Getting to Buying

Managing warehouse implementation projects usually involves spending money. Big warehouses will take a lot of money. Spending that money with high efficiency (speed & quality) is a critical part of a successful implementation. Here is what to look out for during the project to stay on track:

  1. Identify big spend and long-lead items early
  2. Understand the decision-making process
  3. Plan for negotiation and contract
  4. Don’t get surprised at the end

Identify Big Spend & Long-Lead Items Early

When planning the project, take the time to review the long-lead and high dollar items early. These will often drive overall project schedule and budget.

For warehouses, key items in this category include:

  1. Building construction
  2. Racking
  3. Automation (think conveyors and robots)
  4. Software
  5. **Bonus: If you are having a 3PL or integrator do all of the above things, then roll all those into one Implementation project**

These are the “show-stoppers” without which the warehouse can’t function.

There are other, less-critical long-lead items like forklifts and material handling equipment, hiring key personnel, and testing. But these are often not as expensive, time-critical, or non-fungible as the items above.

Understand the Decision Process

How many times have you been in an evaluation and procurement cycle that went on and on? To move efficiently through the process — that is, buying the right thing from the right supplier for the right cost in a reasonable time — you need to understand how the decision about the thing is made.

This an output of stakeholder analysis: Who are the decision makers, who has to ratify or approve the decision, and what information do they need to make the decisions?

Often the decision-making stakeholder teams include Operations, Finance, and IT executives. They will often need to see the outputs of a competitive bid process from qualified vendors.

This means that the decision process inputs should include:

  1. Qualified vendor pool
  2. Agreement on the complete design specification or requirements
  3. Agreement on the evaluation method

While some organizations have done this enough that it is muscle-memory, these inputs are what we mean by a quality process. Much like the inputs to any distribution operations process, errors in inputs to a large procurement project have to be fixed before getting a good output.

If there isn’t executive alignment on those items, the process will have rework to get to those correct inputs. That rework will take the form of more time, more vendor engagement, more cost, and–importantly–loss of organizational capital and reputation among the project sponsors

So it is important to get those things right from the start.

Once the bid and evaluation are fixed, then the decision-makers have enough information to be comfortable moving forward.

Plan for Negotiation and Contract

In high-dollar, high-impact (read high risk) purchases or partnerships, negotiating the contract takes longer than you think it will.

Much longer.

When legal, finance, and purchasing teams are telling you “we only have a few redlines left, we should be ready to execute next week”, you probably have two or three months left. Plan accordingly. In fact, plan for lots of schedule contingency in this part of the project. No matter how urgently you need the agreement to be signed to issue the PO and get design kicked off, if the agreement isn’t signed, nothing is moving.

There are some mitigation strategies available.

You can try to get a Letter of Intent or sign with the vendor for smaller engagement to get key work moving. Perhaps there is a design agreement and then a main package agreement separately negotiated. However some procurement teams are hesitant to take this approach because it can reduce negotiating leverage in a bid process.

Don’t Be Surprised At The End

Once the contract is negotiated and ready to sign, everything can blow up if the key stakeholders are surprised by something. This can be an element of the design, cost, or terms of agreement. Or maybe some circumstance of the deal has changed.

For example, perhaps the negotiation took so long that the steel pricing, a huge part of the overall cost, changed materially. Or maybe the design discussions, started under LOI, uncovered additional scope that is required. Or the financing terms are found to be incompatible.

If you have prepared your stakeholders for risks and informed them of the status, timeline, and next steps along the way, then there shouldn’t be too much to change.

But if something does, don’t panic.

You included schedule contingency in the plan. You know how to decompose the scope of the work to see what can move forward and what has to wait (maybe the rack PO has to wait, but you can start design, or plan for a storage mitigation strategy). You can help facilitate discussions on options.

The important thing here is to be flexible and creative, and you’ll get there. Things happen when they are meant to happen (helped along with great PMs of course!).

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