Interview with industry veteran, Melissa Herkt.
For companies providing engineered equipment to major capital projects, there is no shortage of challenges in meeting the demands of their EPC (Engineering Procurement Construction) clients. Larger projects are forcing EPCs to operate on thinner margins with increased risk, so managing their supplier relationships around engineered equipment is imperative to their success and the success of their projects.
Any issues with delivery of even one of these fabricated pieces and the entire project can end up grossly over time, over budget, and end in litigation. As a result, the documentation expectations that vendors and suppliers are expected to deliver have grown increasingly complicated and demanding. As a supplier of custom manufacturing or fabrication, you now need to ask how you can meet the project information requirements being expected of you.
Recently, we had the opportunity to speak with industry veteran, Melissa Herkt, to get her thoughts on how tier 1 suppliers can position themselves as suppliers of choice with their EPC clients. Melissa Herkt is recognized as one of the world’s foremost authorities on project management. Along with numerous awards for her work in industry (including the Construction Industry Institute’s 2004 Outstanding Implementer Award, and the Richard L. Tucker Leadership & Service award), Melissa has held executive project management positions at Emerson and Glaxo Smith Cline and was Exxon’s first ever female construction manager
In our interview, Melissa provides a brief overview of the challenges facing tier 1 suppliers, how they can overcome those challenges, and the tangible benefits of better document control.
What are some of the key challenges engineered equipment suppliers face in fulfilling their contractual requirements for EPCs?
Melissa: There’s always been internal and external challenges working on major capital projects and I think one of the things people struggle with is meeting deadlines, particularly with the huge volume of data that’s required.
A second thing is conforming to the specifications and managing changes, comments, and alternatives because, again, EPCs review what you send them and they always have comments. Very often, they are looking for alternatives to choose from and now, with what I call super megaprojects, these enormous things have budgeted billions of dollars in them.
There are usually multiple EPCs, which adds another level of complexity. In addition to EPCs, tier 1 suppliersmust also understand and make requirements for end users – the people who will operate the facility eventually. Very often, that end user expects the tier 1 supplier to ensure standards are followed across all the segments of the projects being done by these multiple EPCs.
So getting it right inside the house and then getting it right as you send it to the ECPs and the end users is extremely important.
What other specific challenges have you found with documentation for tier 1 suppliers?
Melissa: Every EPC has their own work processes and systems that they use and while they are similar, or let’s say they are the same in their intent and outcome, they are different. Suppliers have to comply with the requirement of each of the EPCs.
I think everyone involved in these large projects, the EPCs, the suppliers, everyone, is looking to minimize multiple entries of data. You can witness the fact that many of these EPCs, and many suppliers as well as some end-user customers have joined Fiatech, which is an offshoot from the Construction Industry Institute(CII). [Fiatech] has been sponsoring, for the last five years or so, a project around the ‘enter it once initiative.’ That effort is to minimize the number of times, and hopefully get it to one, the number of times that data has to be entered into some electronic system.
In addition, a numbers of suppliers, I can think in particular of a process control company, they have multiple business units that are all involved in the project delivered to the EPC and often, each of these business units have specific systems that they use – they have standards and processes, and the customer, the EPCs, and the end user are very interested in having their interaction with the tier 1 suppliers to be seamless, and for that interaction to be consistent, or to say exactly the same, in many cases, on a global basis. What we find is many companies are international, and I make a distinction between international and global, international for me means to work in lots of different countries and global means, to me, that you are the same in all those countries where you work and that every time a customer touches you, you look and behave in the same way. And through all of that interaction, no matter where, customers are looking for consistency, so revision control of documents becomes paramount.
If you lose track of who’s working on which revision it can just mean a disaster.
Have you seen any companies or organizations that are meeting the documentation challenges really well?
Melissa: You know since I received the questions from you, I’ve really been thinking about that. I’ve been out of the business a little while, I’ve been retired a couple of years, but I have to say…no.
What I will say is that everyone recognizes the need to get better and, essentially, all of them are working hard at getting better. But I can’t actually recall a name of a company or a group that I think really has solved it and beaten this issue.
Clearly you can see differences among tier 1 suppliers that are in the same business or are competitors to each other, but I cannot say that I have witnessed anyone who has solved it.
Is that because this is a new problem or is it because it’s risen from the super projects?
Melissa: You know, I’ve thought about that quite a bit and I don’t actually think in most industries, there may be a few exceptions like the pharmaceutical industry, but in most industries I don’t think that the amount of documentation required for an item that is procured has increased or has changed that much overtime.
What I will say is the quantity of items has gone up by exponential factors because of these super megaprojects that we talked about.
So, I think project size and complexity has exacerbated the problem, and again, that project size means that there often are multiple EPCs. That’s caused really by the fact that hardly any [EPC] can or should take on the financial risk of these super megaprojects alone.
I really don’t think that it’s worse from an item-by-item basis and documents-per-item, but the number of items is just astronomical these days.
So what do you see these companies needing to do to get to that point and be successful?
Melissa: Well, internal work processes that every single employee knows, understands, and uses, again, globally, is what customers expect suppliers to be.
They expect them to look, behave, get the same results anywhere the customer touches them. To be able to do that, there needs to be internal tools and techniques and work processes to deliver a high-quality product on time and that meets the specification – and is intended to delight the customer. Finally, they also need work processes, tools, and, techniques to interface externally with their customers and this is a myriad of EPCs and end users, all with systems and requirements that vary to some degree or another.
So when they have these processes in place what is the benefit that they’re going to see?
Melissa: For anyone that’s involved with lean or Six Sigma or any of those kinds things, there’s a catch phrase called ‘right the first time’. And, ‘right the first time’ has a lot of benefits. It means that you don’t waste resources. Resources can be the time of people, it can be all sorts of things, but wasted resources impacts profitability, so avoiding doing things two, three or more times is a certain benefit.
In many contracts today where schedule is extremely important, often there are penalties for late documents or incorrect documents. These take various forms, but penalties are another opportunity, again, to eat into the profitability of companies who very often have slim margins depending on what they supply.
I think the third thing is solving it and getting good at it. ‘Right the first time’, allows a tier 1 supplier to become a supplier of choice; this means repeat business, it means satisfied customers, and very often, satisfied customers. Satisfied customers become loyal customers, and I think all Tier 1 suppliers are interested in having loyal customers who will buy from them again and again.
To summarize, companies that recognize information management and documentation issues and that adopt the kinds of process improvements suggested by Melissa, will:
- Avoid double entry of information
- Avoid expensive rework
- Avoid late penalties
- Keep customers happy
- Increase profitability
- Become a supplier of choice