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Procurement Management
The document outlines procurement management in project environments, discussing the purchase of goods and services, vendor selection processes, and types of contracts. It covers make-or-buy analysis, solicitation strategies, contract administration, and various contract types such as fixed price and cost reimbursable contracts. The document includes examples and calculations to illustrate procurement decisions and contract costs.
Procurement Management
- 1.
- 2. What’s Procurement ? Buying Goods& Services from external Organizations
- 3. Goods Services Computers Internet TablesElectricity Books Security Routers Cleaning Cables Water Supply Stationary Web Hosting Building Material CCTV Fixing Vehicles Computer Equipment Maintenance
- 4. Outsourcing • Acquiring HumanResources from external organizations
- 5. Who provides thesegoods & Services? • Suppliers • Vendors • Contractors • Sellers • Sub contractors
- 6.
- 7. Procurement Planning Deciding whatto procure / When & How , by whom * Make / Buy Analysis Eg : Buying an Off the shelf software ? Or Develop a bespoke software ? 1
- 8. Off the ShelfBespoke Advantages •Less Expensive to buy than develop • Saves Development Time • Less no of Errors identified / high accuracy • less amount of Testing needed • Added maintenance support •Maximize user satisfaction • Modifications can be done • ensure confidentiality •Completely caters to business functions •Versions can be released Disadvantages •Modifications are not usually possible • unwanted features may exist •Might not cater to all business functions •Standards may be different •More expensive •Takes time to develop / test •Can have errors at the beginning •Less support and guidance provided as a standard
- 9. Make – BuyAnalysis Eg : Assume that you can rent a machine for $800 per day. To purchase the item the cost is $12000 PLUS a daily operational cost of $400. Whats the minimum duration the machine must be used , so that the buying would be more beneficial than leasing.
- 10. Answer 12000 + 400d= C ------- 1 800d = C -------- 2 As 1 = 2 12000 + 400 d = 800 d d = 12000/400 = 30 The machine should be used for at least 30 days , for purchasing to be beneficial.
- 11. Solicitation • Process offinding potential suppliers Eg : Advertising procurement notices RFP notices Call for tenders / Quotations 2
- 12. • Quotation :go for least price • Proposal : different approaches to meet customers needs • Tender : goes for the lowest price
- 13. Source Selection • Evaluatesellers • The facilities given by them • Choose the best seller • Eg : weighted averaging model 3
- 14. Example Weight Dialog Weighted Score EtisalatWeighted Score Bandwidth 15% 100 mbps 15% * 100 50 mbps 15% * 50 Network Coverage 25% 70% in SL 25% * 70% 80% in SL 25% * 80% Rental 50% 300 50% * - 300 800 50% *- 800 Data Use 10% 20GB 10% * 20 10GB 10% * 10 Total ?? ?? * Highest weighted average indicate the best service
- 15. Contract Administration • PrepareContracts • Manage relationships with suppliers • Making necessary updates to contracts (revising) • Renewal of contracts 4
- 16. Contract Close-out Payments settled Openitems settled Sign off contract Close the contract / renew the contract Pay / settle necessary compensation / damages 5
- 17. Types of Contracts Fixedprice • Pays the initially agreed cost • Suits well designed products or services Cost reimbursable • Pays the actual cost spent • Suits for new , risky , experimental products Unit pricing • Pay per unit Time and Material Costs • Pay fixed price + time based rate • Initial Capital + hourly payment for repair
- 18. Fixed Price Contracts •Pays the fixed total price • Good for reliable contracts • 2 types – Fixed Price – Fixed Price + Incentive 1. Fixed Price Contracts : Only pays the fixed fee, No incentives
- 19. 2. Fixed Price+ Incentive fixed amount + Additional amount (conditional) Example : for 30 chairs , buyer pays 50000 plus additional incentive of 3000 for delivering goods ahead of schedule Total cost = 50000 + 3000 = 53000
- 20. Cost Reimbursable Contracts •Cost Plus Incentive Fee (CPIF) • Cost Plus Fixed Fee ( CPFF) • Cost Plus Percentage of Cost ( CPPC)
- 21. Cost + IncentiveFee (CPIF) Actual Cost + Fixed Incentive+ Incentive Bonus Example : a project expects 100000 for a contract but the actual cost is 80000. The contract agrees to pay a 10000 supplier fee & an incentive bonus of 15% for saving cost. Calculate the cost of contract
- 22. Actual Cost +Fixed Incentive+ Incentive Bonus Cost = 80000 + 10000 + (20000 * 15%) Cost = 93000/=
- 23. Cost Plus FixedFee ( CPFF) • Buyer has to pay only the allowable performance cost + fixed incentive Cost = Allowable p. cost + Incentive based on agreed cost A project expects 100000 and a fee of 10% of expected cost. If the project spends 120000, calculate contract cost
- 24. Cost = Allowablep. cost + Incentive Cost = 120000 + (100000 * 10%) Cost = 130000
- 25. Cost plus Percentageof Cost ( CPPC) Cost = Allowable P. Cost + Incentive based on Actual cost For the above example , A project expects 100000 and a fee of 10% of expected cost. If the project spends 120000, calculate contact cost
- 26. Cost = AllowableP. Cost + Incentive based on Actual cost Cost = 120000 + (120000 * 10%) Cost = 132 000 This kind of contracts are prohibited in some countries.