It is estimated that real estate and construction companies can save as much as 80% in pre-construction stages by optimizing their procurement processes. The benefits can be passed on to homebuyers and all stakeholders.
Despite being the core activity, procurement in the real estate and construction sector does not witness much of innovation and technological upgrade. There remain gaps in bids and vendor management even when real estate companies strive to modernise their marketing, leasing and fundraising processes using different technologies.
Since 80 per cent of savings belong to the stages before the actual construction, real estate developers can make huge savings. Then why haven’t much of the savings been made? It is to blame on procurement practices which aren’t standardised and the methods that differ in terms of each building or project.
The unsystematic and cumbersome processes can lead to redundant activities resulting in leakages and avoidable risks. These risks can be contained and the process can be streamlined if procurement is transformed into something replicable and scalable. Here are the potential ways through which real estate and construction companies can achieve it.
1. Automation at bid level
Automated bid levelling tool can help manage organisation, aggregation and even analyse data input. The cost saving goals can be achieved within the limited capacity of the team.
The prerequisites are a smart system that can gauge deviances across bid entries with the ability to create and save custom bid levelling templates.
2. Being consistent with triple-bid projects
As the number of participating bidders increase, the cost reduction increases as analysed in a study published in the Journal of Construction Engineering and Management on triple bids resulting in eight per cent reduction in bid low price. Being consistent with triple-bid projects can help vendors to be competitive in terms of their negotiations for better costs with suppliers, their quotes and be able to modernise their operations efficiently. The ultimate aim being able to reinforce diligence than push vendors for the lowest price bids.
New projects can be taken at once if new vendors deepen the bid list. Access to pool of experienced vendors is enough.
Ensuring transparency, from top to bottom, is the key to successful procurement operations. Though real estate cycles are long, many project decisions need quick thinking. Waiting for bids to happen or project reports to come weekly can be a waste of time. Here are some necessary aspects that procurement leaders could look into.
· Keeping upper management in the loop about bid-specific details as well as projects on the whole.
· Letting regional managers keep a check on workflow cycles, vendor talent gaps and identifying pricing trends.
· Relationships need to be managed through efficient communication on the part of property managers with vendors.
· According to the policies of the company, accounting team needs to quickly track and verify bids and reports on capital spending.
If these are collected and organised in a proper way, it makes it easy for users to move from macro view of projects to micro details on bids, their documentation, internal vendor reviews, and team conversion etc.
The prerequisite is a tool that provides quick access to data points across the portfolio including insight into workload of the project manager and key delivery dates, etc.
Centralisation of documents can help the procurement process reach its utmost potential. It can help avoid generation of same documents unintentionally. This includes deployment of tools for integration of communications through emails, messaging applications and other tools across desktop and handheld devices so that the entire team can mine the necessary data. This can help ensure a seamless flow of information on pricing, project history and other related information to vendors and suppliers.
By focussing on these four core aspects of procurement, real estate and construction companies could transform their business operations, save huge and deliver better. The resultant efficiencies can help control cost escalation as evident today and avoid undue pressure on price levels. Instead the benefits could be passed on to the property buyers.
By Aval Sethi, Chief Executive, Protaiga