March 04, 2016 | CAPEX Blogs
The global capital project and infrastructure market is witnessing steady growth. Countries like China, Philippines, Indonesia, Ghana and Nigeria will be the primary growth regions with increasing capital project expenditures. It is expected that the industry will touch over $9 trillion per year by 2025, nearly double from $4.7 trillion in 2015.
Global Issues Local Impact
Issues affecting capital programs remain consistent across all industries and geographic zones with risk management topping the list. Large capital projects are usually outsourced to Engineering, Procurement & Construction (EPC) firms. These firms have a transactional approach to procurement, resulting in various risks, such as cost overruns, schedule delays and quality issues. An improperly designed project will significantly impact the schedule and cause cost overruns.
Another key issue for capital projects across the world is labor shortage. With many suppliers fulfilling their labor requirements through labor brokers, the productivity and safety of this labor force is questionable. Understanding your project’s labor requirements with regard to both professional and craft labor can reduce delays and, more importantly, enhance safety. Enterprises must seek complete transparency into billing rates, man-hours and qualifications of the workforce on the project.
The Silver Lining – Robotics & Automation
Robotics has moved beyond the early adopters, such as automotive and technology, and is increasingly being used in the CPG, pharma and other industries. New 3D visual inspection systems have solved issues that traditionally prevented robot use in areas, such as trimming/cutting, defect removal, warehouse pick and pack, palletization of variable sized cases, etc.
The growth rate of the robotics and automation industry is expected to reach 10 percent by 2020. Robotics and automation will mitigate some of the labor shortage problems for many manufacturing industries. Also, the cost per hour of flexible, generic production line robots is expected to fall from $28/hour to $20/hour.
Bundling Spend, Leveraging Volumes
Volatile material prices and delays in delivery are common risks associated with capital projects. Many companies do not leverage material spend across their capital projects. Manufacturing sites/plants and business units routinely purchase material for their capital projects individually, without considering the spend in other projects. Bundling material spend across the capital projects is an emerging trend in the industry. As materials are marked up through the value chain of secondary and tertiary suppliers, leveraging volume is an effective way to reduce costs on purchases.
Developing a capital project program that shares knowledge across projects, with visibility into the schedule, will enable a coordinated approach for material purchases. During the project lifecycle, materials are required to be on site at different times throughout the construction process. Aligning the purchase of materials with market conditions can help drive further drive savings in a capital project program.
For more trends and outlook on key categories and commodities, download your complimentary copy of the GEP Procurement Outlook Report 2016.