Study Recommends Reducing Costs With New Procurement Model

A new study from the National Association of Electrical Distributors (NAED) finds that the current types of procurement models aren't effective and recommends the implementation of a new type of model. The NAED's Education and Research Foundation recently released the results of its study titled, “Procurement Chain Management in the Construction Industry.” Researchers examined the strengths and weaknesses of various procurement models that are commonly used in the construction industry: the specialty contractor procurement model (SCPM), owner procurement model (OPM), and general contractor procurement model (GCPM). The researchers found that depending on the situation, each model provides a certain level of value, but recommended implementing a new one. The SCPM offered the most value to the owner for the majority of projects. It involves material transfers from manufacturer to distributor to subcontractor, allowing the subcontractors — via their distributors — to have access to the largest number of manufacturers and in turn have access to the greatest product selection. However, the researchers noted that the project owner will achieve the best value by using a procurement chain that's horizontally integrated and more efficient. They recommend instituting a new horizontally integrated procurement model (HIPM), which allows all of the participants in the supply chain to use their expertise to reduce non-value added activities and reduce the work in progress. By doing so, each member of the supply chain, including the project owner, will be able to complete construction projects at a lower cost. The savings attained through increased productivity can substantially outweigh the direct cost of material or equipment.