How to perform procurement management?

Today, we will talk about the subject of project procurement management. As project managers, when come to procurement, we need to answer questions like these: How to specify the requirements of project procurement? How to develop the procurement agreement? How to plan and manage procurement strategy? How to achieve delivery of a certain plan?

We all know that procurement is a very important part of project, which is directly related to project’s cost, magnitude of project deliverables, and project schedule. In the projects which I have been apart of, sometimes the various problems of procurement lead to project delay and high cost. Or even worse, they could cause the project deliverables not reaching the quality standard and lead to failure of the project.

1 The pain caused by lack of project management knowledge

In order to share the readers with some tips, here is a practical case.

When Kate was working in a company as project manager to develop a new type of printer, her company was in the process of transition from production-oriented to project-oriented. Kate’s company was lack of experience of project management. After formally taking charge of the printer project, Kate found that the project scope was ambiguous at the early phase of the project.

There were mainly three problems:

The first problem, the design of printer’s appearance did not consider the usage scenario and real requirements. In fact, the project team members only had the experience of structural design, but no experience of industrial design. The company leader’s idea was also very simple: those who can draw structural image are also able to design the appearance of the printer. The leader was obviously tended to save the cost of the project.

The second problem, when designing the printer’s spindle, the team members did not realize the strictness of client’s acceptance criteria. In fact, the precision of marble platform which they were using can not satisfy the testing requirement of client.

The third problem, when signing the procurement contract with vendors, the leader did not consider the reality of allocation of project fund, and did not effectively specify the vendors. As a result, some procurement increased the overall project cost due to delayed payment, some materials arrived in the company way ahead schedule and had costed the budget of the month, which cause advanced overdraft when some emergency material was really needed at the time.

Due to the three problems mentioned above, Kate’s project had encounter various obstacles and finally became a failure.

2. Resume project and seek solutions

After the failure of the project, Kate and her team immediately held a meeting to analyze all the problems and seek response strategies. After cooperatively analyzed and discussed the situation, they decided to make some adjustments regarding to procurement management.

For the first problem, the printer appearance design has to be combined with the project requirement. In order to do that, they paid a visit to the client’s real usage situation and environment. And due to the lack of professional industrial designer, Kate decided to outsource this part of work. After all, professional work can only be done by professional people. Considering the schedule issue, they arranged the structural engineer of the project team to cooperatively work with the external industrial designer, to design the printer’s external appearance and internal structure simultaneously. As for the outsourcing contract, because that was the first time working with a industrial design company, and multiple prototypes had to be delivered in the process, after discussion with the design company, Fix-Price Contract was decided to be adopted for the situation.

For the second problem, in order to satisfy client’s overall quality requirement of printer, the project have to add some testing equipment for examination and inspection of key parts and components.

For the third problem, Kate sorted out the vendors list all over, and re-discuss with the vendors about payment method. Considering the reality of project fund being allocated periodically, the payment cadence had to be altered accordingly.

3. What are the solutions to similar problems?

Now, let’s review the case all over again. In the upper case, due to the over confidence of the company’s leader, the project team had not effectively analyzed or understand the client’s requirements. Meanwhile, they had not practically managed the project fund and cost. In order to avoid all those problems of the upper case from happening in our projects, what we can actually think about is the following three points.

1. What are the internal resource in the project? Including human resource and material resource.

2. Regarding to the internal resource, consider the fact whether the resource is fit for the project or not.

3. Base on the reality of project, what kind of contract can be signed with the vendors? And we have to analyze the detailed condition and allocation of project fund.

First, we have to consider what resource do we have in our projects? And the resource matches the client’s requirement or not? If not, can we outsource the corresponding work? In the upper case, the project team had not analyzed whether the internal resource matches the requirements of the project, and let the structural engineer do the job of industrial designer. In fact, if the team could find external professional industrial design team, then they would be able to deliver the qualified product to the client in time.

Next, we should consider what type of contract we should sign with the vendor. This part of work is also very important to project procurement. There are detailed descriptions of contract genre and relative application scenarios in PMBOK. As in the upper case, it was the first time the project team got involved in industrial appearance design, and they was unable to specifically analyze the cost of the outsourcing. After some researching and specifying the outsourcing scope, they decided not to analyze the detailed work scope of the vendor, but to fix the price of the contract, and finally firm-fixed price contract was adopted for the situation.

The final step is to analyze the project’s plan of funding and budget, and sigh with the vendors with appropriate contracts, to ensure the ordering and effectiveness of project’s cost expenditure.

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