Purchasing And Procurement WITHIN THE Construction Industry Engineering Essay

In this ever changing world that has been so competitive that the goals in the structure industry regarding deliverables, cost, time and quality have made companies switch to better quality and competitive operational strategies. Other sectors have successfully implemented new and improved strategy but the construction industry still has to follow suit. One of the major factors that are discovered in the building industry is the alternatively gradual changing procurement chain management system. The current strategies used for procurement do not surpass the market requirements and alternatively is stifling the growth of this particular industry. Understanding these various models are being carried out throughout the industry which will have a significant effect on the expansion as well as improve production to help this industry maintain the drastic economical changes.

Historically, the sourcing of subcontracting services was the most neglected element in the construction process. Only when the cost of materials and the subcontracting increased have management investigate alternate methods to planning and control. Labor was the concentration since this industry is labor extreme and even more emphasis was given to the expense of labor. Companies also started spending intensely into technology and technology related products.

The traditional view of buying and sourcing management as a clerical function has been negated and emerged as a viable and profitable function more than any other functions in the construction industry. The lifecycle of the construction project contains the following phases,

The development life cycle levels are mutually exclusive or unbiased of each other. Several stages happen concurrently. With regards to the size of the business the source sourcing maybe applied in varying degree of ownership. Regardless of the size of the company possession in the supply souring function must be well identified.

The source sourcing must be carried out according to the standards of the jobs, budgetary and scheduling constraints. Resource sourcing function entails working with upstream and downstream connections, outside and inside each firm. The source sourcing process will involve assisting the project supervisor with subcontracting services, bulk materials and equipment requirements.

The construction administrator or service provider coordinates the transformational process based on three basic criteria which is concluding the project on time, ensuring he/she sticks to the budget and sent with a recognized quality level.

Review of Existing Purchasing Options

In the engineering sector, procurement has become difficult due to the different options for acquisition of buildings and infrastructure. The primary features of current procurement options are the following. The section is split into the various methods of contracting / money, ways of selection and methods of payment.

Methods of contracting

General Contracting: design is performed by self-employed consultants who are in direct contact with your client or designers who are part of the client organization. There is a separate deal for the development of the job which is located with a building company who sub-lets the elements of the work. Repayment is done monthly based on the amount of work done.

Design and Build (genuine): Design and Build (D&B) is the procurement system when a single organization needs the duty and dangers for both the design and development phases. Your client engages a building contractor who is in charge of the look and the building. The technique of payment is lump total, payable in monthly payments.

Novated Design and Build: That is a variation of the pure D&B and is utilized when the client employs a design team for the first stages as soon as a building contractor is determined by tender the team is shifted to this builder. The benefit of such something is that the initial design is stored intact from the early stages and finally is offered to the company.

Management Contracting: This sort of system came into existence with the needs of coders for taking more commercial risk on structure projects as compared to standard contracting. The trend of building contractors to sub-let all the work resulted in the necessity to procure a task management and co-ordination input and also harness close romance between client and service provider.

Construction Management: Effectively exactly like management contracting, really the only difference being that there is no general builder, instead some immediate contractual links between your consumer and the trade companies. This makes the role of CM more like a consultant when compared to a contractor.

Package Bargains: That is a way of increasing the range of the company. For large engineering projects like essential oil rigs, harbors and docks they can be constructions as Engineer, Procure and Engineering. Under such an design the EPC builder takes the responsibility for carrying out all the look, structure and commissioning work so the client only has to pay.

Systems Involving Service Agreements: sometimes organizations maybe contracted to provide other inputs. These include commissioning, operation and maintenance.

Collaborative working: Sometimes in jobs various organizations come together to have a collaborative relationships. There is a lot that can be gained from such alliances and also have success for both project and the organization in the long run. The continual romance building plays a crucial role in such circumstances. The pattern towards long-term plans is clear with strategies like construction agreements and serial or strategic partnering. Such alliances show effective with the personal savings in costs of re-bidding, the prospects of ongoing improvement and a predictable workflow.

Methods of selection

Long term or short term relations need to be formed to accomplish where there's a better need on competition or cooperation. Levels of competition arise from available tendering to sole negotiation. Start and selective tendering relies on price as their main criterion. Some clients take up a more cooperative methodology and favor negotiations where non-price takes on a significant part. Two level tendering is a cross types approach that looks for to exploit the advantage of negotiations and competition. The visit of a company takes two levels. Level 1 is competitive and predicated on costs. Level 2 is made after the completion of open publication negotiations for the ultimate price.

Methods of payment

Price-based systems: these include lump-sum agreements that range from Guaranteed Maximum Price (GMP) to remeasurable deals. GMP can be used when contractors control the look and remeasurable agreements are seen as a the contract expenses of quantities. In such deals the quantity of work is assessed after it is finished with reference to the rates in the expenses of quantities.

Cost-based systems: cost-based repayment methods include cost-plus and aim for cost. Cost plus contracts removes the risk of variable creation costs from the service provider, who's paid on enough time spent and the materials used alternatively than sticking to the tendered price. Goal cost contracts are used as an incentive to increase efficiency from the service provider. The costs are shared between the builder and the company. Even if the price exceed the agreed target cost or in a situation where in fact the costs are less than the prospective cost, it is distributed between both parties.

Todays Building industry uses this particular model (Fig. 1) because the area of expertise builder has been in charge of material procurement. Within this model, the dog owner and the overall builder rely on the area of expertise builder to procure all the equipment and materials for the task. Owners use the SCPM over 80% of that time period to procure build-to-order equipment and procure commodity material over 90% of the time.

Majority of the materials is transferred between manufacturers, making reps, marketers and specialty companies. With this model the SC has reviews the look specs and notifies the owner or GC of equipment or materials incompatibility issues, design change suggestions or less expensive equipment and material substitutions. Once the design is validated the material orders movement from the SC to both distributor and supplier. The materials and equipment then flow back to the SC at the jobsite.

Knowledge and service transfer in the SCPM model are between manufacturers, distributors and specialty companies. The number below illustrates the knowledge transfer between your parties involved.

This model is less common than SCPM in the building industry. With this model the owners procure the materials and equipment straight from the maker or from a distr4ibutor. This is mainly used to remove transactional costs from the resource chain. This model is normally used about 10% of that time period for the entirety of these equipment and material acquisitions. This model is specially used for procurement of build-to-order materials than it is designed for commodity materials.

The transfers are directly between the owner and producer. The dog owner has his own design team to procure the correct material and equipment. The source from a area of expertise contractor varies. The dog owner has a strong standing relation with individual specialty contractors and such circumstances the SC offers input about material to the owner. In this model the materials is directly shipped to the jobsite and stored until unit installation.

The knowledge and service transfers in this model are extremely limited. Knowledge is mainly from the owners past experience and through design specs that were developed for past projects.

This is minimal widely used purchasing model in the construction industry. Within this model the owners commission the GC to procure materials and equipment. Generally the GC seeks to purchase all the material and equipment from the manufacturers straight. Most manufacturers aren't set up to market their products right to customers and therefore the GC has to go through the normal distribution stations. Only 2% of that time period is this model found in the building industry.

The exchanges in this model happen between your GC, distributor and company or directly between your GC and supplier. The flow is in a way that once the order is directed at the GC the GC buys the material with no consultation of the SC. With this model the GC procures the material and equipment according to the technical specs of the project.

The knowledge and service transfers in the GCPM act like the OPM model. The GC must be based upon his own experience as well as details from the maker and/or distributor in order to purchase the proper materials. Knowledge from installation experience will not exist because the SC is not involved in the procurement process and the GC is not involved in the assembly process.


The procurement process of the engineering industry is complicated and requires various amount and amount of procurement. Several untouched and untrained areas are present in the procurement procedure for development. It stands that it's an important cog in the complete process of building. Various avenues remain and with careful review of interior process and finding the right fit so as to be effective and competitive is essential for the success of a business in this industry. An enormous potential prevails in having an inexpensive process that can make achieve appropriate degrees of quality and promptly delivery are the key elements to have a procurement process model.

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