Procurement Overview

Engineering, Procurement &

Construction

AJAY KUMAR GUPTA 16PT2 01

SHIVANI TIKU 16PT2 18
VIKASH DAHIYA 16PT2 20
 Company Overview

The company was founded in 1889 in Chicago, the Company is a

large conglomerate engineering, procurement and construction
(EPC) company, headquartered in Netherlands. The company
specializes in projects for oil and gas companies. Company
employs approximately 40,000 people worldwide.
 Company procurement process
Pre MIS implementation

Issue:

The Company being one of the biggest Oil & Gas contract, the
company was still using the old paper and excel sheet PO
process till 2010.

The POs were raised on Excel sheets and at the scale of

operation (Global locations for projects & no of employees),
this was leading to multiple temperaments in P&L of the
company and resulted in friction between Depts.

Data integrity and market benchmark data was not credible,

leading to redundancy and loss of business and efforts.
Decision taken

The company decided to implement ERP system for most of

their process in EPC vertical.

Different information systems were implemented for

different modules/Processes. These were integrated
together for correct and precise movement of data and
smooth functioning of the organization.
What is Engineering, Procurement,
and Construction
Engineering, Procurement, and Construction (EPC) is a
particular form of contracting arrangement used in some
industries where the EPC Contractor is made responsible
for all the activities from design, procurement,
construction, to commissioning and handover of the project
to the End-User or Owner.
What it is Procurement?
Procurement is the acquisition of goods or services. It is favorable that the
goods/services are appropriate and that they are procured at the best possible cost
to meet the needs of the purchaser in terms of quality and quantity, time, and
location.

Basically, Procurement is buying things. In the corporate environment,

Procurement is
is the purchase of goods or services
of the correct quality,
the appropriate quantity,
at the required time
from the best supplier
with the optimum price and terms
 Procurement Team

Procurement Team Consist of :

Procurement Manager
Buyer
Expeditor
Quality Surveillance
Logistics Personnel
Materials Management
Sourcing / Supply Chain
Why Procurement
Management?

Most all projects will need to acquire some resources from

outside
Not understanding the different ways to contract could result in
unnecessary risk for the project
How Do We Manage
Procurement?

Four processes for IS creation:

Plan Procurements
Conduct Procurements
Administer Procurements
Close Procurements

Plan Conduct Administer Close

Procurements Procurements Procurements Procurements
 Plan Procurements
Scope Baseline
Tools & Techniques
Requirements Procurement
Documentation Make or Buy Analysis Management Plan
Teaming Agreements Expert Judgment
Risk Register Inputs Contract Types Procurement
Outputs Statements of Work
Risk-Related Contract
Decisions Make or Buy
Activity Resource Decisions
Requirements
Procurement
Project Schedule Documents
Activity Cost Estimates Source Selection
Criteria
Cost Performance Baseline
Change Requests
Enterprise Environmental
Factors
Organizational Process
Assets

Plan Conduct Administer Close

Procurements Procurements Procurements Procurements
 Conduct Procurements
Tools & Techniques
Project Bidder Conference
Management Plan Outputs
Inputs Proposal Evaluation Selected Seller
Procurement Techniques
Documents Procurement
Independent Estimates Contract Award
Source Selection
Criteria Expert Judgment Resource Calendars
Qualified Sellers List Advertising Change Requests
Seller Proposals Internet Search Project Management
Project Documents Procurement Negotiations Plan Updates

Make-or-Buy Decisions Project Document

Updates
Teaming Agreements
Organizational Process
Assets

Plan Conduct Administer Close

Procurements Procurements Procurements Procurements
Procurement Documents

Request for Proposal (RFP)

Asks for the price and how/who will do the work
Invitation for Bid (IFB)
One simple price to do the work
Request for Quotation (RFQ)
Price per unit quote
 Administer Procurements
Tools & Techniques
Procurement Contract change control
Documents system
Project Procurement performance Procurement
Management Plan review Documentation
Contract Inputs Outputs Organizational
Inspections and audits
Process Assets
Performance Performance reporting Updates
Reports
Payment systems Change Requests
Approved Change
Requests Claims administration Project Management
Records management Plan Updates
Work Performance
Information system

Plan Conduct Administer Close

Procurements Procurements Procurements Procurements
 Contract Closure
Inputs Tools & Techniques Outputs
Project Procurement audits Closed Procurments
Management Plan
Negotiated Settlements
Procurement Records management Organizational
Documentation system Process Assets
Updates

Plan Conduct Administer Close

Procurements Procurements Procurements Procurements
Procurement Terms

Arbitration Third party dispute resolution

Breach/Default When a contract provision is not
met
Force Majeure Riots, wars, weather, or other
Acts of God
Indemnification Who is liable
Liquidated Damages Estimated damages for
specific types of defaults as defined in the
contract
Material Breach A violation of the contract of
sufficient magnitude that the contract cannot be
completed
Procurement Terms
Continued
Retainage Monies withheld to ensure
performance at the end of the contract
Termination Stopping the work before it is
completed
Waiver Statements in the contract that indicate
that rights cannot be ignored or modified without
written agreement between the two parties
Time is of the essence Seller is placed on notice
that delivery agreements are strictly binding
Work for Hire At the end of the contract the
work product generated will be owned by the
buyer
 Prime Tasks of Procurement

Managing the Supply Chain Procurement

Contract equipment, materials and documents from Purchasing

Suppliers at the best conditions to the project

Ensure timely delivery of document and material Expediting

Ensure a smooth materials flow & construction Materials Mgt.

work-front

Quality verification Inspection

Timely transportation to fabrication shops and the Logistics

jobsite
 Procurement in EPC Supply Chain

Project Management

Materials Management

Project Procurement
Engineering Management Construction
Management Management

Shop
REQ Prep Purchasing Expediting Inspection Logistics
Site

Engineering Procurement Construction

Engineering Procurement Construction

Develop MM Plans Ensure Established Milestones are Monitored Communicate Work-Front
Interactive Planning and Mitigation Plans are Developed as Needed Planning Requirements
Establish Material Strategy Ensure Criticality Levels are Established and Site Materials Management
Coordinate MR List Milestones Planned
Set up Milestones in MM System
Procurement System & Tools currently
in use at the Company

Bid Management System (Name not included)

Smart Plant Materials (Marian)

Materials Management System

Document Management (Name not included)

JD Edwards Financial System

Inspection Planning System (Name not included)

 Material Management System
Fully Integrated System

Material Material
Purchasing Requirements Planning
(Engineering)

SmartPlant Material Supplier

Logistics Quality
(SPM) Surveillance

Warehousing Project Expediting

Management
 Purchasing Flow Chart- Typical
STEP 4 STEP 5
STEP 1 STEP 2
STEP 3
BUYER & BUYER & DISCPLINE
BUYER BUYER
BUYER & DISCPLINE DISCPLINE ENGINEER
ENGINEER ENGINEER

RECEIVE
EXPEDITE BIDS. ISSUE TECHNO- PERFORM
REQUISITION
RECEIVE , OPEN COMMERCIAL TECHNICAL &
FROM ENGG. &
& DISTRIBUTE QUERIES COMMERCIAL ISSUE AWARD
ISSUE RFQ
BIDS ( HOLD BCM ) EVALUATION RECOMMENDATION

STEP 6 STEP 10
STEP 7 STEP 8 STEP 9
PROJECT EXPEDITING
DISCIPLINE BUYER SUPPLIER
MANAGEMENT
ENGINEER

.
APPROVE AWARD ISSUE PURCHASE PREPARE ACKNOWLEDGE EXPEDITING
RECOMMENDATION REQUISTION & ISSUE PO PO TAKES OVER
 Requisition Planning

Path: SmartPlant Materials > MSCM > P.60 Milestones and Progress >
P.60.03 Requisitions Planning
Requisition Planning
Requisition Planning
Print Requisition Planning and Status Report (RPSR):
 Requisition Work Load
Path: SmartPlant Materials > MSCM > P.30 Inquiry > P.30.01 Requisition
Workload
RFQ
RFQ Export Via forms
To create a Purchase Order from a Requisition
Purchase Order
Interface with other Modules and information systems

As an department, we have interfaces with various internal and external parties

like:
All Engineering disciplines
Project Management
Project Controls
Quality
IT

Externals parties like:

Suppliers / Bidders / Vendors
Third-party logistics companies
Third-Party Inspection companies
Various companies for current market updates
Advantages of IS in Procurement

1. Communication: With help of the new information system the communication

becomes quicker and much efficient. Data redundancy is reduced.

2. Availability Information systems has made it possible for businesses to be

open 247 all over the globe. This means that a business can access data
anytime anywhere, making purchases from different countries easier and more
convenient.

3. Globalization and cultural gap Information systems brought down the

linguistic, geographical & cultural boundaries. Sharing the information,
knowledge, communication and relationships becomes much easier.

4. Cost effectiveness and productivity the IS application promoted more

efficient in operation of the company and also improves the supply of
information to decision-makers, and the company gained a competitive
advantage.
Disadvantages of IS in Procurement

1. Security issues Thieves and hackers get access to identities and

corporate saboteurs target sensitive company data. Such data can include
vendor information, bank records, intellectual property and personal data
on company management.

2. Implementation expenses to integrate the information system it require

pretty good amount of cost in a case of software, hardware and people.
Software, hardware and some other services should be rented, bought and
supported. Employees need to be trained with unfamiliar information
technology and software.
 Challanges Faced

1. Change management: The company knowledge bank is resistant to this

new system.

2. Big bang implementation led to manual intervention to load the historical

data.

3. Integration difficulty between different IS at times causes the process

flow to stop.

4. Cost of integrated information systems is higher.

Questions ?