The Best Practices & Considerations in Project Procurement and Supply Chain Management in Solar Industry
Vibhor Mahendru
March 2021
How to define a ‘Project’?
To understand Project Procurement, it is important for us to go about defining a project. It is a task undertaken that is unique, time-bound & directed towards achieving planned objectives – which are generally defined in terms of scope and benefits.A project can be considered a success, if it achieves the objectives as per acceptance criteria, within the agreed timelines (schedule) and budget (cost).
Regular Procurement Vs Project Procurement
Now that we have defined a project, let us go about differentiating project procurement from the regular process.| Parameter | Regular Procurement | Project Procurement |
| Existence | More permanent – repeat purchase of products from regular suppliers (generally) | Unique or Specific in nature – raw material & suppliers may or may not be same |
| Scope | Continuous cycle that is somewhat predictive | Terminates after achieving the objectives |
| Time | Ongoing – based on a production plan for a time period (weekly/monthly) | Fixed or definite time span |
| Budget | A specific profit margin is maintained by the team | A definite budget is allocated, within which the procurement team needs to manage the purchase |
Project Procurement in the Solar Industry – Best Practices
Utility scale solar projects on a megawatt scale are executed by EPC companies, which at the design or engineering stage, may decide about purchasing components such as PV modules, inverters, structures and balance of supplies by identifying, mitigating associated risks. This is done by evaluating supplier credentials through suitable inspections and qualification mechanisms.This process involves checking the supplier’s reputation in the market, supplier on-boarding, related inspections and tests until the end of the procurement process.The procurement team’s clock starts ticking the moment the approved BOM (Bill of Material) is uploaded into an ERP system (process tool/platform) – this is seen as a formal go-ahead to begin the process of arranging raw material for a specific project. The procurement team should typically study the BOM & raise queries immediately – in case information like the specification or rating or brand preferred, is missing.
A comprehensive BOM forms the backbone on which the procurement team executes activities. It is often the output of a detailed site survey by the projects team or I&C (Installation and commissioning) party – the BOM is made after the customer shares the preference for particular brands PV for modules & inverters, post a detailed site survey. In case of approximations made on the balance of supplies – a budgetary buffer is provisioned for, in advance.
Once the suppliers are identified, the procurement team gets into commercial negotiations – which include the cost offered for the product, payment terms, delivery timelines, agreed QAP (Quality Acceptance Parameters), data sheets, product manuals, certificates, warranties & spares.
Supplier Selection– a breakdown of the processes involved in Solar PV Project Procurement
Supplier Identification & Development.
Potential Suppliers should be identified and developed based on the following criteria:- Product or Service
- Location
- Manufacturing facility and production capacity
- Infrastructure
- Annual Turnover
- Financial Strength
- List of major customer & sub suppliers
- Material Handling System
- Quality Management
- Packing & Shipping facility
- Market Reputation
- Certification & Documentation
The document review submitted by the supplier, should contain:
- Product certificates & associated reports
- Factory certificates and licenses
- Warranty clauses
- Field failure data, including recalls & handling of claims.
Factory Inspection
Before production starts – a pre-production factory inspection by a joint cross-functional team is highly recommended. The aim should be to identify issues in manufacturing & quality processes, which may have an undesired impact on the quality of the product.The inspections consist of the some of the following processes or criteria:
- Incoming inspection of raw material
- Production line assessment
- Safety tests
- Outgoing performance/output power verification
- Evaluation of Quality Control tests (for solar panels – solar simulators, visual inspection tools & electroluminescence insulation tests are important)
- Process for handling faulty products
- Product traceability
Supply Control
Usually for solar projects, large quantities are procured within certain deadlines. Hence it is important to access the supplier’s production capacity and whether that can meet the deadlines. The commitment for the available capacity should be a part of the contractual terms. In the pre-production stage, it is better to evaluate the availability of the BOM parts, especially long lead items which would be imported.Delivery of Goods
It is important that agreed upon terms for post-production (prior to material dispatch) are in place for accessing the fulfilment of quality parameters.These should be implemented before commencing for the construction of the solar PV project and needs to be verified in the pre-dispatch inspection. Ideally, this process should consist of visual inspection, power verification, other tests and a fit-for-shipment verification. The critical tests are ideally performed on random samples taken from the production lot, which is ready for shipment.Logistics: Movement of Raw Material
For a Solar PV project – panels, inverters, structures, HT Panels, LT Panels & >transformers make up for about 90% of the material cost. Hence, post the pre-dispatch inspection, these products are sent directly to the project site, instead of routing it to the central warehouse of the EPC. This helps save transport costs as well as transit time.The balance of supplies like cables, hardware, walkways, lightning arrestors and earthing material on the other hand, are part of the inventory in the central warehouse and dispatched to the different site or project locations, as per the requirement.
Importance of thorough documentation
The documentation process often directly reflects the superiority of the solar developer or EPC player. Maintaining thorough documentation is top priority and a matter of pride at Fourth Partner Energy. Some of the key documents for solar projects include- Test reports and warranties: These documents are normally collected against the supplied material, should any claims arise in the future claims. These ideally should be shared along with material dispatch.
- Invoicing: The supplier raises Tax Invoices against the actual measure of the supplied material or rendered services. This is shared with the buyer for payment.
- Goods Receipt Note (GRN): Against the Invoice and on the acknowledgement from the project site against the received material – a GRN is created, and bills are booked. This is a critical milestone in accounting. This quantity captured in the GRN is considered as the inventory.
Importance of Best Practices in Solar PV Project Procurement
Similar to any business, following best practices is an imperative for solar players – irrespective of scale of execution. Often any large solar EPC player or developer has multiple projects being executed simultaneously across different geographies. These are often in different stages of execution – initiation, construction, nearing completion and others.In this scenario, there can never be a dull moment and hence it becomes imperative to have effective processes and systems in place, along with regular reviews. Open collaboration and timely communication across stakeholders is the mantra for any successful project execution.