slide 13.1 4e1 project management purchasing and procurement 2
Post on 21-Dec-2015
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Slide 13.2
Tenders
Asking potential vendors for proposals• Allows transparency in procurement
• Aims to reduce price, improve quality through competition
• Used in private and public sectors
• Proposals AKA tenders, bids, quotations
Considerations• Cost, time, effort (vendor and customer)
• Legal obligations
• Existing suppliers
Different types• Public, restricted, negotiated
Slide 13.3
Invitation to Tender (ITT)
Requests for Tenders (RFT, RFP)• Also Request for Expressions of Interest (EoI)
• Also Requests for Information (RFI)
Must state• What is to be provided
• Quality requirements
• Delivery and payment terms
• Any special contractual conditions
Different types of bid• Indicative, offer, BAFO
• May be sealed
Slide 13.4
Evaluating Tenders
Criteria• Vary from single/simple to many/complex
• Weighted ranking
• Simple Multi-Attribute Rating Technique (SMART)
Formal and informal evaluation• Stakeholders involved
Rules of the game• Private sector, public sector
Managing risks
Slide 13.5
Weighted Ranking
A widely used formal evaluation technique• Useful when there are multiple comparable options
• Costs (rewards?) must be known
• Requires formulation of distinct assessable criteria
Often used in purchasing• Capital assets e.g. earth-moving equipment
• Materials e.g. concrete, aluminium sheeting
• Services e.g. contractors, consultants
Slide 13.6
Weighted Ranking - ComplicationsCriteria may be hard (objective) or soft (subjective)
• Usually a mixture
Information may be• Uncertain• Missing• Fuzzy
These can all be handled• Dealing with uncertainty using PERT-type scoring• Dealing with soft criteria using scales
Slide 13.7
Weighted Ranking: Step 1
Identify all criteria• Value trees, stakeholders, …
• Classify each criterion as qualifying or award
Qualifying - absolute (“must”) requirements• Hardness must be at least 40B (Rockwell scale)
• Must be able to lift at least 2.5 tonnes
• Must comply with ISO9200
Award – important but non-essential (“should”)• Supplier should have local maintenance capability
• Cost should be <€450,000
Slide 13.8
Weighted Ranking: Step 2
Assign weights to award criteria• 10: criterion is extremely important
• 1: criterion is fairly unimportant
• 0 is not a permissible value (why?)
Use care when quantifying soft values
Lay out on a grid/spreadsheet (see over)
Slide 13.9
Weighted Ranking: Step 3
CriterionOption 1 Option 2 Option 3Class. Weight
Q
Q
A
A
A
A
A
8
7
5
4
2
CRITERION 1
CRITERION 2
CRITERION 3
CRITERION 4
CRITERION 5
CRITERION 6
CRITERION 7
Slide 13.10
Weighted Ranking: Step 4
Evaluate options under each criterion• Decide range of scores in advance
Scoring and weights should be independent
Multiple evaluators• Consensus
• Averaging
• Psychology of group decision-making
Slide 13.11
This brings us to…
CriterionOption 1 Option 2 Option 3
CRITERION 1
CRITERION 2
CRITERION 3
CRITERION 4
CRITERION 5
CRITERION 6
CRITERION 7
Yes
Yes
9
7
2
8
4
Yes No
Yes
Yes
9
6
5
8
10
Option 2 fails to meet an qualifying criterion and is eliminated
8
7
5
4
2
WeightClass.
Q
Q
A
A
A
A
A
Slide 13.12
Weighted Ranking: Step 5
For each option• For each criterion, multiply weight by score
• Sum the results to give option’s weighted score
Take care in interpreting the result
Observe any rules (e.g. public sector)
Slide 13.13
Weighted Ranking – Final Outcome
CriterionOption 1 Option 3Weight
8
5
5
4
2
CRITERION 1
CRITERION 2
CRITERION 3
CRITERION 4
CRITERION 5
CRITERION 6
CRITERION 7
9 72
7 35
2 10
8 32
4 8
9 72
6 30
5 25
8 32
10 20
PerfectScore
TOTAL
% TOTAL
10 80
10 50
10 50
10 40
10 40
260 157 179
60% 69%
Class.
Q
Q
A
A
A
A
ASelect o
ption 3
Slide 13.14
Negotiation
Negotiation is formal, explicit, interpersonal communication aimed at agreement
It involves • representatives of all interested parties
• conflicts of interest
Negotiation is a specific skill• Ability to compromise and communication skills also required
Negotiation may be adversarial or cooperative (partnership)
Slide 13.15
NegotiationStrategies
• Win-win, win-lose or win-don’t care?• Depends on goals
Power in negotiation depends on knowledge of other party’s “best alternative to no agreement” (BATNA)
• Timing is important• Analysis of buyer and seller’s strengths and weaknesses
• Knowledge of market• Understanding of dependency relationships
Slide 13.16
Negotiation - Positions of Strength
Buyer
Seller
Need is urgentMonopolyIndifferent about businessExceptional productGood information
Need is not urgentMany alternative suppliersSuppliers keen to get businessBuyer is only buyer.There are substitutes.
Slide 13.17
Ethics
Temptations
Smaller inducements• Pens, bottle of wine, gimmicks
Larger inducements• Golf outings, visits to plants in exotic locations, entertainment
Corruption• Bribes - cash and/or kind, kickbacks
Clear written policies
Slide 13.18
TimingLead times!
Include key orders in the project plan• Delivery time as a task (may be on critical path)• Contractual implications
Expediting• Routine approach: flagging, reminders• Urgent expediting• Alternative sourcing• Escalating
When does the Project Manager get involved?
Slide 13.19
e-Procurement
Electronic purchasing e.g. via Internet, EDI, ERP, etc.
Advantages• Convenience, speed, wider reach, improved information
Issues• Security: fraud, confidentiality, etc.
• Legal: contracts, enforcement, etc.
Related concepts• Vendor-managed inventory
• Intelligent agents
• Just-in-time delivery
• Evaluated receipt settlement
Slide 13.24
Product Service Information RequestPurchase requestPayment or payment advice
Supplier
Response to Fulfilment RequestShipping Notice
Electronic Market(Txn Handler)
Electronic Commerce Network(Infrastructure)
Response to information requestPurchase acknowledgement
Shipping noticePurchase/Service delivery
Payment acknowledge
Purchaser’sbank
Supplier’sbank
Transaction Handler’s Bank(Automated Clearance
House)
Payment Remittance NoticeElectronic Funds Transfer
Electronic Funds
Transfer
Purchaser
Electronic Purchasing
Slide 13.25
Purchasing Organisation in Projects
Role of the purchasing department
Project Engineer
H.O Purchasing Agent
Suppliers
Site Manager
Shipping Agent
Overseas supplier
Overseas PurchasingAgent Local Suppliers
Subcontractors
Project ManagerThe Client
Slide 13.26
Summary: Key Points
Purchasing is important in most projects• Projects may use the company purchasing function
• Or do their own
There is a standard purchasing cycle
There are different approaches to purchasing
There are many skills involved, including:• Negotiation
• Relationship management
• Administration