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Construction : Cover Story | November 2015 | Source : Equipment India

Sour CE Issue

Selection and procurement of construction equipment (CE) by any organisation is led by key opinion makers: Heads of Plant & Machinery and Procurement. EQUIPMENT INDIA brings forth their views eventually culminating in buying decisions.

Essentially, CE selection and procurement is a complex metrics-based decision making activity that requires active involvement of the concerned stakeholders of an organisation. It is a thought process derived from organisational philosophy, key deliverables defined by the end users, techno-commercial considerations, professional domain knowledge, background data and industry experience.

Sourcing of equipment in India is no longer restricted to only indigenous options, global sourcing is now the industry norm. Most of the international leaders in each category of construction equipment are present in the country, offering a plethora of alternatives to prospective customers to choose from. In turn, the equipment selection and procurement process has gained challenging proportions because the decision makers have to critically examine and evaluate many aspects to zero down on the best and the most suitable fit. Mega contractors with large in-house equipment fleets were the first to establish company specific policies, selection criteria, value chains, and information-based decision making processes for equipment procurement. Others perceived the tremendous advantages of the same and intelligently replicated similar systems tailored to meet their respective business objectives.

Green shoots in the economic revival of India are visible to the equipment industry. On-ground action will gain full momentum within the next six months. The most obvious fall out will be acceleration in equipment procurement by potential customers. In turn, this indicates increased inter action between buyers and suppliers, eventually culminating in the sellers recognising the full implications of the selection and procurement parameters set up by the primary opinion makers.

Indian infrastructure scenario
In its multi-faceted approach, the government is simultaneously working on many ambitious projects in roads and highways, traditional and renewable power, Pradhan Mantri Awas Yojna, Sagarmala, coastline infrastructure and even to develop 100 Smart Cities in India, in addition to the Make In India initiatives.

Despite several challenges stunting the overall progress rate, the government is determined to create a robust and conducive environment for the proposed developments by declaring policy statements: target 30 km per day of road construction; housing for all by 2020; reforms in FDI and investments; exit policy for economically stressed contractors; allowing foreign governments to invest in India; lowering interest rates; ease of doing business etc. Narendra Modi´s government is taking rapid strides to boost the country´s infrastructural development. Most of the industry experts are forecasting uptick during the early part of FY 2015-16.

Therefore, imminently, heightened construction activities are here to stay and in turn construction equipment suppliers can expect a substantial boost in demand for new equipment.

However, the on-ground pace of movement continues to remain slow impeded by variety of factors including sector specific constraints, demand dynamics, tight credit availability and high indebtedness of participants.

In view of the near term pain points, ICRA expects demand to remain suppressed for another couple of quarters before project execution gathers momentum, driven by initiation of works under contracts awarded over the last 12 months.

The slow progress in the implementation of policy initiatives and project implementation has adversely impacted the equipment industry with a de-growth in sales volume in the first half of 2015. A recovery will depend on the expected pick up in project execution which will take at least six months, at least by first half of 2016. The construction industry is still shying from making any major investments in equipment procurement and is in the wait and watch mode.

However, the general industry outlook is positive. Expectations are high.

Sourcing ideologies
Major paradigm shifts in equipment selection and procurement strategies will govern the future of equipment business in India. The opinion makers involved are prepared exercise their options, to implement fresh ideas related to plant and machinery selection and procurement. After consulting with the industry professionals, the newly crystalised ideas come to light.

Selection Process
Most believe in a systematic and stardised company-specific process-oriented approach spread across the organisation. Samar Ghoshdastidar, Technical Director, Simplex Infrastructures, informs, ´In our company, we give stress on the following during equipment selections process:

The equipment should be standard equipment if possible.

  • It should give the best service at low cost.
  • Its unit cost of production should be moderate.
  • It should be easily repairable with low shutdown period.
  • It should be easily transported.
  • It should suit the majority of the requirements of the job.
  • It should be capable of doing more than one function
  • It should be of moderate size, as they have low working cost.´

S P Rajan, Head - P&M, RREC, L&T Construction, conveys, ´In L&T Construction, the equipment selection process undergoes a thorough review of the technological developments, ease of after sales support, present strength of inventory, life cycle costing and the performance of present fleet, if available. If a new machine is introduced, field visits and factory visits are carried out to have a first-hand feel before the final decision is taken´.

On the other hand in a top driven company like Dilip Buildcon, ´We get details and guidance about equipment application from our Director and we explore the options. Equipment category and application wise we have certain brand preferences, but we compare and evaluate with other alternatives also,´ informs Gauraw Tiwari holding a combined responsibility for both selection and procurement at the company.

Diverse application and categories
Infrastructure project related applications are diverse. The sourcing spectrum of equipment categories and products depends up on the range and types of projects included in the company´s business.

BV Raisinghani, President (Purchase), Jaiprakash Associates explains, ´Categories vary from heavy earthmoving, road construction, concreting, heavy fabrication engineering, fertiliser, realty, hotel, golf courses, etc.´

YSP Murty, CGM, NCC elaborates, ´For construction building sites, equipment varies right from batching plant, transit mixers, boom placers, to concrete pumps (if it is high rise building, higher range of concrete pumps), and tower cranes. For road projects, the equipment vary like hot mix plants, crushing and WMM plants, pavers and rollers. In power projects, higher capacity cranes of up to 250 tonne and may be on certain occasion up to 400 tonne capacity would be required. These cranes are used in the installation of bigger boilers and other components.

Tiwari comments, ´Our Director has Diverse application and categories excellent knowledge and experience in selection of the equipment based on application. He always elaborates mechanical team about application and provides guidance for selection of equipment. We procure all types of equipment´

Rajan has a sector specific portfolio. He says, ´All the machines meant for roads, runways, elevated corridors, etc are included in the responsibilities. Paving equipment play vital role in producing quality roads, be it asphalt layers or concrete layers. So, we are keen to have machines with reputed past and best technology. In the process, we come across various options, indigenous as well as imported. It is the experience of the team and in-depth analysis that leads to the final conclusion.´ Ghoshdastidar deals with high diversity, ´Simplex Infrastructures is one of the largest infrastructure solutions providers in India and the Middle East having presence across eight first growing industry verticals:Ground engineering, power plants, industrial projects, transportation, building and housing, urban utilities, marine structures, and water resources and management.´

The basic operations involved in the construction of any project are excavation, digging of large quantity of earth, moving them at the fairly long distances, foundation, civil and structural works, back filling, compacting, levelling, dozing, grading, hauling etc for which different construction equipment are required. Beside these, there are different equipment for pile foundation, road project, tunnel and hydel projects, building and housing, marine structures etc.

Key Considerations
Ghoshdastidar comprehensively sums up the entire industry´s ideology, ´Every equipment has certain common factors which are taken into consideration while selecting equipment.

Safety paramount
Many major construction giants have signed the UN mandate on Safety and publish reportable fatal accidents in their balance sheets. Maximising safety is accorded due respect by the opinionators.

´Protection for operator, engine and other drive components need to be fitted for protection against overloads, where necessary anti-collision devices and limit switches are fitted,´ advises Raisinghani; while Tiwari adds ´Always top priority is given to safety aspects. We will not consider equipment having even small safety lapses.´

Rajan further emphasis, ´The safety to human interference is given utmost importance. The delay start mechanism, reverse cameras, reverse horns, GPS devices, operator seat adjustments, vibration suppression, better visibility, etc are given high importance.´

Ghoshdastidar details the important safety features, ´Control systems to support operator in the work cycle; Cab comfort to support operator; Easy entry and exit; Easy daily maintenance; Guarding system for moving parts; Presence of sensing system; Self monitoring fault detection systems; Safe load indicator, boom angle indicator; Emergency brakes; Hoisting limiter; Flashing light/reverse horn, Safety latch in Crane hook; Load moment limit; Anemometer and Inclinometer/depth indicator.

Brand loyalty
Unlike the past, per se brand loyalty is declining. However, equipment specific brands preferences still prevail in the minds of the selectors.

Raisighani comments, ´Our equipment brands include Caterpillar, Komatsu, Hitachi, Schwing Stetter, Cifa, Putzmeister, Sany, Zoomlion, Ingersoll Rand etc. The list is quite comprehensive covering about 40,000 suppliers.´Rajan says, ´We are not brand specific.´

Murty has equipment specific preferences, ´We look at only major leading brands: Pavers - Wirtgen and Gujarat Apollo; PTR - Dynapac or Volvo; Tandem roller - Volvo or Wirtgen; Soil compactors - Escorts or Case; Concrete batching plant - Schwing Stetter; Concrete pump - Schwing Stetter (we are also looking at Putzmeister for concrete equipment as their performance is reported to be good); Tower cranes - Zoomlion or Escorts and some others; and Heavy cranes - Liebherr and one Chinese crane.´ Ghoshdastidar is is more focused on quality´ We are not country specific, however for quality equipment we prefer Germany, Italy and for procurement cost economy Chinese equipment.

To begin with, new dimensions have been introduced by the selectors to ascertain cost of equipment. In lieu of the traditional age-old practice of only considering equipment acquisition price, concepts like Total Ownership Cost (TOC) and Life Cycle Cost (LCC) are now in vogue. Further, the terms and conditions are trending to contractually bind the suppliers to extract the highest standards of vendors´ performance, during the contract period. Many refer to the vendor´s overall past performance track record, prior to inviting even the best of vendors, for further business.

Supporting TOC or LCC concept, BB Mishra, Procurement TIIC, L&T Construction says, ´We generally take into account the following parameters for obtaining the total cost of equipment::Acquisition cost; Cost of operation and maintenance; Cost of capital; Productivity; Life period of equipment and Resale price.´ Raisinghani maintains ´The norms are based on minimum owning and operating cost.´ While on the subject, Ghoshdastidar further insight ´Total life cycle and total cost of ownership are important for calculating in the production cost of any equipment. Normally, we consider price escalation for calculating total cost of ownership.´

Referring to binding contractual clauses, Mishra specifies, ´We seek performance guarantee for a period backed by BG against manufacturing defects. We also seek guarantee from the manufacturer for breakdown attendance and for the availability of the machine for operation and agreed output/productivity. After this period, based on the criticality, we may go far AMC/RC for spares and consumables.´

Raisighani explains, ´We seek a minimum guarantee of 18 months from the date of commissioning for the equipment and for the engine it is two years/5,000 hours.´ He also seeks seek equipment availability guarantee through comprehensive service contract.

Ensure Brand Image
Brand preferences of the leading opinion makers spreads across the industry via grapevines, references and other communication channels. Many potential customers get influenced by such indicators to select the same supplier, resulting in further propagation of the specific brand image.

It is high time for the suppliers to align their business approach with the new paradigms and ideologies in their best interests.

Prime Considerations

  • Scope of work to be carried out
  • Suitability for job conditions
  • Uniformity in type
  • Size of equipment
  • Equipment standardisation
  • Unit cost production
  • Country of origin
  • Spares availability
  • Versatility
  • Suitability of local labour
  • Technno-commercials

- Samar Ghoshdastidar

- Shankar Srivastava

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