Project Procurement Management

What is Project Procurement Management?

In almost every project there will come a time when obtaining services and/or goods outside your company will be necessary. This is called procurement. There is much to say about the topic of procurement, otherwise known as "outsourcing"- some positive and some negative. The positives can be cost, and valuable time saved. The downside could possibly be the loss of contracts to local businesses because they just can't compete with prices and deadlines. The project team could also be surrendering some of their control to the contractor and could get too comfortable always depending on particular suppliers. Many projects also contain confidential information that could be harmful to there business or revenues if put in the wrong hands.

There are 6 helpful processes to project procurement management. They are:

1. Planning Purchases and Acquisitions - involves determining what to procure, when and how.
2. Planning Contracting - describing requirements for the products or services desired and the potential sources/sellers.
3. Requesting Seller Responses - obtaining information, quotes, bids, offers or proposals.
4. Selecting Sellers - is evaluating potential suppliers and negotiating a contract.
5. Administering a contract - managing the relationship with your selected seller.
6. Closing the contract - completing and settling each individual contract.

When assessing a project it's important for the project team to identify which project needs can be best met by using products or services outside the organization. By asking the following questions in relation to procurement it will help to decide whether to make-or-buy.

• Whether to procure
• How to procure
• What to procure
• How much to procure
• When to procure

It is important to understand why a company would want to procure products or services and what information is needed to plan the purchases and acquisitions. It could be as simple as hiring a skilled labourer or consultant who can perform specific tasks that no one within your team is qualified to do. Sometimes it makes more sense to outsource a service for a short period of time rather than hiring them on permanently within your company.

The 3 different tools and techniques that will assist you in that decision are:

1. Make-or-buy Analysis
2. Expert Judgement
3. Contract Types

Reflection

For a period of 12 years I worked in an outsourcing factory that supplied several major automotive manufacturers. When visiting different factories where products were made in-house and in conversations with our own plant manager I came to see the cost savings that are often involved with outsourcing, as well as the improvement in quality.

While visiting the other factories I observed that only 1 person ran 1 machine while earning approximately double the money I was bringing home at the time. In comparison, at my place of employment most people ran 2 machines simultaneously. This would account for approximately ¼ of the cost for manufacturing the same part.

When introducing a new project to us the contract stated that there must be a cost reduction over the following 3 years of approximately 4% per year. This meant we had to increase production and decrease product defects (scrap) by these figures to keep up with our profit margin. Part of the contract also stated that if they had to shut down a production line because of poor quality parts or orders not being filled we would be responsible for any monies that they lost while we were holding up their production line. As a result, quality and shipping schedules became a major concern to the stakeholders and top management. Contracts like this give the responsibility to the outsourcing manufacturer while protecting the buyer.

One other benefit that I can see for outsourcing is “on time delivery”. Parts are delivered as they need them removing the need for storage of stock. This not only saves the need for a storage facility or taking up space inside the manufacturing building, but also saves man hours for moving the stock in and out of the storage space.

One of the downsides I have seen in the practice of outsourcing is; if 1 person can do the job of 2 for less money the result will be the loss of jobs. This is negative for the employees who lose their jobs, but a positive for company profits.