Project Management and how it Relates to Purchasing and Supply Management - Research Paper Example

 Project Management and how it Relates to Purchasing and Supply Management Project management has become one of the most important contributors to an organization’s success. In both the objectives of realizing increased profits as well as improving corporate operations, project management is vital. In many companies today, the project manager has multiple tasks. While supervising various operations, he or she also acts as the supply manager in many instances. As a supply manager, the project manager will also be responsible for saving costs in any large scale procurements. Globalization has essentially rendered all trade as well as geographical barriers irrelevant, and businesses now have the chance to conduct business in as many nations as they wish. This has stimulated increased competition, and all business establishments are now streamlining their corporate resources in order to survive and flourish in the present business environment (Burt, Dobler and Starling, 2003). With firms having to make more profit with less resources, there are many business functions that have been merged in order to save costs. The association between procurement management and project management is usually fraught with misunderstandings, however. The function of procurement has altered from being functional to being tactical. The purchasing of raw products is no longer perceived as a backroom function, which translates requests into orders for the contractors. The major causes for this alteration include inflation, globalisation, variations in exchange rates, technological innovations, and commodity markets. As the procurement divisions of organizations usually spend a lot of corporate capital, any savings from buying expenses can have a considerable effect on an organisation’s productivity. In most organizations, the executive management has realized this; and so procurement savings plans are now a common subject in the agendas of their general meetings. The Definition of Procurement and Contract Management and the Importance to the Business World A procurement contract is basically a deal in which a purchaser agrees to obtain products or services from a contractor. The contractor will then give consideration to the purchaser in any future transactions. There are assorted procurement methods in the marketplace. The majority of procurement contracts are documented deals that denote each party’s responsibilities in the transaction. A procurement contract comprises of price lists, business provisions, information about the terms of payment, and other officially authorized terms and conditions that are pertinent to the contract. The present business world is complex as well as challenging. A supply chain merges assorted business operations as well as partners. The people represented in any supply chain will also have to consider factors like quality, price, discounts, payment, rebate policies, and shipment. The more outsized corporations have to handle more complex business deals as well as relationships (Benton, 2010). Due to the fact that business relationships and operations often undergo changes, the larger corporations usually have to dedicate a lot of time and resources to maintaining their business relationships and supervising any changes over the existing relationships. This is why a suitable contract system is vital for the smooth operation of all business procedures. A contract management method oversees all business transactions activities of an organization. A good business contract method will make sure that such responsibilities are satisfied by both parties involved in the contract and that all the operations are satisfactorily fulfilled. The purchasing activities of any organization are mainly dependent on contracts, which specify how issues concerning prices, and supplier relationships will be handled (Burt, Dobler and Starling, 2003). The function of a contract is also to make sure that a corporation receives regular indirect or direct supplies. Contracts also seek to address how an organization should proceed if the vendors do not supply materials as stipulated. A good contract allows an organization to be able to supervise, direct and report on the business operations taking place in the supply chain. Efficiently supervising or overseeing each contract in its lifecycle is the main function of the contract management method. This includes many significant stages like negotiating, planning, storing, maintenance, and analysis (Burt, Dobler and Starling, 2003). A good contract management method should also have aspects that assist and direct the creation and execution of other contracts. A company’s contract method should be able to handle all potential contractor relationships, as well as set benchmarks for contractors. The contract method should include checklists that allow for adequate supervision. Other significant characteristics of good contract systems are the inclusion of budgeting for every product line and contractor, document depositories, agreed delivery schedules, compliance monitoring, event management, and claims administration (Benton, 2010). The contracting procedure, which allows a business to procure goods at the most expedient prices while maintaining accountability is the one that is most suitable for a business. All projects need resources for their various functions. operations and need to go through procurement processes. The project procurement management process has six stages. These are: Procurement Planning: This is the stage at the start of the project which includes buy or make analysis. At the conclusion of this stage, the project group should have a detailed plan for project procurement Solicitation Planning: In this stage, implementation processes will be considered for the suggestions that are detailed in the plan of project procurement (Benton, 2010). The project group will also set up the solicitation document known as the ‘Request For Proposal' (RFP) in this stage Proposal Solicitation: After preparing the RFP document in the previous stage, the third stage is where there are proposal received from numerous contractors Source Selection: In this stage, the project group will analyse all the proposals it gets and the choose the best contractor for the project Contract Administration: In this stage, both contractors and business representatives have to make sure that they meet their particular contract commitments. In this stage, the business representatives can also review past documents detailing the suppliers performance Contract Close-Out: In this stage, the stipulations in the contract are verified and deliverables are met as stipulated by the contracts In this stage, records are also updated to reflect the ultimate results of the contracting process and store this information for future use. Selection Tools and how to Improve the Assessment of Proposals The choosing of the right contractors is a vital process for any business organization. The procurement divisions of firms can use definite methods or techniques to choose, assess, and evaluate the performance of contractors. The divisions that are responsible for procurement usually spend more than other divisions. For instance, it has been estimated that production facilities usually spend between sixty and eighty percent of organizational capital; in comparison to retail firms that spend between seventy and eighty percent (Benton, 2010). The procurement function has been altered from being a planned order taking operation to being a planned function that is concerned with more than just the daily functions. Managing procurement calls for the execution of organizational responsibilities such as organising, planning, control, and leading. Some of the best known procurement management functions include material budgets, negotiation techniques, supplier selection, and evaluation and performance. Negotiations are the most common technique used for procurement in the present business environment. Negotiation involves interaction between two parties, which aims at reaching a kind of accord which is based on the interests of both. Negotiations are used to resolve or avoid conflicts in spite of existing differences. There are two kinds of negotiations- constructive negotiations and competitive negotiations. An organization’s budget consists of assorted sectional budgets. A well prepared budget will provide the procurement division with data concerning when and in what quantities the supplies are to be purchased. Budgets allow the management to avail the necessary funds for procurement functions (Burt, Dobler and Starling, 2003). The methods used to determine the right suppliers are usually customized by organisations to ensure that they do not unintentionally select incompetent contractors. The concept of procurement planning and various strategies necessary for project success The process of procurement strategy usually follows the different project phases. To begin with, an introductory strategy is selected. This strategy is usually based on a number of objectives and is a necessary step in charting the way for the rest of the project. The beginning procurement strategy is typically developed with assistance from the client's consultants as well as advisers. In most business organizations, procurement strategy development has three elements: Analysis - evaluating and determining the project’s priorities and requirements Choice – examining all possible options, assessing them and choosing the one that is most appropriate Implementation – executing or implementing the chosen strategy When preparing strategies, it is important for an organization to seek for advice from other specialists in matters such as what the real project costs ought to be (Chen, Paulraj & Lado, 2004). There are times when the objectives have to be altered due to unforeseen circumstances. These changes have to be made before too much has been accomplished in order to save costs. Procurement Methods The different procurement methods can be generally classified as: The Traditional Procurement Method - In this system, the gives a particular number of supplies or does the stipulated work for a fixed price. The client is left responsible for the project group as well as design. The contractor will be selected through negotiation or a tendering process. Design and Build Procurement – In this process, the client appoints a supplier or contractor even before the decisions concerning an agreed upon price has been decided in the contract. The contractor or supplier can be selected through negotiation or a tendering process. Two Stage Tendering - In this process, the contractor or supplier is chosen on a first stage tender basis. This determines the amount of profit as well as overhead for every contractor or supplier (Benton, 2010). The contractor then works together with the project group in the second stage to realize different expectations. In this type of procurement contract the provider enters into a contract with the supplier or contractor on a fixed price basis. Public Private Partnerships / Private Finance Initiative - Public Private Partnerships (PPP), and especially Private Finance Initiatives (PFI) projects are formed not for capital assets, but for services provision. The contracting procedure in this type of plan is costly and needs negotiation instead of the competitive tendering process. In comparison with other types of procurement methods, the realization of the project using this type of procurement process usually takes substantially longer. How to select the most qualified vendor in a proposal The Project Management Institute (PMI) model is an exceptional model for determining procurement activities. It assists the procurement groups to focus their attention on every aspect in the selection process and make out the real concerns in the potential supplier base. The PMI structure makes use of five factors used in making a value-based selection procedure. These are: Initiating – This makes sure that the organization’s leaders are in agreement with all the suggestions made concerning the project; and so there are fewer difficulties or obstructions Planning – In this stage, all the business’s needs and requirements are determined and acquired Executing – this stage offers a structured approach to assessing bids to ensure that the company gets its desired results Monitoring and Controlling – in this stage, the project groups reviews the initial requirements and includes any new information as well as additions Closing – In this stage, the results are formalized and a proposal for the execution of the plan is drawn up This five-step technique is an obligatory instrument for handling all current as well as future requirements, especially for comprehensive contracts that include various stakeholder teams or factions in the organization (Leenders, Johnson, Flynn & Fearon, 2006). Using it will make sure that an organization chooses a partner with the skills as well as vision necessary to create a well-thought out solution that advances the organization’s strategic objectives. The Contract And The Legal Aspects Of Procurement In A Project In spite of good intentions and the common availability of terms and conditions for purchasing firms, most of the time, companies procure their materials through conditions individually arranged with the vendor (Chen, Paulraj & Lado, 2004). This is because firms wish to avoid the extra cost and time it might take to impose a purchaser's conditions. In many instances, organizations also do not have workers who are sufficiently skilled in handling procurement deals. In addition, the purchaser may not be familiar with the prices and methods used in procuring some materials and so may be short-changed. The main purpose is to minimise risk; and this is usually accomplished by compelling the other party to bear the risk. Contract management basically has to do with the administrative activities that are connected with the handling of written deals or contracts (Burt, Dobler and Starling, 2003). Such activities include the invitation to make bids, the evaluation of bids, the awarding of contract, and the execution of the contract. After completion, the work done is assessed and then there is the computation of payments. Also referred to as contract administration, contract management also incorporates the supervision of the contract relationship, handling all related obstacles, including any necessary modifications that may be suggested after the work has already commenced. Contracts ensure that both parties benefit from the relationship by having their objectives met. Sellers or contractors normally compel buyers to bear as much risk as possible. Steps ought be taken to lessen the effect of rigid terms and conditions (Kerzner, 2003). If this proves to be impossible, the buyer might have to consider using a different supplier or contractor in the future. Even when only dealing intermittently with a contractor or supplier, it is important to consider the risks that the buyer has to bear. There are three ways to deal with purchasing risks as concerns a contractor's terms and conditions: The first phase concerns understanding the risks that the buyer look for. Many organizational representatives who are given the responsibility for purchasing supplies, tend to neglect some aspect or other of this detecting process (Chen, Paulraj & Lado, 2004). Ideally, they ought to discuss issues to do with insurance, delivery, loss or damage, passing of title, quality, terms of payment, acceptance/failure, fitness for purpose, and rejection. It is vital to have a clear concept of what is objectionable and what is tolerable. The final step concerns taking action to handle unacceptable risks. Comparisons of the critical elements of a contract including relationships between the client, supplier, completion terms and payment terms. Contracts represent commitments to carry out specific actions sometime in the future. If the parties that are involved in the venture feel that they might encounter potential hazards in the future, they are likely to insist on contracts (Burt, Dobler and Starling, 2003). Complex contracts specify the responsibilities and job roles. They also stipulate the procedures to be used in supervising the tasks, as well as the consequences of nonconformance while determining the expected outcomes. Project clients usually employ contracts to establish any temporary dealings with suppliers where commercial frameworks are used. Project clients also use contracts to integrate hierarchical components in project organizations. They do so to officially state the direction of the information flow as well as any adjustments. This is done in order to stipulate that the person who will bear responsibility for any error that takes place is the one who instructs and not the person who manually executes the instructions. However, due to the fact that many times project conditions are altered, contractual responsibility and authority is constantly being formed, altered, or reviewed where many contracts are concerned. Sometimes the two parties involved in a contract will even disregard the contract in order to handle emergencies. Conclusion In the final analysis, the client has to consider different decisions before selecting the type of contract that is to be used. If traditional procurement is selected, the client might consider using a lump sum contract because it avails the client a greater degree of price certainty. The client can employ the competitive tendering to ensure that he or she reviews the qualifications of a wide range of suppliers. This process is also likely to ensure that the client ends up employing the most qualified person for the role of supplier. In the case of selected contractors, they all will submit their individual prices for performing different tasks. Normally, the contractor who quotes the most cost effective price gets the contract. The advantage of using this method is that all expenses are likely to be within the budget cost. In the case competitive bidding, the client has to be prepared to increase the budget. The most proficient suppliers are likely to quote higher prices than their less qualified companions. References Benton, W. C. Jr. (2010). Purchasing and supply chain management. 2nd Edn. New York, NY: McGraw-Hill Irwin. Burt, D. N., Dobler, D. W., & Starling, S. L. (2003). World class supply management: The key to supply chain management. Boston, MA: McGraw-Hill Irwin. Chen, I. J., Paulraj, A., & Lado, A. A. (2004). ‘Strategic Purchasing, Supply Management, and Firm Performance.’ Journal of Operations Management, 22, 505–523. Kerzner, H. (2003). Project management a systems approach to planning, scheduling, an controlling. 8th Edn. Hoboken, NJ: John Wiley & Sons, Inc. Leenders, M., Johnson, P., Flynn, A., & Fearon, H. (2006). Purchasing and supply management. 13th Edn. Boston: McGraw-Hill Irwin. Read More