“Better Materials Sourcing” is the second chapter of Kojo’s groundbreaking book, “7 Steps to Better Procurement for Trade Contractors.”
The second step in the 7-Step Procurement Process is Sourcing. Sourcing involves gathering relevant information to determine what materials you should buy, when you should buy them, and from whom. In this step, contractors issue RFQs to source material price and availability from multiple vendors to make smarter purchasing decisions.
Effective sourcing is critical for managing material costs, but it's only one piece of the puzzle. To truly outpace your competitors and increase your profit margins, you must pair your sourcing strategies with the efficiencies gained from step one, Planning. When both planning and sourcing are optimized and executed efficiently, you can maximize your material procurement and gain a significant competitive advantage.
Sourcing quotes for materials is a typical step for contractors. A survey conducted by Dodge Data and Analytics revealed that 81% of contractors request quotes at some stage of a project. However, many contractors don't have a structured approach to sourcing materials. They may be unsure about when it's appropriate to ask for pricing and availability, and they may lack an efficient and auditable process for doing so. Consequently, they risk missing out on opportunities to save money by skipping the quoting process or wasting valuable time by obtaining quotes inefficiently.
To understand the differences between great and good contractors in their Sourcing processes, we can break down the process into four phases:
Knowing when to request quotes for material purchase orders is crucial in order to get the best possible price and availability. Successful contractors have a clear understanding of the situations where it makes sense to do so, which allows them to save money on material costs without wasting time on unnecessary quoting. By defining these scenarios within their organization, contractors can strike a balance between quoting too often and missing out on potential savings. Below we outline a few practice scenarios where sourcing price and availability can lead to significant cost savings.
By understanding when it's best to source quotes for material purchases, contractors can save money on material costs without wasting time on unnecessary quoting. These scenarios should be defined within the organization to strike a balance between quoting too often and missing out on potential savings. Sourcing quotes for bulk orders, before the start of a job, in times of price uncertainty, and when dealing with uncommon materials without an established vendor can lead to significant cost savings. By implementing these strategies, contractors can streamline the sourcing process and negotiate better prices with suppliers.
Implementing technology to compare quotes is crucial for streamlining the procurement process and identifying cost-saving opportunities quickly. In fact, according to a report by the Fails Management Institute (FMI), a management consulting and investment banking firm focused on construction and real estate, construction firms that adopt digital procurement tools can reduce procurement costs by up to 10%.
Zach Ratner of BAR Electric uses a digital procurement tool for sourcing quotes and says, “We're seeing firsthand pricing immediately and receiving it right then and there [in our platform.] I would say we save about 5-15% depending on what items are being ordered.”
An out-of-the-box procurement software designed specifically for contractors can auto-populate quotes and pricing sheets on a digital dashboard. Prices on quotes, down to the line item, are organized and formatted, making it quick and easy to compare and determine the best vendor for each item. Within a matter of clicks, contractors can break out line items from the quotes to create individual purchase orders for each winning vendor. The purchase orders are instantly populated with the correct information and are now ready to be sent off.
While a procurement system is not required for streamlining the sourcing and quoting process, most best-in-class contractors have implemented some form of technology to scale their procurement process and stay ahead of the market. With automated quote comparison and digital purchasing tools, contractors can ensure they are getting the best prices and staying on budget.
Sourcing materials is a crucial aspect of any construction project, but the traditional Request for Quote (RFQ) process can be riddled with inefficiencies. As a result, contractors do them less often than they should. Fortunately, technology can help contractors streamline the process and avoid delays caused by availability issues or missed opportunities to secure the lowest material prices.
Using procurement software equipped with a digital BOM provides project managers and purchasing agents with real-time job-spend and material-usage data that can be compared with original estimates. With this information readily available, they can promptly generate and fire off RFQs, streamlining the sourcing process, especially when issuing RFQs at the start of a job, when purchasing in bulk, or sourcing materials needed in the field whose best price and availability are uncertain.
A robust procurement software can automatically send RFQs formatted for each vendor, eliminating the need for manual creation of multiple RFQs. It can also hide vendor replies from each other, keeping the back-and-forth private. With streamlined automation, contractors can guarantee they receive quotes from a variety of vendors, which is more important now than ever before as the materials market has grown increasingly complex.
Implementing automation technology can result in significant productivity gains. According to PlanGrid’s “Construction Disconnected” report, 56% of contractors believe that productivity suffers due to poor data and communication among project stakeholders, including vendors. By automating the RFQ process, contractors can reduce communication errors and better manage project timelines.
Automating the RFQ process can bring many benefits. It improves communication and efficiency, leading to more accurate cost estimates, faster job completion times, and better project outcomes. It also makes RFQs a standardized process, with a central database that tracks all historical records of every RFQ issued. By having access to information such as when quotes were sourced, which vendor they came from, and the price and availability they offered, contractors can know for certain they’re doing their best to source in the best possible way.