Executing Your Plan
Every time you open a magazine, you read an ad about some company wanting to “partner” with your firm to improve the way you operate your business. Partnerships are very difficult to develop, but if you are to achieve optimal results from your process improvement plan, high quality collaborative relationships are required. In this article, I will discuss steps you can take to communicate your expectations in such a way as to start to develop lasting partnerships.
Purchasing new process heating equipment is much the same as any other acquisition decision in your facility; however, process heating equipment is generally not as well understood. Process heating equipment is unique in that its operating cost, cost of energy and maintenance generally are much higher when compared to its acquisition cost than a comparable machine tool, mixer, press, etc. For this reason, the process for choosing with whom to work on an upgrade project requires a greater emphasis on lifecycle costs and less emphasis on initial cost.
When making a purchase decision, I encourage you take the following steps:
I'll describe each of these steps more thoroughly.
Drive the Process. Using your process heating equipment improvement plan, select the project(s) that were identified as having the highest priority. Working with these vendors, develop a complete description of what your organization wishes to accomplish with the project. This is the “project definition” and is the basis for your request for proposal (RFP).
Choose your Potential Partners and Define your Project. Select one or more vendors you trust. Check to ensure they have the resources and experience to provide the services you require. The highly qualified vendor will take the description of what you wish accomplish and, using their experience, add items that enhance the value of the project and delete items that may be impractical. Work with “ball-park” pricing until you and your vendor(s) agree on the final goals. (A vendor that provides final pricing before the final goals are clearly defined may be wasting time better spent on learning more about your equipment and processes.) During these discussions, quantify everything possible. Consider:
Upon completing this step, you will have fully defined what you wish to achieve. For further discussions, I will call this the “project definition.”
Prepare a Request for Proposal (RFP). Prepare a RFP and submit it to vendors with whom you would feel comfortable working. Obviously, the length of the RFP should be in proportion to the complexity of the project, but no matter how simple the project, clearly communicate the project definition.
Request the vendors acknowledge, accept or take exception with, every element in your project definition and encourage them to expand the positive impact goals if possible. This step is vital and too often overlooked. Don't rely on verbal or generic statements about energy savings or emissions. Before releasing the contract -- not after -- is the time to discuss these issues.
Request the vendor provide a complete statement of the work he will do, defining what products and services he intends to supply. Require the vendor state what services you (as the customer) are expect to provide. Even simple things such as refuse cartage and disposal can become a serious issue if the materials removed are hazardous and require special handling.
Don't spend too much time focusing on line-item pricing. How much a vendor charges for a particular component has very little meaning. What matters most is the long-term savings vs. initial cost.
Require the vendor to describe what level of ongoing maintenance is required for the equipment he provides. In general, it is a good idea to request the vendor provide pricing for these services. The vendor may do a better job ensuring the components are easy to maintain if his people are performing the maintenance.
Consider what steps you and the vendor will take if the vendor fails to meet the goals in the project definition. This is an extremely difficult issue. It is seldom practical to return the equipment. In general, it is best if you continue to work with the vendor and provide him the opportunity to meet his obligations.
Evaluate the Proposals. The better and more complete the communication in the RFP phase, the easier it is to evaluate the vendors' proposals. When evaluating the proposals, keep the following tips in mind:
Finally, evaluate each proposal based on lifecycle costs. As I said at the beginning of this article, when dealing with process heating equipment, initial costs are generally a fraction of the total lifecycle costs. For example, a simple burner with a purchase price of $3,000 may burn $50,000 in fuel per year. A 6 percent difference in efficiency offsets the total cost of the burner in one year.
In conclusion, select the vendor in whom you have confidence and who provides your organization with the best return on investment when the initial costs are compared to the project's projected lifecycle costs. PH
SidebarAn obvious element in a partnership is shared risk and reward. In this article, I have described how a purchaser of process heating equipment can communicate his expectations and in doing so, reduce the risk for both purchaser and vendor.
Thoughts on Partnering
Another method to consider is variable pricing. This works well if the objective of the project is operating cost savings. Both the vendor and customer agree on a target operating cost savings for the project. If the savings exceed the target, the vendor receives more for his services; if the savings are below the target, the vendor receives less. Done properly, and in an environment of mutual trust, this is a great way for both the customer and vendor to share both risks and rewards.