The Benefits of Early Involvement in Capital Expenditures

This is an excerpt of the original article. It was written for the May-June 2011 edition of Supply Chain Management Review. The full article is available to current subscribers.

May-June 2011

People, process, technology. These are the three core elements that determine the relative success (or failure) of any organization. We’ve heard this in countless management books and keynotes speeches. And it’s hammered home in business school curricula across the country. Now it’s our turn. This issue of Supply Chain Management Review is devoted in roughly equal measures to the three core elements. Our rational: Their importance can never be stated enough.

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A look toward the future suggests that supply personnel will be involved with just about every category of purchase expenditure. While managing direct materials has been the historic responsibility of procurement, why not also manage those troublesome indirect items? And, while we are at it, let’s have procurement personnel apply their commercial expertise to the many services required to operate a business. But why stop there? Why not apply that procurement magic to capital expenditures? After all, capital projects require suppliers and financial resources. They practically beg for procurement involvement.

This article explores procurement involvement within capital expenditure projects. As the term is used throughout this article, involvement refers to an earlier rather than later point in the capital expenditure process. Research shows that on average the benefits of involvement are greatest when that involvement comes earlier in a project, such as during the concept or feasibility planning stages, rather than later.

Let’s step back and talk about the concept of early procurement involvement. Early involvement is the process of relying on procurement personnel and resources, either physically or virtually, to provide support during functional and strategic planning, demand and supply planning, continuous improvement projects, capital project planning, and when developing new products and technologies. Involvement can take place formally, such as by membership on a project team, or informally through a consultative role, or even virtually.

The scope of procurement’s early involvement must expand once supply groups evolve from a transactional-based purchasing model to a strategic supply model. While a seat at every table sounds good on paper, turning this into a reality is a bit more challenging. It requires human resources that are available to support other groups as well as personnel who have a solid knowledge of the needs of various functional groups.

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