How to manage procurement for a project-based business

Project-based businesses — construction, engineering, IT implementation, manufacturing of custom orders — have procurement challenges that differ from continuous production. You're buying for a specific scope, on a specific timeline, with costs that directly affect your project margin.

Build a Bill of Materials (BOM) or procurement schedule for every significant project, before procurement starts. This forces the project team to think through every item they'll need, and allows procurement to plan lead times, consolidate purchases where possible, and identify long-lead items early.

Identify long-lead items at project kick-off and order them first. In most projects, 20% of the items drive 80% of the schedule risk. Imported materials, custom-fabricated components, and items from suppliers with long lead times should be identified in the first week of project planning and ordered immediately.

Control scope changes carefully — every scope change affects the procurement plan and the project cost. When scope changes, the BOM changes, the suppliers change, and the schedule changes. Build a formal change order process that triggers a procurement impact assessment before the change is approved.

Avoid splitting purchases to stay under approval thresholds. This is a common control bypass — breaking a large purchase into multiple smaller ones to avoid senior approval. It's also a financial red flag. Your approval thresholds should apply to the total project cost of an item category, not each individual purchase order.

Track committed costs, not just actual costs. In project procurement, you commit cost when you issue the PO, not when you receive the invoice. Your project budget should track commitments (issued POs) alongside actuals (received invoices) so you can see where you stand against budget before the invoices arrive.

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