Purchase Order Bottlenecks are Hurting Your Bottom Line

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Within the supply chain, several components must work together to ensure that a project runs smoothly. In construction, things are a bit more complicated, as every building project is different.

You work with raw materials suppliers, as well as clients, subcontractors, and consultants that may have never worked together before.

Even diligent project managers and top-notch procurement teams might experience a backlog from time to time.

With all this complexity, bottlenecks may feel like a fact of life.

But, you can’t afford to put projects on hold; clients depend on a finished product with reasonable turnaround time. Click To Tweet

Here are some common construction bottlenecks, as well as some ways you can prevent them from happening in the first place.

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Late deliveries

Again, starting and finishing a project on time is essential for profitability. While construction is known to be unpredictable, delays caused by issues with your suppliers or ordering process could be harming your business in the long run.

When you’re waiting for deliveries to arrive, the whole project is put on hold—affecting everyone from staff who can’t do their job and frustrated clients.

Get ahead of late deliveries by implementing a process for vetting vendors and monitoring their performance.

Procurement software allows users to keep on top of order status and all pending items. While procurement professionals should know which products need to be purchased well in advance, increasing visibility lets them mitigate risks as they come up.

You should also have a curated list of approved suppliers in your system. Approved suppliers are trusted sources of supplies with predictable quality. While things happen, keeping tight controls over where goods come from allows you to avoid those vendors with no regard to time.

Waiting for Client Response

This one is tough since it falls out of your control more than say, getting on the same page as vendors.

While you can’t control clients’ behavior, you can work to reduce bottlenecks on your end by first establishing a schedule that all parties have access to. Lay out, in clear terms, what the client needs to provide–and by when–building in some time for slow responses and pending approvals.

You may want to automate reminders when you don’t hear back. While this is frustrating, a documented system showing milestones and deliverables can prove that your firm is not responsible for delays–this way if a client tries to dispute this, you’ll have records proving otherwise.

There’s No Approval Flow In Place

Building in a streamlined approval process allows you to review all purchases carefully. While simply creating purchase orders for every transaction mix doesn’t quite translate to cut costs across the board, reviewing each transaction ensures that key parties are aware of what’s being used, and which orders are on the horizon at any given point.

And, when a decision is made to make a purchase, approvers can review orders against contracts, budgets, and more—it’s just another way to bring more transparency to procurement.

Approval management has two main benefits.

The first is, the process enforces corporate purchasing policies without the need for nagging your staff over and over. You can control which vendors staff can order from and set limits on spend.

Second, orders are routed to the appropriate parties—approvers receive notifications when someone puts in a request—so there’s no question about whether something was ordered, and those requesting approvals don’t need to keep following up.

To set this up, create an approval hierarchy for your organization. Who is responsible for ordering materials, who approves those transactions?

Lack of Organization

Procurement teams and those directly involved in the building process (engineers, architects, builders, vendors, etc.) must align, because construction requires close integration of all functions.

Cloud-based project management software is a must for construction teams, as you need to track progress and communicate with ease. Before you start each project, consider the following:

  • Timeline
  • Goals
  • Materials
  • Costs
  • Resources in stock
  • What needs to be ordered?
  • Defined roles and associated milestones
  • Communication policy

Projects and related documents should be accessible to anyone involved in the project.
We also recommend moving relevant records into the cloud–we’re talking supplier contracts, technical specifications, and approved vendors.

Little things like improving access to pricing information goes a long way–allowing administrators, buyers, and project managers to locate key details, rather than sending out a bunch of emails and waiting for responses.

Clearly label all documents and have a straightforward navigation system in place.

Budgeting Issues

Running out of money is one way to delay projects. Especially if you’re in the middle of a project—the client has paid and you’re left cutting into profits. When purchasing is at the heart of a bottleneck, there’s trouble.

Whether you’ve failed to plan for change orders or you’re dealing with administrative errors, the initial estimate didn’t quite cover the costs—construction companies must take control to remain profitable and meet deadlines.

Budgeting issues can be caused by several factors, but preventing them generally comes down to keeping track of budgets by using the right software.

ProcurementExpress.com works to help users keep closer track of their spending. For one, all budgets may be input into the system and admins can give access to anyone who needs this information.

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One benefit is, any time someone makes a purchase request, approvers can compare the request to the original budget—both requesters and approvers can see how each order affects the budget—and make better decisions accordingly.

Additionally, recording budgets can help you plan for change orders well in advance. On average, change orders can account for up to 14% of the costs to complete a project. You may want to charge a fee on future projects to account for extra charges—things like materials and changing manpower.

However, it’s important to note that the cushion is to account for the inevitable. It’s not an excuse to skip out on a thorough bidding and vetting process. Nor does it allow you to build in some protections against your own issues with disorganization.

Keep Track of Lessons Learned

As you can see, there are a lot of so-called “time thieves” that can cause delays in any project. With that in mind, teams should do what they can to learn from the past.

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After completing a project, teams often breathe a sigh of relief and forget to reflect on the experience. Failing to document issues and resolutions discovered during a project puts the company at risk of repeating the same mistake.

Consider hosting weekly meetings and discussing and documenting what went wrong, what went right. Publish these reports in a place all parties can access for future reference.

Use Technology to Your Advantage

Procurement software increases efficiency and helps construction teams track orders, view status, and speed up the end-to-end PO process. It also means that everyone–from accounting to procurement has access to the same information.

Construction teams must move away from paper purchase orders and cabinet-based record-keeping—as both practices keep information locked (literally) away from stakeholders across the value chain.

In the end, there are many things that can cause delays to construction processes—we couldn’t possibly name them all. Always make sure you manage expectations and implement the above protections to avoid bottlenecks as much as possible.

With a little organization and the right technology, you should be able to finish projects on time, save for bad weather or equipment issues (this is construction, after all).

Between budget controls and approval flows, teams need to understand that digitizing internal processes is one of the best ways to increase transparency and efficiency across the board.

Do you know how effective your procurement process is?  Is it costing you money?  Find out with our new grader and avail of a free consultation with Arvo procurement specialists who will go through your results.Procurement-Express-Effectiveness-Grade---CTA-2

 

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