What is Procurement?
Procurement is a Formal end-to-end process that covers everything from Planning, Sourcing to Negotiating Prices & other Terms, Selecting Vendor, Placing the Purchase Orders, making the Purchases and Acquisition of Goods and / or Services from outside the Organization and Receipt of the Goods.
Procurement Function support the Business Activities that are vital to any organization in accordance with the Quality, Quantity and Timeframe at the Best Price with applied Risk Management Control.
What is Procurement Management?
Procurement Management is Managing all the Processes Involved in Acquiring the Products – Goods and Services needed for Efficient Functioning of the Business Operations and also involves Locating the Best Quality Materials at the Lowest Possible Cost from the most Reliable Suppliers and all the Related Processes, Recordings & Documentation. It also involves Cultivating Positive, Long-term Relationships to Establish Preferred Suppliers.
Every Procurement Process involves several elements, including requirements determination, supplier research, value analysis, raising a purchase request, reviewal phase, conversion to purchase order, contract administration, monitoring/evaluation of received order, payment fulfilment, and record keeping etc.
Procurement Cycle
The procurement cycle is the transition of events that make up the process of procuring goods or services. An efficient procurement process is critical to the financial efficiency of any project as it aids in paying the right price for goods and services, minimizes delivery times, and helps you choose the best partners to work with your business.
Procurement Cycle includes following Broad Functions:
Purchase To Payment (P2P) Process:
Procurement Management is also referred to as the Source-to-Settle (S2S) or Purchase to Payment (P2P) process. It encompasses Identifying Needs / Requirements; Writing Specifications; Raising Purchase Requisition (PR); Cost / Budget Check & Scrutiny; PR Approval @ Different Levels; Verification & Study By Purchase Department; Selection of a Procurement Method; Vendors Pre-Qualification & Bid Notification / RFI / RFP / RFQ; Receipt of Offers and Opening of Quotes; Comparison & Evaluation; Negotiating; Review By Contracts Committee; Proposal Approval; Award Contract / PO; Material Delivery by Vendor; Material Receipt & Inspection @ Stores; Payment Release by Accounts Department.
Procurement – 10 R’s
Procurement aims to buy just the Right Things – Collectively, the achievement of all the following 10 Procurement Rights, provides a framework for effective Purchasing.
Project & Project Management
According to the PMBoK (Project Management Body of Knowledge), Project is a “Temporary Endeavor to Achieve Defined Objectives by Creating a Unique Product, Service, Result or Outcome with a Definite Start and End Date”. Project is a Series of Tasks that need to be completed to reach a Specific Outcome.
Project Management is the Application of Processes, Methods, Skills, Knowledge and Experience to Achieve Specific Project Objectives according to the Project Acceptance Criteria within Agreed Parameters. The purpose of Project Management is to Plan and Manage a Project to Successfully Complete its Listed Goals and Deliverables.
Project Management focusses on Planning, Scheduling, Coordinating and Organizing Company’s Resources to Execute Specific Tasks or Events towards Successful Completion of the Project Deliverables to the Satisfaction of the Customer.
Examples of Project
> Developing a new Pharmaceutical Compound for COVID – 19,
> Constructing a building or facility or industrial plant or infrastructure
> Developing a new product or service
> Business Takeovers & Acquisitions
> Effecting a change in structure, staffing or style of an organization
> Designing a New Transportation Vehicle
> Developing or Acquiring a New or Modified Information System
> Creating a new piece of software or Upgrade of software
> Designing a new network infrastructure or Installing new workstations
> Implementing a new business procedure or process
> Organizing a Conference; Birth Day Party; Marriage celebration; Holiday Trip
> Organizing a workshop for imparting knowledge
Project Vs Operation
Project Procurement
Project Management involves various activities including Project Procurement which is a unique function for Obtaining Goods and Services Required for the Project.
Thus Project Procurement Management is a Structured Process that is used to Define, Plan, Implement, Control & Close Procurement Contracts and involves all the Flow of Processes. It also includes Establishing and Maintaining Relationships with Vendors of Goods and Services during the Project Life Cycle.
Operational Procurement Vs Project Procurement
Project Procurement Processes:
Project Procurement has Following 3 Processes
1. Plan Procurement Management:
It is the process of making Decisions whether to Make or Buy / Lease; Deciding Vendor Selection Criteria; Vendor Pre-Qualification; Planning how to Identify Sellers, Deciding Types of Contracts; How the Contract will be Drafted & Awarded, How the Project will be Executed and Monitored.
2. Conduct Procurement:
It is the Process of conducting the procurement which includes Inviting Bids, obtaining seller responses & offers, selecting & awarding contract and Contract Administration and Ensuring Proper Execution.
3. Control Procurement
Control Procurements is the process of managing procurement relationships; monitoring contract performance and making changes and corrections as appropriate; Validation of the work being performed as the criteria to release the payments and closing out contracts.
Three Types of Project Contracts:
Most projects require some form of external purchasing (procurement) in order to meet their goals. Successful Delivery of the Project Works on time or under budget requires the active involvement of the Project Manager in properly Managing Project Procurements & Contracts. Broadly there are Three Types of Contracts: Fixed Price Contracts; Cost-Reimbursement Contracts and Time & Material Contracts as follows:
Bid Documents:
Bidding documents are documents issued by the Procuring Entity to provide the prospective bidders all the necessary information that they need to prepare their bids. These clearly and adequately define, among others:
♦ The objectives, scope and expected outputs and/or results of the proposed contract;
♦ The expected contract duration;
♦ The obligations, duties and/or functions of the winning bidder;
♦ The minimum eligibility requirements of bidders, such as track record to be determined by the Head of the Procuring Entity;
♦ Statutory & Regulatory Requirements to Follow;
♦ Performance Reporting & Authorities for Communication etc
Some of the Bid Documents are shown below :
Source Selection Criteria
Under project management, source selection criteria are often included as part of the procurement documents. Source selection criteria describes properties that are crucial for a purchaser when deciding on a supplier.
Source selection criteria describes properties that are crucial for a purchaser when deciding on a supplier and are used to score seller proposals. Some of the Commonly used Criteria are cited below.
Source Selection – Scoring Model:
A scoring model is a project management technique used for weighing certain decisions, such as Selecting a Vendor which uses numerical scoring to rank the vendors.
To create a weighted scoring model, the following steps are applied:
> Identify the criteria important to the decision process.
> Assign a weight to each criterion based on its relative importance in the decision.
> Assign numerical Value to each criterion for all of the options (vendors) being considered.
> Calculate the weighted scores by multiplying the weight for each criterion by its value and adding the resulting Scores.
> Ranking is done based on Total Score of each of the vendor.
> Final Selection of Vendor is made based on highest total score.
Contractual Terms :
In almost all Projects Goods or Services are Acquired from outside the Organization through Contracts. A Contract is a written or expressed agreement between two parties to provide a product or service and thereby Legally Binding the Parties to a Contract to Oblige.
Contractual Terms are “Provisions Forming Part of a Contract “. Contractual Terms are incorporated into the contract expressly as agreed upon for binding the Parties to a Contract.
Each term gives rise to a contractual obligation, breach of which can give rise to litigation. Not all terms are stated expressly and some terms carry less legal gravity as they are peripheral to the objectives of the contract.
Some of the Key Contractual Terms are as below:
Project Contract Closeout
The contract closeout phase is a very critical stage of the contract management. The term contract closure refers to the process of completing all tasks and terms as Agreed upon in the Contract.
For the contract to be closed, the seller is required to complete each and every component of the deliverables. The buyer must have accepted the deliverables and settled the Payments.
The contract closeout can have serious Performance & Financial considerations as there may be many left out requirements of completing the final deliverables, unresolved claims, disputes, performance deviations and Conflicts in financial obligations etc. and sometimes even result in Legal Disputes.
Therefore, Proper care need to be Taken in the Contract Closure. Following are Some of the Activities involved in Contract Closure:.
♦ Evaluate Performance Results.
♦ Confirm Completion with Fulfilment of all Contractual Obligations.
♦ Clearances from Concerned Authorities.
♦ Get Customer Acceptance & Receive Formal Sign-off.
♦ Formally Transfer all Deliverables.
♦ Document Lessons Learned & Archive.
♦ Archive all Project Documents.
The Contract Closure process determines if the work described in the contracts was completed accurately and satisfactorily. With the Completion of Contract in all Respects, the Closure of Project Procurement Process Completes.
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Disclaimer : The views and opinions; thoughts and assumptions; analysis and conclusions expressed in this article are those of the authors and do not necessarily reflect any legal standing.
Author : SN Panigrahi, GST & Foreign Trade & Project Consultant, Practitioner, International Corporate Trainer, Mentor & Author.
Authorized Training Partner (ATP) Instructor, PMI (USA)
Author can be Reached @ [email protected]; Mobile : 9652571117
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