The Impact of Suppliers on Capital Projects

A supply manager in the Canadian oil patch wrote me recently about their experience on a major capital project, after reading my blog on capital equipment uptime.  He was quick to point out that ensuring uptime of equipment is a major priority, not the cost of the equipment itself, due to the amount of production revenue being lost for every minute that the site is not operational due to equipment failures. He pointed out that this principle doesn’t necessarily apply to capital equipment only. “You might find this a bit hard to believe but this could even extend to something that you’d otherwise shrug off as ‘not that’ important! E.g. Small tools and consumables. A purchase order to a supplier for $25k would be construed as a minor purchase that wouldn’t even warrant the raising of an eyebrow. Here’s an example of how things could go horribly wrong were the goods to be not procured in time: A construction crew of 40 people, all employed at $ 85/hour and working on a 10 hour shift in the oil sands remain idle for 4 days because they didn’t receive their tools in time. The idle time cost alone for 4 days would cost the company $136k!! I have to literally breathe down the supplier’s neck every single day to ensure that we won’t have any nasty surprises! Small tools and consumables fall under the MRO (Maintenance , Repair & Operations) category,and in the oil sands, it’s booming business for some suppliers.  A crane operator cannot get on a crane or any other major piece of equipment unless he has the proper PPE gear on! Fail to get him his gear and we end up losing big money!

This is a perfect example of thinking about Total Cost of Ownership as a component of procurement value.  Thank you for the readers of my blog for their comments!