Procons AS is a consulting and advisory firm that has specialized in managing large-scale construction projects abroad. One of the latest assignments they have received is a production facility in an Eastern European country. What is special about this project is that the work had halted due to lack of funds.
With new sources of financing, the project was restarted, and the construction management of the project was now handed over to Procons AS. One of the biggest challenges Procons AS faced after taking over the project management job was the handling of the project’s suppliers. This task was difficult because there was no suitable and well-thought-out contract strategy in place. The contracts, totalling approximately 1000 spread over more than 500 suppliers, were strangely and illogically split into unfortunate areas. In addition, the project was in debt to nearly all the suppliers due to lack of funds. All of these contracts had to be restructured and renegotiated with the aim of rebuilding them according to a more Western mindset based on newer principles. The consequence was that many of the contracts were merged to achieve a simpler structure and remove the many interfaces that intertwined with each other. However, the problems related to the handling of the suppliers were substantial. Lack of knowledge about local conditions and language barriers created significant difficulties and a high degree of uncertainty along the way. Another risk factor was that several of the suppliers were threatened with bankruptcy, yet other suppliers had to be paid in advance to be sure of receiving the material at all. Constant threats of time delays were not uncommon either. This made it difficult to establish a desired relationship of trust between the parties.
What special challenges does such a large number of suppliers as 500 create in this case?
There are many challenges associated with handling a large number of suppliers, as in this case with 500. Here are some of the most prominent:
Control and overview: With such a large number of suppliers, it can be challenging to maintain control and overview of contracts, deliveries, quality, and payment obligations. This can lead to increased administrative burden and potential delays in the project’s progress.
Communication: Effective communication is important for any project. With 500 suppliers, there is an increased risk of misunderstandings or lack of communication. Furthermore, the language barriers discussed in the case can worsen the existing challenges.
Supplier stability: As mentioned in the case, several of the suppliers are threatened by bankruptcy. This makes it difficult to rely on deliveries and can create extra uncertainty.
Delivery management: With so many suppliers, it can be difficult to coordinate deliveries, which can lead to delays in the project.
Contract administration: A high volume of suppliers leads to a correspondingly high volume of contracts that need to be administered, negotiated, and potentially altered. Ensuring both the fairness and full compliance of all contracts can pose a challenging task.
Cultural differences: Especially when the project is carried out abroad, cultural differences in how business is conducted can be a major challenge. This challenge can be amplified by the considerable number of suppliers, given that each supplier may have distinct cultural norms and expectations.
Mutual trust: The case mentions that it was difficult to establish a trust relationship between the parties. With a large number of suppliers, it becomes even more challenging to build trust, especially given uncertainty around payments and supplier stability.
Discuss how you think Procons AS should handle the suppliers.
Procons AS faces a complex task in handling a large number of suppliers in a foreign project, especially given the lack of a thoughtful contract strategy and financial difficulties. Here are some suggestions on how they can handle the suppliers:
Contract renegotiation and restructuring: This has already been partly started, but it will be important to continue with this work. It’s crucial to renegotiate and restructure contracts in a way that is more understandable, logical, and according to western standards. This might include merging contracts where it makes sense, which would reduce the number of interfaces and potentially simplify administration.
Communication improvement: It would be helpful to establish clear communication channels and processes with the suppliers. This could include the use of interpreters or translators if necessary. With clear lines of communication, misunderstandings can be reduced and efficiency improved.
Financial stabilization: With many suppliers in debt, it’s important to address this issue. This could include securing additional funding, renegotiating payment terms, or potentially consolidating debt.
Risk management: Procons AS should set up a risk management plan for the suppliers. This could include identifying which suppliers are most vulnerable to financial turmoil, which deliveries are most critical to the project, and having plans in place to handle any issues that may arise.
Local expertise: If it is not already present, it might be helpful to bring in individuals with local knowledge of the country, culture, and language. This can assist with navigating local business practices and communication, and potentially build better relationships with the suppliers.
Trust building: Procons AS should actively work to build trust with the suppliers. This might include open and honest communication, timely payment (if possible), and demonstrating commitment and respect for the suppliers and their work.
Supplier management and evaluation: Procons AS should set up a system to evaluate supplier performance, and adapt its relationship with the suppliers based on their performance. This could help ensure that the most reliable and efficient suppliers are prioritized.
This case is taken from the book “Prosjektledelse – fra initiering til gevinstrealisering” – 2016, 4. Edition, by Jan Terje Karlsen.
