Project Procurement Management
Organizational performance calls for a combination of different functions of an organization in order to attain the best outcomes. Buying and selling of products are the common activities in organization, yet they are complex because they involve different parties, such as buyers and sellers. The procedure for either buying supplies is extremely valuable because it determines how quick and efficient an organization will implement its plans. Therefore, procurement departments have been set up in organizations to hasten the supply of products and services to organizations (Johnson, Leenders & Flynn, 2010). The purchasing and supply function has to be well managed if the organization has to complete its projects within the required timeframe. More often than not, delays in implementation and completion of projects come from poor management of the procurement and supply chain of an organization (Pooler & Pooler, 1997). This paper discuses purchasing and supply chain management, in the context of implementing and restructuring projects in an organization. The paper defines the concept of supply management and how it can be improved.
Purchasing and supply management and its relevance in business management
Many authors have written about supply management and its related terms, like procurement, purchasing and sourcing. Also, there are concepts that are related to supply management: logistics, supply-chain management and material management. Most authors have differentiated the terms supply management, procurement, purchasing and sourcing. Purchasing is an operational function and includes operational activities, which are implemented by a single department, the purchasing department. The term supplies management is mostly used as a cover term to for procurement, logistics and material management. Supply management involves the administration of many sub-functions in a firm. Procurement is quite broad because procurement is strategic and oversees purchasing and supply management. Sourcing is a general term that applies to the entire organization. It is a cross-functional process involving the entire team in a firm, rather than concentrating on the procurement department (Kaufman, n. d).
Organizations keep purchasing goods and services. These goods and services are consumed in the firm, or transformed into products and services that are resold. Purchasing and supply management helps in streamlining processes in the organization, and thereby aiding firms to gain a competitive advantage. In the definition of purchasing and supply management, several other terms that denote the fragmented functions that lie under these general management functions are explained. This gives a bigger scope of how purchasing and supplies management is relevant in controlling the process of acquiring and distributing materials, products and services and even information. There is a rising competition among different business organization. The competitive, economic environment arises from different factors; for instance, the fact that many firms deal in similar goods and services. This has become particularly common, hence the difference can only be explained in the way organization manages the supply and products, services, materials equipment and even information. All these aspects are managed in the purchasing and supply department. High competition, in industries results in the increased need for and importance of purchase items on the general outcome of organizational performance. Thus, supply management becomes a core component of strategic planning process at the corporate level in firms. Strategic plans include the alignment of the strategic objectives of supply management with the overall strategies of the firm (Monczka, 2010).
Steps of creating a supply system of a project
When dealing with the implementation of restructuring projects in a firm, which deals with the manufacturing of beauty products, it is necessary to follow certain steps. Within the purchasing and supply management department in organizations, steps have been set, which can be following to ensure that flaws are eliminated. These steps include; recognizing the need for improvement in purchasing and supply management in the organization. For the case under study, there were chronic delays in the supply of materials, which resulted in delays, in manufacturing and delivery of orders for products. Places that need improvement must be identified by supply managers. They form the main agenda in the formulation of better strategies of improving supply and purchasing by the firm (Cutchins, 2009; Horvath, 2011).
The next step in managing purchasing and supply projects, is translating the need into a commercial perspective. It is essential to understand the costs and economic implications of the problem affecting purchasing and supplies. In the organization, it was discovered that contracts were being awarded to incapacitated supplying companies. These companies could not easily raise the quantity of chemicals that were needed at once. Therefore, reviewing the contracts awarded to the suppliers of raw materials was an urgent need. This could minimize delays in manufacturing of the products and delivering them according to orders. The delays were causing losses, and even forcing other customers to withdraw their orders. As such, some customers opted to get the products from other companies. The firm was losing its customers to its competitors; hence, becoming competitively disadvantaged (Horvath, 2011).
The third step involves seeking potential suppliers. As a manager leading the restructuring program, I had to cancel all the supply contracts. The company advertised for supply positions after terminating the contracts. From the details of the applicants, we followed up the applicant companies to ascertain their credibility. In assessing these companies, we looked at a number of things including the history of the companies, the location, the capacity and their recent records of supplies to other companies. History gives a clear picture, which is used for scanning an organization to ascertain its worthiness of the company and its ability to supply required materials in time and satisfactory condition (Horvath, 2011).
The proceeding step is the selecting suitable suppliers from amongst the big list off applicant firms. Companies that score highly in the assessment are the ones which are awarded supply contracts. It is reasonable to offer the task of selecting the suppliers to private entities in order to minimize the chances of biased selection. Suitable companies from which to get supplies are offered contracts. The companies must understand the terms in the contract before they append their signature to the contracts (Horvath, 2011).
The next step is the drafting of the contract details. Contracts are extremely beneficial in purchasing and supplies management. They clearly define the conditions that will prevail in the relation between suppliers and the recipient companies. They must exploit all the details of the materials to be supplied, and how they will be supplied and received. They clearly define the rules to be followed in this business relationship and the consequences of a breach in any of the rules. The contract must be understood by both parties. In fact, it is recommended that both parties should be represented in the drafting of the contract. The clear business details of each of the companies have to appear on the contract paper to avoid any suspicion. The efficient and effective supply and delivery of products and services informs the management of procurement and supply for projects. Three key things are vital here; these are timely delivery, delivering in the right quantities and delivering in the right quality. This is what was factored in the restructuring the project (Horvath, 2011).
Modalities of payment have to be included in the agreement.
Changes in the agreed mechanisms of payment may result in procurement problems; which can end up affecting the entire purchasing and supply process. There are different modes of payment; which include cash, payment by cheque and electronic payment among others. Also, the payment is made basing on an agreed timespan. Some vendor would prefer payment on supply or delivery; others would agree to be paid at the end of the month and so on. This is also contained in the agreement that is made between the parties. Delays in payment have to be communicated on time to avoid disruptions in supply and purchasing. Payments must be made to avoid inconveniences (Horvath, 2011).
For projects that are restructuring, the supply process for a firm, there are no significant implications on budgets. The aim of these projects is to discover flaws in the existing processes and develop a better purchasing and supply system in the organization. Little finances are used in investigating the existing systems as in the explained weakness and developing better policies. When the right purchasing and supply policies are put in place and well implemented, the firm will get back on track (Horvath, 2011).
Selecting suppliers and negotiating prices
Suppliers play a strategic role in the functions of the organization. They determine the pace at which the manufacturing firm will manufacture and deliver products to their customers. Firms must ensure that they choose on trusted suppliers who will be able to respect supply agreements. The selection of suppliers begins with the bidding process (Monczka, 2009).
Contract administrators must collaborate with those requesting the contracts to come up with specifications to be used in bidding. Different sources and resource persons are consulted here. The requirements and specifications are then communicated to the suppliers who have been selected out of the bidding process. For the case of the manufacturing organization, we used the request for proposal since the organization wanted to get suppliers who will provide raw materials on a long term process. The request proposal is designed to help in identifying the suppliers who can meet the requirements of the requesting firm for a favorable price. This contained all the pertinent information, which the suppliers need in order to make valid quotes. These product details, the outline of the specifications, other details like the quantity and quality, inventory and delivery requirements, packaging, terms of payment, and warranty among many other details (Monczka, 2009).
The suppliers are given time to review the bids. If any changes occur, they must be communicated the suppliers immediately. After the suppliers have placed their bids, it is vital to evaluate the bids. The nonresponsive suppliers are separated from the responsive ones. The proposed prices are reviewed to identify unrealistic suppliers those who place unusually low prices and those who place particularly high prices. Other aspects that are evaluated include the performance records of suppliers, the technology, after-sale services and the level of creativity that will be utilized in fulfilling the requirements (Monczka, 2009).
Negotiating reasonable prices is done basing on the research conducted by the company. Organizations involved hires team to negotiate prices. The hired teams must have financial, technical and legal expertize. This raises the changes for rational settlement on prices. In the formulation of negotiation strategies, the firm must ensure that it has facts and figures which are accurate. The organization must define its goals and keep basing on these goals as it assesses the options that come from the suppliers. The firm has to maintain the aspects of fairness as the supplier is also in business. The results of tense should come up with a win-win situation for both firms (Monczka, 2009).
Outsourcing – Benefits, costs and growth pattern
While outsourcing is a comprehensive business process aimed at meeting business targets and bringing positive change, it also has some costs. Outsourcing has become a critical component in business development plans due to a number of reasons. It helps in bringing down the costs– offshore outsourcing. While companies strive to get the best skills and expertize, outsourcing has eased this function by managers of organizations. It enables organizations to get skilled employees, thus cutting down the cost of training. It has also enabled firms to acquire customer support services irrespective of time zone difference. Organizational growth is harnessed through outsourcing as it dwells on key competencies for organizational development. Outsourcing also improves customer service, enhances better human resource management practices and helps in distributing risk. When in full operation, the organizational efficiency and productivity rises considerably (McIvor, 2005).
The major disadvantage of outsourcing is that confidentiality of the firm is reduced. Outsourcing also increases the risk of information leakage, which may jeopardize operations of a firm. Companies face internal job loss, which has its risks to the business besides the risks associated with security and privacy concerns (McIvor, 2005).
Benchmark organizations in purchasing and supply management
Purchasing and supply management form a substantial part of performance management in organizations. There are many companies in the world, which have been outstanding in purchasing and supply management, which helps them keep proper records of performance. Such organizations are worth being emulated by firms that are still coming up in different industries. Also, there are organizations that specialize in training and provision firms with supply chain managers. One of the firms which have been exemplary in managing purchasing and supply is the Apple Incorporated. Apple Incorporated gets its supplies for making its products, like the iPhones, from different companies in different countries. Apple gets its supplies from more than 20 companies, but has been able to manage the supply relationship with all these companies. The company has comprehensive supply chain management, which captures all the detailed areas in the supply chain. Therefore, get proper supplies in considerable time and at favorable price enabling it to produce high quality finished products (Wisner, Tan & Leong, 2011).
Purchasing and supply management is an old concept, though it has gained a new vigor in modern business. The management of projects and achieving the best outcomes depend on efficiency in purchasing and supply management in the organization. When organizations discover flaws in the purchasing and supply management, they can review and restructure these programs.
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