Project procurement management is about establishing, maintaining and closing relationships with suppliers of goods and services for the project. The processes for project procurement management from the PMBOK are outlined here and we will also look at a model for project supply chain management that has been developed for the construction industry.
The definition of project procurement management from the PMBOK is:
“the processes necessary to purchase or acquire the products, services, or results needed from outside the project team”
There are four major processes:
1. Plan procurements
2. Conduct procurements
3. Administer procurements
4. Close procurements
The first major process, plan procurements involves the creation of the project procurement management plan. Decisions are made on which items shall be made by the project team and which will be bought. Procurement documents will be prepared and criteria will be developed upon which to base the selection of vendors,
This plan will be based on analysis of the requirements for the project, consulting documents such as the scope baseline, the project schedule, the risk register etc. which will provide the information needed.
The second major process is to conduct procurements. In this process the vendors are selected and the procurement contracts are awarded. Resource calendars that will detail when resources will be used are created and the project management plan will be updated based on the availability of the resources.
Various tools and techniques are used for conducting procurements. Conferences may be held with bidders to brief them on the project requirements and answer questions. Proposals will be carefully evaluated, advertising may be undertaken to solicit bidders, internet searches for vendors may be used and negotiations may take place. The following video details the Conduct Procurements major process:
The third major process is Administer Procurements. These are the processes that are used to administer the relationship with the vendors as the project proceeds. It results in the creation of procurement documents and may result in changes to the project. A system of contract change control will be used to carefully analyse and determine whether changes to contracts are needed. Reviews will be undertaken of procurement performance, inspections and audits may be used, performance reports will be produced and systems used to ensure payment to contractors when appropriate. The following video details the Administer Procurements major process:
The final major process is to Close Procurements. These are the processes that are needed to end procurement contracts, either after their successful completion or earlier if that is appropriate. Audits might be undertaken on project work and negotiations may be necessary to resolve contract disputes. Usually a record management system will be needed for contract documentation.
Modern Approaches To Supply Chain Management
Martin Christopher, a recognised specialist in supply chain management and author defines it as:
“planning and coordinating the materials flow from source to user as an integrated system rather than, as was so often the case in the past, managing the goods flow as a series of independent activities… the goal is to link the marketplace, the distribution network, the manufacturing process and the procurement activity in such a way that customers are serviced at higher levels and yet at lower cost. In other words to achieve the goal of competitive advantage through both cost reduction and service enhancement.”
Christopher takes the modern approach to supply chains which views them as an integrated system that requires a strategic approach. This approach is now common in modern supply chains generally and is seen as beneficial for project supply chains. Christopher is a professor at Cranfield University in England – here is an introduction:
Modern approaches to project supply chain management have the following features:
1. A reduced suipplier base: Traditional approaches to supply chain stressed having a group of suppliers that would compete for your business and ensure that you got the lowest price. Modern approaches stress a smaller number of suppliers with longer term relationships.
2. Established and nurtured relationships with suppliers: In modern supply chains effort focuses on developing and maintaining strong supply chain relationships that enable supply chain partners to work closely together on improvement and coordination.
3. Training for cooperative problem solving: Efforts are focused on developing skills and practices to support improvement activity.
4. Rating of suppliers on quality, speed and price. In the past the main concern in supplier performance was price – now it is recognised that quality and other factors are important too and performance evaluation criteria reflect this.
5. Involve suppliers at an early stage to gain expertise in design and procurement: The involvement of suppliers at the design and planning stages of a project is now seen as being of value due to the knowledge and experience that they can contribute.
In the following video a group of CIO’s discuss supplier relationships in projects:
The article for this week of the course is on a supply chain model for the construction industry. It argues that traditional vertical project structures should be replaced with horizontal multi disciplinary teams that will create regular contact between supply chain partners and the project client and enable more effective collaboration. It is also argued that a good project leader is required to faciltate this collaborative environment.
The following humourous video highlights the value of teamwork:
The next video focuses on the importance of project culture in construction project delivery:
Project teams that support project collaboration are a feature of the modern approach to project supply chains. The article highlights criteria for effective project team performance. It argues that team member selection should be based on optimal team performance – not cost. That there should be weighted team qualification criteria and that the experience of sub contractors should be used as much as possible. Quality Function Deployment can be used to understand the needs of the customer and there should be effort to establish common team goals. Information technology should be used to facilitate effective team communications.
The following video explores the selection of project contractors:
Emphasis is also placed in the article on the involvement of contractors in design. Analytical Design Planning Technique is a useful technique for collaborative design and modern CAD systems include online collaboration tools. The following video focuses on design collaboration:
As the project proceeds modern project supply chain requires a focus on project coordination and the structure of the relationships with contractors. Management of the impact of project plan changes is also important. The final video focuses on the importance and value of good project relationships.
This week we have looked at Project Procurement Management. We examined the processes from PMBOK and then explored modern approaches to supply chain management and their application in modern project management.