In this video, we hear how Supply Chain issues and working in silos led to engineering services company, XIP receiving a $550,000 penalty from one of their sub-contractors and how that penalty could have been avoided.
Here is their story:
If the challenges outlined in the video sound familiar, visit our Supply Chain Sync with Schedule page to learn how the Cora solution provides users with the control and data needed to simplify, standardize, and speed up their supply chain ops.
Jeremy walked into the portfolio manager’s office with a sense of dread. He had just heard that a sub-contractor hit their engineering services company, XIP, with a $550,000 penalty, under a warranty clause in their contract. Jeremy couldn’t see a way out of the problem. Now he had to break the news to his boss Caroline who ran all the programs of work in the XIP portfolio. The next 60 minutes were going to be tough!
Jeremy explained to Caroline how he put his schedule together, and how he had talked to the full engineering team and ensured that all the materials were ordered for the project. They had varying lead times – from 1 month right up to 6 months.
Two weeks beforehand, he heard from a supplier that 3 critical parts would be 4 months delayed due to sourcing problems on the supplier’s side. The supplier told their purchasing department 3 months ago about the delay, but Jeremy only heard about it two weeks ago.
It was infuriating – to only find out about the delay two weeks before a sub-contractor was going to put 95 resources onsite for the next 6 months. It would cost his company a fortune in wasted resources.
When he told the sub-contractor, they were calm, but they also informed Jeremy that the 95 engineers had no other work planned as a result of being booked out on the XIP contract. As a result, they had no choice but to issue penalties as per their contract of $550,000.
Their notice period for cancellation was 8 weeks in the contract. So, if Jeremy was told of the delay immediately, it would have saved XIP $550,000 and maintained good relations with the supplier.
Caroline was less than understanding. Why had Jeremy not gone to the ERP system to check the dates of the materials? Jeremy told her there were thousands of parts. “How could I check them all?” he said.
“Why did he not get an automatic update from the ERP system?” Caroline asked. Jeremy replied that the ERP system is owned by Procurement and not by the Portfolio office – they are not obliged to notify anyone of delays. Everyone was working in silos.
Caroline was annoyed at the breakdown in communication. Jeremy, however, reckoned he had a solution to ensure it never happened again. He showed her a demo of the “Supply Chain Synchronize with Schedule” module built into Cora.
The module links with their ERP system to pull delivery dates for materials. It stores a “Bill of Materials” for projects and allows Project Managers to link those parts with specific tasks on the integrated schedule.
The module periodically polls the ERP system. A red icon appears beside a task if its associated materials are delayed, prompting the Project Manager to change the schedule immediately.
The Bill of Materials functionality also shows him other projects that are using the same parts, so he can easily find delayed parts from another project to supplement his project. This, he claimed, would have prevented them from getting hit with the notorious $550,000 sub-contractor penalty.
“Not only that,” he said, “if materials were going to be delivered early, then the icon would appear as green, indicating a potential opportunity of where savings could be made through early delivery.”
One year on from the implementation of the Cora module, XIP have had no further sub-contractor penalties and Jeremy has had no more difficult meetings with Caroline.