Strategic procurement for infrastructure projects in India will benefit from creating greater alignment between risk, cost, technology and demand management.
 Established over 4 decades ago, Oriental Structural Engineers (OSE) has firmly etched a name for itself as one of India’s foremost EPC and BOT contenders in the roads and highways sector. OSE’s business has been shaped by innovative thinking, vast competence and its maintenance of transparency in all processes. Sandeep Agrawal outlines seven major roadblocks for procurement community.
Transformation phaseIndian infrastructure sector is going through a significant transformation. India is increasingly becoming construction equipment and component procuring base in the construction and infrastructure sector. Investment in infrastructure is envisaged to be doubled to $ 1 trillion during the 12th Five-Year Plan and about half of this is targeted to be achieved through private sector investment. Indian government has taken a number of steps to encourage private investment in infrastructure through public-private-partnerships (PPP). However, it has been observed that while PPP based infrastructure projects in some sectors have displayed good progress, several others achieved only limited success. Issues relating to project implementation, monitoring and dispute resolution are among the key concerns of the infrastructure developers.
India places a high value on building strong relationships with suppliers rather than focusing on process led supplier management. The expectations of procurement are shifting. Not so long ago, procurement was considered to be an add-on service; it was the business that decided which suppliers were core to the organisation and little more was expected of procurement than to battle some cost out of the contract and then hand the relationship back to the business to manage. Today however, many executives are increasingly looking to procurement to engage the business in strategic conversations about how the supply chain can be optimised to deliver the greatest returns.
“Our research shows that – across the board – there is not enough focus on ongoing supplier relationship management, precious little involvement in demand management, even less participation in the ‘make versus buy’ decision process and an often dangerous lack of preparation, mitigation and action around supply chain risk,” observes Mr Agrawal. “In particular, strategic procurement for infrastructure projects in India will benefit from creating greater alignment between risk, cost, technology and demand management which will help them achieve a more strategic role within India.”
ChallengesAccording to Mr Agrawal, the seven key challenges being faced by the project procurement community are:• The setting of clear objectives at the outset of all projects• Development of a procurement strategy• Focusing strategic procurement on outcomes not processes• Embracing collaboration as a strategic tool• Recognising that sustainability has become a strategic driver for professional procurement• Positioning the public sector as a customer of choice• Resolving the talent scarcity problem.
Potential area in the sourcing• Partnering with the organisation: For procurement to achieve a place at the table, more work should be done to align to key stakeholders and understand the business operations to become a true strategic partner. This means moving up the value chain to ensure that the function is involved much earlier in the decision making processes and clearly demonstrating how active involvement adds tangible value to both the bottom and the top lines.
• Moving beyond cost savings: Driving costs from supply contracts will always be a central tenet of procurement, but many organisations seem to be struggling to extend their activities proactively into core capabilities such as category management, and beyond into demand management, Supplier Relationship Management (SRM) and risk management. With relatively low levels of spend under contract and under management in many sectors, there remains a significant opportunity for procurement to stretch beyond cost savings to deliver more strategic value to the organisation.
• Achieving the optimal operating model: Whilst the majority of procurement organisations have already adopted a more centralised operating model, many still face challenges in translating this into strategic value for their businesses. CPOs and Supply Chain Directors will increasingly find themselves reassessing their operating models to squeeze greater value from their activities around the world, while providing a robust centralised framework that delivers efficiencies across the business at a reduced operating cost for the function as a whole.
• Prioritising supply chain risk: Given the events of the past five years – financial crisis, natural disasters and massive supplier failures, to name just a few – the research demonstrates a worrying lack of leadership in the area of supplier risk. Procurement will need aggressively to push the inclusion of supply chain risk on the broader business agenda in order to protect the business from the uncertainty and turbulence that almost certainly lies ahead.
• Leveraging systems and technology: Whilst supply chain technology and business systems have evolved rapidly, many procurement functions seem unable – possibly unwilling – to leverage these new capabilities in order to bring greater automation to the business. In many cases, the situation is even more alarming: having made the investments, they have yet to realise the value. In particular, the business will increasingly be looking to procurement to maximise their existing systems and technology to provide greater clarity into the management, information and business intelligence processes.
Procurement logistics Procurement logistics consists of activities such as market research of requirements, planning, make-or-buy decisions, supplier management, ordering, and order controlling. The targets in procurement logistics might be contradictory: maximising efficiency by concentrating on core competence, outsourcing while maintaining the autonomy of the company, or minimising procurement costs while maximising security within the supply process.
Logistics supply chain“We have a very effective logistics supply chain. It is primarily concerned with the efficient integration of suppliers, factories, warehouses and stores so that merchandise is produced and distributed in the right quantities, to the right locations and at the right time, and so as to minimise total system cost subject to satisfying service requirements,” says Mr Agrawal.
SAP helpsThe company uses SAP material management software for its operations. It supports the procurement and inventory functions occurring in day-to-day business operations. This module contains many aspects such as purchasing, goods receiving, material storage, consumption-based planning, and inventory. SAP MM module is fully integrated with other modules in the SAP R/3 system such as finance (FI), controlling (CO), sales and distribution (SD), quality management (QM), plant maintenance (PM), production planning (PP), and warehouse management (WM). As it contains all the important tools, the company is fairly happy with the software.
“The e-procurement value chain consists of indent management, e-Tendering, e-Auctioning, vendor management, catalogue management, purchase order integration, order status, ship notice, e-Invoicing, e-Payment, and contract management,” adds Mr Agrawal. Notable works“Oriental has established now trusted business relationship with vendors. We have good logistics distribution chain as we import intensive procurement,” informs Mr Agrawal. “We have observed a good development in area of scrap disposal and defining contractual requirements.”
—————————————OSE has added several landmark projects to its track record. Some of OSE’s most iconic works include the Noida toll bridge, India’s first cement concrete road at Indore, more recently the Yamuna Expressway linking Delhi to Agra and India’s first F1 race track at the Buddh International Circuit.—————————————
– Sandeep Agrawal, President (Purchase), Oriental Structural Engineers Pvt. Ltd.