Procurement Management – What Does Procurement Mean?
Procurement management is a concept that is familiar to just about anyone who has worked in the business environment. Practically every business has to look outside itself at some point for goods or services that are required to continue operating. Some business have ongoing purchasing requirements that make up a large part of their daily operations, while others only need to procure specific items on a periodic basis. However, when a project is being conducted, the need for procurement management and managing supplier relationships is very often a major element of the overall process.
Procurement management is the process of ensure that everything required from outside the organization is in place when it is needed so the project can proceed successfully. Failing to plan the procurement schedule or process is one of the most-costly mistakes that can be made because the entire project can be brought to a halt if products or materials aren’t available when needed. Successful projects required detailed scheduling and excellent timing to maximize efficiency. The project manager will need to oversee the procurement planning process to ensure that a purchasing failure isn’t responsible for harming the project as a whole.
Prior to beginning a project, there should be a careful analysis of what items will need to be purchased from outside the organization to allow the project to reach a successful conclusion. As long as there is a detailed plan in place for the project itself, the procurement planning should be a relatively simple endeavor. After all, it won’t take long to determine what is available from within the company and what will need to be brought in from the outside.
Procurement is often thought of in terms of raw materials, but it can actually cover a wide range of items that could be used to complete a project. Even services that will be needed as part of the work would be included under the umbrella of procurement.
Knowing what is going to be needed, and when it will be needed, it a crucial first step toward getting this part of procurement management done correctly.
Pricing and Receiving Bids
Obviously it is important to know how much the goods or services are going to cost the organization as part of the project. In the case of projects where there is a heavy purchasing requirement, the cost of these items could make up a majority of the overall project budget. Naturally, it will be a goal to minimize the total costs while still getting exactly what is needed.
Frequently companies will use a bidding process to make sure a competitive and fair price is received. Once it is known what will be needed, you can ‘bid out’ the order to several different suppliers and compare their prices and terms. In addition to looking for the lowest price, it is also important that the supplier is able to meet your schedule for the project. If you need more product than they can supply by a given date, for example, it won’t matter what the price is – that supplier won’t work for your needs.
After the bidding process is given enough time to transpire, all of the eligible bids can be reviewed and considered carefully. Choosing bids is an important step because you are essentially making these suppliers part of your overall project team. If they were to let you down at some stage along the way, it would be no different than having a failing from within your organization. You are not only buying product from a supplier, but you are bringing them into your process in a way – so researching the supplier and making sure they can be trusted with that responsibility is also important.
Establishing of Contracts
Nothing in business should be done without a contract, especially when it comes to a purchase agreement between two organizations. If you are going to trust a supplier to become part of your project team, you will want a contract in place that outlines their responsibilities and the price you have agreed to pay. Even if you are dealing with people whom you feel like you can trust, there is no excuse for not having the legal documentation in place to protect your interests at every turn.
Putting procurement contracts in place can often be considered one of the last steps before a project gets started. At this point, you will have committed to buying a certain level of whatever goods or services you need to undertake the project, so the wheels are now in motion to get it going. Timing is an important element of this whole process, so bringing together the formalization of contracts in concert with the start of the project itself is something to pay attention to. It may take a little bit of back and forth between the organizations (and their lawyers) before the contracts are satisfactory to all involved, so make sure to build negotiating time into the schedule.
The formal nature of purchasing contracts also points out just how important it is that any project be as well-planned and organized as possible right up front. When things change down the line during the course of a project, it can have ripple effects that can be expensive when they require contracts to be changed or broken. Most projects involve a great number of moving parts that have to be brought together just right in order to keep everything moving toward a common goal. Procurement is one of those parts, and it is an important one since it often involves signing contracts that commit the organization to spending money in pursuit of successfully completing the task.
Even though procurement management is an area of business all its own, it is something that any project manager should be comfortable and familiar with. Whether the project manager directly does the purchasing or simply oversees a specialist in that area, understanding how procurement management plays together with the rest of the project management puzzle is an important skill to possess.
- Procurement management is the process of ensuring that everything required from outside the organization is in place when it is needed so the project can proceed successfully.
- A ‘make or buy’ decision will need to be taken where the option exists to do the work in-house as part of the project or to purchase some products or services from outside suppliers.
- A procurement management plan describes: what will be procured for the project, the types of contract used, how suppliers will be selected, how their performance will be measured, and how supplier risk is to be managed.
- Procurement management documents are used to solicit proposals from prospective suppliers. These must be detailed enough to ensure consistent, appropriate responses, but flexible enough to allow consideration of suggestions for better ways to satisfy the same requirements.