...favorable strategic financial arrangements, political support and above all a willingness to take on large projects right through the construction phase. German EPCs understand the problem and are currently working hard to resurrect their own construction expertise, increase their level of vertical integration and enhance their presence in close proximity to the customer.
The Goal: "Best Cost Country Sourcing"
EPCs and in-house engineering teams are also working on the price issue. Procurement of the equipment accounts for more than half the total value of an EPC contract. The strategy is based on best cost country sourcing. More of the labour intensive equipment is now being procured from low-wage countries. For that strategy to work, the procurement team has to find the best trade-off between low purchase price, quality assurance costs and transportation charges. Stringent controls and personal relationships with suppliers are more important in China than water-tight contracts according to industry insiders.
In order to systematically develop the necessary intercultural skills and reduce quality assurance overhead, owner’s engineers and European contractors also intend to develop their human resource base in the procurement markets. Linde for example introduced a new procurement organizational structure in 2010. Six Procurement Centers act as the point of contact with suppliers in the regions.
Local Professionals Take the Spotlight
Chemical companies which are investing in China, India and South America are planning to take on additional engineering staff in those countries. “The intention is to give country employees responsibility for local project management and work with local contractors to provide quality assurance services,” said Klasen. In addition, chemical companies also want to leverage the strategic partnerships with global EPCs to gain access to their procurement expertise in global markets. “We are giving our external partners greater responsibility for procurement without however relinquishing control,” said Gress.
Doing the design work in Asia for plants that will be built in Europe has now become a reality...
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