We live in a global economy and face increasing pressures on price in delivering projects. How can companies in Australia and globally meet the challenge of finding ways to procure the most efficient product?
We live in a global economy and face increasing pressures on price in delivering projects.
One of the challenges for companies in Australia and globally is to find ways and means of trying to find, to procure the most efficient product. For example in Australia, Downer and UGL are sourcing rolling stock from China [and] other major mining companies like BHP and Rio Tinto are also increasingly sourcing prefabricated structures for their projects overseas. That creates its own challenges in terms of understanding how best to manage that procurement process.
One of the things that a lot of foreign companies fail to understand is that China is still a relatively new economy - notwithstanding it’s a very old civilisation. One of the challenges for this company is to get reliable delivery of those products. Not just in terms of cost but in terms of quality and ability of the Chinese companies to actually meet those expectations. Here comes the challenge is to manage the expectations between what those foreign companies expect and what the Chinese companies are able to deliver.
China has come out of the reform period in the late 70s and early 80s and while it is about 30 or 40 years since that time, they still haven’t adapted to some of the western ways of doing things. For example, their production capacity is based on streamline process [and] they do not expect too many changes in that streamline process. For example, if the western companies are expected to have a fast track process with ongoing changes in designs and expect the Chinese company to adopt their manufacturing process to deal with those changes; they are in for a big surprise because things don’t work out that way.
So it’s a question of managing expectations both outside China and with the Chinese suppliers so that things can be produced in an efficient and in the manner that is expected by both parties. It is useful to have that perspective and have an engagement and expectations not only with the Chinese suppliers but also within the companies in Australia and overseas. So what I’m saying is to manage our own people in their expectations of what can or cannot be done with the Chinese suppliers and not just expect that they will deliver in accordance with the contract. That there is a cultural difference, there is a language difference. Even drafting simple contracts, it’s an exercise in itself. In contractual terms, we are very used to be having definitions in our contracts. The Chinese contracts which will prevail over the English version in China don’t have those concepts. It’s keeping the language simple and managing those expectations.