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Technical Aspects Of Equipment Procurement




Dear All,
One of the readers of my blog made a suggestion about writing something related to equipment procurement. Well, I haven’t exactly acted as a procurement engineer in my career but fortunately did have the opportunity to interact with a few procurement engineers and pick up some ideas related to the methodology of equipment procurement.
 
One important thing to note about equipment procurement is that this activity is peculiar to the geographical location of the plant or unit.  What it means is that equipment procurement has its own individual characteristics depending on whether this is being done in North America, European Union, Middle East, Africa, Asia-Pacific or South Asia.
 
I will not dwell on the logistics of equipment procurement since I have very little knowledge on the subject. However, I can certainly share some ideas related to the technical aspects of equipment procurement. Some of these ideas are shared point wise below:
 
1. Either the client (the knowledgeable ones) or the EPC contractor has an “Approved Vendor” list. The procurement engineer is bound by this vendor list and has no need to look further beyond this list for floating an enquiry. In fact, having an approved vendor list makes the procurement activity simpler.
 
2. Some companies have a registration process for being an approved vendor for the company. This may cause the “Approved Vendor” list to be too big with numerous vendors. Floating an enquiry for a particular equipment to all the vendors given in the “Approved Vendor” list for that equipment would not be a very practical thing to do. An experienced procurement engineer would probably trim the list of these vendors and restrict his enquiry to a top few vendors based on his knowledge of the vendor’s capabilities. Personally, I would restrict floating an enquiry to a maximum of four (4) vendors.
 
3. An experienced procurement engineer would ensure that the enquiries for the “long-lead” items are fast-tracked. A general definition of “Long-lead” items is an item that takes a longer time to procure. Various companies have their own norms on deciding what is meant by long-lead items depending on the type of plant that is being installed. As a rule-of thumb, I would consider any item with a lead time of more than 8 calendar months to be long-lead in today’s perspective of fast-tracked plants.
 
4. A good procurement engineer would keep continuous track of the response provided by the vendors in terms of submission of offers as per the enquiry. He or she would also be familiar with the process of raising “technical queries” often abbreviated as “TQ” on the offers provided by the vendors. In fact a procurement engineer who has an engineering design background prior to his taking up the responsibilities as a procurement engineer would be able to prepare a standard TQ format for various type of standard equipment. Having a standard TQ format saves time in the overall procurement cycle.
 
5. TQ’s may be raised by individual engineering disciplines in their own TQ formats. The procurement engineer will require collating all this information in one document for sake of clarity.
 
6. Most of the times information flows via e-mails with attachments and occasional telephonic conversation and video conferencing.  I am a firm believer in a face-to-face communication with vendors. The resolution of unanswered questions and issues takes place best when you are sitting across the table and discussing. This has probably to do with human psychology. Some of the good procurement engineers I have interacted follow this very principle that I am advocating. Obviously, a good and meaningful way to have a discussion sitting across the table is to provide an advance discussion agenda to the party who you want to discuss with.
 
7. Once the offers from the vendors are streamlined to match the requirements of the project based on TQ resolution, the next step of “Technical Bid Analysis” abbreviated as “TBA” is conducted by the engineering design disciplines with active support and follow-up from the procurement engineer. Most good engineering companies have standard TBA formats for standard process plant equipment. The purpose of the TBA is to compare the offers of the vendors in the race for bagging the equipment order strictly from a technical view-point.  The standard TBA worksheet has the benchmarking parameters of the particular equipment in the first column of the worksheet and the subsequent columns are information provided by the vendors against those benchmarked parameters. As an example, if you have 3 vendors there will be 3 columns in the worksheet for filling the data provided by the vendors against the benchmarked parameters. A summary section will be provided in the worksheet which will rate the vendors overall technical capabilities and provide rankings and in certain cases even a rejection of one or more of the vendors.
 
8. The next step would be the commercial negotiations for the equipment order.  As an example, if three vendors have provided offers and the TBA concludes that all three of them are equal in their technical capabilities then by conventional logic it boils down to selecting a vendor offering the lowest first cost of the equipment. Please note, that this may not always be true and other factors such as market reputation of the vendor, past association with the company and other extraneous factors may take precedence in selection of the vendor.
 
9. The last step from a technical view-point in the procurement cycle would be placing the order of the equipment to the selected vendor in the form of a “Purchase Order" (PO) specification or requisition along with the commercial terms and conditions of purchase. The PO specification would generally include some technical data and information specific to the selected vendor's evaluated and accepted offer.
 
The aforementioned steps, however, do not end the procurement cycle or the responsibility of the procurement engineer. The logistics of equipment procurement now come into the forefront including items such as stage-wise inspection, factory acceptance test, test certification, packing, shipping, warehouse storage, insurance and demurrage.  I will not deal with these items due to my inherent lack of knowledge on these matters. Maybe some experienced procurement engineer can provide some insight about the logistics part of the procurement process.
 
I look forward to a lot of comments from the readers of my blog.
 
Regards,
Ankur.




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suyogchemical2002
Jun 06 2014 11:22 PM

Ankur Sir,

This is great. Immensely helpful to understand procurement algorithm very well.

 

Thanks.

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tarang.suthar
Jun 16 2014 01:47 AM

Dear  Ankur Sir,
 
I have quarry regarding the tube pitch of Heat Exchanger.
 
I have Process design of shell and tube Heat Exchanger (Double Tube Sheet) and considered pitch is standard Triangle Pitch 25.4 mm and Shell Dia is 8" NB Sch 10s (211.56) mm and number of tube 32 Nos. and Heat Exchanger Area 2.67 m2 (Provided), Product Inlet temperature is 75 degree C and outlet temperature is 45 degree C.

 

Due to fabrication Problem is Triangular distance is 25.4 mm but horizontal distance is 27.5 is increases.
 
My Question is due to the above problem in the tube pitch, any thing change in the process of Heat Exchanger?

 

Any Calrification/Inforamtion then free contact and any other data please provided.
 
Please do the needful.

 

Regards

Tarang Suthar

Design Engineer

Excellent...

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Qalander (Chem)
Oct 05 2015 08:49 PM
Thanks,It is always great practical info, shared from
my friend "Ankur's" desk.
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Qalander (Chem)
Oct 05 2015 09:00 PM
Just a few minor points to add from logistic packing& shipping point of view.
Subject to the process needs/urgency for continued operation items may have to be air lifted instead of Sea freight (most preferred being economic).
Accordingly the packing & shipment styles/types will greatly vary and will have a strong impact on commercial cost of procurement.

Excellent Sir...

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