Procurement

Procurement can be defined as the acquisition of goods or services. Procurement (and contracting) is a process that involves two parties with different objectives who interact in a given market segment. Good procurement practices can increase corporate profitability by taking advantage of quantity discounts, minimizing cash flow problems, and seeking out quality suppliers. Because procurement contributes to profitability, procurement is often centralized, which results in standardized practices and lower paperwork costs.

All procurement strategies are frameworks by which an organization attains its objectives. There are two basic procurement strategies:

• Corporate procurement strategy: The relationship of specific procurement actions to the corporate strategy

• Project procurement strategy: The relationship of specific procurement actions to the operating environment of the project

Project procurement strategies can differ from corporate procurement strategies because of constraints, availability of critical resources, and specific customer requirements. Corporate strategies might promote purchasing small quantities from several qualified vendors, whereas project strategies may dictate sole source procurement.

Procurement planning usually involves the selection of one of the following as the primary objective:

• Procure all goods/services from a single source.

• Procure all goods/services from multiple sources.

• Procure only a small portion of the goods/services.

• Procure none of the goods/services.

Another critical factor is the environment in which procurement must take place. There are two environments: macro and micro. The macro environment includes the general external variables that can influence how and when we do procurement. These include recessions, inflation, cost of borrowing money, and unemployment. As an example, a foreign corporation had undertaken a large project that involved the hiring of several contractors. Because of the country's high unemployment rate, the decision was made to use only domestic suppliers/contractors and to give first preference to contractors in cities where unemployment was the greatest, even though there were other more qualified suppliers/contractors.

The micro environment is the internal environment of the firm, especially the policies and procedures imposed by either the firm, project, or client in the way that procurement will take place. This includes the procurement/contracting system, which contains five cycles:

• Requirement cycle: Definition of the boundaries of the project

• Requisition cycle: Analysis of sources

• Solicitation cycle: The bidding process

• Award cycle: Contractor selection and contract award

• Contract administration cycle: Managing the subcontractor until completion of the contract

There are several activities that are part of the procurement process and that overlap several of the cycles. These cycles can be conducted in parallel, especially requisition and solicitation.

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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