In today’s industrial landscape, smooth supply chain global operations are more vital and unpredictable than ever, while industrial procurement teams constantly navigate through a maze of third-party suppliers, multiple stakeholders, complex equipment requirements, parts shortages, supplier production delays and unforeseeable geo-political events.
This delicate balancing act becomes even more challenging when trying to maintain project schedule, cost, agreed upon deliverables and quality standards.
Heavy industrial facilities rely on specialized equipment and the ripple effect caused by supply chain disruptions can have massive financial and operational consequences.
Top Strategies to Mitigate Supply Chain Risks:
- Project team alignment
- Early planning and risk management
- Proactive communication
- Collaborative tools
- Structured processes
- Supplier monitoring and oversight
- Ongoing risk management
4 Challenges Facing Industrial Procurement Organizations
Challenge 1: Multiple Stakeholder Misalignment
Level-setting procurement expectations with all project stakeholders, including clients, engineers, designers, constructors and third-party suppliers, at project kickoff creates mutual understanding and agreement regarding supplier obligations, quality of deliverables, delivery dates and purchase terms for project team alignment.
Misalignment occurs when suppliers delay order processing or fail to assign resources promptly, causing a ripple effect across a project.
The solution lies in conducting a clear, concise and comprehensive project kickoff meeting where a project execution plan and detailed schedule are mapped out to ensure that everything falls into place. This includes aligning on key dates for submittal of supplier documentation, delivery of components, fabrication, testing and shipment.
The solution also lies in identifying all possible risks that could delay the schedule and putting mitigation plans in place. For example, component delivery delay risk may be mitigated by identifying alternate sources of supply, proactively expediting sub vendors, air freighting components to the fabricator and/or altering the fabrication schedule so other tasks can be performed prior to delivery of a late component.
Another important aspect of the project execution plan is to identify the financial and human resources required to oversee the supplier’s operations to ensure that they are going to get the job done and done correctly. In most cases, spending additional dollars to send a project representative to a fabricator’s facility or adding a locally based third-party inspector (TPI) to the team, will catch potential issues early and reduce the risk of quality issues or schedule delays.
Following the project kickoff, regular status check-ins then track schedule and key milestones in addition to identifying and resolving any issues that could lead to production and delivery delays or impact quality in deliverables.
Suppliers can’t operate in a silo. Engineering and design project teams must perform ongoing reviews of vendor drawings, written specifications and 3D models to validate that the design aligns with industry standards, technical requirements and project expectations prior to fabrication.
Project kickoff meetings, regular status check-ins and ongoing reviews of vendor design and documentation ensures that everyone is on the same page and executing to the same plan.
Challenge 2: Supplier Constraints on Capacity and Resources
Another challenge is ensuring that suppliers have the necessary capacity to fulfill their promises, particularly when global supply chains are involved.
For example, there could be delays in the supplier identifying their sub-supplier(s) who would perform the services to meet their contractual obligations or a shortage of technical resources in the supply chain who can efficiently and correctly develop the designs prior to fabrication, particularly when designing highly specialized equipment.
For equipment made up of various components sourced from a number of sub-vendors from around the world, it can be a huge challenge to ensure that all of the components arrive at the supplier’s facility in time to build the equipment and deliver it on schedule.
In addition, refineries and manufacturing facilities are now competing with tech industries, including data centers and electric vehicle manufacturers, for similar electrical equipment and control systems.
As a result, suppliers frequently face delays in receiving components from international vendors, resulting in production slowdowns. In these situations, weekly meetings are required to assess progress and mitigate risks in real-time are critical in keeping projects on track.
The key to mitigating sub vendor delays is to dig deeply into your supplier’s procurement operations. This is easier said than done, as many suppliers would prefer to keep their customers away from this side of their operations.
To set a supplier’s expectations up front, it is best to let them know the level of involvement you anticipate. Include a statement in the Request for Quote and purchase order to provide a contractual basis such as, “The goods furnished will be subject to expediting by Buyer. Supplier agrees to request a similar right to Buyer for expediting purposes with respect to any sub-contractors and sub-suppliers.”
Ask the supplier to identify milestone dates for issue of purchase orders and delivery of critical components. These milestone dates should then be monitored as part of routine communications and status meetings with the supplier.
If these dates start to slip, it is highly likely that subsequent activities and milestones will also slip, delaying the final delivery date. The supplier should be directed to take all necessary measures to mitigate these delays, including aggressively expediting their sub vendors, sourcing their components from alternate suppliers and/or air freighting them to their factory.
Additionally, identifying component delivery delays early provides the time to plan and execute mitigations, including expedited fabrication and assembly once the components arrive.
Challenge 3: Shortage of Technical Expertise
A third challenge revolves around the scarcity of skilled engineers and technical staff who can design specialized equipment.
During the Great Resignation, experienced employees left the workforce in a mass exodus, taking their knowledge and expertise with them while their positions backfilled with inexperienced, younger staff.
In 2021 and 2022, over 98 million American workers quit their jobs and quit rates in construction, manufacturing and other industries were much higher than historical averages during this time.
As a result, many suppliers now lack the experienced technical resources to deliver high-quality equipment designs on time, further delaying project timelines and increasing the risk of cost overruns. The inability of inexperienced resources to perform at the same high level of competence as former employees can greatly impact project schedule, cost and product quality
To mitigate this risk early on in a project, it is important that procurement specialists take all necessary steps to ensure that the supplier and/or sub-suppliers have the shop capacity and technical resources in place to design and manufacture the equipment in accordance with their contractual obligations.
This requires conducting site visits and quality audit checks at supplier facilities to determine if there is lack of experienced staff and/or any rework and red-tagged equipment for repair.
Some of the knowledgeable and experienced people who left their full-time jobs during the Great Resignation are now contractors that companies hire as third-party inspectors to conduct quality, performance and schedule oversight visits to supplier facilities.
These seasoned contractors have many years of experience either in design, fabrication or quality checking of equipment and materials.
Armed with design details, fabrication schedules and information pertaining to executing the work, these inspectors are able to monitor the supplier’s performance and compliance with project requirements, sending back detailed reports with photos and other documentation to show the status of the fabrication process.
While inspectors delve deeply into the supplier’s business, engineering companies are holding more meetings and conducting more check ins to continually view the designs in progress so as to not be surprised by poor quality.
Collaborative tools like Bluebeam are leveraged for real-time design reviews and regular feedback loops to help procurement specialists stay on top of any supplier issues that might arise during a project, minimizing the risk of costly revisions and schedule impacts.
Challenge 4: Unpredictable Macro Issues
One of the biggest challenges facing procurement teams and suppliers are the unpredictable external forces that are outside of their control. These external forces, including international conflicts, geopolitical unrest, terrorism, weather-related events, tariff wars and global pandemics, can drastically impact supply chains.
Procurement teams and suppliers can do everything perfectly but still be caught off guard by these unforeseen curve balls.
Unpredictable events, such as the COVID pandemic, can throw the global supply chain into complete disarray. COVID really showed the world how overly reliant companies had become on global sourcing due to the fact that it had become cheap and easy to move materials around the world.
Companies have also found it convenient to use technical design services in less expensive areas of the world and, as a result, a number of fabricators now offshore their engineering and design.
What COVID shed a light on was that while supply chain operations that may work well under perfect circumstances, it can easily and quickly break down when faced with challenges like a worldwide pandemic, labor strikes, international conflicts, tariff wars or terrorist acts.
The best way to combat unpredictable events is to predict every risk that may occur, leaving no stone unturned. This is why building a robust risk mitigation plan, including an equipment criticality review, early in the project planning phase is essential for anticipating and minimizing disruptions that can potentially be caused by unpredictable events.
Like Magic
A well-managed supply chain allows stakeholders to plan installation and construction activities with a high level of assurance that materials will arrive when needed. At the end of the day, procurement specialists know that they’ve done their best work when the right stuff shows up at the right place at the right time, with no apparent effort – like magic.
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Authors’ bio
Mike Long has over thirty years of experience in procurement for large, multi-discipline industrial projects. His background includes roles in procurement management, major equipment procurement, construction and engineering contracts, logistics and materials management. Mike currently leads a team of buyers and document technicians who support all Anvil clients across the Lower 48 and Alaska.
Linda Ricard has provided counsel and advice to corporate executives, government officials, technical specialists and proposal teams across government agencies, military branches and multiple industries on communication strategies, content development and presentation techniques. She has produced technical articles and white papers and is a national award-winning speechwriter and published author.