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ONLINE EXCLUSIVE: PURCHASING POWER
Buying Thermal Processing Equipment - Part Two: Developing an Internal Strategy

January 1, 2004
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In this second column in the "Purchasing Power" series, learn how to assess and document your technical and business needs, establish parameters that will govern project participants, and create metrics that will be used to manage the project and measure its success.

The first step in making the best equipment decisions is to assess and document your technical and business needs, establish parameters that will govern project participants, and create metrics that will be used to manage the project and measure its success. The following checklist can help you get your project off to a solid start.

1. Identify each of your most important project objectives, and determine what the corresponding measures of success are. For instance, you might need to increase the firing capacity of a specific part from 250 to 1000 units per hour, while reducing your scrap rate from 14 to 7 percent. These are examples of clear and measurable objectives that should be written down and communicated to your project team.

2. Create a project budget based on stated assumptions and a financial justification. The amount of financial detail included will vary by company and project size, but the following questions will steer you in the right direction:

  • How much additional capacity will this project create for the company?
  • Can we maintain a steady sales volume in this capacity range?
  • How much annual profit does this represent for the company after expenses?
  • How much current expense can be eliminated by completing the project?
  • How much additional profit and savings should we realize per year?
  • What is the desired capital investment payback period in years?
  • What is the resulting project budget amount? (additional profit and savings x payback period)
  • What payment options are available for the project, and will the cash flow work for the company?

You might have an idea of the approximate project cost and see that it does not correspond with the budget developed. You can then change the project scope, revise your budget or drop the project. In my experience, many project managers do not have a clear picture of the financial justification for projects they manage. This critical information can help them make better decisions that will ensure the overall objectives of the company are met.

3. Create a project timeline. Begin with the date the equipment must start producing high-quality product in the required volumes. Then work backwards to establish intermediate milestones that will end with a required project start date.

The following checklist contains many steps common to large engineered systems. Use it as a template in creating your master project schedule.

  • Equipment ready to start full-scale production
  • Successful completion of qualification runs
  • Successful approval testing of integrated systems
  • Start-up, debugging and fine-tuning integrated systems
  • Physical installation of integrated systems
  • Successful approval testing of process heating equipment
  • Start-up, debugging and fine-tuning of process heating equipment
  • Physical installation of process heating equipment
  • Equipment shipped from manufacturer
  • Final inspection at manufacturer's facility
  • Approval of engineering drawings before fabrication
  • Negotiations and placement of order
  • Final round of pre-order vendor discussions
  • Demonstration testing or computer modeling as applicable
  • Proposal evaluation and vendor qualification
  • Vendors respond with appropriate proposals
  • Request for quote(RFQ)/request for proposal (RFP) sent to potential vendors
  • Source and pre-qualify potential vendors
  • Prepare complete RFQ/RFP packages
  • Develop comprehensive project specifications
  • Get internal budget and schedule approvals necessary to proceed
  • Add some overall contingency time
  • Required project start date

Your answers to the following questions are also important to consider, and they may give you greater negotiation leverage as well.

  • Why must the project be completed within the stated timeframe?
  • What is the impact of accelerated or delayed project completion?
  • What is the financial value of accelerated or delayed project completion?
  • What factors may contribute to schedule changes?
  • What options do we have in the event of schedule changes?

4. Develop a strategy for selecting the right equipment for your project. If you send out an RFP, you may get proposals for several completely different technologies. How do you know which is best way to go? Here are some questions to help you determine the best technology for your needs.

  • How well established are your process and production requirements?
  • Are you open to evaluation of different process heating methods?
  • What will it take to demonstrate to your satisfaction that a given technology is the best for your project?
  • How much testing and/or computer modeling time/budget is available?
  • How much risk is associated with each of your alternatives?
  • What values can be established for the risk associated with your alternatives?
  • How much of the work are you willing/able to do in-house?
  • What aspects of the equipment design are absolute and inflexible, and what aspects are the most flexible?
  • What aspects of the equipment concern you the most?

5. Develop a supplier sourcing and qualification strategy. Determine up front what your ideal supplier should have in terms of qualifications, support capabilities and business characteristics, and determine how you will find the right suppliers to compete for your business. You should also agree up front on the methods you will use to verify supplier information as the project progresses. Consider the following questions to help you get started:

  • What supplier capabilities are essential for the success of this project?
  • What level of participation do we want from our supplier?
  • What supplier characteristics are the most important and valuable to our company?
  • What value can we establish for those characteristics?
  • How much technical support is needed or wanted from the supplier?
  • How capable are we of troubleshooting and maintaining this equipment?
  • What is the ideal relationship we would like to have with the supplier?
  • How much are we willing to invest in potential supplier qualification?

Industry-specific buyers' guides often provide a good starting point, and information from industry experts can also help you target the most qualified suppliers to compete for your business. Once you know what you are looking for in a supplier-beyond specification compliance-you can begin the qualification process on your very first supplier phone call.

In the next "Purchasing Power" column, we will take a look at a powerful formula for developing comprehensive project specifications that will help ensure the total success of the project.

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