procurement in epc.pdf
TRANSCRIPT
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Procurement as a leverage to Recover EPC project deviations
Author: Luca Papallo - Process Automation Division - BU Oil & Gas and
Petrochemical - Supply Management
Keywords: Procurement Strategy, Procurement Process, EPC, Strategy-Making
Process, Project Deviations.
Introduction
This research focuses on the area of Operations Management, particularly on the
procurement in the EPC (Engineering, Procurement and Construction) industry.
During the last years procurement assumed a key role in supporting companies
competitiveness, because of the notable changes into the macro-economic environment
that affected the procurement function, bringing into question its administrative and
transactional role. In particular: the growing recourse to outsourcing for thoseactivities deemed as not adding value; increased globalization that implies to compete
with companies geographically far and with different cost structures; the technological
advances in internet based systems such as the B2B e-commerce (that in 2005 had, only
in Italy, a value of 94 billion representing more than 5% of the total Italian B2B
market, source: Politecnico di Milano ICT observer); changing consumer patterns
(bundling and un-bundling politics and so on). In this research two studies take place,
each of them related to Procurement in EPC companies.
Setting-Up the Procurement Strategy - RQ1
Procurement and Strategy
All of the above mentioned environmental changes impose a reorientation of thepurchasing function, leading to the recognition of its strategic role. The evolution of
purchasing, from a mere buying function to a strategic function, has been accompanied
by a growing interest from researchers, in order to provide an helpful methodological
support. According to Ellram and Carr (1994), three main stream of research, partially
overlapped, can be found in purchasing literature1: specific strategies employed by the
purchasing function; purchasings role in supporting the strategies of other functions
and that of the firm as a whole; purchasing as strategic function of the firm. However,
since 2000 (Carr e Smeltzer, 2000) another stream of research appeared, about the
1The international literature mainly refers to purchasing; the word procurement is mainly used in
specific industries such as the EPC industry. In the traditional sense, there is a significant difference in
that purchasing merely reflects the act of acquisition, while procurement encompasses more elements
of the supply chain (for example logistics, transportation, expediting etc.). According to this, talking
about EPC companies, it will used the term procurement, aware of its difference with the term
purchasing.
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impact of purchasing strategy on firm performance. The first part of this research
focuses on the second stream of research, were a lack was found2.
Purchasing Role
In this stream of research some interesting contributions can be found since 1981 when
Spekman (1981) highlighted the need for strategic planning within the purchasing
function, seen as the right way for fully integrating the purchasing function into the
firms strategic planning process. However, Browning (1983) pointed out the
importance of improving strategic planning skills among purchasing managers, to
purchasing give a contribution to corporate strategic planning. Landeros et al. (1989),
using Porters model of the competitive positioning of the firm, suggests that purchasing
can play an instrumental role in supporting the firms strategic positioning;
nevertheless, according to Carlson (1990), positive results can be achieved only if the
purchasing function is supportive of, and sensitive to, long-term corporate objectives
that allow for the development of strategies to allocate resource efficiently. St. John and
Young (1991) stated that the formal goal-setting process encourages managers to only
develop a common vision of the future, because the manufacturing strategy (as well asfor purchasing strategy), made of day-to-day operating decisions, is usually inconsistent
with that vision. Emulating Skinners seminal work on manufacturing strategy (1969),
Watts et al. (1992) constructed and Krause et al. (2001) tested, the link between
purchasing and corporate strategy basing on competitive priorities: knowing the relative
importance of the performance (time, cost, quality, innovation and flexibility) for
corporate competitive strategy, purchasing can make decisions focusing on the
achievement of the performance required. These contributions highlighted the
importance of linking corporate and purchasing strategies even at an operational and
tactical level. A significant step forward was made with Nollet et al. (2005). They
analyzed the hierarchical process for strategy making as made by seven sequential
steps, and they also individuated three main level of decisions by which linking
corporate and purchasing strategies: strategic, tactical, operational. Notwithstanding thisframework has two important limitations: it does not consider the environment as
affecting the strategic levels, it focuses mainly on a traditional manufacturing
company3.
Research Question - RQ1
The first part of this research was aimed at formulating a model to understand the
process by which a procurement strategy is set-up in an EPC company. For this reason
the first research question was stated:
RQ - 1 How is the Procurement Strategy related to those of other strategiclevels within an EPC Company?
2For conciseness reasons in this abstract only the second stream of research is reviewed. In the second
chapter of this thesis a deep review of each stream can be found.
3No contributions about EPC companies were found.
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However, in the EPC companies, beyond the traditional strategic levels4, there is
another strategic level: the project strategy. This makes it necessary to review the
project strategy literature, to understand its role in the strategy making process.
Setting-up the Procurement Strategy
According to Artto et al. (2007), it is possible to find three main tracks of project
literature that refer, implicitly or explicitly, to the concept of project strategy. These
tracks can be considered as three different viewpoints of project strategy:
Projects as subordinate to the parent organizations5; Projects as autonomous organizations connected loosely or tightly to a parent
organization6;
Projects as organizations that are not subjected to clearly defined governance orauthority setting in relation to their surrounding organizations or stakeholder
organizations7.
This review of the project-strategy literature was really helpful to understand theelements that give a contribution in project-strategy making. The elaboration of a sound
project strategy, comes from: the guidelines coming from the Business Unit Strategy
(first track); the analysis of some Relevant Contextual Factors (third track); the
interaction between project and functional strategies in terms of project execution and
project management (second track). These results were matched with those of a parallel
research, whose aim was to identify the procurement strategies to be used, depending
on some relevant contextual factors. This study defined indeed the relations existing
among Procurement Strategies, Contextual Factors and Buying Behaviours. By taking
into account all of the above entities and relations, a strategy making model was
developed (Figure 2).
4Indeed, three main strategic levels have become well accepted in a traditional firm: Corporate Level
Strategy; Business Unit Strategy; Functional Level Strategy.
5Turner J.R., (1999); Morris and Jamieson, (2004), Griffin A. and Page A.L., (1996); Anderson D.K. and
Merna A., (2003); Anderson D.K. and Merna A.,(2005); Milosevic D.Z. and Svrinnaboon S., (2006).
6Bettis R. A. and Hitt M. A., (1995); Loch C., (2000); Lam et al., (2004), Pulkkinen V.P.,(2005), McGrath
R.G., MacMillan I., (2000) McGrath ME, (1996), Bryson J. M., Delbecq C. Q., (1979).
7Dzeng R. and Wen K., (2005); Miller R. Lessard D., (2001); Lampel J., (2001); Milosevic D.Z.,
(1989);Kollveit B. J. et al., (2004); Engwall M., (2003); Miller R. and Floricel S., (2001).
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Procurement
ContextualFactors
Buying
Behaviours
B.U.Strategy
Project
Strategy
Procurement
Strategy
ProjectCharacteristics
/ ContextualFactors
ContextualFactors
Figure 1 - Procurement Strategy set-up
Research Strategy - Single-Case Study
Yin (1994), suggested that a case study research is appropriate when the researcher tries
to understand a phenomenon, not under his control, by answering at how and why
questions. Yin (1994) specifies that a single case study has to be used when it represents
the critical case (or extreme case) in testing a well-formulated theory. The single case is
helpful to determine whether a theorys propositions are correct or whether some
alternatives set of explanations might be more relevant. For all of these reason, the
research strategy was to adopt a single-case study through a focused interview. The
interviewee selected was a Project Audit Manager8
of one of the Best-in-Class Italian
EPC Companies (in order to consider an extreme case). The single-case study
confirmed the construct validity. However, it allowed to improve and complete the
above mentioned strategy-making model (Figure 2). Each of the hypothesized relations
among the strategic levels was confirmed and in addition it was pointed out that:
The Business Unit strategy comes directly from the CEOs guidelines, and inturn it directly affects the project strategy;
The Procurement strategy is directly fed by the CEO strategy on the basis of thecharacteristics of the project that the company is going to perform in the future;
The Buying Behaviors depend on the Procurement strategy chosen, but they areadapted on the basis of the project strategy.
8The Project Audit Managers in this company have a deep knowledge of the companys strategy.
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Procurement
ContextualFactors
Buying
Behaviours
CEO
Strategy
B.U.Strategy
Consistency
CF
CF
Project
Strategy
Procurement
Strategy
Project
Characteristics/ Contextual
Factors
StrategicProjects
Figure 2 - Procurement strategy set-up (Tested Model)
Research Value
The main contribution of this research, mainly theoretical, was the formal definition of a
procurement strategy-making process in an EPC context, disregarded by the literature.
The single-case confirmed the validity of a model based on the concepts of Contextual
Factors, Strategic Levels and relationships among them, Buying Behaviours. This result
also highlights that a procurement strategy cannot be deemed as a stand-alone entity,
but it has to be considered as an entity interacting with all of the strategic levels within a
company. A strategy can be defined indeed as a continuous process by which: goals
are determined; resources are allocated; a pattern of cohesive actions is promoted by
the organization in developing competitive advantages (Evered, 1983). In the process
above all of these elements can be found: the project goals (the competitive advantage
of an EPC company is based on projects, of course) are shaped by the BU strategy, the
resources are allocated by the CEO strategy to the business processes (engineering,
procurement and construction), a pattern of cohesive actions is promoted (the pattern of
buying behaviours is promoted by the procurement strategy, coherently with the project
strategy), in developing competitive advantages.
Further Research
Further researches using a replication logic, may employ multiple-case studies in
order to verify the external validity of this study. Not only, it will be worthwhile to
determine exactly the contextual factors involved for each strategic level and their
overlapping.
Procurement and Deviations
Once the strategy making process was clarified, the second step was to understand the
dynamic relationship existing among procurement and projects usually performed by anEPC company. In fact, in EPC companies the procurement plays a key role in project
execution, indeed it is a crucial phase of the project execution. However, the experience
confirms that during project execution it is possible (and, irrespective of the amount of
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planning, really very common) that the actual performance, in terms of time, cost, and
quality, differs considerably from that desired. The causes of these deviations can vary a
lot. Indeed, the business processes (engineering, procurement and construction) are
often accountable for project deviations. The procurement phase, such the other project
phases, can considerably contribute in originating deviations from desired performance.
On the other hand, once a deviation from desired performance is discovered, thepossible actions that a project manager can undertake to reduce or eliminate the
deviation vary a lot. In particular, re-planning is probably the most used practice to
reduce deviations. Because of its great impact on project performance, procurement can
also be used as a leverage to reduce or, possibly, eliminate the deviations from the
desired performance caused by the procurement, by the other project phases, or by
external factors. The objective of this second research is to understand how the
procurement can be considered as a factor to cause and a leverage to recover EPC
project deviations. The analysis of the literature highlighted indeed a total lack about
this topic. For this reason two research questions with their sub-questions are stated:
RQ - 2 How can procurement contribute in originating deviations from thedesired performance during the project execution?
a. How can procurement strategies contribute in originating deviationsfrom the desired performance during the project execution?
b. How can procurement process contribute in originating deviations fromthe desired performance during the project execution?
RQ - 3 How can procurement be used to re-align the actual projectperformance to those desired?
c. How can procurement strategies be used to re-align the actual projectperformance to those desired?
d. How can procurement process be used to re-align the actual projectperformance to those desired?
Framework
The procurement was supposed to affect the project performance through the two
leverages identified: procurement strategy and procurement process. They both were
supposed to affect the procurement contribution to Project Performance in terms of
time, cost and quality.
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Buying
Behaviours
Procurement
Strategy
Procurement
contribution to
Project
Performance
Figure 3 - Procurement Impact on Project Performance
The remedial actions, that the procurement was supposed to undertake in order to
recover project deviations, are procurement strategies and procurement process
modifications. Indeed, these modifications can be considered as actions to re-align the
performance with those obtainable with a specific procurement leverages positioning. In
particular, these modifications can be undertaken (Figure 4): within the same
acquisition, to purchase later items within the same project, to purchase item in further
projects (Lesson Learned).
Figure 4 - Procurement as a Cause and Leverage
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Research Strategy - Multiple-Case Study
Once again, the research characteristics suggest to use a case-study research in order to
answer the RQ2 and the RQ3. However, for these research questions does not exist a
critical (or extreme) case to be tested, but there was the need for a more compelling
evidence and more robustness, that can be guaranteed only by using a multiple-casestudy approach (Herriot and Fireston, 1983). However, to conduct a multiple-case study
it is necessary to select the sample. This problem regards the selection of the companies
and the interviewees within the company. In particular, in order to have a greater
significance of the results, it was decided to focus on the Best-in-Class EPC companies.
More difficult was the selection of the interviewees. This research focuses mainly on the
relationship existing between procurement and deviations occurring in EPC projects.
For these reasons the ideal interviewee must have two main characteristics:
A deep knowledge of project-related issues; A deep knowledge of the procurement strategies and process; An overall vision on the projects performed by the company.
In order to be sure that the interviewee had the second and the third characteristics, it
was decided to interview Procurement Managers (that have a multi-project vision), but
in order to satisfy also the first constraint it was necessary to let managers operating on
projects (for example project managers, project audit managers,) share in the
interview. In addition, in order to rule out the eventuality of misunderstandings, few
days after the interview a detailed report was sent to the interviewee to have a feedback.
A cross-analysis of the results allowed to point out some interesting results.
Procurement Strategies Originating Deviations
Table 1 shows the different strategies selected by the company as causing performance
deviations in projects9.
STRATEGYCOMPANY
TIME
COST
QUALITY
1 2 3
Reduce the Number of Suppliers X X X
Finding New Suppliers X X
Negotiation X
Improvement and Development of the Supplier X
Alternative Materials / Components / Products X
Table 1 - Strategies originating deviations
9A red cell means that the main guideline was selected by the all of the companies involved, a yellow
cell means that the main guideline was selected by two companies, instead a green cell means that the
main guideline was selected only by one company.
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The strategy Reduce the Number of Suppliers was selected by the three companies as
causing both time and cost deviations. The aim of this strategy is to decrease the
number of suppliers which are having business for a specific product or set of products.
However, all the companies pointed out that this strategy leads to a virtual increase of
the suppliers bargaining power because the supplier, aware that it is not in competition
with a high number of competitors, places high value and time to the sale, affecting timeand cost performance.
The strategy Finding New Suppliers was selected by two companies as affecting the
quality performance. The aim of this strategy is to find more suitable suppliers
(especially in terms of costs), or to widen the number of potential suppliers, because of
the increased level of competitiveness within that market that a larger number of
suppliers will lead to. However, new suppliers, often coming from emergent countries,
usually have not enough expertise to assure the quality level required by the buying
companies; to be more precise when they provide the items during the project
execution, the quality level of the items is often not aligned with that contractually
agreed10
. Only Company Two did not select this strategy and specified that this strategy
is usually followed by the strategy Improvement and Development of the Supplier, inorder to reduce the possibility of scarce quality.
The strategy Negotiation was selected only by one company as affecting time and
cost performance. The objective of this strategy is to deal with the suppliers in order to
get the most favourable conditions in terms of price and service. However, the
Company Two pointed out that an overexploitation of negotiation leads to an antagonist
supplier behavior: the supplier places higher value and time to the sale in revenge for
the opportunistic behavior of the buying company. The companies that did not select
this main guideline, specified that it is not used because they are aware of the antagonist
relationship that this strategy leads to.
The strategy Improvement and Development of the Supplier was selected by one
company as affecting the project quality. Indeed, this guideline is used to improve and
develop the performance of a supplier that is willing to assure low cost. However, this
strategy can lead to unsatisfactory quality performance when it is constrained by the
project: the time at disposal to develop the supplier is not enough to assure the right
performance improvement. Moreover, the short time at disposal in project contexts
should not be enough to select the supplier whose performance has to be improved.
Finally, the strategy Alternative Materials / Components / Products was selected only
by the Company Three as affecting the quality performance: when the company tried to
use alternative components, had to face with quality deviations in projects. This
probably happens because the company performs projects where the clients require high
components reliability (low project novelty, in particular low average number of new
components designed) and, when the company tried to experiment with new solutions,
faced with non-conformities.
10The quality performance in the EPC industry is deemed as a qualifier performance (Hill, 2000).
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Process Phases Originating Deviations
Table 2 shows the phases of the procurement process selected by the three companies as
affecting the project performance11
.
# PROCUREMENT PROCESS
PERFORMANCE
TIME
COST
QUALITY
1 Material Take Off
2 Supplier Research
3 Market Price Prediction
4 Supplier Qualification
5 Purchase Requisition
6 Supplier Selection and Final Choice
7 Development of The System Supporting The Relations8 Order Management And Inspection
9 Shipping
10 Knowledge Management
Table 2 - Process Phases Originating Deviations
The Material Take Off is often deemed as a phase under the engineering domain,
however this is the phase that also activates the procurement process and requires a
continuous interaction between engineering and procurement (accountable for the
component Matching with other Buys). This phase was deemed as accountable for
time delays in projects because of the long time that the activities of designing the
technical solution and matching with other buys require to be performed, time that is
usually longer than that planned. As can be seen this phase was selected by all of the
companies interviewed.
The phase ofSupplier Research was selected by the three companies as causing time
delays. In particular, the Evaluation of Clients Constraints is mainly accountable for
time delays: it is often difficult to find suppliers that satisfy all the clients constraints,and the impact of this phase grows as much as the constraints imposed by the client
grow.
All of the three companies highlighted the strong impact that the phase of Supplier
Qualification can have on causing time delays in projects; for this reason each company
always resorts to suppliers already qualified, in order to gain time. However, the second
company selected the phase of supplier qualification as accountable for time delays alsofor another reason: the procurement sometimes does not perform correctly this phase
because are often qualified suppliers, with scarce engineering capabilities, that are not
11A red cell means that the main guideline was selected by the all of the companies involved, a yellow
cell means that the main guideline was selected by two companies, instead a green cell means that the
main guideline was selected only by one company.
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capable to provide exhaustive technical drawings. This situation implies difficulties to
obtain on time high-quality technical drawings: as a result this phase was selected as
causing time delays and quality deviations in projects by the second company.
However, this situation was considered even by the other two companies (though as
affecting only the time performance, but not the quality performance), that instead
consider the phase Purchase Requisition as very time consuming especially when thesuppliers involved have scarce engineering capabilities. This difference is due to the
different process structuring among the companies. For all of these reasons the first and
the third company selected the phase Purchase Requisition, instead the second company
selected the phase Supplier Qualification.
The phase ofSupplier Selection and Final Choice was selected by all of the companies
as affecting the time performance for the same reason: during this phase takes place the
technical and commercial offers-alignment that is very time-consuming. Indeed, the
technical alignment is as much accountable for time delays as the technical complexity
of the item to be bought grows, but it is necessary to highlight that each technical
modification leads to a review of the commercial-contractual agreements that extends
the already long time.
Finally, the phase Order Management and Inspection was selected by the three
companies as causing time delays: the inspection sub-phase can be very time consuming
(especially in event of consecutive non-conformities), in order to assure the quality level
required by the client. However the second company selected the Order Management
and Inspection phase as causing even quality deviations: if this phase is not performed
deeply (or not performed, e.g. wave of inspection) or outsourced, it can originate quality
deviations.
Procurement Strategy as a Leverage
Table 3 shows how procurement strategies are used as a leverage to recover
performance deviations (Y means that the leverage is used, N that the leverage isnot used).
COMPANYPROCUREMENT STRATEGIES MODIFICATIONS
Within the same Acquisition To Purchase Later Items Lesson Learned
1 Y Y Y
2 N N Y
3 Y Y Y
Table 3 - Procurement Strategy as a Leverage
As can be noted, the first and the third companies interviewed use to modify
procurement strategies in all of the three possible ways: within the same acquisition, topurchase later items in the same project, and as Lessons Learned. Instead the second
company does not use to modify strategies during project execution, because of the high
rigidity of the strategies: once a strategy have been implemented, the switching-costs
are considered very high. However, in no-choice circumstances (supplier failure,
force majeure,) the company, irrespective of the high costs involved, uses to modify
the strategies. All of the companies involved use to modify the strategies as Lessons
Learned.
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Procurement Process as a Leverage
Table 4 shows how the three companies use to modify the procurement process to
recover project deviations deviations (Y means that the leverage is used, N that the
leverage is not used).
COMPANYPROCUREMENT PROCESS MODIFICATIONS
Within the same Acquisition To Purchase Later Items Lesson Learned
1 N N Y
2 Y Y N
3 Y Y N
Table 4 - Procurement Process as a Leverage
The second and the third companies use to modify the procurement process both within
the same acquisition and to purchase later item in the same project; notwithstanding
they do not modify the procurement process ex-post: when the procurement process is
more flexible, it is not likely to be modified as a lesson learned because the company
can modify it in progress. Instead the first company, though showed a high flexibility instrategy changing (however a strategy change leads to a process change as highlighted
in the third chapter), does not use to modify the process in progress: the procurement
process is frozen, it is only possible to modify the priority level for each procurement
phase. This company instead use to modify the process as a Lesson Learned.
Leverage Effectiveness
Table 5 shows which project deviation enables to use a recovering action, having
reference to the procurement, for each company. The first company uses procurement to
recover time and cost deviations; the second company uses procurement to recover time
and quality deviations; the third company uses procurement to recover only time
deviations. This findings highlights that all the companies use the procurement as aleverage to reduce time delays, the Company One uses it also to recover cost deviations;
the Company Two uses it also to recover quality deviations. Surprisingly only one
company (Company One), uses procurement leverages to recover cost deviations: the
other companies interviewed highlighted that they usually do not face with cost
overruns (their efforts are already aimed at reducing costs).
COMPANY TIME COST QUALITY
1 X X
2 X X
3 X
Table 5 - Deviations enabling recovering actions
These results were confirmed by the results in following tables, explaining the
effectiveness of each action implemented. Tables 6, 7, and 8 show the effectiveness of
each leverage, detailed for each company. The grey cells, indicate exceptional situations
(no-choice situations, Company Two), and little modifications (priorities
modifications for process phase, Company One). There were not found differences in
the use of strategy or process modifications between modifications within the same
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acquisition and modifications to purchase later items; for this reason they were grouped
into one cluster of actions named modifications during project execution.
LEVERAGE - COMPANY ONEPERFORMANCE AFFECTED
TIME COST QUALITY
Modifications during
Project Execution
Procurement
Strategy
TIME ORIENTED +1 -1 0COST ORIENTED -1 +1 0
QUALITY ORIENTED - - -
Procurement
Process
TIME ORIENTED +2 -1 0
COST ORIENTED - - -
QUALITY ORIENTED - - -
Lesson Learned
Procurement
Strategy
TIME ORIENTED +1 0 0
COST ORIENTED 0 +2 0
QUALITY ORIENTED - - -
Procurement
Process
TIME ORIENTED +1 0 0
COST ORIENTED 0 +2 0
QUALITY ORIENTED - - -
Table 6 - Leverage Effectiveness - Company One
LEVERAGE - COMPANY TWOPERFORMANCE AFFECTED
TIME COST QUALITY
Modifications within
the same acquisition
Procurement
Strategy
TIME ORIENTED +1 -1 0
COST ORIENTED - - -
QUALITY ORIENTED - - -
Procurement
Process
TIME ORIENTED +1 -1 -1
COST ORIENTED - - -
QUALITY ORIENTED -1 -1 +1
Lesson Learned
ProcurementStrategy
TIME ORIENTED +1 0 0
COST ORIENTED +1 0 0
QUALITY ORIENTED +1 0 0
Procurement
Process
TIME ORIENTED - - -
COST ORIENTED - - -
QUALITY ORIENTED - - -
Table 7 - Leverage Effectiveness - Company Two
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LEVERAGE - COMPANY THREEPERFORMANCE AFFECTED
TIME COST QUALITY
Modifications within
the same acquisition
Procurement
Strategy
TIME ORIENTED +1 -1 0
COST ORIENTED - - -
QUALITY ORIENTED - - -
Procurement
Process
TIME ORIENTED +1 -1 0
COST ORIENTED - - -
QUALITY ORIENTED - - -
Lesson Learned
Procurement
Strategy
TIME ORIENTED +1 0 0
COST ORIENTED 0 +1 0
QUALITY ORIENTED - - -
Procurement
Process
TIME ORIENTED - - -
COST ORIENTED - - -
QUALITY ORIENTED - - -
Table 8 - Leverage Effectiveness - Company Three
The most interesting result is that each recovering action, undertaken during projectexecution and aimed at recovering a specific performance, leads to the worsening of
another performance (or other two performance if the performance recovered is
quality): each recovering action during project execution, exploits the trade-offs among
performance. The Lessons Learned instead are aimed at improving those performance
deemed as improvable, in companys perception. Moreover, the modifications as
Lessons Learned do not exploit trade-offs among performance, they can be considered
as structural modifications, exploiting another trade-off curve aimed at improving a
specific performance, without worsening another one. Another surprising result is that
the Company One attributed high effectiveness to process modifications: these
modifications are undertaken only if they originate a great positive impact on time
performance, without too much worsening cost performance.
Conclusions
The analysis of the results also shows that the three companies use three different
strategies to handle with project deviations. In particular, when Company One (Figure
5) faces time or cost deviations in projects, uses to modify only the procurement
strategies12
.
Figure 5 - Company One
12As it is highlighted in the third chapter, each strategy leads to a process structuring in terms of phases
to be performed and how deeply they have to be performed .
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Company Two (Figure 6) instead, does not use to modify the procurement strategies
during project execution, in order to recover time and quality deviations. The
interviewees highlighted that the procurement strategies are characterized by high
rigidity (they imply high switching costs) and for this reason any change during the
project execution is not allowed.
Figure 6 - Company Two
The third company (Figure 7) instead uses the most flexible strategy: when necessary itcan change both procurement process and procurement strategy to handle with time
deviations.
Figure 7 - Company Three
It is worthwhile to point out that both Company One (that does not modify procurement
process during project execution) and Company Two (hat does not modify procurement
strategies during project execution), highlighted that a more flexible strategy (that
would allow to modify all of the procurement leverages), should make possible to
recover a higher number of deviations with higher effectiveness. However, these
different strategies adopted to handle with project deviations reflect differentguidelines coming from top-levels within the organization: top-levels within the
organization decide which strategy has to be adopted drawing the line at the
modifications that the procurement function may employ to handle with project
performance deviations.
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Research Value
This research gave a worthwhile contribution, with both managerial and theoretical
implications. In particular, it was established a framework, based on the concept of
procurement leverages, to handle with project deviations. It was also pointed out that
performance deviations can be recovered, during project execution, only by exploitingtrade-offs among performance. The modifications as Lessons Learned instead, do not
lead to the exploitation of trade-offs among performance, they can be considered as
structural modifications, exploiting another trade-off curve aimed at improving a
specific performance, without worsening another one. The results also highlighted three
different strategies to handle with project deviations: strategies modifications, process
modifications, and combined modifications, depending on the situation. These findings
allow valuable further research.
Further Research
It should be worthwhile to repeat the same analysis changing the focus. It should be
interesting to widen the analysis, focusing on individual EPC projects that faced
performance deviations. By doing so, it will be possible to match each strategy andprocess modification to specific effectiveness. By analyzing single projects, it will be
possible to construct a valid tool, based on historical experiences, to handle with project
deviations.