“Better Materials Planning” is the first chapter of Kojo’s groundbreaking book, “7 Steps to Better Procurement for Trade Contractors.”
The first step in the seven-step procurement process is Planning, in which contractors combine insights from prior jobs with estimates for the upcoming job to plan how they will purchase and use materials throughout the job.
The 7-Step Procurement Process, begins with Planning. During the Planning step, contractors try their best to assess what they’re going to need to purchase to complete the job. Contractors use this list to create an efficient and cost-effective strategy for purchasing materials throughout the project, and to ensure all the necessary materials are available and utilized during the job.
Planning may sound self-explanatory but we’ve seen the Planning step across hundreds of contractors vary the most of all the Seven Steps. And not surprisingly, those who lack organized, well constructed plans for how they're going to procure all of the materials needed on a job before the job starts also tend to fall behind their competitors. A study by McKinsey & Company found that construction projects are often delivered up to 80% over budget and 20 months behind schedule due to inefficiencies in planning and execution. But when great planning is implemented, the entire project is set up for success. It makes executing every future step simpler.
Where inefficiencies exist in Planning
Does your Bills of Materials [BOM] set you up for success?
The famous saying goes, "You make plans so you can throw them away," and that could not be truer than with your Bills of Material (BOM). Your BOM is your starting point, but be prepared to adapt. Changes are inevitable during the job, such as fluctuating material prices and availability or new project scope creating new materials requirements. Your BOM is a list of required materials, which might be broken down by project phase, and can be used to measure progress and identify risks in real time, such as overspending and delays. Because of this, your BOM must be well-organized and structured with accurate information so it can be easily referenced and updated. Otherwise, a poorly built and managed BOM increases the likelihood of negative outcomes for your job.
For a contractor, a poorly built and managed BOM increases the likelihood of the following outcomes:
- Purchasing too many materials and increasing job waste
- Paying too much for materials
- Relying on last minute orders and putting job schedules at risk
- Inability to source the correct materials at the right time
- Lack of visibility into material spend and usage at any given time
The last bullet point, lacking visibility into material spend and usage, can be the most costly. It can set off a chain reaction of events leading to breakdown at all the other bullet points. As a contractor, you need to assess the way you create and manage your BOM. To do so, you can ask yourself the following questions.
Assess if your BOM is negatively impacting your job outcomes with these questions.
- Can you easily create BOM from estimates or project drawings?
- Are you leveraging prior job data to predict material needs for future jobs?
- Does your BOM include necessary information?
Phase Code (what part of the job will the materials be used)
Cost Codes (how will the material be logged for bookkeeping purposes)
- Do you consider warehouse inventory to avoid unnecessary purchases?
- Are you using your BOM for spotting bulk order opportunities to take advantage of discounts?
- Are you updating your BOM in real-time to track spending and purchasing decisions?
- Is your BOM being used to create approved material lists to simplify your field requisition process?
Did you answer 'No' to any of those questions? If so, then you can improve job outcomes with better planning. Successful contractors prioritize a sound BOM, using it as a baseline for efficiency without sacrificing quality, margins, or relationships.
Do data and analytics play a role in your job planning?
Do data and analytics play a role in your job planning? In today's world, "Data Rules Everything Around Me" (DREAM). Consider how the companies you interact with daily make decisions. Your grocery store, for instance, logs all of your purchases in real-time, particularly if you use a loyalty card, and updates their warehouse inventory data in real-time. This data serves as the foundation for their purchasing decisions, including what's popular, what has low inventory, and how quickly a SKU sells. Their procurement process is entirely driven by data. Do you have access to comparable data for your jobs?
Assess data and analytics’ impact on your planning with these questions:
- Do you know exactly what materials you used in your last job by brand and type?
- Do you know how much of each material you used?
- Do you know when in your job you used the materials?
- Do you know exactly what’s sitting in your warehouse right now?
- Do you know what was delivered on time or damaged?
- Can you see who on your team made every request and purchase?
- Can you see this in real-time? On a daily basis? Weekly? Monthly? For the entire job?
Within the answers to these questions lies insights that will allow you to make procurement decisions with a high-level of precision. This is where you can save dollars, lots of dollars, before your job even starts. If you answered no to a few of these questions, then you have low-hanging fruit for improvement.
What Great Planning Looks Like
The "Planning" step includes its own components that are crucial to your job's success. By following these components, you can set yourself up for success even before the materials arrive.
Components of Planning
- Use the best information you have to build your BOM and improve your planning
Starting your planning with estimates and submittals is a great way to build the foundation for your job. If you're not using a materials procurement platform, a well-organized spreadsheet can work just as well. Just make sure to keep a saved version of your original BOM before the job starts and periodically update it based on material spend and usage as the job proceeds. By saving updated BOMs as new files, you can track job progress and identify opportunities to optimize your material purchasing for future jobs.
However, if you're looking to streamline your procurement process even further, a materials procurement platform can be a game-changer. With a good platform, you can track material purchases, spend, and usage down to the material name, brand, time of purchase, and job phase. This can provide you with a simple dashboard to use for planning future jobs and building out your estimates and BOM. Using a materials procurement platform is the ideal way to operate at the highest level, but if you're not quite there yet, a spreadsheet is still a great place to start.
- Organize your BOM with important material information
The devil is in the details and that couldn’t be truer than with your BOM. A list of materials isn’t enough. The data and analytics that you need for future jobs might come from your previous job’s BOM. So your data is only as good as your BOM is organized.
You need to have the ideal brand and their material/part number. This will help your purchasing and field teams make a quick decision when they’re presented with a lot of options.
Job phase codes and cost codes are where you’ll take the next step in precision. Creating a standardized coding system for both is how you truly track progress throughout the job. It’s also what gives you the detailed analysis for future planning.
Quantities and estimated prices goes without saying; having this will produce endless insights throughout the job about how you’re performing relative to how you expected to perform.
- Assess your warehouse inventory
Too many contractors we speak to lack visibility into what’s sitting on their warehouse’s shelves. They end up purchasing materials they don’t need and increasing job waste. This is one of the easiest ways to improve your planning but it’s also dependent on having a good inventory tracking operation or software in place.
- Identify materials that you can buy in bulk at different phases of the job
Incentives and bulk discounts go a long way so buying in bulk presents a huge opportunity to save on material costs. Great planning is how you find these opportunities and that starts with your organized BOM broken out by quantities and phase codes. This makes it easier to identify what can be bought in bulk. Past job analytics and the ability to see warehouse inventory data will also help tremendously. When you know what’s in your warehouse, you know how much you can store from bulk orders if your plan is not to buy in bulk and release in increments from your vendors.
- Provide key team members with visibility to your BOM
One of the byproducts of companies with a great procurement process is that they can scale their operations quickly. Scaling is only possible when you empower your team members. Creating a well planned, organized BOM accessible to all key team members is how you prepare them to make great decisions throughout the job.
A BOM built in spreadsheets that lives in the cloud and is shared amongst the team is one way of making this possible. As information is updated in the spreadsheet, everyone with access will see those updates in real-time. Technology, such as materials procurement software built specifically for contractors is another way to easily implement and streamline this.
- Update your BOM throughout the job to track job progress
A well planned BOM with all the necessary information is already putting you in the driver’s seat, but implementing the practice of updating the information throughout the job is where planning becomes great. You can set checkpoints throughout the job that indicate when your team should go into the BOM and make updates. You can then assess progress from one checkpoint to another. Doing this may add some time to admin work but it will pay for itself through smarter purchasing decisions. You can also leverage a software that updates your BOM in real-time for you, allowing you to improve decision making without increasing any admin work for your team.