Question

A.           Procurement Management Approach

Procurement planning aims to document how the acquisition/purchase of resources will be conducted, communicates the procurement approach to stakeholders, and identifies potential vendors (PMBOK, 2013). It is the project management team’s responsibility to ensure the procurement management plan contains all the necessary elements for effective acquisition of products/services, materials, or results for the project.

Describe how procurement management will be approached for the project. (1 page)

What process will be used to plan, execute, monitor, and control procurements?

Who will be involved in the procurement management process?

What business policies must be considered when procuring the resources for the project?

To what extent will eProcurement be used to obtain resources for the project?

B.           Procurement Definition

The purpose of procurement definition is to describe, in specific terms, what items will be procured and under what conditions. The project manager, in collaboration with stakeholders, must define the items that must be procured and in what quantity. Decisions about where to procure resources must be made as well. Some items may be available or can be made internally while others must be procured from external sources. In addition, it is important that the procurement of goods and services meets the overall project schedule.

Define at least 10 resources that must be procured for the project. Document them in the table below. (1 page)

Include: the item name; the quantity that must be procured; the source(s) or vendor(s) that may supply the item; when the item is needed to meet project requirements.

Item	Quantity	Source	Needed By

C.           Types of Contracts

The purpose of this section is to describe the type of contract to be used so the contracts and purchasing department can proceed accordingly. There are many different types of contracts like firm-fixed price, time and materials (T&M), cost-reimbursable, and others. Different procurement items may also require different contract types. A well-defined product may be a firm-fixed price, while a product which will require a research and development effort may be a T&M contract.

Describe the type of contract(s) that will be used to procure each of the items required for the project. (3–4 paragraphs)

What factors did you consider when choosing the contract type?

In what ways is the contract type chosen appropriate for the procurement of the item?

Procurement

Answer 1

Procurement management is the process of establishing relationship with external vendors and suppliers, to procure goods and services required for the project. These goods and services serve as the raw material for the project. These relationships are established on a contractual basis.

Procurement management is a sequential activity. The 5 major steps involved in procurement management are:

• Procurement planning: The project manager needs to identify the products and services required for the project. He then needs to contemplate the make or buy situations for each of the products. Some of the factors that play critical role in make or buy decisions are:
  • Cost associated in both the scenario
  • Ease of doing business in both the scenario
  • Expertise needed for contemplating make scenario

Once this decision is taken, a list is made of the products that the company contemplates to buy from external vendors. The procurement and logistics team invites bids from external vendors and suppliers for the products.

• Selection of Vendors and Suppliers: The project department needs to analyze the bid of each supplier and vendor. The bid is analyzed on the following dimensions:
  • Cost
  • Delivery mode and time
  • Service Quality

Based on the analysis, the bidder with the best bid is selected for contracting.

• Contracting: The procurement process is contracts based. Once the potential vendor and supplier are finalized, the company needs to draft a contract specifying the quality requirements, the delivery requirements and the payment information. The supplier as well as the company signs this contract and thus, a relationship is established.
• Control: The payment process and the delivery schedule monitoring and control define the efficiency of the project procurement management. Regular follow-ups and meet ups with the vendors must be done, quality audits can be conducted and delivery progress must be tracked efficiently.
• Measurement: the project manager, before the project initiation, must define The KPIs of all above processes. The success rate of the procurement management process can be measured through the estimation of these KPIs.

Role of Project Manager in the procurement management process:

• Must efficiently lay the terms and conditions of the procurement contract
• Must analyze all the bids proficiently and select the final vendors
• Contract negotiations must be handled proficiently

B. Procurement items list for furniture production project

Item	Quantity	Source	Needed By
Skilled labor	100	ABC Contractor	Production department
Labor	50	CNC Contractor	Packaging department
Mica Wood Ply	5000 pieces	Woodfront Inc.	Production department
Spring Foam	100 kg	Klick Corporation	Production department
Tools	200	Ranson Hardware	Production department
Varnish	200 bottles	Ranson Hardware	Furniture poishing department
Corrugated pallets	500 pieces	Klick Corporation	Packaging department

C. Procurement Contract forms the basis of the procurement management process. The contract binds the relationship between the company and the external vendors. The contract can be of 2 types:

• Fixed price contract: the agreement between the vendor and the company to provide goods at a pre-agreed price. This kind of contract needs at least 2 bidders to bid for the contract. The risk associated with this kind of contract is regarding the cost related to project change. If the project change requires the contractor to do a change in his product, the cost of such change is quite high.
• Cost reimbursable contract: Also known as cost-plus contracts. The company agrees to pay the vendor for the services offered during the course of the project. This contract is opted for if the scope of the project is not very clear and the exact amount and utilization rate of service is not known. There is less risk involved with this contract as the project change can be easily accommodated.