Technology and innovation have started to define the rate of growth and the success of business enterprises the world over. The real estate sector is no different. From additive manufacturing to real estate ERP solutions, real estate development companies are actively embracing change that will revolutionise the way they function.
How erratic procurement process is detrimental for a real estate business?
Procurement of materials is indeed one of the most complex functions in the construction business, impacting the cost of projects the most. According to CBRE, the stages before construction including procurement can result in 80% savings. In spite of the cost-efficiency that a streamlined procurement process can provide, real estate companies are not able to leverage them fully. One of the most critical reasons for this discrepancy in the procurement stage is unapproachability to the standardised practices. For a lot of real estate business owners, their procurement strategy is best defined as ‘ad-hoc’. Consequently, traditional sourcing, superfluous activities and scattered data have become the norm of the day, creating unwarranted apprehensions.
However, the good news is – by shifting to e-procurement process, a real estate company can become more systematic and ascendable. According to KPMG’s global survey of procurement functions, as businesses are thriving, so is the complexity. That’s why a lot of organisations are shifting towards advanced procurement models which, in turn, enable them to maintain consistency through standard practices and drive greater value to their operational performance. Sustainable procurement models are successfully driving operations in the construction/real estate business and translating into lower costs and ease of doing business.
One of the key additions that most real estate companies are making to improve efficiency and costs in the procurement process is equipping themselves with e-procurement and vendor management platforms using prominent real estate ERP software. This provides them with a single-window for the management of various aspects of procurement. These technology-driven procurement management systems are likely to define the future of the most real estate and construction companies, in times to come.
Are the present-day procurement processes really efficient?
The fundamental goal of a real estate company is to cut down on procurement costs. Be it the cost of the raw materials or cheaper transportation methods, one needs to be extremely prudent when it comes to reducing the procurement costs. Other factors such as inventory turnover ratio, supplier stability, delivery timelines also contribute to the performance of a real estate company pertaining to the procurement process.
How advanced real estate ERP solutions can strengthen the procurement process?
The traditional methods of real estate procurement are not only time-consuming but are also more susceptible to inefficient supply chain management and therefore, do not contribute much to the overall efficiency. That is where integrated systems come into the picture with their effective functionalities and high-end features.
- Automated tendering process
A lot of real estate firms still resort to the traditional methods of tendering. All market materials besides tender request documents, documents that outline the offers for a particular property or project including pricing, schedules and eligibility are worked upon manually which in itself is a time- consuming process. Moreover, cumbersome tasks like looking for an incorrect formula in multiple spreadsheets can deviate procurement managers from utilizing their time in activities that can actually derive greater value addition. It also discourages them from participating in worthwhile triple-bidding projects.
However, with integrated systems and automated bid levelling tools that come with features such as specific procurement packages, automated sourcing strategy, Expression of Interest (EOI) invites that features the single-click response mechanism, tender checklist creation, tender addendums, rebid classification based on numbers, simplified bid clarification process, detailed comparison grid of multiple bids, tender recommendation, commercial dashboards for data management etc., data aggregation, organization and analysis have become possible, making the overall tendering process extremely efficient. Moreover, these systems can highlight any discrepancy that may occur and smartly level –up the tendering game of a real estate firm.
- Advanced Vendor Management
As per the study that Journal of Construction Engineering and Management recently published, with the help of expedient bidding processes such a triple bidding, as much as 8% reduction in the ‘bid low price’ is observed. The cost is further reduced if the numbers of the participating vendors increase. As a result, the competitive bidding enhances, allowing the vendors to negotiate better and prove their diligence. It also allows the managers to invite new vendors and strengthen their vendor list.
With integrated procurement platforms, one can easily pre-qualify a network of real estate vendors/suppliers based on their performance, scope of work, region or any custom pre-qualification criteria, so he or she doesn’t have to start from scratch every time a procurement need emerges. It is not easy to manage a large number of vendors based on various criteria using traditional approaches. However, with integrated systems one can coordinate the entire vendor relationship from on boarding to online material buying, performance tracking and managing commercials across multiple projects.
The end result – enhanced market share, increased ROI and short order completion time, marks the future of the procurement process of the real estate industry.
A final word
Quick access to the data including bid documentation, internal and external conversations, vendor reviews, delivery timelines, workload status etc. is the key to a competent procurement process.
The transparency offered by centralized repository allows the procurement managers besides the top management officials, to have a complete control over every stage of the procurement process. From pricing trends to workflow cycles, effective communication to vendor relationship management, everything can be managed efficiently.
There are a lot of new and exciting changes that procurement management systems and real estate ERPs are bringing to real estate developers and construction companies. What remains to be seen is how the world of construction changes due to the introduction of these systems and the value-added services delivered to the end buyer. What we can now be sure of is that digital technology will certainly reshape the way construction companies undertake their procurement functions, adding value and making phenomenal growth in the years to come.