Procurement Management

Procurement management is an extremely important function in an organization, be it for project purchasing needs or for their regular on-going purchasing needs. Procurement management involves purchasing goods, materials and services from an outside organization. Procurement management involves two entities, a purchaser and a seller. The purchaser or the buyer examines the needs for purchasing various items for the project or other work in the organization. Purchaser then looks for the right sellers or suppliers who are capable to fulfil the purchasing needs.

Hence procurement management turns into a buyer-seller relationship. Since they are two different legal entities, they do not have direct control over each other. During procurement both the buyer and the seller have expectations from each other; they both will have responsibilities and obligations to fulfil. Hence in order to protect the rights of both the buyer as well as the seller, generally a legal contract or agreement is used. The legal agreement will lay down a framework defining the requirements of the buyer, responsibilities of both buyer and seller and the various terms and conditions.

Since two different legal entities come together in case of procurement, and there is a legal contract binding both sides, there is a legal side to this whole process. Hence procurement management needs to be carried out diligently. Generally a very well defined set of processes are used for procurement management. Below is a life cycle explaining the flow of activities that happens during procurement. It is all explained from the viewpoint of the purchaser or buyer.

All the above activities are carried out through three processes of procurement management as below:

• Plan procurement management – The procurement function starts with an activity called “make or buy analysis”, where in the buyer deliberates with their team whether there will be a need to buy certain things for the project or the entire work can be done by them. If the need to buy or procure is established, then the team starts planning for procurement. Planning for procurement is the most important step. Here the team will prepare a detailed statement of work, source selection criteria, important terms and conditions etc. so that all these information can be shared with prospective suppliers for the suppliers to be able to prepare and submit a proposal or quotation. During this process, all the requirements and expectations are documented in a formal bid document. The bid documents are generally referred as “Request for Proposal RFP”, “Request for Quotation RFQ”, “Request for Information RFI” depending upon the scenario.

The team may also like to do their own independent cost estimation for the work, so that they will have a clear idea of the expected cost of their purchase which they can use during proposal evaluation.

• Conduct procurement – Once the project team is ready with the above mentioned bid documents (RFP or RFQ or RFI”), the interested bidders or sellers are invited either through personal invitation or through some kind of advertisement. The interested bidders then prepare a proposal-cum-quotation and submit. Generally during this process and open conference known as “bidder’s conference” may be organized by the purchaser to clarify any queries the bidders might have raised. Once the proposals are received, they are duly evaluated using well-laid out source selection criteria. Then finally the shortlisted bidders are invited for final negotiation. The selected seller is then awarded a contract. At this stage, the most capable seller is selected and agreement is signed, so that the selected seller can now start working on behalf of the service requestor.
• Control procurement – Once the selected seller(s) start working as per the contract, the buyer has to monitor the work of the seller as per contractual terms. Both buyer and seller to ensure that the other party is fulfilling the obligations and responsibilities as per the contract. While the buyer monitors the work of the seller regularly, the seller also ensures that payment is released as per agreed terms. This process also involves inspection of seller’s work. During this process, if any claims or disputes arise, they are settled quickly as per the already laid out “Claim Administration Process” in the contract.

When the seller completes all the work as per the contract, the buyer evaluates, gives acceptance and also completes all payments to close the contact. Finally an audit may be conducted to understand the lessons learnt during this particular procurement relationship.

Procurement management will involve a lot of administrative work such as looking for capable sellers, floating the bid documents, soliciting responses and proposals, evaluating the proposals etc. Generally, a procurement department exists in most of the organization which can assist in carrying out all these activities saving the project managers and other managers effort so that they can focus on their core project work. The procurement department will also take care of drafting and signing of contracts taking necessary legal help.

Conclusion

Procurement management is a very important function. Every project will require some amount of purchasing. In some cases, just purchasing some materials or goods and in some cases outsourcing the entire project work to a third party service provider. Procurement management involves contract management as well and you can learn more about it in any online PMP certification training. Hence procurement management must be carried out very diligently.