Overview: Procurement Management Process
A procurement management process refers to the formal method in which products (services or goods) are purchased from external suppliers for a project. The process entails receipt, ordering management, review, and approval of products which come from suppliers as well as the overall supplier relationships management to ensure that there is continued customer service. It also ensures that all the acquired products for the project are following the procurement plan requirements, and this needs that the products are purchased within timescales that are correct, to the level of defined quality, and within the identified cost budgeted (Watt, 2013).
In my procurement process, I will use plan procurement management. It involves making a decision on which services or products to be obtained from external suppliers, approach specification, and identifying prospective sellers. The question to answer in this process is whether, what, how much, when, and how to procure (Watt, 2013). The process should consider if the decision to buy is feasible (potential sellers), the schedule desired (best met through buy or make?), the risks linked to buy or make, and the appropriate contract type.
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The plan will include the type of contracts to be executed; whether independent estimates of costs will be used; assumptions, constraints, and lead times of suppliers; management of risk; formats for the work statement; metrics for reporting performance; identification of potential buyers, and coordination of procurement with schedules, lead times, resource needs, and costs (Watt, 2013).
2.1 Statement of Work
According to Pratt (2016), the primary purpose of the statement of work is to define responsibilities, work agreements, and liabilities between service providers (suppliers) and clients. In the statement, I will include the scope, locations, timelines, delivery schedule, standards, acceptance criteria, and the mode of payment and contract (Pratt, 2016).
Scope: The project is to procure materials for construction, and the supplier will be required to deliver these materials within one month. The deliverables will be made upon signing of the contract after the confirmation that the supplier meets the standard or criteria of the buyer, that is, the materials to be supplied must meet the quality needed.
Location of work: The work will be done at the construction site, and the materials will be delivered on when required by the human resource person in charge.
Timelines: the project will be executed for three years with reviews done quarterly. The development time will run for two and a half years, and the warranty will be for one year and maintenance for six months. The total effort required to finish this project will be six days a week for the period of the project.
Delivery schedules: The materials should be delivered three months after the signing of contracts. The supplier will have to meet all the requirements before the delivery timeline. The goods should be supplied to the construction site and confirmed by the person in charge of the project immediately if they meet the required standards.
Standards: All the materials to be delivered should be of good quality, right quantity as specified and within the timeline required.
Acceptance criteria: the deliverables will be accepted only when they are of the required quality, required quality and within the time specified. Any faulty materials will be returned to the supplier, and the amount should be refunded or the materials to be replaced immediately to enable the project to be executed as planned.
Mode of payment and contract: The materials will be paid through a cheque after the deliverables are confirmed to meet the standard. The payment will come before the actual delivery but in case faulty materials are delivered or the broken ones, the supplier will have to refund or compensate for those materials. The human resource person will be in charge of the payment after the confirmation of acceptance criteria.
2.2 Potential types of contracts I would consider, their advantages and disadvantages
The first type of contract I would consider is the fixed price contract. Under this contract, a contractor reaches an agreement to supply goods (services or products) for a price that is fixed irrespective of the costs of actual material, labor, and equipment. If the costs exceed the amount agreed upon, then the supplier has to bear the extra costs (Harrin, 2014).
Advantages
The buyer has the least risk of cost since the scope is defined well. As such, a clearly defined scope of work which is completed by bidders who are competitive assists to control pricing as sellers bids on the basis of procurement statement of work (Symes, 2018).
Disadvantages
This type of contract may not be suitable for a project at hand especially when the buyer does not have enough knowledge that is intimate of the required work to document a comprehensive SOW. Second, if the SOW is not defined well, there may be disputes or disagreement, and even lawsuits over what is said explicitly in the SOW. This increases the fixed price contract risks (Symes, 2018).
Another type of contact I can consider is the time and material. This type of contract is especially fit when the effort level is uncertain, and as such, the buyer pays on a per-item or per-hour basis. So the hourly rate is fixed and known but the quantity, and therefore the effort level at the time the contract is awarded is unknown (Harrin, 2014). One advantage of this contract is that it provides high transparency and visibility level in the process of billing. Besides, the client also has the freedom of changing specifications unlike in the fixed price. The disadvantage of this contract type is that it does factor in the productivity of workers, and thus, workers have fewer incentives to be efficient (Harrin, 2014).
References
Harrin, E. (2014, May 20). Procurement Management 101: Three Types of Contract. The money files . Retrieved July 5, 2018 from https://www.projectmanagement.com/blog-post/7660/Procurement-Management-101--Three-Types-of-Contract
Pratt, M. (2006, May 22). How to write a statement of work. Computerworld . Retrieved July 5, 2018 from https://www.computerworld.com/article/2555324/it-management/how-to-write-a-statement-of-work.html
Symes, S. (2018, June 29). Advantages and Disadvantages of a fixed-price contract. Chron. Retrieved July 5, 2018 from http://smallbusiness.chron.com/advantages-disadvantages-fixedprice-contract- 21066.html
Watt, A. (2013). Procurement management. Retrieved July 5, 2018 from https://opentextbc.ca/projectmanagement/chapter/chapter-13-procurement-management-project-management/
