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CISB243 – Lecture 12 Pn . Hidayah Sulaiman. Lecture 9: Project Procurement Management. Meaning of Procurement. Procurement means acquiring goods and/or services from an outside source Other terms include purchasing and outsourcing. Why Outsource?. To reduce both fixed and recurrent costs

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meaning of procurement
Meaning of Procurement
  • Procurement means acquiring goods and/or services from an outside source
  • Other terms include purchasing and outsourcing
why outsource
Why Outsource?
  • To reduce both fixed and recurrent costs
  • To allow the client organization to focus on its core business
  • To access skills and technologies
  • To provide flexibility
  • To increase accountability

IT Project Management, Third Edition Chapter 12

project procurement management processes and key outputs
Project Procurement Management Processes and Key Outputs

IT Project Management, Third Edition Chapter 12

project procurement management processes
Project Procurement Management Processes
  • Procurement planning: determining what to procure and when
  • Solicitation planning: documenting product requirements and identifying potential sources
  • Solicitation: obtaining quotations, bids, offers, or proposals as appropriate
  • Source selection: choosing from among potential vendors
  • Contract administration: managing the relationship with the vendor
  • Contract close-out: completion and settlement of the contract

IT Project Management, Third Edition Chapter 12

procurement planning
Procurement Planning
  • Procurement planning involves identifying which project needs can be best met by using products or services outside the organization. It includes deciding
    • whether to procure
    • how to procure
    • what to procure
    • how much to procure
    • when to procure

IT Project Management, Third Edition Chapter 12

procurement planning tools and techniques
Procurement Planning Tools and Techniques
  • Make-or-buy analysis: determining whether a particular product or service should be made or performed inside the organization or purchased from someone else. Often involves financial analysis
  • Experts, both internal and external, can provide valuable inputs in procurement decisions

IT Project Management, Third Edition Chapter 12

types of contracts
Types of Contracts
  • Fixed-price or lump-sum: involve a fixed total price for a well-defined product or service
  • Cost-reimbursable: involve payment to the seller for direct and indirect costs
  • Time and material contracts: hybrid of both fixed-price and cost-reimbursable, often used by consultants
  • Unit price contracts: require the buyer to pay the seller a predetermined amount per unit of service

IT Project Management, Third Edition Chapter 12

cost reimbursable contracts
Cost Reimbursable Contracts
  • Cost plus incentive fee (CPIF):
    • the buyer pays the seller for allowable performance costs plus a predetermined fee and an incentive bonus
  • Cost plus fixed fee (CPFF):
    • the buyer pays the seller for allowable performance costs plus a fixed fee payment usually based on a percentage of estimated costs
  • Cost plus percentage of costs (CPPC):
    • the buyer pays the seller for allowable performance costs plus a predetermined percentage based on total costs

IT Project Management, Third Edition Chapter 12

figure 12 2 contract types versus risk
Figure 12-2. Contract Types Versus Risk

IT Project Management, Third Edition Chapter 12

statement of work sow
Statement of Work (SOW)
  • A statement of work is a description of the work required for the procurement
  • Many contracts, or mutually binding agreements, include SOWs
  • A good SOW gives bidders a better understanding of the buyer’s expectations

IT Project Management, Third Edition Chapter 12

figure 12 3 statement of work sow template
Figure 12-3. Statement of Work (SOW) Template

IT Project Management, Third Edition Chapter 12

solicitation planning
Solicitation Planning
  • Solicitation planning involves preparing several documents:
    • Request for Proposals: used to solicit proposals from prospective sellers
    • Requests for Quotes: used to solicit quotes for well-defined procurements
    • Invitations for bid or negotiation and initial contractor responses are also part of solicitation planning

IT Project Management, Third Edition Chapter 12

outline for a request for proposal rfp
Outline for a Request for Proposal (RFP)

IT Project Management, Third Edition Chapter 12

  • Solicitation involves obtaining proposals or bids from prospective sellers
  • Organizations can advertise to procure goods and services in several ways
    • approaching the preferred vendor
    • approaching several potential vendors
    • advertising to anyone interested
  • A bidders’ conference can help clarify the buyer’s expectations

IT Project Management, Third Edition Chapter 12

source selection
Source Selection
  • Source selection involves
    • evaluating bidders’ proposals
    • choosing the best one
    • negotiating the contract
    • awarding the contract
  • It is helpful to prepare formal evaluation procedures for selecting vendors
  • Buyers often create a “short list”

IT Project Management, Third Edition Chapter 12

sample proposal evaluation sheet
Sample Proposal Evaluation Sheet

IT Project Management, Third Edition Chapter 12

detailed criteria for selecting suppliers
Detailed Criteria for Selecting Suppliers

IT Project Management, Third Edition Chapter 12

be careful in selecting suppliers and writing their contracts
Be Careful in Selecting Suppliers and Writing Their Contracts
  • Many dot-com companies were created to meet potential market needs, but many went out of business, mainly due to poor business planning, lack of senior management operations experience, lack of leadership, and lack of visions.
  • Check the stability of suppliers
  • Even well-known suppliers can impede project success. Be sure to write and manage contracts well with all suppliers

IT Project Management, Third Edition Chapter 12

contract administration
Contract Administration
  • Contract administration ensures that the seller’s performance meets contractual requirements
  • Contracts are legal relationships, so it is important that legal and contracting professionals be involved in writing and administering contracts
  • Many project managers ignore contractual issues, which can result in serious problems

IT Project Management, Third Edition Chapter 12

suggestions on change control for contracts
Suggestions on Change Control for Contracts
  • Changes to any part of the project need to be reviewed, approved, and documented by the same people in the same way that the original part of the plan was approved
  • Evaluation of any change should include an impact analysis. How will the change affect the scope, time, cost, and quality of the goods or services being provided?
  • Changes must be documented in writing. Project team members should also document all important meetings and telephone calls

IT Project Management, Third Edition Chapter 12

contract close out
Contract Close-out
  • Contract close-out includes
    • product verification to determine if all work was completed correctly and satisfactorily
    • administrative activities to update records to reflect final results
    • archiving information for future use
  • Procurement audits identify lessons learned in the procurement process

IT Project Management, Third Edition Chapter 12



Issues & Perspectives

procurement process

Tech bid



Receipt of bids

Tender Notice

Fin. bid



Receipt of Goods


Procurement Process
what is e procurement

Web Based Application Software



What is E-Procurement?

E-Procurement is the value-added application of Internet and e-commerce solutions to facilitate, integrate and streamline the entire procurement process, from buyer to supplier and back.

benefits of e procurement






Core Objectives

Of e-procurement

Paper less


Supports Online

Reverse Auction

New supplier


Real Time


Benefits of e-Procurement




benefits of e procurement1
Benefits of e-Procurement
  • Strategic Benefits
    • Align Procurement strategy with procurement Goals
    • Strengthen Alliances for product innovation

 combining complementary capabilities in discovery and development stage.

    • Exchanging key suppliers with market information
  • Reduces Risks
    • Diversify risk with key suppliers for product failure.
  • Reduces Spending and Time
    • 90% Conversion of spot purchasing into contract purchasing
cost benefits
Cost Benefits
  • Cost reduction by 10% *
    • e-Tender, e-Auction and e-Contract Management
    • Avoid grouping of Bidders
    • Avoid Mafia
    • User friendly and paperless procurement process
  • Savings in processing time by 30% - 40% *
    • From e-Indent to decision making
e procurement global phenomena
E-Procurement – Global Phenomena
  • E-Procurement is not a local phenomena but a global one,
    • Enabled global sourcing of goods and services
    • Reduction of Costs
    • Breaking Trade Barriers
    • Reduction in Agents
  • Benchmark Report –04 by Aberdeen Group indicates the following
    • Reduced requisition-to-order cycles by 66%
    • Cost Reduction : up to 25% or more
e procurement europe
E-Procurement – Europe
  • Adoption from year 2000
  • E-procurement accounts for 33% of E-business activities.
  • UK is the most prominent player in Europe.
  • Followed by Nordics, Switzerland, the Netherlands.
  • Germany and France less dominating role in B2B ecommerce,
e procurement asia
E-Procurement – Asia
  • Adoption from year 2002
  • E-procurement mostly in private businesses.
  • South Asians countries (S’pore,Malaysia,Thailand) topmost users.
  • Followed by Japan & Korea.
  • India – Increasing rapidly
  • China – Its growing
lumen ag
Lumen AG
  • Company
    • commercial lighting repair company
    • 8 locations in Europe,
  • Problem
    • streamline its purchasing process
    • for both repair parts and ordinary office supplies and materials.
    • Wait Time > 1 week
    • Central purchasing group spent time chasing paper
    • No focus on locating new suppliers
    • and securing better prices and terms.
lumen ag1
Lumen AG
  • Solution
    • An Internet-based e-procurement system
    • Empowering staff
    • Distributed Delivery
    • Central purchasing group was relieved of overseeing transactions below a set threshold.
    • Direct real-time link to suppliers
    • Increased flexibility
    • Purchasing authority for dispersed employees,
    • Simplified buying processes
  • Company
    • Auto manufacturer
    • Locations Worldwide
  • Problem
    • High Purchase costs
    • Lot of procedures & processes
    • Tedious approval process
  • Solution – E-Procurement System
    • New purchasing process,
    • Empowerment of Employee to place orders online.
    • Purchase approval in minutes
    • Cost Cutting by 30%.
  • Company
    • an automotive and aeronautics group
  • Problem
    • High Purchase costs
    • Lot of procedures & processes
    • Indirect purchases
  • Solution – E-Procurement System
    • Web Based Tool,
    • More efficient than manual process
    • 25% reduction in non-production procurement cost
    • Halved unit acquisition costs.
  • Company
    • A Mexican Government Initiative
  • Problem
    • No consistent controls on purchases
    • procurement processes were costly
    • plagued by corruption;
    • acquisitions were overpriced;
    • suppliers were concentrated in the Mexico City area.
  • Solution – E-Procurement System
    • Web-based on-line procurement system
    • Variety of hardware and software.
    • government suppliers can submit their proposals via the Web site.
    • Increased transparency
  • Company
    • Research-based pharmaceutical company
    • 80 manufacturing sites in 37 countries
    • 24 research and development centers globally.
    • Annual revenues total $37.2 billion
  • Problem
    • GSK relied on paper catalog and phone communication
    • Waste valuable time scientists
    • Archaic buying process
    • No benefit of negotiated deals with suppliers.
  • Solution
    • Solution contract compliance improved > 20%
    • supplier content directly allowed GSK
    • saving more than $500,000 a year.
    • streamlined GSK’s procurement process
    • Manual purchase orders have been eliminated,
rolls royce
  • Company
    • Leading producer of power systems
    • Operates in 4 global markets civil aerospace, defense aerospace, marine, and energy.
  • Problem
    • Large quantity of non-value-added products
    • Poor Visibility into annual spending on low value goods & services
    • No Consolidation based on Suppliers
    • Humongous paperwork
    • Manual Key Entries of records leading to inefficiencies
rolls royce1
  • Solution
    • web-based catalog-ordering system
    • Direct purchasing
    • No pre-approvals
    • No involvement of purchase department for non vale added goods
    • Supplier base rationalized (5000 reduced to 10)
    • Development of strategic partnerships with suppliers
    • Reduction in inventory stock value levels
e procurement challenges
E-Procurement - Challenges
  • Commitment of Top Management
  • Change Management Issues
  • Inability to Capture Required Benefits
  • Cost & Time Overrun
  • Computerized Auditing
e procurement risks
E-Procurement - Risks
  • Confidentiality
    • Proving to buyers that the personal information will remain confidential
  • Integrity
    • Proving to buyers that the sellers are who they say they are
  • Authentication & Non-Repudiation
    • Seller will not be able to refute the occurrence of a valid transaction
  • Availability – 24 x 7
enablers design factors
Enablers : Design Factors
  • Technology
  • Security Mechanism
  • Procurement process knowledge base
  • Integration with other Systems (Payment Gateways, Supplier’s systems, MRP’s etc)
  • Audit Trail Mechanisms
  • Notification Mechanisms
e procurement trends future
E-Procurement - Trends & Future
  • Finding Suppliers - Reverse auctions
  • Managing Suppliers - Supplier relationship management (SRM)
  • Inventory tracking (e.g. RFID..) integrated with procurement through software applications.

E-procurement system must be an integral part of any company’s supply chain and corporate strategy to enable it to sustain its competitive advantage.