In this lesson, we’ll learn how a company often obtains supplies for projects. Specifically, we’ll learn what project procurement management is and the process many companies abide by.
A First Glance
Meet Betty! Betty was just promoted at her job working for Super Toyland. Her first task was to complete a big project designing a new stuffed horse. While overseeing the project, she assigned the employees to certain tasks, and everything seemed to be going smoothly. That was until Betty realized that she needed glass eyes for the horse and yarn for the tail and mane. Super Toyland does not carry either of those materials, and therefore, she cannot finish the project without obtaining them from an outside source. It was at that time that Betty learned about an important area of her company, project procurement management, which explains how Super Toyland works with outside suppliers.
So you may be asking yourself, what exactly is project procurement management? Well, it is a collaboration with outside suppliers in order to obtain or purchase goods and services for projects. These relationships are often created based on a contract so that the needed items or services are received on time and meet the standards requested by the purchasing company. So, if we take our example from earlier, Betty would benefit from meeting with the purchasing department of her company so that they can set up a contract to purchase glass eyes and yarn hair from an outside supplier, in order to finish her project.
The Project Procurement Process
Like many aspects in a business, project procurement management has a process. This process helps ensure that the supplies and goods are ordered and received, and the project is completed. Often, this process consists of five parts: initiating and planning, selecting, contract writing, monitoring, and closing and completing.
Initiating and Planning
The first step, initiating and planning, is deciding which supplies and goods will need to be obtained from an outside source. Once the project has been decided, a list of supplies needed to complete the project is created. Once this is done, the company will then specify what criteria the supplies need to meet, such as timelines and specifications.
For example, if Betty were to complete this first step, she would first create the project, which is making a new stuffed horse. She would then create a supplies list, which might include stuffing, glass eyes, yarn, and fabric. Then, she would decide which items the company has or will make and which ones will need to be ordered and purchased from an outside supplier. In this case, Super Toyland has stuffing and fabric but needs to use a supplier for glass eyes and yarn. Betty then needs to specify exactly what kind of eyes, such as size, color, and quantity, as well as the timeframe in which she needs them. She will also need to specify the color, width, and length of yarn she will need.
Once the supply list has been completed and specifications have been decided, it is time to reach out to potential vendors and suppliers that can offer the items needed. This is the selecting process. Selecting can be done with conferences and/or communication with potential suppliers so they are aware of the needs of the company and are able to answer any questions. Bidders can then submit their proposals. Because Betty knows she needs glass eyes and yarn, the purchasing department looks for vendors that offer these supplies. They then decide to invite them to a web conference so they can explain the specifications, such as color, quantity, and timeframe. Once the conferences end, all of the potential vendors are asked to submit a proposal for Super Toyland to consider.
After all of the proposals are considered, vendors are chosen. The process of contract writing creates a document that outlines all of the conditions of the relationship between the company and the supplier. This is also the time when a timeframe is negotiated and decided so that the items are delivered on-time for project completion deadlines.
For Betty, the purchasing department informs her that they found a craft supplier that offers both glass eyes and yarn. Betty then outlines all of the conditions she needs met as far as size, color, and quantity, to name a few, and draws up a contract. She also knows that the eyes need to be delivered by the end of the month and the yarn needs to be delivered two weeks after that in order to complete the stuffed horse on time for a big toy show coming up. Therefore, she specifies in the contract the timeframe in which the supplies need to be delivered.
Once the contracts are signed, the next step is to monitor the process and the delivery progress, and to check the actual items to see if they meet the specifications outlined in the contract. This means that a company will make sure that the items are delivered according to the contract and will make sure the finished items are exactly what was ordered. For Betty, this means checking in with the vendor to make sure the eyes will be delivered by the end of the month and that the yarn will be delivered two weeks later. This also means that Betty will need to check the eyes and yarn when they arrive to make sure they meet the conditions of the contract. Are they the right color and size? Are there enough eyes? Is the yarn long enough?
Closing and Completing
Closing and completing is the final step in the project procurement management process. During this step, the contracts are completed and closed out. It is also the step when a company can evaluate the process and decide what went well and what needs improvement for future projects. For example, once the items have been delivered and checked to make sure they meet the specifications, she can then end the contract successfully. Then, she and the purchasing department can have a meeting to discuss what was good about the process. Was the supplier easy to work with and efficient? Were the glass eyes of great quality? Both of these questions and many more can help to define how successful the process was.
Project procurement management is the creation of relationships with outside vendors and suppliers for goods and services needed to complete a project. This process is comprised of five steps, including initiating and planning, selecting, contract writing, monitoring, and closing and completing. Done correctly, this process benefits all parties involved and has the potential to create long-lasting business relationships.
After finishing the video, you should be able to:
- Explain what project procurement management is
- Describe the five steps of the project procurement process