Ceramic Industry

ONLINE EXCLUSIVE: PURCHASING POWER<br>Buying Thermal Processing Equipment-Part One: An Overview

December 5, 2003
Learn how to minimize or eliminate unnecessary expenses when purchasing industrial kilns, furnaces or ovens.

When your company buys or operates industrial kilns, furnaces or ovens, you could be wasting from tens to hundreds of thousands of dollars of potential profit. These losses often occur in the form of excessive operation and maintenance expenses, a higher than necessary capital investment, and missed opportunities due to equipment problems or limitations. The purpose of this new column is to show you how to minimize or eliminate these unnecessary expenses.

Your success will be based on how effectively you gather, develop, analyze and leverage information. This information can be created and evaluated using a powerful business process comprised of five basic stages, which is adaptable to most project requirements. By following this process, you will have the tools you need to make the best possible technical and business decisions, while also minimizing your capital investment and operating expenses, meeting all of your critical business needs, establishing realistic key indicators that can aid in project management, avoiding common expensive oversights and maximizing your negotiation leverage.

Stage One: Internal Strategy Development

The first stage of the business process establishes guidelines that will govern all project participants and creates measures by which the success of the project will be determined. Ambiguity is a common management problem, and the negative ramifications are often experienced ad nauseum by all project participants long after an equipment installation or upgrade is completed. It pays to do things right from the beginning. Key elements to achieve at this stage include:
  • Determine key project objectives and corresponding measures of success
  • Create a project budget based on return on investment and timing factors
  • Create a detailed project timeline and schedule change impact analysis
  • Develop a strategy for equipment evaluation and selection
  • Develop a supplier sourcing and qualification strategy
The final internal project specifications should be put in writing and should communicates to all team members the key business decisions and objectives on which the project is based. This helps keep the entire team on the same page and highlights crucial issues that should constantly be kept in focus.

Stage Two: Create Project Specifications

At this stage, a technical specification for the equipment is created. Some important elements of a good technical specification are:
  • Key process data-an overview of the process
  • Key production data-how the equipment will be operated
  • Key business data-a limited amount is provided at this stage
  • Critical parameters-specific performances that must be achieved
  • Qualification method-how those performances will be measured
  • Desirable capabilities-non-critical capabilities that would be beneficial
  • Future considerations-issues that could impact equipment selection

Stage Three: Source and Qualify Suppliers

There are many ways to source suppliers, including the use of trade directories, referrals and the Internet. While sourcing for some projects is fairly simple, more complex projects often require niche expertise that can be difficult to find. The qualifications of suppliers must also be verified-how do you know they will deliver as promised? Additionally, the dialogue you establish with suppliers should be carefully managed. Successful salespeople know how to manage customer relationships and information flow. You should likewise have a plan that helps draw out the best suppliers have to offer. The key elements of this stage are:
  • Source potential suppliers with specific technical and business expertise
  • Establish a first-tier qualification process to eliminate suppliers that don't meet your criteria
  • Request process development and demonstration testing as needed
  • Establish internal guidelines for supplier relationship management
  • Establish a cost justification dialog with suppliers early in discussions

Stage Four: Evaluate and Compare Proposals

It is not uncommon to receive equipment proposals that do not lend themselves to an "apples to apples" comparison. This is why an equipment evaluation and selection strategy should be created in Stage 1. You can then evaluate bids for the purpose of making a technology decision, and subsequently gather proposals from suppliers specializing in the technology selected. A reasonable evaluation of the data can then be made based on:
  • Critical process, production and business parameters
  • Options, desirable capabilities, future considerations and costs
  • Specification variances, reasons and costs
  • Key terms and conditions
  • Preliminary supplier qualification feedback

Stage Five: Negotiate Agreements

The information gathered and compared up to this point will help make final supplier selection more objective. Decisions should be made on the basis of comprehensive justifiable value, rather than on subjective preferences. Negotiations can be conducted from a position of strength that is both fair and reasonable. You should have the following information at negotiation time:
  • Internal strategy documentation
  • Supplier proposals and your comparison matrix
  • Detailed supplier qualification data
  • Terms and conditions of sale
  • Performance agreements

An Effective Framework

This process is focused on integrating all of your business needs with the technical requirements of your project. It provides a framework for assembling a project team and managing it effectively. The information you gather, develop, and analyze will provide you with the power to make superior decisions, minimize risk, and maximize negotiation leverage, potentially greening up your bottom line by tens to hundreds of thousands of dollars. In future issues, this column will review the critical details of each stage of the process to help ensure your success.