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Quick Recap. Lesson 10: Managing Project Procurement Topic 10A: Examine the Project Procurements Process Topic 10B: Obtain Responses from Sellers Topic 10C: Determine Project Sellers. Learning Objectives. To understand the relationship between procurement, purchasing, and supply management
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Monitoring and Controlling Quick Recap
Lesson 10: Managing Project ProcurementTopic 10A: Examine the Project Procurements ProcessTopic 10B: Obtain Responses from SellersTopic 10C: Determine Project Sellers
Learning Objectives • To understand the relationship between procurement, purchasing, and supply management • To examine procurement objectives • To learn about supplier selection and evaluation
Learning Objectives • To understand quality issues in procurement • To examine global procurement • To learn about investment recovery • To examine socially responsible procurement
Procurement Key Terms • Bribes • Excess (surplus) materials • Global procurement (sourcing) • Investment recovery • ISO 9000 • Kickbacks • Lean six sigma • Malcolm Baldrige National Quality Award • Multiple sourcing • Obsolete materials
Procurement • Refers to the raw materials, component parts, and supplies bought from outside organizations to support a company’s operations • Procurement costs often range between 60%-80% of an organization’s revenues
Procurement Objectives • Supporting organizational goals and objectives • Managing the purchasing process effectively and efficiently • Managing the supply base • Developing strong relationships with other functional groups • Supporting operational requirements
Supplier Selection and Evaluation • One of procurement’s most important responsibilities • Involves stating an organization’s needs and determining how well various potential suppliers can fulfill these needs
Planning Contracting • Involves preparing several documents needed for potential sellers to prepare their responses and determining the evaluation criteria for the contract award. • Request for Proposals: Used to solicit proposals from prospective sellers. • A proposal is a document prepared by a seller when there are different approaches for meeting buyer needs. • Requests for Quotes: Used to solicit quotes or bids from prospective suppliers. • A bid, also called a tender or quote (short for quotation), is a document prepared by sellers providing pricing for standard items that have been clearly defined by the buyer.
Figure 12-3. Request for Proposal (RFP) Template Information Technology Project Management, Fourth Edition
Evaluation Criteria • It’s important to prepare some form of evaluation criteria, preferably before issuing a formal RFP or RFQ. • Beware of proposals that look good on paper; be sure to evaluate factors, such as past performance and management approach. • Can require a technical presentation as part of a proposal.
Requesting Seller Responses • Deciding whom to ask to do the work, sending appropriate documentation to potential sellers, and obtaining proposals or bids. • Organizations can advertise to procure goods and services in several ways: • Approaching the preferred vendor. • Approaching several potential vendors. • Advertising to anyone interested. • A bidders’ conference can help clarify the buyer’s expectations.
Selecting Sellers • Also called source selection. • Involves: • Evaluating proposals or bids from sellers. • Choosing the best one. • Negotiating the contract. • Awarding the contract.
Figure 12-4. Sample Proposal Evaluation Sheet Information Technology Project Management, Fourth Edition
Seller Selection Process • Organizations often do an initial evaluation of all proposals and bids and then develop a short list of potential sellers for further evaluation. • Sellers on the short list often prepare a best and final offer (BAFO). • Final output is a contract signed by the buyer and the selected seller.
Media Snapshot • Many organizations realize that selecting appropriate sellers can often provide a win-win situation. • Several companies, including those owned by famous celebrities, work closely with outside sources to help both parties come out ahead. • For example, Oprah Winfrey celebrated the premiere of her show’s nineteenth season by giving each of her 276 audience members a new car that was donated by Pontiac.
Administering the Contract • Ensures that the seller’s performance meets contractual requirements. • Contracts are legal relationships, so it is important that legal and contracting professionals be involved in writing and administering contracts. • Many project managers ignore contractual issues, which can result in serious problems.
Suggestions for Change Control in Contracts • Changes to any part of the project need to be reviewed, approved, and documented by the same people in the same way that the original part of the plan was approved. • Evaluation of any change should include an impact analysis. How will the change affect the scope, time, cost, and quality of the goods or services being provided? • Changes must be documented in writing. Project team members should also document all important meetings and telephone phone calls.
Suggestions for Change Control in Contracts (cont’d) • Project managers and teams should stay closely involved to make sure the new system will meet business needs and work in an operational environment. • Have backup plans. • Use tools and techniques, such as a contract change control system, buyer-conducted performance reviews, inspections and audits, and so on.
Closing the Contract • Involves completing and settling contracts and resolving any open items. • The project team should: • Determine if all work was completed correctly and satisfactorily. • Update records to reflect final results. • Archive information for future use. • The contract itself should include requirements for formal acceptance and closure.
Tools to Assist in Contract Closure • Procurement audits identify lessons learned in the procurement process. • A records management system provides the ability to easily organize, find, and archive procurement-related documents.
Using Software to Assist in Project Procurement Management • Word processing software helps write proposals and contracts, spreadsheets help evaluate suppliers, databases help track suppliers, and presentation software helps present procurement-related information. • E-procurement software does many procurement functions electronically. • Organizations also use other Internet tools to find information on suppliers or auction goods and services.
Supplier Development(Reverse Marketing) • Refers to “a degree of aggressive procurement involvement not normally encountered in supplier selection” • Can include: • Purchaser initiating contact with supplier • Purchaser establishing prices, terms and conditions
Supplier Development(Reverse Marketing) • Motivation to adopt supplier development include: • Numerous inefficiencies associated with suppliers initiating marketing efforts toward purchasers • Purchaser may be aware of important benefits which are unknown to the supplier • Compel suppliers to meet necessary requirements to achieve competitive advantage in the supply chain
Quality Issues in Procurement • Quality – conformance to mutually agreed-upon requirements • Important to match quality levels of buyers and sellers in the supply chain • Vendors are expected to have quality programs/practices • ISO 9000 • Six Sigma • Lean Six Sigma
Quality Issues in Procurement • Malcolm Baldrige National Quality Award • Quality related initiative to recognize U.S. organizations for achievement in quality and performance • Eligibility now includes manufacturers, services, small businesses, health care and educational institutions • Restricted to U.S. headquartered organizations • Interested parties submit a formal application that is evaluated by a committee
Global Procurement (Sourcing) • Refers to buying components and inputs anywhere in the world • Driven by: • Factor-input strategy (organization is seeking low-cost or high-quality) • Market access strategy (organization is sourcing in markets where it plans to do significant business)
Global Procurement (Sourcing) • Components of Global Sourcing Development model: • Planning • Specification • Evaluation • Relationship management • Transportation and holding costs • Implementation • Monitoring and improving
Global Procurement (Sourcing) • Challenges in establishing a successful global sourcing strategy include understanding hidden costs as supply bases are expanded • Examples of hidden costs: • Increased costs of dealing with suppliers outside the domestic market • Duty and tariff changes that occur over supply agreement life • Increased inventory-related costs associated with global supply chains • Rising levels of logistics cost volatility (e.g. ocean freight rates)
Investment Recovery • Identifies opportunities to recover revenues or reduce costs associated with: • Scrap • Surplus • Obsolete • Waste materials • Often the responsibility of the procurement manager
Socially Responsible Procurement • Socially responsible procurement refers to “procurement activities that meet the ethical and discretionary responsibilities expected by society.” Source: Craig R. Carter and Marianne M. Jennings, Journal of Business Logistics
Socially Responsible Procurement • Five dimensions include: • Diversity • The environment • Human rights • Philanthropy • Safety
Socially Responsible Procurement • Ethical considerations • “win at all costs” philosophy can exacerbate unethical behavior • Areas of ethical concern in procurement: • Gift giving and receiving • Bribes and kickbacks • Misuse of information • Improper methods of knowledge acquisition • Lying or misrepresentation of the truth • Product quality (lack of) • Misuse of company assets • Conflicts of interest
STATEMENT OF WORK(SOW) “MONITORING” BASED CONTRACTING
Statement of WorkPerformance-Based Contracting Performance-based contracting involves structuring all aspects of an acquisition around the purpose of the work to be performed as opposed to either the manner by which the work is to be performed or a broad and imprecise statement of work.
Statement of WorkWhat vs. How • Lower costs • Flexibility to achieve a solution • Solution is the responsibility on the contractor
What Is An SOW? • A formal written description of your minimum requirements to be performed by a contractor • The “heart of your procurement”
Why is a Clear and Concise SOW Important ? • Provides a clear understanding of the requirements • Establishes a baseline for proposal evaluation • Reduces evaluation and negotiation time • Minimizes need for future changes • Baselines contractor performance measures
STATEMENT OF WORK PROCESS OVERVIEW • The following is a summary of the recommended process steps for preparing a Statement of Work SOW : • Establish a preliminary scope statement ( i.e., the purpose or objective of your procurement) • List the tasks to be performed ( i.e., All performance requirements you intend the contractor to satisfy, all requirements that the contractor must comply with during contract performance ) • Group similar and related tasks. • Organize the tasks in logical sequence • Identify the input ( Required resources to perform the tasks) • Identify the output ( Required results or deliverables ) • Identify the timeline or frequency of the deliverables (output) • Develop the parameters for acceptable quality and performance • Determine how you will monitor the deliverables
Statement of WorkStep 1 • Establish a preliminary scope statement that: • Identifies the objective or purpose of the procurement • Description of work to be performed • Define the magnitude of work to be performed • Defines the boundaries of performance and responsibilities
Statement of WorkStep 2 • List task to be performed that will: • Accomplish the objective of the SOW • Focus of “what” not “how” the contractor will perform
Statement of WorkStep 3 • Group similar and related task • Categorize tasks as either major or sub-tasks • Add any additional tasks as you work through this
Statement of WorkStep 4 • Organized task in logical sequence • Chronological order • Time-phase • Discipline • Ensure task required meet the minimum requirements • Delete unnecessary or repetitive tasks
Statement of WorkStep 5 • Identify the required resources for each task (input) • May be labor, equipment and material • May be NAFI or government provided • Identify any operating restrictions or procedures
Statement of WorkStep 6 • Identify required results and or deliverables (output) • Meetings • Reports • Provides information to develop oversight plan • Contractor responsible for the work (input to output)
Statement of WorkStep 7 • Identify the frequency and timeline of deliverables • Assists in • Refining SOW • Method of surveillance • Surveillance plan • Cost estimate
Statement of WorkStep 8 • Develop performance standard or acceptance criteria expressed in • Quality • Quantity • Time • Appearance • Should include elements such as “What, when, where, how many times • Should be appropriate for the contract and • Necessary • Realistic • Objective and measurable
Statement of WorkStep 9 • Determine how you will monitor the deliverables • Must be appropriate for the contract • Cost effective • Methods include: • 100% inspection • Random sampling • Periodic inspection • Customer complaints • Review of progress milestones • Reports by contractor