Plugging Profit Leakages in EPC Business: Excess Material Supply, Urgency & Delays

Today, I’m going to cover two often unnoticed areas where profits slip away: excess material supply and urgency and delays.

We all know that money saved during execution directly adds to your profit, so plugging all holes that leak profits is crucial. This is often easier than trying to get higher prices during sales.

Excess Material Supply

One major area is the supply of excess materials. In the EPC business, we often end up with surplus items like:

- Cables

- Cable trays

- Pipes and pipe fittings

- Structural steel

- Hardware and accessories

- Nuts and bolts

- Chemicals and consumables

These are typically low-cost items, or "C category" items, which we don’t always estimate accurately. Quantity estimation can be tedious due to undefined cable routes, piping routes, or the time-consuming nature of detailing every meter or every nut-bolt-washer level item. So, we overestimate and round off to the nearest purchase lot size, leading to excess materials left at the site that we don’t reclaim.

These excess materials, although seemingly insignificant, can add up to a substantial amount of money. To plug this leakage:

- Work on accurate estimation: Invest time in detailed planning and estimation to avoid over-purchasing.

- Reclaim leftover materials: Ensure that excess materials are returned from the site and used in other projects.

Urgency & Delays

Another major profit leakage in EPC businesses is due to urgency and delays. These two factors are interrelated. If there is a delay in any activity, it will create urgency later. And you will bear the cost of this urgency, whether or not the delay was your fault. Even client-induced delays can end up costing you.

Causes of Urgency & Delays:

- Tight Delivery Schedules: Accepting orders with aggressive timelines can cause urgency from the start.

- Delays in Key Activities: Engineering, drawing approvals, procurement, vendor delays, production holdups, site readiness issues, and execution delays all cascade, especially if they are on the critical path of the project plan.

When there is urgency, your focus shifts to time rather than money. This can lead to:

- Choosing faster, more expensive transport options: Opting for air freight over regular road transport.

- Paying premiums for immediate stock availability: Extra costs to vendors for quick delivery.

- Bypassing cost control measures: Not taking comparative quotes, not negotiating hard, and purchasing expensive items on-site instead of from regular vendors to meet urgent needs.

Managing Delays and Urgency

To control delays and the urgency they cause:

- Establish a strong project management system: Implement robust planning, regular reviews, and proactive management.

- Regular Monitoring: Keep track of progress and address issues promptly to avoid cascading delays.

- Clear Communication: Ensure all team members are aware of timelines and responsibilities.

Conclusion

Plugging these leakages can add significant amounts to your profit. By focusing on accurate material estimation and managing delays effectively, you can save costs and improve your bottom line.

Hope this helps you to pluck this leakage and save you money. Implement this and let me know how this turned out for you.