CHAPTER 6: DISCUSSION OF RESULTS
6.2 Discussion of Results
6.2.2 Research Question Two
Which are the indicators that confirm the global sourcing success for large capital projects?
Research question two aimed to identify the indicators which enhance the success of global sourcing for large capital projects and evaluate them based on a hierarchy of importance.
Global sourcing as a cost advantage has been practiced for many years but has not necessarily gained acceptance as a formula for success.
Table 16 and Figure 12 show that all except “favourable macroeconomic indicators” have a mean greater than four and hence are important indicators for successful global sourcing in large capital projects.
Figure 12 Indicators for Success of Global Sourcing in Large Capital Projects
The results from the survey showed that an aggregated average 92% of respondents either agreed or strongly agreed on the indicators which contribute to the success in global sourcing for large capital projects. In order to further examine the critical aspects for the stated success, only those that recorded a test mean greater than four were considered.
Trent and Monczka (2005) and Petersen et al., (2000) identified that the most important factor for global sourcing success lies in identifying the personnel with the right knowledge, skills and abilities to lead global sourcing execution towards success. But this research has highlighted that large capital projects have different indicators to lead global sourcing towards success. The most important criteria is to conduct vendor due diligence during the front end loading process before engaging in the form of agreement. This supports the view of Jergeas (2008) who emphasized that proper vender assessment helps in controlling cost overruns. Knowing the suppliers competences, capacity and the potential risks in advance, pave the way for more effective management of the stakeholder relationship.
This also helps with planning an inbuilt contingency plan into the project schedule and, budget as well as preparing for mitigating the potential risks thus improving the project performance and avoiding costs associated with standing charges. Notably, it is essential to evaluate suppliers and reduce risks from the outset and the selection criteria should include more parameters than just the direct cost of supply. Monczka, Trent, and Handfield (2005)
emphasized the evaluation of suppliers in global sourcing in terms of technical and quality capabilities, patent and proprietary technology security, currency trend impact, due diligence and discipline of performance measurement to manage risks in large capital projects. The respondents opinion in Figure 12 is also supported by Manuj (2013) who advised to include tangible and intangible criteria for supplier valuation such as cost, quality, delivery reliability, flexibility, and innovation, whilst the intangible selection criteria considers supplier integrity, strategic fit, and risk exposure.
Independent Projects Analysis Inc., (2006) in Jergeas (2008) research showed that poor front-end planning is the biggest contributor to cost overruns. Hence, a vendor due diligence process is important to follow before engaging with the supplier. This process must consider and evaluate many facets of the supplier’s capability through comprehensive investigations as shown in Figure 13.
Figure 13 Project Vendors Due Diligence Criteria
The literature reviewed and the survey opinion of global sourcing managers, executives and project managers also revealed that, failure to take detailed precautions in selecting a proper supplier can have dire results (Manuj and Mentzer, 2008). Therefore, it is important to apply a rigorous vendor due diligence process to address short and long term goals. This will provide reasonable assurance in the front end loading process so that potential risks can be managed throughout the life time of the relationship.
The front end loading process for global sourcing on large capital projects has direct relations with project performance. The higher the level of integration between project owner and suppliers or contractors in the design stage and during the front end loading
process, the better the project performance in terms of cost (Rahman and Kumaraswamy, 2004a,b) ;Errasti et al., 2007;Song et al., 2009), time (Rahman and Kumaraswamy, 2004a,b;Song et al., 2009), and quality (Ahola et al., 2008 ;Eriksson, 2008).
The attitudinal profile of the project team is also very important in achieving global sourcing success in large capital projects. Jensen and Petersen (2013) highlighted that the success of global sourcing is determined by the managers’ risk perceptions, risk tolerance, and ability to employ risk-reducing measures while dealing with global sourcing challenges.
Large capital projects have many stakeholders which add complexity to the interactions and processes. It requires the entire project team to have a positive outlook to accept the challenges and deal with them before it affects the project timelines, cost and quality. For instance, there are intricacies involved in integrating many stockholders to align scope and deliverables, performance guarantees amongst other parameters. The other challenges are to ensure that the gaps in project scope, guarantees, delivery terms, cultural and communications are identified, addressed and communicated to all stakeholders before execution commences. These are the main challenges for project manager and global sourcing manager in global sourcing and if not handled properly can affect the project performance.
The issue of, equal involvement of members of a cross functional team to expedite design, engineering, Quality Assurance Plan (QAP), timely clarifications, its approval and settle contract variations claims, is not covered in great detail under any literature. However, based on practical experiences there is clear indication that it has a high impact on project performance. It is important to have all activities well integrated, as should any of the tasks get delayed there are likely to be severe repercussions on the entire project management cycle. Miller and Lessard (2000) argued that the success of large engineering projects depends on managing complex structures, contractual mechanisms, and risk relationships as well as supplier selection. With this in mind, it is important to keep all the stakeholders at the same level of understanding, else it affects the project performance and threatens the stability of the relationships within cross-functional departmental interfaces as well as with suppliers/contractors.
It’s also important to capture the learning’s from the lessons learnt during the front end loading process and project execution phase so that the same type of risks or mistakes can be eliminated in future. The framework suggested by Trent and Monckza (2000) in Table 1 can be used to compile the lessons learnt in various categories and incorporate them into an organisation knowledge management database. The review of this bank of accumulated knowledge should be made a mandatory requirement before engaging in any other global sourcing project. There are many software packages being used for capturing lessons
learnt but the project environment currently prefers to use Microsoft Share Point or a Knowledge Management tool to capture and access the real time information at any point in time from multiple locations.
In view of this, it can be concluded that the top five criteria, based on the answers given for the research question are an indicator for success of global sourcing in large capital projects. Considering the compliance and evaluation of these criteria before engaging in global sourcing will certainly enhance the success of any global sourcing strategy in large capital projects whilst reducing the risk on project performance in terms of the completion time, cost and quality.