The first step in the process is to select the project team. While it is easy to select your team members from the resources within your organization, often the challenge is finding the right team members from external resources. Spending the necessary time and focus on finding the right partner will pay huge dividends in the end. Remember, your challenge is to design and implement a complex material handling system, and the process associated with doing that is not the same as the one you would use to purchase a single piece of equipment.
With this understanding, the first step we recommend is to create a list of potential solution providers. Now is the time to talk to your network of friends and associates to see who they would recommend as a “material handling Systems Integrator”, and who they think would be competent and capable of helping you with your material handling system design.
After you develop your list of potential solution providers, it is time to start the interview and qualification process. The potential candidate pool for simple equipment suppliers and those capable of implementing a straightforward or small project is certainly plentiful and probably not what you are seeking as your partner for designing and integrating your complex system. During the vetting process you might want to consider including the following questions on your list of qualifying items:
- Is this a Licensed Professional Engineering Company, or just an equipment sales company trying to push their commodities?
- Does this company specialize in material handling solutions?
- Has this company demonstrated that they have the ability, and are experienced in, addressing and solving complex material handling issues?
- Does this company have a variety of suppliers that might be used to solve your problems or are they pushing the agenda of one supplier?
- Do they have a well defined process and how long have they been using this structured system?
- Do they have the necessary analytical skills and problem solving capabilities needed to thoroughly understand your business, identify your unique issues and develop solutions to address them and improve your operations?
- When you visit the candidate’s facility and talk to their staff do you feel comfortable that they are people that you can work and interact with?
- Are their facilities supportive of their mission by being equipped with the tools and technology to support the project?
- What is the bench strength of the company? Do they have back up resources for the assigned project manager and other critical project team members?
- Do they have examples of “Value Engineering” so that you know they will recommend solutions that will meet your operational needs for both now and the immediate future?
- Do they have experience in both concept and installation?
- Do they appear to be proficient in design and project management?
- Are systems in place to manage the major aspects of your project, including timeline, system performance and budget?
- Do they have referrals from satisfied customers of similar sized projects that you can talk to?
- What do their customers say about the company, especially with respect to overall project management and with the experience regarding change orders?
Once you have gone through this vetting process, it will become crystal clear who you want on your team to do the job and make you and your company’s project a success. If you had to describe the confidence you’ve gained with one word, that word would be Trust. You now know that the company you have selected is dependable, competent and capable of being a member of your team, and will help guide you through the solution process.
If you find a company you can trust to fulfill the engineering and project management, then you spend less time trying to learn how to solve the problem yourself. Too often people task themselves with learning a skill that has taken others years to develop and perfect. They try being self-taught by getting free advice from potential vendors, hoping that they are going to share all of the tricks of the trade. This is not a path that typically leads to success. Picking a competent Systems Integrator as one of the first steps in the Design-Build process should insure optimal design and technical continuity throughout the entire process.
The next step is to get down to business and develop a contract that outlines the many steps to be followed and establish the deliverables for each step. It is here that you can address and agree to all of the sensitive business rules that apply to the contractual relationship for the project. Those rules being profit margin, payment terms, acceptance criteria and any other terms and conditions. By opening the books and exposing all agendas in the beginning of the relationship, the remaining course of action becomes a truly collaborative process.
At this point in time you have already shaved months of time off of your project timeline when compared to older purchasing models. Since “time is money,” this advancement in the schedule will allow your company to put the money saved by this system to the bottom line sooner. All of the cards are now exposed and 100% of the focus going forward is where it should be; designing and installing the right material handling system for the right price and delivered on time to ensure project success for all stakeholders. When the customer and the Systems Integrator work side by side in order to develop a detailed design with a functional system layout, a description of operation, and a description of all mechanical equipment, electrical equipment and software to be provided, the probability of success in meeting project expectations and achieving the real business goals of the material handling system are much higher.
Benefits. Here are the top three Benefits in this process that support the reasoning why Design-Build is the method of choice now and in years to come.
Factor 1, System Design and Performance Risk Mitigation
The main reason why this is the case is because a more considerable effort and investment in engineering time is dedicated to designing the system accurately. It addresses all functional areas of the business. For example, when designing the inbound receiving conveyor system, the operations group is heavily involved, because there might exist personnel limitations that would affect the design of the system, the maintenance group is involved, because they feel that certain truck unloaders are harder to maintain than others, the information technology group is involved, because they want to know how the scanning and transmitting of the data to the WMS or inventory management system for all received goods is accomplished and the engineering group is involved, because they want to ensure that the system is as efficiently designed as possible and does not negatively affect any other downstream processes. As you can see, this type of involvement in all aspects of the system design requires significant dedication by your team as well as the Systems Integrator that is designing the system with you. Fortunately, the benefits of this investment on the front end have significant positive impacts on the back end: fewer change orders because the initial design is very accurate; improved project timeline due to the well thought out plan; more buy-in and acceptance of the system by all members of the team; and a higher probability that the system will operate in the manner it was intended.
In addition to focusing all effort on the proper design that suits the best interest of the customer, a Systems Integrator that is a professional engineering company also has the obligation to evaluate and understand the customer’s operations so much so that when simple changes in business processes can forego the need to purchase expensive equipment, then that option will be presented to the customer. Additionally, applying foresight to the design for future expansion or any other system changes would also be considered when designing the initial system. Considerations such as adding or making room for additional sorter diverts, even though the down lines are not installed, or including taller and higher capacity upright frames in a pick module so an additional level or two can be added at a later date with relative ease are details that should be heavily considered during the design phase.
Factor 2, Overall System Cost Risk Mitigation
The theory behind the multi-bid traditional approach was that based on the competitive nature of the bid process, the customer would receive comfort with the perception that they purchased a material handling system at the best possible price. All too often, these perceptions were shattered somewhere during the project implementation when they realized that they were not getting the quality of equipment that they expected or that they found themselves subject to numerous costly change orders because there were details that were not included in the bid specifications and subsequent proposal documents.
The benefits of ensuring competitive pricing through multiple bids are still possible through the Design-Build process. Furthermore, the contract should have a ceiling on the total project price so that the budget does not get jeopardized. We call this price ceiling a Guaranteed Maximum Price (GMP). As a result of using a cost plus contract combined with a GMP, should the project come under budget, then the customer is financially benefitted by not being invoiced up to the GMP. In the event that the cost plus the profit margin exceeds the GMP, then the customer is only required to pay the GMP amount. Thus, the financial risk associated with a cost plus contract is eliminated while maintaining the potential reward of coming under budget. At the same time, competitive bid pricing is still maintained on the front end.
As previously mentioned, the first step in the process is to come to agreement on the sensitive business rules including the profit margin, payment terms and other terms and conditions. This is no different than large construction contracts that are fulfilled under a Design-Build methodology using a cost plus contract.
Once this document is agreed upon, then engineering resources are engaged, and the time consuming engineering effort required to develop the detailed design is initiated. After the design is complete and all stakeholders are satisfied and have signed off on it, then the Systems Integrator solicits multiple bids from manufacturers of like equipment that could be used in the design. Additionally, the Systems Integrator solicits multiple bids from approved mechanical and electrical installation vendors. For example, if a pick module was a part of the system design, they would solicit bids from three conveyor manufacturers, three pick module manufacturers, three mechanical conveyor installers, three electrical conveyor installers and three pick module installers. Once all of these bids are received, then the Systems Integrator presents all of the information, including costs, lead times, quality perceptions, and any other pertinent information about specific vendors to the customer. In the end, the customer selects the vendors based on their specific criteria. The customer will also take into consideration the Systems Integrator’s recommendation. Once all vendors for the project are selected, then the costs are added up, the pre-negotiated profit margin is applied and a Guaranteed Maximum Price is then determined.
Factor 3, Improved Project Implementation Timeline
The main principle of implementing a Lean culture in your operations is to reduce or eliminate waste by only performing value added functions. Because the Design-Build process focuses on dedicating a majority of the front end efforts to the system design, the byproduct is an extremely efficient and timely project.
Compared to the historic approach to partner selection and system implementation, which was mainly comprised of evaluating multiple proposals from bidders whose primary focus was to win a job rather than address key concerns about your business, the Design-Build approach bypasses all of the wasted effort associated with the old approach and instead replaces it with value-added engineering. This value- added engineering is collaborative and extremely detailed so that all key system concerns are addressed, the possibility of change orders is minimized and both the design and implementation plans are more thoroughly thought out. Thus, the start to finish timeline compared to the historical method can easily be reduced by 25%.
The significance of the reduction in timeline is extremely noteworthy, especially from a financial standpoint. However, we have found that many customers do not take into consideration the financial benefits when evaluating their system implementation process in the very beginning of the project. Simply being able to use the material handling system earlier than you otherwise could have, the revenues that the system provides along with savings in operational costs due to the gained efficiencies, allow you to start realizing the Return on Investment even sooner. In other words, if the Return on Investment for the material handling system is 3 years, then for every $1MM that the project costs, the company should realize almost $28K per month in financial benefit. Therefore, a 3 year ROI project that costs $5MM project should provide almost $140K per month that the company is gaining from beneficial use. In summary, a reduced timeline by using the Design-Build method can provide significant financial considerations.
Over the past ten years, TriFactor has continuously improved on their proprietary Design-Build method for designing and implementing complex material handling systems. We call it the TriFactor EdgeTM because the underlying theme is to provide our customers an edge over their competition so that they can provide the best customer service levels their customers have experienced. We have used the TriFactor EdgeTM with much success with numerous publicly held Fortune 500 companies along with smaller privately held businesses. The TriFactor EdgeTM is a three-step process that transitions smoothly as the project develops from initial conception, to budget development, to detailed design and finally implementation.
Phase 1 – Needs Analysis
This is the initial design phase of the project and is typically used by our customers in order to get a professional opinion with respect to system concept, project budget, and estimated implementation timeline. Along with this information, TriFactor works with customers during the Needs Analysis to determine operational and financial impacts such as reduced labor force or increased system processing and/or throughput capacity in order to develop a financial analysis and project justification. All of this information is used in setting high level expectations and making go/no-go decisions on the project.
Phase 2 – Final Design and GMP Development
This phase is initiated when the customer has decided that the project is fully justifiable, funded and will be moving forward. The first task at hand during this phase is to agree upon the business rules document, which contains the payment terms, profit margin, and any other sensitive terms and conditions. We call this document our Partnership Agreement because once it is completed, the trust has been solidified and collaboration toward a successful project becomes the focus.
By the end of this phase, the final system design is developed, a description of operation, equipment and software is detailed, vendors of like equipment and services have been multi-bid and a Guaranteed Maximum Price is determined.
Phase 3 - Implementation
Phase 3 is where the rubber meets the road. Equipment is ordered, fabricated and delivered. Installation drawings are developed. Project coordination meetings and updated schedules are periodically occurring. Mechanical and electrical installation happens. Software and controls are developed and integrated. The system gets thoroughly tested and finally turned over for acceptance. System operational and maintenance training for all shifts is accomplished as well as a recommended emergency spare parts listing is provided for the maintenance inventory.
At TriFactor, we strive to implement the system that can meet or exceed the design parameters, on or ahead of schedule, and on or under budget. Our recommendation for any company considering implementing a large complex material handling system would be to pick a Systems Integrator partner early, whether it is TriFactor or another Systems Integrator, and use the Design-Build process. The benefits far outweigh any disadvantages that can be argued against the process.
John T. Phelan, Jr., P.E. is Chief Operating Officer of TriFactor, LLC, a material handling systems integrator based in Lakeland, Fla. He can be contacted at 863-577-2243 or firstname.lastname@example.org. For more information visit http://www.trifactor.com/