Updated: Dec 21, 2021
Not all project procurements are created equal. Some purchases are big, others
small. Some are complex, while most are routine. Some procurements carry
high risks, while others have only minimal or perhaps no risks at all.
Some procurements require a major long-term commitment from both the
buyer and the seller, while other commodities are immediately available
for purchase in the open market, including on-line or e-commerce buys.
Proper procurement management will be critical to any project
in order to adequately schedule lead-times for each item and to budget the necessary funds for them. These procurements must be managed well for the success of the project. If not performed properly the project will likely suffer the consequences for the duration of the project.
Six major steps in Procurement Process:
Step 1- Procurement Planning:
This is the starting stage of a new project which includes the make or buy analysis, and ends with a published Procurement Management Plan. Project managers must define what they plan to do, and most important, must set the outer limits of what they are committed to do.
Without a scope definition boundary in place, projects will be in the unenviable position of constantly accepting additional work, referred to as "scope creep" throughout the life of their existence. The only way to put finality into a project is to define the scope of work, and then to avoid the inadvertent acceptance of minor refinements.
Step 2- Solicitation Planning:
The second process in project procurement management deals with the planning necessary to solicit proposals from qualified sellers. If there is a discrepancy between what we think we want and what we ask for in our solicitation, we cannot hold sellers responsible for giving us the wrong response. It is up to us to precisely define what we want sellers to do for us.
If the item needed by the project is a complex buy, something new which must be developed according to the project's unique specification, most companies do employ a similar process: the use of the Request for Proposal, the RFP. The RFP is a robust document which will contain many subsections such as a Statement of Work (SOW), Technical Specifications, sometimes drawings, management requirements, terms and conditions, special provisions, etc. The RFPs can be directed to multiple competing sources, or to a single source to provide a basis for subsequent negotiations. The RFP is a critical document which must be clear, complete, and allow for a competitive response from all sellers who are interested in competing for the award.
Step 3- Solicitation:
Solicitation is a generic term that includes invitation for bids,
requests for proposals, requests for quotations, and any other
method of soliciting prices from vendors and subcontractors.
Procedures differ for these different methods. Its primary
objective is to get viable responses from qualified sellers so as to satisfy the
requirements of purchased work for the project. Another secondary objective
of this process is to make sure that all sellers are treated fairly so that no one
gains an unfair advantage over others.
Step 4- Source Selection:
This critical process in procurement management covers that effort which takes the responses from sellers, proposals, makes an evaluation, and then determines which ones should be awarded the contract. Management then decides whether or not they agree with the recommendations. Many companies before they make an important new contract award find it advisable to perform price cost analysis of the costs of the procurement. The objective of analyzing prices and costs is to determine whether the price paid is a reasonable one in terms of the market, the industry, and the end use of the material bought. In addition, price analysis is a means of isolating and possibly eliminating items of unnecessary cost.
Step 5- Contract Administration:
During contract administration, there are essentially two key missions for the project
team: the continuous monitoring of seller performance, and the management
of all changes to the seller's authorized baseline.
Step 6- Contract Closeout:
The best way for any procurement to end is to have the Seller completely satisfy the statement of work, make all deliveries as specified, and comply with all provisions of the contract. Just because the Seller has made all deliveries doesn't necessarily mean that a procurement is completed. There are often residual issues which must be addressed. There are circumstances in which the Buyer and sometimes the Seller may want to end their relationship before completion of the procurement. At this point the project will need to receive competent legal advice coming from their corporate legal counsel and settle for amicable closeout.
The most critical part of project procurement management is the
planning that should take place before any contract is solicited, evaluated,
and awarded. If not planned well, procurement management can be a bumpy
road. If planned well, procurement management can add immensely to the
successful implementation of any project. Automate your purchase requisition process with Zanflow's procurement management workflows for efficient and better planning.