The Link Between Procurement and Performance
Procurement, also known as the process of sourcing; labour, teams, products and services, is a hot topic in the construction and engineering industry right now. And with good reason.
Whether it’s hiring the right teams, sourcing premium supplies (and suppliers), or managing logistics, it comes down to having a solid procurement strategy in place. That means hiring the right people and teams at every stage, and managing stakeholders for buy-in.
There is no doubting the importance that good procurement practice brings, with 87 per cent of construction professionals believing it’s key to a successful project.
However, as systems and budgets streamline, and with the option to outsource services abroad, companies are increasingly challenged to remain competitive. This has led to a number of discrepancies in the industry, from “suicide bidding” to other cost-cutting measures. But more on that later.
What is clear, is that every decision made in procurement has an impact on the wider delivery of the project - and one of these is performance.
The power of procurement
Despite new technologies advancing the industry, construction still very much remains a people-orientated business. It requires input from numerous stakeholders, and the appointment of skilled professionals, from conception through to completion.
When you consider the scale and significance of construction, there is no margin for error, which is why performance is critical. Much like the buildings being constructed, a solid foundation is needed at the start of any project.
This is where procurement comes in.
But the role of procurement goes deeper than negotiating the right suppliers, or hiring a skilled project manager. It’s about a consistent approach, understanding the supplier-chain, and a taking a holistic long-term approach to project management. All of this underpins a constructions performance.
Let’s take a look at some of these in greater detail:
- More hands on-deck, equals greater productivity
According to the latest government figures, construction-related employment in the UK, has increased in recent years. In line with this increase, we’ve also seen a rise in labour productivity by 0.7 per cent.
- Skilled workers deliver better results
Hiring the right teams and people has a profound effect on outcomes delivered. A published report suggested that workforce in construction is the most valuable resource because; “The quality with which construction projects are carried out depends on the workers’ levels of skill in planning and execution of the project.”
- Cost-saving benefits
Performance isn’t just about being on time, it’s also about being on budget too. An emerging industry issue is “suicide bidding” whereby some contractors opt for low bidding at the tender stage to undercut competitors. It’s an issue that the vast majority (82 per cent) of industry workers believe exists.
However, appointing the cheapest supplier is not always the best move. It may lead to poor quality results, under skilled under-performing teams, and an unreliable supply chain. As a long-term approach, conversely it may result in more money being invested in the project. This isn’t uncommon, with 93 per cent of professionals having worked on projects that overran in terms of cost.
Despite procurement playing a significant role in the success and outcome of a project, there are still many barriers in the way. These include:
- Slow to respond
The procurement industry has been slow to evolve. Research by KPMG shows that there hasn’t been enough focus on; supplier relationship management, in demand management, and in the ‘make versus buy’ decision process.
- Investment in people
Over the past few years there has been a decline in apprenticeships in the industry. It’s estimated that one fifth of all vacancies in the wider construction sector are not filled because employers cannot find staff with the right skills, experience or qualifications. This has had a huge impact on procurement and HR.
- Removing costs as a barrier
All too often, the focus on cost drives decisions on suppliers and resources. However, this should not be at the peril of a project meeting its overall business objectives.
- Performance needs to be measured
In order to evaluate performance, there first needs to be some measures in place. Worryingly, the latest insight suggests that nearly half of all client programmes have no measurements for evaluation. In an industry that demands high quality control on every level, this is an issue that must be met.
Procurement may be viewed as a strategic corporate function; however, it plays a significant role in the entire project management process. Every decision made will impact the delivery and performance of the project.
For this reason, it demands all relevant stakeholders to come together, collaborate and lay the foundations for a successful project. Only this way will the integrity of; talent acquisition, cost-savings and supply-chain management be met.