Supplier Alliances for Engineered Equipment in Capital Projects

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Title: Supplier Alliances for Engineered Equipment in Capital Projects
Author: Harper, Douglas Gene
Advisors: Leonhard E. Bernold, Committee Chair
Robert B. Handfield, Committee Member
William J. Rasdorf, Committee Member
Abstract: Energy sector capital projects typically cost hundreds of millions and even billions of dollars to design, engineer, procure and construct. Major components of these projects are engineered capital equipment that the facility is built around. Managing the engineered equipment is important during all phases of the project not only because of their high dollar value but also because the long manufacturing lead times often drive the overall project schedules. Procurement of engineered equipment has traditionally been done using lowest technically qualified bid. Supplier selection decisions are made in which there is lost opportunity due to failures by the buying organizations to capitalize on and integrate the suppliers' detailed knowledge about the engineered equipment they produce. One method that has potential to eliminate this barrier is supplier alliances. To create a basis for an in depth evaluation of supplier alliances, a literature review was accomplished to evaluate other industries on a global scale. Opportunities and barriers for supplier alliances in capital projects were identified using a questionnaire and a series of interviews that included 16 companies representing different groups involved in capital projects. Opportunities were evaluated based on criteria involving cost, time, and quality. Questionnaire results and personal interviews with industry executives reveal that time savings and quality improvements were perceived to be of much greater value than the initial price savings of the engineered equipment from supplier alliances. Industry experts estimated that supplier alliance initial price savings would range from six to ten percent while procurement time savings of up to six months could be achieved by eliminating the bidding cycle for engineered equipment. However, by far the highest added value would arise from better capitalizing on the suppliers' specialized expertise about the equipment. Based on the result of the extensive surveys, a Capital Projects Supplier Alliance Model (CaPSAM) was developed consisting of several integrated modules lead by a Company Self-Assessment which suggests a procedure where a company assesses its own management culture toward alliances. The model follows the life cycle of the alliance from development through management to include establishing metrics to measure performance. It is generally understood that supplier alliances do not provide a blanket solution for procuring engineered equipment items. A source of caution is broad industry studies showing that most alliances end in failure. Most surprising was the fact that very few companies use metrics to measure performance, thus leaving them in the dark on the question why an alliance failed. Based on the final analysis of the present situation, it is felt that the most critical contribution of this work is the CaPSAM which incorporates not only the key factors that made supplier alliances successful in other industries, but also measures to avoid pitfalls. Since synergy leads to better performance, effectively managed supplier alliances are predestined to offer substantive value/benefits to all participants.
Date: 2003-08-18
Degree: MS
Discipline: Civil Engineering
URI: http://www.lib.ncsu.edu/resolver/1840.16/2378


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