Focus on the future: Harnessing the Internet to streamline procurement of mechanical equipment

May 3, 2000
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Mechanical contractors know the investment of time, effort, and paperwork required to procure equipment and materials, as well as to find a secondary market for excess materials once a job is completed. Yet today there is a powerful, cost-effective tool for mechanical contractors to streamline the procurement process: the Internet.

If one considers the volume of business that is expected to be done over the Internet in the next few years — $1.3 trillion in business-to-business sales over the World Wide Web by 2004, according to Forrester Research — it is hard to ignore the fact that the web is the wave of the future.

That power can be harnessed to overcome the high costs and inefficiencies of the procurement process for buyers of mechanical equipment and materials — anything from piping to large air-handling units. Many of the costs and inefficiencies arise from the fragmentation of the $650-plus billion United States construction industry. The top five contractors make up less than 2.5% of total industry revenues. There are over 500,000 purchasers of products and equipment, including general contractors and subcontractors, and there are more than 300,000 product suppliers, of which the top 10 make up less than 15% of the market.

The Internet is clearly an effective tool that can be used to bring these many buyers and suppliers together.

A 'virtual marketplace'

Very soon, in fact, it will be possible for mechanical contractors to use a web-based construction network or “virtual marketplace” to gain access to a larger number of product and equipment manufacturers and distributors, compare products, obtain competitive prices, and reduce the seemingly endless stream of paperwork, faxes, and phone calls. All it will take is a personal computer with a modem and access to the Internet.

For mechanical contractors and subcontractors, buying products and equipment on the Internet translates into a simpler, faster, and cheaper way of doing business. In addition to providing access to more suppliers, automation simplifies the traditional time-consuming and inefficient procurement process, cutting lead times for buying products as much as 95%. In addition, an online products network provides immediate access to up-to-date product information — including availability, prices, delivery status, and product promotions or liquidations — from anywhere at any time.

Using an online network also enables contractors or subcontractors to estimate project costs and procure materials and equipment more quickly, allowing them to bid on more projects with greater accuracy, and without increasing overhead and other resources. Access to a large network of suppliers will also enhance a buyer’s ability to find, and negotiate, a better price.

In addition, a Web-based system allows contractors and subcontractors to streamline accounts payable and keep detailed records of all transactions and communications. A well-designed network will use software that is compatible with the popular financial and estimating software packages many contractors use in-house, essentially functioning as the “front end” of their in-house systems.

Those who do not have such a system set up in-house can use a well-designed Web site’s capabilities as a standalone system for tracking the procurement process from Request for Quotations (RFQ) through delivery. Over the long term, the Web site will create a database of the contractor’s transactions, allowing him/her to track long-term procurement patterns. After a job is completed, the network’s Web site also can provide an efficient secondary market to sell used or unused materials.

Equally important, a well-designed system will not interfere with existing relationships between buyers and sellers because it will allow a buyer to select which suppliers should receive the RFQ.

Posting an RFQ

That brings us to how a mechanical contractor might post an RFQ. The contractor logs onto the website and creates an RFQ for a product or products by filling in the appropriate information on a standard electronic template.

The system then finds suppliers from its network database that can sell the product or products and also meet the RFQ criteria such as availability and delivery requirements. The buyer then selects as few or as many suppliers as he or she would like to receive the RFQ.

A well-designed website where the contractor can put together a single bill of materials for equipment and supplies simplifies the process. An intelligent system will break down that single bill of materials into multiple RFQs for appropriate distributors.

The contractor receives a res-ponse in one composite bid. Rather than having to create multiple bills of materials and fax them to multiple suppliers, a well-designed Web site can handle the process electronically for the contractor, eliminating paperwork and drastically reducing the time spent on the process.

If they wish, buyers and suppliers can conduct online negotiations over price, delivery, or other terms and conditions. When they have reached an agreement, a purchase order is automatically generated online and sent to both parties electronically. The supplier then delivers the materials directly to the purchaser. Once both parties confirm delivery, an invoice is generated online and sent automatically to the buyer for payment.

Finding the right network

The benefits to mechanical contractors are appealing, but it is essential to find the right Web-based procurement network. In fact, many business-to-business Web sites are emerging that offer a wide range of solutions for the construction market. Most try to force-fit new technology without really understanding contractors’ needs.

That’s why it is important to find a procurement network that combines significant experience and knowledge of the mechanical contracting industry, a wide network of contacts, and a deep understanding of what contractors and subcontractors really need. Procurement is a complex process, and participants should choose service providers wisely.

Clearly, a comprehensive buying and selling network combining deep knowledge of the mechanical contracting industry with the power of the Internet will generate efficiencies and lower costs for contractors — it’s the right time to buy online.

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