Invite Automation Suppliers Sooner to New Project Plans

“Nobody can afford to continue to run over budget or off schedule these days.” Fluor’s Vincent Grindley stressed the importance of early collaboration among owner-operators, engineering firms and automation suppliers.

Doing this preemptive planning right means bringing in as much expertise, including input from suppliers on everything from procurement to long-term maintenance, as possible as early as possible. A prime example of this high-level collaboration is the “marquee strategic plan” that Fluor Supply Chain Solutions and Emerson Process Management formed recently, and which has grown to serve 15 of Fluor’s facilities worldwide.

Vincent Grindley, director of Fluor Supply Chain Solutions LLC, and Lance Boudreaux, director of Emerson’s marquee account with Fluor, described their efforts in their presentation, “PEpC a Generation Ahead? No, The Time is Now,” today at the Emerson Global Users Exchange 2008, going on at the Gaylord National Resort and Conference Center near Washington, D.C.

“A study by Booz Allen in the 1990s found that companies’ capital investment spending was in proportion to their size, and that firms that monitored and controlled costs and schedule of capital projects improved their bottom lines,” said Grindley. “However, when cost overruns occurred, they were about 10 times the original budget, while schedule slippage was five times the original plan. About 90% of the executives surveyed stated that the number of successful projects completed on time and without cost-overrun were very few. Consequently, to better focus on the supply chain and find opportunities to improve procurement, Booz Allen outlined four potential solutions. These included identifying a common process for all capital investment projects; design modularization and standardization; deploying adequate organization and governance processes; and leveraging relationships with suppliers and contractors.”

To better cope with today’s suppliers’ market, Fluor uses a center-led procurement organization for its material management, supply-chain solutions, logistics and contract management, which collectively spend about $12 billion per year. Fluor’s usual mitigation strategies include market/sourcing intelligence; supply versus demand forecasting; low-cost country sourcing; innovative procurement strategies; logistics and export/import compliance; supplier performance; escalation, delivery and shop-load forecasting; strategic sourcing process; and its Procurement, Engineering, procurement, and Construction (PEpC) process.

PEpC is a project-delivery system that uses key-supplier expertise in all phases of the project life cycle by developing an advanced procurement strategy, and by reaching commercial and contractual agreements with suppliers of strategic procurement items and/or systems prior to principal project engineering activities. The PEpC model is based on concepts developed and research performed by the Construction Industry Institute (CII). In the traditional Engineer-Procure-Construct (EPC) model, engineering is done first, then procurement, then construction. PEpC reportedly can generate better than 10% to 15% time savings and cut former EPC costs by 4% to 8%.

Still, Grindley and Boudreaux reported there were several obstacles to overcome before they could set up their PEpC program. “Strategic procurement items, including complex engineered equipment and systems essential for project performance, are frequently designed, manufactured and delivered by suppliers outside the traditional ‘circle of cooperation’ between owner and contractor,” said Grindley. “The expertise embedded in the design of this equipment, as well as the expertise needed for its successful integration, operation and maintenance is frequently lost or underused. So the resulting inefficiencies have an impact on the time, cost and quality of engineering and construction, as well as on the life-cycle performance of constructed facilities.” 

Consequently, Grindley explained, “Fluor and Emerson realized that if key technologies and key partners are identified early, and if the benefits and synergies of these are leveraged into the design process, then time and cost can be reduced. Our mission also is to explore the potential for reforming traditional owner/contractor/supplier relationships in EPC projects to enhance the ability of suppliers to contribute more meaningfully to this process.”

In general, PEpC advises users to:

• Identify the project-critical components in a project prior to all but the most conceptual project engineering.
• Consummate transactions to engage the most project-favorable suppliers of those components—according to project or client-specific selection criteria.
• Facilitate the delivery of those suppliers’ core competencies into the project-delivery process, including the suppliers’ ability to accept broader roles in project execution and risk management. This influences, defines and benefits the overall project execution strategy and the detail engineering effort.
• Undertake the process strategically, deliberately and consistently.

For example, Boudreaux said that Fluor and Emerson’s subsequent marquee partnership involves Emerson-based teams working at Fluor’s facilities. These teams use a “think customer” philosophy to deliver project excellence, executive relationship management, ease of doing business, communicating value, and customer education and training.

Besides PEpC’s main advantages, Grindley says that its other benefits include improved quality of the detail design; improved system and facility performance; earlier deployment of new technologies; more equitable allocation of risk; improved use of supplier core competencies; reduction or elimination of redundant work processes; and diminished need for owners or contractors to maintain non-core competencies that are more effectively maintained and delivered by suppliers.

“Users must look at the most critical items on their project first and then seek to engineer around them. Engaging suppliers’ expertise ahead of time at the design stage can be very helpful in doing this,” said Grindley. “Nobody can continue to afford running over on projects these days, and so if they can get some suppliers’ expertise, clear their minds, plan up front and get together on a better solution, then they should do it.”