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Optimizing the Procurement Process

May 15, 2002
Finding the right filtration equipment

In most cases, procurement of filtration and separation equipment is part of a capital project, including new plant construction or renovation and upgrade. If the usual engineering, procurement and construction (EPC) model implies procurement activities are sandwiched between engineering and construction, results will be less than optimal. Unlike heat transfer or distillation systems, filtration systems are difficult to model, and can be configured very differently in commercial practice compared to laboratory and pilot work.

Early procurement activities can occur before engineering. Procurement should be involved at the earliest stages of equipment evaluation. Even long after construction is completed, warranty and remedy issues can remain open in the procurement department. Closer collaboration between all three functions improves the odds that a project will be successful.

Although a great deal of procurement attention focuses on repetitive and systematic work such as raw materials management and maintenance, repair and operations (MRO) concerns, another aspect of procurement first must be completed. Capital equipment procurement occurs first.

This review reflects experience in filtration-equipment-related procurement for a chemical manufacturing firm, but the same principles apply to many manufacturing endeavors. The chances of a procurement effort's success improve with increased knowledge.

Knowing the client

Without a client, no project exists. Ideally, the buyer should be serving his clients long before specifications are written for commercial equipment. Involvement in the early stages of equipment evaluation and specification enables the buyer to serve his client more effectively. Although the client knows his process and his needs, the buyer will know the latest developments in the equipment markets. During these early stages of work, the procurement representative can offer valuable information about alternatives for commercial equipment.

If the requirement is liquid/solids separation, the procurement representative should know who is offering different configurations of filters, screens and centrifuges. The client knows what the production line must accomplish.

A pressure nutsche filter can be configured to facilitate multiple wash steps and to provide both mechanical and evaporation separation. Photo courtesy of Rosenmund Div., De Dietrich Process Systems Inc.

During early work, the client might represent operations or research and development (R&D). That same client could remain involved through the life of the project, but additional clients could join the team before commercial-scale equipment is specified. The new clients will include the project engineers and project managers who make the new plant a reality.

Knowing the project

Discuss which equipment and material requirements are on the critical path for the project. Do any large or difficult items need to be received and placed before the structure is finished? This might be necessary for large separation equipment such as rotary screen filters or pressure nutsche filters.

What other extended lead items are required for the project? How will late (or early) delivery impact the overall project schedule? How urgent is the project schedule? Does the new plant provide an improved way to make a current product? If so, deliveries to current customers might not be restricted by project delay. In other situations, there will be no room for delay.

Knowing the specs

Your procurement consultant should know the specifications. Do you have a mechanical specification telling the supplier how to build the item, or do you have a performance specification spelling out the capabilities that must result from use of the item? When buying a supplier's proprietary equipment, or when the supplier's scope includes technology and equipment, a performance specification is more appropriate.

Filter systems and centrifuges almost always will involve the supplier's proprietary design, so a performance warranty is appropriate. Procurement will review the specification from a supplier's viewpoint and try to determine if it is complete and unambiguous. Was the specification copied from a sample or template? If so, was the template consistent with the intent (performance vs. mechanical) of this specification?

The procurement department sees a wide variety of specs, and your consultant could use a checklist to review the specification. If a performance specification is needed, it must be based on proven process experience. Proven experience can be based on laboratory work, pilot operations or past commercial experience. The performance warranty will be scaled up from that source. It should be possible to review the basis for scaleup and to recognize whether or not the warranted separation performance is comparable to proven results.

It also is important to know if the material supplied for testing and evaluation is representative of the material produced by the new process line. Minor differences in upstream processes can make the production material differ slightly from the pilot samples.

A performance warranty will be based on proven process capability, which might be established on a small-scale unit. Because of difficulties in transport and disposal of process materials, demonstration equipment typically is moved to the existing pilot plant. Photo courtesy of Rosenmund Div., De Dietrich Process Systems Inc.

Knowing the equipment

Before the specification goes out for bid, internal review will involve enough people to apply collective knowledge of operations, safety, process design, process control, materials and corrosion, code compliance (mechanical and electrical), reliability and possibly others. Submission to bidders can be considered an external review. Expect a responsive bid, but also ask the bidders if they can recommend changes that cut costs or lead time for the current acquisition or for future maintenance and replacement.

Does the specification differ needlessly from industry standards? Do suppliers offer industry-standard configurations from stock or assembled from stocked components? And, if the specified equipment differs from industry standards, what lead time will be needed for replacement or repair vs. replacement of a standard item?

The supplier's scope of separation equipment is more difficult to standardize than the supplier's scope of reactors and vessels. For filter systems or centrifuges, some aspects of the specification might look like a cafeteria selection of available features. Such a unit can be highly customized before it leaves the supplier's shop. In contrast, a reactor could be little more than a jacketed vessel when delivered for installation.

The procurement representative should know the equipment, at least its basic requirements and purpose. Discuss how material feeds into the unit, and how product and/or byproduct is removed. What equipment is upstream, what is downstream, and what function does the unit perform?

Procurement might suggest alternative configurations of the same type of equipment such as a belt filter instead of a rotary vacuum filter ," or alternate approaches to accomplish the same function such as a pusher centrifuge instead of a nutsche filter. Procurement will view the equipment from a commercial perspective, and might know of alternative approaches that can be applied more easily to the commercial-scale work. Clearly, these options will be out of the question if procurement is not involved until the commercial equipment is specified.

If procurement is a centralized function, your procurement consultant might be in the best position to tell you who in your organization has recently purchased or repaired similar equipment. He also can help you find specialized expertise within your company or through an available process consultant who can help you obtain optimum project results.

Knowing the market

Because you do not return year after year to the capital equipment market for repetitive purchases, it is not possible to keep up with latest developments and new participants without relying on the expertise of others. Procurement will provide knowledge and familiarity with the directories and buyers' guides that support your requirements.

Your procurement consultant might have attended recent exhibits of capital equipment, or filed the latest documentation of the major exhibits. He or she also might be aware of any organizations that attempt to coordinate certification or standards throughout the industry. If the work crosses international boundaries, procurement might be more familiar with codes and certifications required in different countries.

Knowing the supplier

Once you agree on a narrowed field of suppliers, it is time to learn more about them.

Ask your consultant to obtain information on their current financial performance. How did they get into the current business? Many firms can tell a concise and interesting history of their involvement and evolution into their current work. Their history will help you understand whether you are dealing with a blacksmith or a metallurgist. It also will help you understand if the supplier emphasizes process expertise, fabrication expertise or both. For example, some manufacturers have specialized in filtration media, while others have excelled in mechanical systems to control mass flow.

Understand the prospective supplier's organization. Determine what he or she will perform in-shop vs. what will be subcontracted. This will help you understand where he or she could surrender control of the schedule. Look for any interruptions in work schedules such as vacation shutdowns, holiday weeks or even opening week of hunting season.

At what level do quality assurance (QA) and production personnel report to the same office? How is the quality assurance function staffed and organized? What credentials do production personnel and QA personnel typically attain, and what expertise do they bring to the function? Are code compliance requirements typically written into manufacturing procedures? Are outside inspectors and auditors routinely on-site? How will the supplier interface with any inspectors or expeditors that you can elect to use on the project?

Knowing the warranty

Litigation is a no-win alternative for buyers and sellers. As much as possible, procurement will write specifications, warranties and remedies into the contracts in such a way that litigation is a very unlikely last resort. Try to determine which prospective suppliers are competent and willing to adhere to the specifications and to support the warranties and remedies. Understand what is excluded from the warranty. Sometimes corrosion protection is not included.

The warranty should be consistent with the specification. For example, if the equipment is supplied to a mechanical specification, do not hold the supplier responsible for technology and performance. And if you are buying technology, do not settle for a warranty of workmanship only. In addition, the supplier of technology or proprietary equipment should be required to warrant that use of the system will not infringe on a competitor's design.

Specify the warranty period according to first use, not delivery. For filtration equipment, do not rely on preliminary startup testing, which might be performed with clean liquids that will not challenge filtration equipment.

Knowing payment practices

Capital equipment often requires progress payments. Buyers prefer to pay after delivery, but not all suppliers can support the buyer's preferred approach.

Payments should be contingent on milestones, not the passage of time. And payment amounts should not exceed the value of work furnished to date or the supplier's expenses to date.

The purchasing contract should be written so that progress payments establish ownership of technology and materials. If the supplier should go out of business, therefore, debate about the ownership of drawings furnished to date or the materials purchased for the job might be reduced.

The contract should specify that materials will be segregated and labeled as property of the customer by name. If the buyer is willing to provide early progress payments, the supplier should be willing to delay final payment until acceptance, which is clearly defined in the contract.

Understanding limitations

Major purchases require a high degree of expertise that might challenge an inexperienced buyer. Recognize that he or she can boost the chances of success for the overall project by performing the procurement function well. And recognize that the procurement function involves any activities linking the using community with the supplying community.

To make the right filtration and separation equipment available to the client, your consultant might need to help an existing supplier find a way to correct current problems. Do not hesitate to look in new places.

Skates is a procurement associate for Voridian, a division of Eastman Chemical Co., Kingsport, Tenn. Contact him at [email protected].

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