Project procurement and contract management - Essay Example

Project Procurement and Contract Management Selection of a successful purchasing specialist during a competitive tendering process In managing contracts related to procurement of materials in projects the purchasing manager or the specialist has to perform a series of tasks according to some predefined criteria. In the same way the purchasing specialist has to take it to consideration the number of factors that directly and indirectly impact on his performance (Guth, 2009). In the first instant skills of the purchasing specialist would be enhanced by the vertically integrated organizational and management structure which essentially support the design planning and implementation of supply chain strategies, especially those directly related to the purchase of raw material and components for primary operations. The purchasing specialist has to focus on his tasks associated with procurement and management in order to achieve a degree of functional conformance to established standards such as the core business activity related efficiencies. This means that the ever increasing practice of modern business organizations' preference for outsourcing certain tasks that lie out of the core business functions of the organization is dictated by competitive pressures. For instance the purchasing specialist would be able to hone his skills depending on the level of concentration on core business operations by the company. Business organizations' increasing level of dependency on resources procured from outside enables purchasing specialists to develop a special set of skills for effective practice as a purchasing specialist. Globalization has not only shrunk international borders between countries but also shortened product life cycles on numerous occasions The purchasing specialist's functional environment requires such special skills as an understanding of the variables that impact on product lifecycles of both locally produced and imported goods. Further the initiation of skills training programs and their relevance and impact on innovation and leadership culture would definitely create a framework of reference for the purchasing specialist's project procurement and contract management requirements. This is more so in respect of change management programs at the organizational level. Customer relations and strategic focus on facilitating the control over internal and external relations are much more important than the activity of selling. As such the purchasing specialist's functional skills are augmented by both complexity and diversity of the facilitator's role rather than putting the purchasing manager or specialist into and old fashioned functionary's mould. The purchasing specialists would have to place emphasis on the supplier's credentials rather than the price itself. In the first instance a competitive tendering process involves not only specification and evaluation criteria but also the painful task of selecting the best team for the tasking hand (Morris & Morris, 2007). This requires not only a knowledge of tendering skills but also particularly strong evaluation techniques. This is due to the fact that value parameters attached to the determination process of suitability criteria are fundamentally based on the purchasing specialist's dynamic role. The entire process of procurement of supplies has to be specified in conformance with the cost involved in the prolonged lifecycle of the product. The purchasing specialist has to plan for the appropriate evaluation criteria, that would otherwise be ignored and delivery schedules dragged without much consideration of the critical path (CPA). This might affect both the functional parameters and the technical specifications, thus hindering the aesthetic and qualitative outcomes of the process. Finally the purchasing specialist needs to focus attention on the objective of controlling the entire supply chain evaluation process in a manner that non price factors receive a fair share of attention throughout the tender process, thus leaving little room for any marked variance or divergence away from the predefined criteria. Similarly the purchasing specialist's success or failure is determined by how best he is able to reconcile those divergent parameters of the process. Hence there is the need for some debriefing procedural applications to be adopted. 2. Kraljic's purchasing portfolio matrix & required strategies to improve products & services According to the above diagram which is patterned on Karljic's purchasing portfolio matrix the strategic partnership with the supplier has a telling impact on profits of the company. The purchasing specialist's task is to identify what Karljic says those disadvantages or bottlenecks and make them less negative in impact or / and altogether remove such suppliers and replace with them more efficient ones. Next in Karljic's matrix the standardization of items and baskets thereof is essential to maximize the purchasing specialist's buying power. This exercise according to Karljic's matrix enables the purchasing specialist to leverage the most appropriate quadrant. According to Karljic strategic partnership empower purchasing manager to target highly desirable positive outcomes such as market share and success in critical success factors. However Kraljic has noted that it is possible that strategic partnerships might become complacent in the long run thus leading to a situation where competition becomes intense it is also possible that strategic partnerships acquire a higher power dimension in the long run. So that the purchasing specialist to forced to adopt a counter strategy to reduce the level of dependence on existing partnership. 3. Additional factors to be taken into account when purchasing products/services across international boundaries The purchasing maybe called upon to order goods from abroad. In this instant it is essential that he must be aware of how different legal systems impact on the contractual obligations it is also essential that he pay attention to exchange rate volatilities and their impact on contracts. The purchasing specialist's knowledge above procedures in international commerce also matters. For example he must be able to understand how letters of credit and other instruments of international commerce can be utilized to execute a certain line of actions. The World Trade Organization (WTO) has a set of rules, regulations and restrictions in place to be followed by member governments, countries, firms and individual citizens when they engage in international trade. Similarly the contracting clauses on carriage of goods across international borders and insurance formalities must be well-known to the purchasing specialist. Finally the purchasing specialist must be aware of how the international chamber of commerce defines those cross border trade related activities carried out by different agents. 4. Ethical & environmental considerations when choosing a supplier The purchasing specialist's must also be aware of both ethical and environmental impacts. For instance as much as there is ever increasing pressure on the purchasing specialist's to act in compliance with environmental regulation and ethical practices, there is also the need to understand that customers are increasingly aware of environmental and ethical issues (Mosey, 2009). Further the purchasing specialist's freedom is curtailed to a greater extend by the fact that the company needs to maintained its reputation among the customers and the workforce. The purchasing specialist must also focus on cost reduction techniques by independently engineering specifications on value parameters associated with maximum durability, reparation, reusability, the cost of recycling and upgrading. What is so important about alternatives is that the ability of the purchasing specialists to reduce the degree of negative impact on environmentally significant operations. It is also necessary for the purchasing specialist's to note that the associated risk element arising from supplier behavior so that safety, health and regulatory issues would be solved without much need for planning. The purchasing specialist must not forget that he has an obligation to practice sustainability as in the case of those purchasing managers at McDonalds, Wal-Mart and British Airways. 5. Transfer of risk in project management As much as the purchasing specialists' ought to know how risk must be managed and mitigated, he also must know how to transfer risk away from what is being executed. Towards this end he must able to be recognized that by relaying on a fixed price he is unable to transfer risk to the contractor or the supplier. His task will be facilitated by closely acting with the contractor. Because both together might be able to identify risk factors and then either mitigate or transfer them on a broad spectrum of activities. As much as the suppliers must be diversified there can be a non adversarial approach to risk transfer. In the process the supplier would be assured of constant profit margin. While the client would inevitably sustain the risk to a great extent, there is much less left for the decision maker to correct through specification of risk elements. As such it is essential that risk management and transfer process in project procurement is handled by a team of specialists who might adopt an integrated approach in identifying the most suitable solutions to an otherwise intractable set of problems (Cooper, Grey, Raymond & Walker, 2004). For instance in the process of the construction of the Channel Tunnel both French and British teams acted in concurrence with each other in mitigating and transferring risks associated with extensive supply chain. The proactive approach adopted by these teams in managing risk reduced litigation costs with divers supply networks spanning across the globe (Ogunlana, 1999). The Channel Tunnel is regarded as an engineering marvel. Purchasing managers and specialist's working on the Channel Tunnel were influenced by the modern motivation techniques such as monitory and non-monitory rewards given out to the contractors for reducing cost and reaching targets on schedule. Finally these purchasing specialists successfully combined engineering management skills with legal acumen to obviate unnecessary litigation at associated cost with suppliers. Successful delivery is not only based on efficiency but also on the quality of the final product delivered to the end-user. Assuming a degree of independence enjoyed by the quality planner there is much more to be desired in respect of such concepts like Kanban and Kaizen as they occur in an exclusively procurement and contract management context. The concept of Kanban has been proposed by recent researchers for its impact on Just-In-Time (JIT) supplies procurement (Project Management Institute, 1998). However only a few researchers place emphasis on Kanban as an inclusive concept because in JIT stock movements can be well monitored to achieve cost efficiencies through effective stock control measures while it is not relevant for procurement specialist due to the fact that the latter utilizes materials only for a particular line of production of which the life cycle can be very short. However critics point out that Kanban is equally relevant in project procurement and management because it helps to minimize expenses on maintaining stocks of material. But nevertheless there is an equally strong argument against these novel concepts in supplies procurement. The current literature suggests that contractors and suppliers are usually better managed by the purchasing specialist when bulk with huge discounts are made and therefore buying in smaller quantities would entail higher costs. On the other hand Kaizen refers to the standard Japanese manufacturer's practice of continuous improvement of the product. This practice is related to quality circles. Japanese manufacturers have a habit of forming quality circles as informal units within the organization. The main task of a quality circle is to identify quality related constraints and suggest ways and means to overcome them. However in procurement exercise the specialist cannot afford to ignore quality concepts Similarly some scholars on the subject of procurement and contract management have suggested a conceptual framework for policy convergence in adopting change management participles in project related procurement processes as in the case of M5. Despite their enthusiasm for these concepts some modern researchers have expressed doubt about the efficacy of many contract management models as outlined above in the absence of a proper system of metrics to measure the real impact of variances and co-variances (McDermott, 1999). In varied contract management settings where stakeholders happen to have a sizeable interest in the project as in the case of the Channel Tunnel there can be quite a lot of legal and environmental hassle. Similarly many specialists argue that Integrated Project Delivery (IPD) model has much greater relevance in ensuring constant monitoring of the selection process of participants, project transparency and constant dialogue throughout the process. This particularly refers to purchasing mangers' tasks as well. This writer believes that contingency models on procurement and contract management including that of Kraljic's wouldn't solve some of the problems associated with critical success factors including those of corporate governance and corporate social responsibility (CSR). However recent research findings suggest that empirical evidence is more centered on highly probable settings such as managers of procurement management processes have a tendency not to be transparent. This behavioral tendency is in conformance with many research outcomes related to managers' transparency and continuous engagement with other stakeholders. According to the supply chain management strategies at Wal-Mart and McDonalds the purchasing specialists are constantly nagged by a significant shift in policy variables on the subject of procurement of supplies and contract management. These instances are characterized by a desire on the part of the purchasing specialist to be more efficient against rivals who are increasingly becoming more knowledgeable about growing markets and changing customer attitudes (Emmett, Crocker, 2008). On the other hand in procurement and supply management such rivalry is not so much emphasized. What is emphasized is the reduction of costs, satisfaction of the customer and improvement of the quality. These three objectives are regarded as end purposes that are conclusive and not relative. In other words it is the delivery process that matters in the management process involving contracts with suppliers. References 1. Guth, S 2009, Project Procurement Management: A Guide to Structured Procurements Guth Ventures LLC, Virginia. 2. Morris, P & Morris, JK 2007, The Wiley Guide to Project Technology, Supply Chain, and Procurement Management (The Wiley Guides to the Management of Projects), Wiley, New Jeysey. 3. Cooper, DF, Grey, S, Raymond, G & Walker, P 2004, Project Risk Management Guidelines: Managing Risk in Large Projects and Complex Procurements, Wiley, West Sussex. 4. Guth, SR 2007, The Vendor Management Office: Unleashing the Power of Strategic Sourcing, Lulu Press, Inc, North Carolina. 5. Mosey, D 2009, Early Contractor Involvement in Building Procurement: Contracts, Partnering and Project Management, Wiley-Blackwell,Oxford. 6. Emmett, S & Crocker, B 2008, Excellence In Procurement: How To Optimise Costs And Add Value, Cambridge Academic Press, Cambridge. 7. McDermott, P 1999, Procurement Systems: A Guide to Best Practice in Construction, E & FN Spon, London. 8. Ogunlana, S 1999, Profitable Partnering in Construction Procurement (Cib Proceedings, 224.) E & FN Spon, London. 9. Project Management Institute 1998, Design Procurement Construction for the Project Manager: A Primer, Project Management Institute, Newtown. Read More