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Reforming Supplier Relationships

RT-130 Topic Summary
RT 130

Overview

When CII expanded its membership to include suppliers, it recognized the key role they play in pursuit of project goals. However, complex engineered equipment and systems essential for project performance are typically designed, manufactured, and delivered by suppliers who are outside the traditional “circle of cooperation” between owner and contractor. The expertise embedded in the design of this equipment is frequently lost or underutilized. To explore and enhance the contributions suppliers make to the EPC process, CII established RT-130, Reforming Supplier Relationships.

RT-130 found that there clearly was an opportunity for a step change in supplier involvement in the EPC process, one which brings suppliers of strategic items into the “circle of cooperation,” involves them much earlier in the project delivery process, and enables using their expertise in all phases of the project lifecycle. RT-130 concluded that such a breakthrough must start with the procurement process, and envisioned a new project delivery model in which “big P” (complex engineered equipment and systems essential to project success) and “little P” (the balance of items to be procured) are separated and integrated into a new PEpC project delivery model.

The team adopted and used the sophisticated simulation model of project performance developed by RT-125, (IR125-2, Determining the Impact of Process Changes on the EPC Process) to assess the potential benefits of the PEpC delivery model. Simulation results suggested significant overall project cost and schedule savings were possible. Case studies of four projects employing PEpC-like characteristics corroborated the simulation results. Both the simulation and case study results show that adopting the PEpC model prolongs several early activity durations, but that these are more than recovered by schedule savings in later project activities.

Key Findings and Implementation Tools

1 : Search for Innovation

Literature surveys, written questionnaire responses, and structured interviews identified instances where owners, contractors, and/or suppliers had employed innovative, atypical relationships within the EPC project delivery model. Key findings from this work include the following (RS130-1, p. 4):
  1. The need exists to bring suppliers of strategic components and systems into the “circle of cooperation” between owners and contractors, and precedents for doing so exist.
  2. In numerous cases, suppliers served an expanded project role (status and/or time involvement beyond that expected) despite narrowly and traditionally-defined business and commercial relationships.
  3. Pockets of innovation existed and provided strong anecdotal evidence of cost and time savings for doing so.
  4. Two industries—automotive manufacturing and micro-electronics fabrication—had improved results through expanded supplier involvement.
Reference: (RS130-1)

2 : Early Procurement Involvement

The fundamental charactistic of the PEpC project delivery model is that procurement of the most project-critical components (the “big P”) is completed prior to all but the most preliminary engineering efforts. This enables these items to influence and define subsequent detailed engineering, and enables their suppliers to deliver their core competencies directly into the project and not indirectly via the owner or contractor. For these items, the procurement process must be on a broader and more conceptual basis and must focus on the supplier’s ability to deliver greater value to the project (versus just lower price). (RS130-1, p. 6)
Reference: (RS130-1)

3 : Utilizing Core Competencies

A three cornered or triangular allocation of competencies is required to bring suppliers into the circle of cooperation between owner and contractor. Assignments of project roles should be based on the particular needs of a particular project and the actual competencies of the actual project participants (owner, contractor/s, and supplier/s). (RS130-1, p. 12) 
Reference: (RS130-1)

4 : Cost and Schedule Benefits

Ten independent simulations of the application of the PEpC delivery model to RT 125’s baseline EPC project performance model indicated potential schedule reductions of 5.6-19.6% and cost savings of 0.3-17.8%. Four case studies of projects implementing PEpC-like characteristics showed schedule reductions of 5.6-18.6% and cost savings of 0.0-6.6%. (RS130-1, p. 17) 
Reference: (RS130-1)

5 : Implementation Tool #1

RS130-1, PEpC Implementation Steps

RS130-1, proposes a process for implementing the PEpC project delivery model, illustrating how it integrates with other project plan deliverables such as the business plan, facility scope, and project exeuction plan. PEpC must begin with and be incorporated into the earliest pre-project planning processes to be successful. Each implementation step is described in detail.
Reference: (RS130-1)
rt-130

Key Performance Indicators

Improved cost, Improved schedule, Improved quality (reduced errors & omissions), Reduced change, Reduced claims, Improved engineering productivity, Improved design, Improved materials management

Research Publications

Reforming Owner, Contractor, Supplier Relationships: A Project Delivery System to Optimize Supplier - RS130-1

Publication Date: 06/1998 Type: Research Summary Pages: 34 Status: Tool

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PEpC: A Breakthrough Project Delivery System That Improves Performance by Reforming Owner, Contracto - RR130-11

Publication Date: 06/1998 Type: Research Report Pages: 310 Status: Reference

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Presentations from CII Events

Session - Optimizing Supplier Involvement

Publication Date: 07/1998 Presenter: Number of Slides: 21 Event Code: AC98

Tags

Knowledge Areas:
Procurement & Contracts
Project Phase:
Detailed Design (Engineering), Detailed Scope, Procurement
Project Function/Role:
Architects & Engineering, Business Development & Proposals, Procurement & Contracts, Project Management
Industry Group:
Buildings, Heavy Industrial, Infrastructure, Light Industrial
Regions:
Africa – South Africa, Asia – China, India, Southeast Asia, Australia, Europe – Scandinavia, Russia, Middle East, North America – USA, Canada, Mexico, South America – Central America, Brazil
10-10 input Metrics:
Design Efficiency, Planning, Quality, Supply Chain

Keywords

EPC, Equipment, Suppliers, Contractor, Owner, Procurement, Expertise, Competency, Delivery Model, Engineering, Relationships, Strategy, Cooperation, rt130

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