Week of 6 June 2016: Procurement Follies
Jim Thompson (jthompson@taii.com)
Listen to this column in your favorite format It is procurement month at Paperitalo Publications. The mill-related troublesome issues that can be attributed to the purchasing department are myriad and legion. This is not to say that there are not great purchasing agents, but this is a focal point of interaction with outsiders. It can lead to grand levels of loss through misunderstanding, incompetence and fraud. We'll leave the latter, fraud, for August, when the Pulp Rats will be back once again to discuss corruption. In the meantime we'll have plenty to do in the former subjects. I have seen many missteps in all of these areas. I want to discuss two issues today, two issues that are critical even before one arrives at the content of purchasing documents. **** Listen to industry news on Pulp & Paper Radio International! **** The first issue is this. Purchasing agents who procure daily consumables (starch, oil, paper chemicals and so forth) have a totally different mindset from purchasing agents who procure for capital projects. It is simply different work. Purchasing daily consumables is routine, for usually the same suppliers are dealt with over a long period of time, and the relationship with each supplier involves the same people over and over. The suppliers also know to have a bit of this and that tucked away conveniently close to the mill to cover any miscalculations and to avoid running out. Usually, little expediting is required and the mill naturally gravitates to suppliers that will keep them running. Shut the mill down once, supplier, and see how long it will take to kick you off the site. Construction procurement is completely different. On a construction project of any decent size, it is likely the mill will be working with at least some suppliers with which they are not familiar. Hence, everyone has to become familiar with and comfortable with a mutually agreed set of terms and conditions. Carriers may be unfamiliar and equipment may be procured from literally anywhere on the globe. Customs clearance may be a problem. Expediting is a particular problem and expediting must be proactive weeks ahead of when items are needed--one cannot just look out the door, notice that something has not arrived on time and then start asking questions. Expediting has to be done on the entire schedule (engineering, manufacturing, transporting) starting the day the purchase order is signed. Untimely deliveries can cost the project millions of dollars. Federal Express has created an entire division to handle problems in this area--they call it "Custom Critical" (a great name if I have to say so myself) and out on the interstates in the US you can often see these "Custom Critical" trucks zipping along--they are very distinctive and have sleeper cabs designed for two drivers--they do not stop until the mission is completed. **** So, how do you feel about the US presidential election so far? Brexit? Check out the latest edition of Strategic & Financial Arguments. **** What do you think? Did I miss anything? Please take our quiz on line this week and let us know your thoughts. And, of course, you will have standard safety language covering a broad scope of safety issues in all your procurement documents, won't you? Be safe and we will talk next week. You can own your Nip Impressions Library by ordering "Raising EBITDA ... the lessons of Nip Impressions."
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