As a manufacturing engineer and as a capital equipment salesman, I have seen what seems like every situation when it comes to the purchase and execution of a capital project. The project could be for a new machine tool or a new automated assembly line. We have primarily focused on automation, leak test equipment, laser marking systems, air filtration, and industrial wash systems in our business but the fundamentals of a successful project are nearly the same for all capital investments.
As a reminder, here are the typical steps for capital projects: Investment Justification, Request for Quote Created, Vendor Selection, Kickoff, Regular Follow Up, Pre-installation, and Post Installation.
This article addresses the most common mistakes when managing capital projects. If possible, I will share some stories to help illustrate.
- Poor Vendor Selection – This is without a doubt the most common issue I have witnessed in my 23 years of working in the capital business. Here are some common reasons for poor vendor selection:
- No Written Request for Quote
- No Clear Vendor Selection Criteria
- No Documented Capital Project Management Process
- Lack of Experience Purchasing Capital Equipment
- Bias Based on Past Relationships
- Decisions Made Based on Budget or Delivery
- Purchasing Allowed to Make the Decision vs. Technical Experts
- Amateurs Making Decisions
I could tell you stories that would leave you shaking your head. The most common justification for making a subpar vendor selection is budget and price. I can tell you from personal experience that this results in grief more often than not. A couple of years ago we had a pool installed in our backyard. The pool company did not do landscaping, so we were left on our own to make it happen. We got three quotes. One of the quotes was half the price. We were skeptical but investigated deeper into what the vendor was proposing. My wife liked his plant selection, and I loved the price. We agreed to move forward. Let’s just say…you get what you pay for, and I am still paying! The irrigation that the guy installed has been a money drain and water waster. Always blowing itself apart causing massive floods and erosion of our backyard. Between the bills to have a real irrigation company come out to correct the issues and the cost of the water bill (not to mention my time & sanity) I would have been better off paying the extra money to work with a proven professional.
A few years ago, we had a customer trying to get us to commit to a timeline we did not feel was possible, so we refused to comply. Frustrated that we would not agree to the schedule they went with another large global company. The company delivered the equipment six months late, and to this day the machine is still not running correctly. This decision has cost our customer millions of dollars, all to save three months.
IF IT SOUNDS TO GOOD TO BE TRUE…IT PROBABLY IS!
- Ordering Too Early – Nothing can ruin a relationship between a vendor and customer as quickly as price increases due to product design changes. These changes are more expensive the further along in the design process they are made. Here is an example: Several years ago, we had a customer that signed off on a pallet design and thus fabrication. The cost of making the changes to the pallet tooling was significant and costly. It also delayed the project completion by weeks. Delays are almost as expensive as changes for capital equipment manufacturers because their profitability is predicated mainly on the efficient use of labor. Starting and stopping on a project is inefficient but often necessary if the equipment was ordered too early.
We had another customer that had a design change coming or pending that we knew would affect the tooling for the pallets, so we delayed the design of the pallets to avoid additional costs or delays. It worked and so change was not required.
The main reason most companies order too early is that their customer kicked them off too late. A premature order often translates to incomplete product designs and changes likely due to performance or packaging constraints. Instead of pushing back on the customer everyone down the line accepts the delay and signs up for assignments that are doomed to fail. It takes time to do things right, and it takes a firm product design to design equipment properly.
- Poor Project Management – Managing a capital project takes a skill that comes from experience. Here are some traits of the best project managers I have experienced:
- Organization – Notes, details, timelines, etc. They know where it is and can access it. All well-organized but inexperienced project managers will almost always outperform an unorganized experienced project manager.
- Communication – The best in the business ask questions and follow up. They are clear about expectations and hold people accountable for not meeting expectations. When there is news, they share it quickly.
- Discernment – This skill is difficult to teach but will improve with experience. The key here is making decisions. You want a project manager that can make a decision and move on.
- Humility – Rare to find but a manager with humility won’t be hungry for the glory and will be willing to credit others. Keeping the team motivated and progressing in the right direction is a solid strategy to ensure success.
- Big Picture Thinking – These people realize that to be a successful project, all involved in the project need to succeed. Too often I have witnessed project managers with a win-lose philosophy, and in the end, their company loses because they will not receive the necessary support to ensure long-term success. They are also able to look at the project within the context of their overall company to understand the implications and how the project is connected to other aspects of the business.
- Team Player – I can’t tell you how many times I have worked with project managers that have an “us versus them” philosophy. This is so frustrating when working through issues. Of course, when everything is going their way, they are easy to deal with, but the first sign of problems and they turn on you like a viper. The team player does not roll over when difficult discussions are necessary but they don’t seek revenge as though you intentionally wronged them either.
Bad project managers don’t do any of the activities listed above. They avoid taking responsibility, defer answers, blame vendors to deflect incompetence, and lack communication. The biggest challenge with lousy project managers is that they are typically good at managing up. Managing up is sucking up to the bosses to mask their incompetence and laziness. They prefer not to document anything so that they can readily cry foul when things don’t go as planned.
- Lack of Management Support – From time to time the project managers have to “go it alone” because management is MIA. The absence of management support makes for an awkward situation for all involved because to have acceptance in the plant, the support of operations is critical. This lack of support results in lack of signatures on changes, lack of operators to support runoffs, lack of maintenance support for training, and a lack of parts for debugging. I don’t have a remedy for this issue except to say exit stage left before the bus hits you!
- Lack of Parts for Debug & Runoff – I saved the best for last! Time and again customers allocate little to no funding for adequately debugging equipment at the vendor. Imagine going to war with brand new rifles. They granted you very few bullets to sight your rifle in before battle. Inevitably you get on the battlefield and waste far more bullets due to poor accuracy than would have ever been used for the proper sighting of the rifle.
Here is a list of issues that cost your company money due to lack of parts for debugging:
- Increased Start-Up Issues – Stressing the organization unnecessarily
- Downtime – Only stands to reason that equipment not adequately debugged will have downtime issues because it requires adjustment during production.
- Higher Scrap Rates – When you don’t have the necessary quantities of parts to debug you are going to make more bad parts.
- Higher Defect Rates – Passing the PPAP on improperly debugged equipment often takes lots of nail-biting and gut-wrenching but most struggle through to approval. Then production begins, and bad parts get shipped because processes had enough cycles to see all the variables.
The effort to save money has cost more than has been saved. The customer has been receiving defective parts, revenue is lower than expected because the throughput is not as promised, internal resources in maintenance & engineering are being taxed because they are living with the equipment, and bad parts are piling up in the rework area. Processing rework takes additional labor that was not part of the original cost model used to justify the price of the products sold to the end customer. Your purchasing, program management, and management teams will push back hard regarding the expense of parts for debugging and runoff. Fight hard to get as many as you can because they don’t know what is good for them. They see an expense, but you see an investment in the future productivity of the equipment!