impact of any changes that are requested which affect procurement and delivery schedules. Any items or material on the project critical path status will be automatically updated at appropriate intervals to assure that the supplier is on schedule. The system will alert the project team to any schedule or cost variances, facilitating fast problem resolution and mitigating risks before they impact critical milestones. The asset tracking and control system will deliver goods and services to the site via demand-based "pull" and enable every worker to instantly access the resources they need for the task at hand.

The system will have access to databases of supplier data to aid in the sourcing process, including historical performance, technical and management qualifications, quality ratings, small/disadvantaged business status, and similar parameters.

Current Problem

The Current Problem statement describes the existing situation.

Despite the advent of automated purchasing systems, electronic commerce, and streamlined business processes, procurement for capital projects remains a time-consuming process. Current processes are heavily reliant on human expertise, initiative, and communication to assure that the right goods and services are acquired at the lowest possible cost and delivered on time to point of need. Many companies have moved to centralized, multi-project sourcing strategies to benefit from economies of scale. However, centralized functions often lack the understanding to buy the best product from a myriad of options, or to select the best source on the basis of factors (such as local conditions) other than cost. The front end of the process is a primary source of problems, since procurement is often tasked with inaccurate requirements. Wastage in raw materials and commodity products is routine, and frequently represents a significant expense that is simply built into the cost to the customer. Unnecessary complexity of engineering specifications, excessive engineering change orders, excessive lead times, shortages, communication errors, delays and liquidated damages are additional symptoms of inefficient supply chains and procurement operations. While many design/build contractors have integrated design and procurement systems, the integration and communication with necessary third parties in the overall procurement work process - owners, subcontractors and suppliers - is not integrated at all. For example, mistimed (late) owner reviews and approvals can cause changes late in the process can cause delays and churns in the overall procurement process. This results in existing supply chains remaining inflexible to accommodating owner directed and related changes. The net results of all these difficulties are supply processes that are expensive and of long duration while lacking necessary flexibility to provide owners the projects they desire to meet a dynamic business environment.

Inadequate attention to the supply chain management principles and inefficient change management are major sources of problems in the procurement cycle. Timelines for communicating a design change to all points in the supply chain are long, and customers typically face exorbitant markups on change orders. Many suppliers intentionally lowball their initial bids to win the job, knowing that they will realize a healthy profit through the inevitable change orders.

The ability of the project planning, design and procurement functions to finely sequence the selection and flow of equipment, supplier information, materials, tools, subcontracted labor on time from origin to point of need is sorely lacking. On- and off-site storage and staging impose significant time and cost penalties on the construction execution function and are a cause of schedule delays, particularly with respect to long-lead items.

Potential Benefits & Opportunities

The integrated procurement function will deliver significant cost savings on every capital project through its ability to deliver exactly correct goods and services on time from the lowest-cost qualified source. Synchronizing deliveries to the job site at point of need in the build process will reduce construction site labor, space, wastage, and build time. Orchestrating the timely delivery of supplied material from multiple parallel sources will benefit from information flow to and from the supply base. Constantly changing construction site status and delivery requirements will be communicated outward while the change response and impacts are fed back to the site master schedule. Specific benefits to the stakeholders are illustrated in the table below.

Stakeholder	Specific Benefit
Owner/Operators	- Reduced efforts in capital project business development and estimating phases - Reduced costs and assured best value in all procurement actions - Faster development/preparation of inquiries - Reduced bid cycle time
Architects	- Easy access to product feature and cost information to enhance innovation and affordability of design concepts.
Designers/Engineers	- Reduced efforts in capital project business development and estimating phases - Full access to design data for purchased materials, components, and equipment will enable better designs and eliminate disconnects between design specifications and delivered products - Faster development/preparation of inquiries - Reduced bid cycle time - Higher quality specifications (with early owner input), RFQ, BID, POs will help to reduce downstream changes and associated cost - Reduced time for inspection activities
Constructors	- Reduced efforts in capital project business development and estimating phases - Reduced bid cycle time - Higher quality specifications, RFQ, BID, POs will help to reduce downstream changes and associated cost - Reduced time for inspection and on-site receiving activities - On-time delivery of exactly the right resources to point of need, tightly synchronized to the project schedule, will speed construction, eliminate downtime, and drastically simplify site staging requirements.
Material/Equipment/Technology Suppliers	- Clear and definitive agreement on cost, delivery, product specifications, and conditions of contracting - Higher quality RFQ, BID, POs will help to reduce downstream changes and associated cost - More efficient sales/business development processes - Reduced bid cycle time - Reduced time for inspection activities

The business cases for integrating the procurement and supply network are highlighted in the table below.

Feature	Direct Business Benefit
Integrated global supply chains	-Lowers acquisition cost of procured items from expanded source base
Automated purchase order generation from specs and supplier-provided standard product models	-Reduces indirect labor and shorter procurement timelines -Reduces mistaken orders through more highly standardized product definitions -Reduces multiple-data entry and data errors in input of supplier-provided data
Deliveries sequenced and continuously updated to master project schedule, with pull-based automated replenishment	-Reduces build time 10%-30% through highly synchronized job site operations -Reduces 50%- 90% requirements for job site space storage, and staging -Up to 80% reduction for material inventory carrying costs -Reduces working capital requirements
Automatic generation of billing and invoicing based on work completion	-Reduces indirect labor -Improves opportunity for prompt payment discounts
Real-time visibility into supplier performance, capacity, and progress	-Reduces receiving inspection -Provides immediate visibility into delays and quality problems -Speeds resolution and protects master project schedule
Automated change propagation	-Greatly reduces cost and schedule impact of design changes

Potential Barriers & Challenges

Current contracting and risk/reward assignment practices impede collaboration on improving supply chain performance.
Current procurement work practices with it's mix of centralized procurement, project procurement, program procurement, and owner procurement which hinders the ability to control project schedule and maintain a coherent view of materials and labor assets.
Insufficient open standards for supply chain information exchange
Immature inter-system communication and integration mechanisms
Silos of knowledge - technology providers know how to develop features for their clients' specific functions but there are few market incentives for developing common industry practices and solutions
Accepted practices about ownership of data and liability for data integrity have not been established.

The potential benefits and return on investment associated with an integrated and automated procurement and supply network are very significant. However there are potential barriers and challenges that need to be carefully considered and addressed in order to successfully turn the vision into practicable reality.

Key adoption barriers include but are not limited to:

There might be some reluctance on the supplier side because integrated and global supply chains/networks ultimately will increase the competitive pressure on suppliers participating.
While on the one hand there are time savings potential for the suppliers, on the other hand there are risks for potentially increased workload in terms of being forced to provide real-time information (visibility) on portfolio, performance and progress.
Procurement standards (i.e., inquiries, quotes, orders, bid tabs, vendor information, catalogues, specifications, performance ratings, etc.) will play a key role in terms of enabling highly efficient communication and information exchange. This implies the risk of the "Integrated and automated Procurement and Supply Network" being too dependent upon progress of standardization efforts that can fail to become truly adopted by the industry.
Another concern is related to the level of granularity of typical project planning procedures. Common and costly problems in terms of supply and delivery oftentimes are caused by events that occur below project management levels 3 or 4. The associated challenge will be to support highly granular/detailed tracking/management procedures on the one hand without forcing participating organizations to entirely change their related business processes on the other hand.
Technology Provider Participation: Leading manufactures of software designed to meet the needs of the industry may be slow to adopt new standards or provide required functionality to support interoperability between competitive products.

Goals

The Goal statement describes what is expected to be achieved.

The goal of this Element of the Roadmap is to identify and pursue business process improvements, capabilities and technologies to advance the development of fully integrated supply chain, engineering, procurement, project controls, job site delivery and financial systems that provide the real-time collaboration and optimization across the entire supply network.

Real-time automated procurement and supply network (Element 3) goals are:

Define and document best practices for supply chain production, logistics, validation, and information flows to identify inefficiencies and bottlenecks and highlight improvement opportunities.
Integrate engineering, project controls, financial systems and procurement work processes and supporting tools.
Integrate and automate supply chain work processes and job site delivery and tracking of materials and labor.
Develop the means to objectively and dynamically evaluate supply chain performance.

Strategy for Achieving the Goal

The strategy statement describes how we see the goal being achieved.

The strategy for achieving an integrated procurement and supply network recognizes that the supply network is far more complex than just the supplier companies that interact with a capital project. The approach has four principal thrusts: 1) understanding, documenting and optimizing work processes 2) information protocols for optimizing connectivity of the procurement function with the engineering design and project planning and controls functions; 3) technologies and methods to integrate the multiple systems associated with procurement, supply and delivery; and 4) measuring and evaluating supply chain performance.

Numerous current commercial systems can and will be leveraged in the solution process. The challenge is one of work process integration across organizational boundaries and information system engineering and integration. Therefore, this element focuses on developing standards and optimized process models that support true integration of procurement systems with the supply network.

The strategy includes the following components:

Develop a charter and project plan, including a schedule.
Identify and define the business work processes and integration opportunities.
Define requirements for the technical tools (software products etc) required to support the identified business processes.
Use the guidance from Element 9 to plan the development of open standards and information architectures related to integrating the identified business processes and software tools.
Evaluate tools in the marketplace against requirements, including a comprehensive gap analysis.
Prioritize the integration opportunities based on value to the project and facility management industry.
Assist and motivate associations and technology providers to accelerate the process of providing compliant tools and products to the marketplace.

Focus Areas and Projects are defined to implement this strategy.

Focus Areas & Projects

The focus area section describes what we are going to focus on, and specific projects are proposed within each focus area. Focus Areas are the broad description of what this Roadmap element is going to do. Each focus area will be addressed through several projects, conducted over time. The project titles are linked to the detailed project descriptions.

Project details can be viewed by downloading the PDF. The project template applied to each project includes: Project Title, Objectives / Deliverables (what result), Purpose / Business Driver(s) (why), Ties / Dependencies / Overlaps (with other projects or Elements) (constraints, boundaries), Urgency / Time line (when), Process / Activities (how), and Resources (who). Each project will be more fully defined as time progresses. At this point the project descriptions should indicate what the project will do in sufficient detail to get potential participants interested and to understand the timing and dependencies between projects. Timing or scheduling of these projects is presented in the section, the Seven-year Timeline.

E3-FA1: Integration of Engineering & Project Controls with Procurement- This focus area will identify system interfaces that facilitate procurement integration with engineering and project control processes. This focus area will also address the data security, access and tailoring of information for diverse users. The effort will include:

The integration between procurement and engineering systems to accelerate and optimize supply chain response and status feedback based on initial design requirements or changes; and the automated delivery of design data to procurement systems formatted to optimize both materials and services sourcing and logistics activities, and construction planning and control.
The integration between procurement and project management and control systems to enable planning and scheduling of construction activities based on procurement actions and supply chain status; and the real time reporting and decision support on cost, schedule, progress and trends and/or plan variances based on consumption of procured goods and services and site capacities or other production constraints.

Projects:

E3-FA1-P1 Definition of Work Processes & Systems for Engineering, Project Controls, Materials Handling and Labor Tracking
E3-FA1-P2 Information Protocols for Engineering, Project Controls, Materials Handling and Labor Tracking
E3-FA1-P3 Information Protocols for Procurement Process Financial Interoperability
E3-FA1-P4 Intelligent Project Analyst

E3-FA2: Supply Chain Information Access - This focus area enables stakeholders controlled access to real time status information and product and fabrication progress information, which includes functional, physical, cost, availability, quality information and other supplier information as needed to support all aspects of project management and execution. This includes procurement of equipment, parts and material for EPC and O&M and appropriate means for protecting competitive data, authorizing access, and tailoring information for different users. This excludes tools, rental equipment for construction and contracting for service contracts.

Projects:

E3-FA2-P1 Automating Equipment Information Exchange (AEX)
E3-FA2-P2 Protocols for Exchanging Fabrication Progress Information
E3-FA2-P3 Standard Supplier Documentation Requirements
E3-FA2-P4 Standard On-line Capabilities for Supplier and Procurement Community
E3-FA2-P5 Automated Supplier Qualification Protocols
E3-FA2-P6 Customs and Standards Knowledgebase

E3-FA3: Integration of Procurement with Intelligent Job Site - This focus area will focus from purchase to distribution and delivery. It will identify system interfaces that facilitate procurement integration with equipment and material logistics, tracking and trafficking, materials management, meeting security and regulatory requirements and other intelligent job site activities. This focus area will also address the data security, access and tailoring of information for diverse users. The effort will include managing material and job site information including material tracking, borders (compliance) - U.S. Department of Treasury Office of Foreign Assets Control (OFAC) and their Specially Designated Nationals and Blocked Persons (SDN) list, scarce resources (shipment, log), identification of other groups working in areas, min/max systems, inventory, engineered to Order (ETO) products, supplier communication methodologies, supplier diversification, 2-way communication - visibility, elimination of barriers, front end element, job site, and among project too, extend back a few tiers, overseas security: import and export, design information, product maintenance (physical, safety), discussed process of identify/define -> source -> purchase -> deliver -> inventory -> distribute/build/install and how optimized work, ID, optimized materials handling, security, compliance and kitting would fall within identify/define -> source.

Projects:

E3-FA3-P1 Real-time Material Logistics: Tracking and Trafficking
E3-FA3-P2 Materials Security and Regulatory Compliance Streamlining
E3-FA3-P3 Optimized Job Site Materials Management
E3-FA3-P4 Identification and Management of Scarce and Long Lead Items

E3-FA4: Evaluation of Supply Chain Structures - This focus area will develop supplier and supply chain performance measures and metrics, and catalog, identify, and evaluate different procurement business models and supply chain structures for differing supply chain classes, including emerging web-based and E-commerce networks. Industry-wide shared reference models and databases of performance history and lessons learned about suppliers and products will be developed, with provision for validation of performance claims and adverse information. Building from supply chain metrics and historical performance, dynamic simulation and performance models will be enabled to allow supply chain managers to predict performance, identify and manage risks, and evaluate alternate procurement/supply chain models and methods. Models and metrics developed under this functional area will support development of data standards and integration efforts for automation of procurement processes as well as project monitoring and control.

Projects:

E3-FA4-P1 Supply-chain Performance Metrics
E3-FA4-P2 Models for Risk/Value Management of Procurement Items
E3-FA4-P3 Dynamic Mapping and Simulation of Supply Chains

Seven-Year Timeline

A timeline is proposed for the projects within this Tactical Plan.

Assumptions:

Preparation for each project will take about 3 months (1 quarter). Preparation includes identifying funding, resourcing and project set-up.
3-6 months is the typical time-frame for the actual work on each project.

		Yr 1	Yr 2	Yr 3	Yr 4	Y4 5	Yr 6	Yr 7
E3-FA1: Integration of Engineering and Project Controls with Procurement
E3-FA1-P1	Definition of Work Processes and Systems for Engineering, Project Control, Materials Handling and Labor Tracking	Q3-Q4	Q1-Q2
E3-FA1-P2	Information protocols for Engineering, Project Control, Materials Handling and Labor Tracking		Q3-Q4	Q1-Q2
E3-FA1-P3	Information protocols for Procurement Process Financial Interoperability				Q1-Q4
E3-FA1-P4	Intelligent Project Analyst					Q1-Q4
E3-FA2: Supply Chain Information Access and Standards
E3-FA2-P1	Automating Equipment Information Exchange (AEX)	Q1-Q4	Q1-Q4
E3-FA2-P2	Protocols for Exchanging Fabrication Progress Information		Q1-Q4
E3-FA2-P3	Standardized Supplier Documentation Requirements	Q3-Q4	Q1-Q4
E3-FA2-P4	Standardized On-line Capabilities for Supplier and Procurement Community	Q1-Q4	Q1-Q4	Q1-Q4
E3-FA2-P5	Automated Supplier Certification Protocols						Q1-Q4
E3-FA2-P6	Customs and Standards Knowledgebase						Q1-Q4
E3-FA3: Integration of Procurement with Intelligent Job Site
E3-FA3-P1	Real-time material logistics: tracking and trafficking				Q1-Q4
E3-FA3-P2	Materials security and regulatory compliance streamlining					Q1-Q4
E3-FA3-P3	Optimized job site materials management		Q1-Q4	Q1-Q4
E3-FA3-P4	Identification and Management of Scarce and Long Lead Items	Q3-Q4
E3-FA4: Evaluation of Supply Chain Structures
E3-FA4-P1	Supply-chain Performance Metrics				Q1-Q4
E3-FA4-P2	Models for Risk/Value Management of Procurement Items				Q3-Q4
E3-FA4-P3	Dynamic Mapping and Simulation of Supply Chains							Q1-Q4