Category: Procurement

Introduction

Currently, the Mayo Clinic is looking for human resource services to aid them in the selection of laboratory equipment and other products from various providers. In order to determine if outsourcing will be advantageous or damaging to the organization, they must first determine whether it will be beneficial to the organization. The result is the completion of a cost analysis, which allows the company to choose the most cost-effective method of acquiring laboratory equipment vendors. It will be assessed in this situation whether or not outsourcing the service would be more cost-effective than undertaking direct supplier recruitment. Once the cost analysis has been done, the company can pick which method of costing will be employed in the future for the company. Aiming for cost savings for the company in issue, the supplier selection service that will be outsourced should result in cost savings for the company in question. If a company decides to outsource, the cost should be lower than the cost of direct hiring; otherwise, the supplier selection should be done within the company.

Targets of Preliminary Performance

Goals may not follow each other temporally, as suggested on the slide. They can be parallel if the sourcing team is large. Then suppliers will be found faster, however, fast communication is needed in the team.

Preliminary Performance

The company should be reliable to ensure that the items required in the clinic are delivered on time. This will prevent the clinic from incurring delays which may affect the quality of services provided to the patients. Delays may make the hospital to incur losses when patient seek medical services to another organization due to insufficient laboratory items. In addition, the outsourced company should have a follow up plan to allow the hospital to track where the supplier has reached. This will help in establishing a strong relationship between the hospital and the outsourced company. Regular communication with company will be crucial in ensuring the success of business-to-business relationship. The clinic will save on costs because after a long-term relationship the outsourced company may offer discounts for goods supplied. The clinic should also ensure that the company selected is within its budget. This is to avoid outsourcing a company that will charge high costs for the services. The delivery of high-quality equipment will improve the level of services provided in the hospital. In return, more patients will be referred to the clinic which will increase its revenue.

Levels of Services

The main three levels of service that will be required from vendors looks like this. The fundamental level, without which further work is impossible, is high-quality communication. This level is followed by a careful attitude towards clients and staff, colleagues. Only after reaching the first two levels it will be possible to consider the vendor and its service in terms of price-quality ratio, in general.

Type of Contract

The type of contract that will be employed is fixed price contracts. A fixed-price contract is one in which the payment amount is not contingent on the contractors usage of resources or time (An et al., 2020). In this instance, Mayo Clinic will award the contract to the outsourced company, which will then select the best supplier for laboratory supplies. This is in contrast to a cost-plus contract, which is meant to cover the contractors costs plus a profit margin. By using this type of contract, Mayo Clinic will not incur the risks of cost overruns. The extra costs will charged to the outsourced company. Fixed prices can necessitate retailers determining the price of each item in advance (An et al., 2020). While fixed-price products can be purchased more quickly, bargaining can be used to set the price for an entire set of things being purchased, thereby shortening the time required for bulk purchases. The fixed rates will assist the hospital in budgeting for the necessary laboratory items. Additionally, fixed-price items can be used to estimate the worth of an inventory in advance, such as for insurance estimates.

Evaluation Criteria: The List

When evaluating the best company to outsource the services for supplier selection, a financial proposal will be provided to companies that offer supplier selection services. The proposal will include how much the clinic is willing to pay. This will help in selecting a cost effective company to avoid outsourcing a company with high rates. The financial proposal should as well be transparent to that the company being outsourced is aware of the budget of the clinic. The company should have the supplier information and databases to track them incase the clinic has a complain. For example, if a supplier delivers faulty items, the clinic should have means of reaching out to them through the outsourced company to replace the items. This will prevent the clinic from incurring losses. Different criteria will be applied to different business units as they have different tasks, responsibilities and areas of activity. These units are associated with completely different areas of business, and somewhere constant communication is needed, and somewhere it can be minimized thanks to technology. It is impossible to fit all units under the same criteria.

Number of Vendors

Mayo Clinic will outsource only one vendor. In addition, the organization will identify the appropriate vendors to deliver the laboratory supplies necessary by the clinic. One business will enough, as the hospitals objective is to save money by cutting its expenses. As a result, if a single firm is capable of providing all essential services, there is no need for two or more enterprises to select suppliers. The outsourced organization will bear the cost of searching for and selecting the best suppliers. The clinic will only pay the amount agreed upon when the contract is signed.

Comparison of Cost Analysis

When comparing the cost effectiveness and the cost benefit, the cost measure for both is expressed in terms of financial resources. When comparing cost effectiveness and cost benefit, the cost effectiveness benefit is assessed in units of effectiveness to the organization, while the cost benefit is measured in the monetary value benefits the company receives (Aamer, 2018). This because it provides the benefits in monetary terms, the cost benefit analysis is used to determine the value of a contract. The benefits would amount $120,000 in total. Using the benefit-cost ratio formula, BCR = $120,000/$89,000, or 1.348. Given that the value is positive (and the overall benefits exceed the whole expenses), the cost benefit analysis implies that hiring a supplier with the above expenses demands would be a good option for the organization.

Timeline

The activities to be included in the contract between the Mayo Clinic and the company to which they will outsource their services determine the timeline for completion of the contract. Purchases will be planned for 1-2 months, this is one of the initial stages in the timeline, followed by the rest, no less important. The total period of acquisition through select sellers is more than four months, which will need to be reduced to three months in the future. This period includes a request for a response from the seller, vendor selection, communication, and the drafting of the contract.

Communication Details

In general, it is always important to pay attention to the speed of the project flow. Business is entirely based on human needs, is created by human hands, but it is communications that can slow down the process and achieve results. It is also very important to work on conflict management.

Recommendation

The cost analysis is to help Mayo Clinic to determine whether outsourcing for supplier selection helps in saving on costs or not. Based on the findings, I would recommend outsourcing for the organization. This is because it reduce the costs and time incurred when looking for reliable suppliers. Cost benefit analysis is data-driven as it enables evaluation of the contract free of personal biases and opinions. Organizations can utilize cost benefit analysis because they can determine the money value when they decide to outsource their services.

Usefulness of Outsourcing

The use of outsourcing platforms will allow Mayo Clinic to be accessible to more patients, as well as to keep abreast of changes in large areas. This is due to the fact that outsourcing workers can cover very large areas with an information grid.

Conclusion

Advancing forward has resulted in numerous changes for organizations who opt to contract. They have shifted their emphasis in a variety of ways. The primary change has been in how firms see outsourcing and its benefits. When we look back at the origins of partnering with third-party organizations and individuals, we can see that financial considerations contributed a crucial influence. For some organizations, offshoring was solely for the aim of saving money and decreasing costs thus the need for carrying out a cost analysis. Only a few organizations considered outsourcing as a convenience for them to focus on the major issues even though the outsourcing would be more costly. Advancement in technology has enabled most companies to carry out these services internally by digitizing using the latest technologies. Nowadays, significant progress has been made on this front, and organizations are motivated by a variety of factors to advance while delegating some functions to external teams. Based on all of the above, it is considered very rational to use outsourcing in the framework of the discussed medical business. The decision was made to buy from third party outsourcing vendors until the clinic can afford independent and self-sustaining outsourcing.

References

Aamer, A. M. (2018). Outsourcing in non-developed supplier markets: a lean thinking approach. International Journal of Production Research, 56(18), 6048-6065. Web.

An, Q., Wang, P., Emrouznejad, A., & Hu, J. (2020). Fixed cost allocation based on the principle of efficiency invariance in two-stage systems. European Journal of Operational Research, 283(2), 662-675. Web.

Dekker, H. C., Kawai, T., & Sakaguchi, J. (2018). Contracting abroad: A comparative analysis of contract design in host and home country outsourcing relations. Management Accounting Research, 40(1), 47-61. Web.

Properly managing a business is a complicated task as it involves many processes that often co-occur. Procurement is among the essential aspects as it allows a company to receive the required goods or services from other organizations. Eatough (2014) states that executives often underestimate the importance of procurement, however, 69.9% of corporate revenue is directed toward externalized, supplier-driven costs (para. 2). Thus, a procurement manager should understand the basic principals of this business aspect to help enhance the organizations operations. This paper aims to examine the project procurement process, identify the most valuable output, study contract types, and develop a project monitoring process.

Project procurement involves acquiring the needed resources for a particular operation within a company. According to Wilson (2015), any company needs human capital, materials, equipment, and finances. Those are required as without them an establishment would not be able to perform its daily operations. Once a project manager has identified everything that will contribute to completing a task, he or she utilized the services of the procurement department. The primary objective of the employees from it is to ensure that everything is delivered on time and at the lowest price. Therefore, procurement contributes significantly to project completion within an organization.

It is essential to understand the course of project procurement to be able to utilize it in practice. Diagram 1 displays the five primary steps required for successfully initiating and completing the work. The project procurement planning process describes how a department makes decisions when fully filing a plan. The first step is to identify goods or services that will be purchased and request prices and terms from a contractor. For it, requests for proposal (RFP) and request for quotation (RFQ) are typically utilized (Wilson, 2015). Those are standardized approaches that help a manager locate an offer with the best price and the best conditions. The second step involves evaluating different proposals and selecting an appropriate one. Both companies have to sign a contract that would identify responsibilities, timeframe, and financial agreements. Next, the procurement department should ensure that the process is carried out correctly, thus monitoring is required. At times changes should be applied to previously signed contracts, which is the responsibility of the procurement manager. The final step once the previous requirements are fulfilled is closing the project.

The most valuable output of the plan procurement process is selecting an appropriate contractor. The step involves risk management and proper calculations to ensure that the company receives what it needs to finalize a project. Thus, if a manager chooses an inadequate organization to work with, the rest of the process and project completion will be compromised. An employee should evaluate whether the chosen company is reliable as any delays or insufficient quality of items would set back the entire operation.

Acquiring a legal agreement that would identify each partys responsibilities is necessary for procurement. According to Wilson, contracts are a form of obtaining resources that a company can use (p. 5). Clearly stating essential aspects of an agreement helps to minimize possible risks for both parties. Fixed-price contracts are aimed at receiving the products or services regardless of the time needed (Wilson, 2015). Thus, the client pays a set financial compensation, while the contractor may have to exert more efforts to deliver the order, which would not influence its price. Wilson (2015) states that a variation of this agreement can be in place, which is referred to as cost reimbursement. In this case, the customer pays for required items, and an additional fee for work is added. Finally, there is a time and materials contract, which includes a payment from the customer for both utilized materials and efforts that the contractor spent on completing the project (Wilson, 2015). Thus, a variety of options exists that one can choose from to ensure the best financial outcomes of operations.

Risks are associated with every type of contract; however, for each of them, a different party has more to lose. In fixed-price agreements, the seller has the most risk when unexpected issues occur during the fulfillment, as the company will not be able to receive financial compensation. A cost reimbursed agreement can be applied to mitigate this issue as it requires additional payment for the seller. Time and materials payment has the most risks for the buyer as in case the contractor needs extra time to complete the project the total price increases. To mitigate those risks, a manager should adequately evaluate the criteria for the products and services that are required, review RFP, and RFQ and choose an appropriate contract.

The project monitoring process helps track the procurement of orders for the project. According to Wilson (2015), the manager should oversee the contract, suppliers, and their performance. In general, the process should consist of planning, creating appropriate documentation, signing contracts, and approving changes to them is the beginning of the monitoring process. Additionally, the employee should monitor the performance reports and data to ensure that the task will be completed by a deadline (Wilson, 2015). Tools and control systems should be applied to fulfill this task.

Specific selection criteria that describe general requirements can be applied to each project. Project Management Institute (2017) states that a manager should review a companys management approach, their understanding of need reflected in RFP response, time, cost, and quality of products. Additionally, a capability to fulfill an order with regards to human resources should be studied. Another important aspect is their risk response strategy, business type, and past performance (Project Management Institute, 2017). This is a basic checklist that helps identify whether a contractor is reliable and safe.

Ethical concerns should be considered when identifying source selection criteria for procurement, especially regarding human resources outsourcing. Firstly, it should be based on fairness, integrity, and transparency (United Nations, n.d., para. 4). A professional should adhere to the firms standards as well as generally accepted moral principles. Additionally, such work can be associated with ethical risks such as conflict of interest, corruption, collusion, coercion, and fraud (United Nations, n.d., para. 4). The objective of a procurement manager should be to avoid such issues and report them when necessary to the companys executives.

Risk management should be applied to the procurement planning process to ensure the final result and minimize possible financial losses. Wilson (2015) states that risk is a potential influence producing a positive or negative outcome (p. 3). It can be argued that most of a companys operations involve the aspect, thus, correctly understanding how to manage possible outcomes is necessary. The basic approach to the issue is monitoring the processes throughout order fulfillment (Wilson, 2015). Additionally, adequately chosen contract type and company that corresponds to selection criteria help ensure positive outcomes.

Overall, procurement management is among a companys essential processes. The factor ensures that project managers receive the resources they require to complete a task. There are various risks associated with procurement, some of which can be mitigated through proper contracts. Additionally, adequate selection criteria should be applied to ensure positive outcomes. Finally, a procurement manager should monitor the process and comply with ethical standards in his or her work.

References

Eatough, M. (2014). Leaders can no longer afford to downplay procurement.Harvard Business Review. Web.

Project Management Institute. (2017). A Guide to the Project Management Body of Knowledge (PMBOK Guide) (6th ed.). Newtown Square, PA: Author.

United Nations. (n.d.). Ethics in procurement. Web.

Wilson, R. (2015). mastering risk and procurement in project management: A guide to planning, controlling, and resolving unexpected problems. New Jersey, NY: FT Press.

Introduction

Procurement is the process of acquiring goods and services for a particular project. This process aims at promoting fair and open competition from among the vendors while minimizing cost and meeting the buyers needs.

A procurement management plan is essential in the procurement process as it outlines requirements for the project, documentation and completion of the project. The plan plays a major role in directing the process of procurement. This ensures successful completion of the project because the necessary changes made at the right time.

The plan identifies the products and services needed for the project, the types of contracts to be used for the entire project or in parts of the project, the approval of the contact, coordination of procurement processes by various individuals involved, and the metrics used in measuring activities in the procurement process.

Background of the Study

On 21^st august 2007, Mirage Resort (MGM) and Dubai World entered into a contact for the construction of a grand gaming center CityCenter in Las Vegas. The details of the contract were drawn up as agreed by the two companies, in preparation for the construction process.

However, as is in line with construction requirements, procurement of the goods and services required for construction has to be done to guide the construction process. Procurement is in turn guided by a procurement plan that includes details of items and services required for the construction.

Purpose of the Study

This study outlines the procurement plan that contains all items and services required for the construction of the building in the agreement contract between the two companies. Such a study is necessary to guide the purchasing process so that all required items are obtained in the right manner that is cost effective.

The study specifies the bidding process so that appropriate vendors are selected and awarded tenders for supplying the required items, which measure up to the quality standards as intended by the purchaser.

Methodology

Information for this study was gathered from documented sources about the procurement process. These include journal articles and books on procurement. Information about the required items and services was obtained from the project manager, the lead engineer, and design technician through interviews and analysis of past projects.

Literature Review

The Role of the Project Manager

The project manager is a key figure in the procurement process. He should ensure that the plan is comprehensive enough to facilitate the entire project and see it to completion. He liaises with the project team, the purchasing department, project owners, and other players involved in coordinating procurement activities and process (Gido & Clements, 2006).

He leads the project team in identifying all items and services needed for the project. His office then scrutinizes the procurement list to ensure it is accurate before handing it to the purchasing department that evaluates the viability of purchasing the items of producing them internally. This evaluation is largely based on cost effectiveness, quality required and efficiency of the process (Gido & Clements, 2006).

Parts of a Procurement Plan

Identification Details

This is the initial section of the plan which contains the name of client, the title of the project, a brief description of the project itself, the period of the project and the estimated cost of the project. These are used for basic identification and for legal purposes in cases of dispute or conflict of ownership between the two owning companies (Egeland, 2009).

List of Items to be procured

The plan should give a list of items that must be procured and the reasons as to why they cannot be generated internally. Deadline for the provision of these items is also included in the plan so as to meet the project schedule for timely completion of the project.

Technical information or detailed specifications for the items is given to ensure that the right items are procured. Individuals in the relevant fields who should approve the procurement are also listed in this section. These may include the project manager or design technician (Gido & Clements, 2006).

Type of Contract to be Used

Different types of contracts for procurement include firm-fixed price contracts, time and materials (T&M) contracts, cost reimbursable contracts, and many others. The type of contract used depends on the nature of items or services in the procurement list.

In other cases, a single type of contract can be used for the entire project. This will require the project team and purchasing department to specify and define all items in terms of quantities and dates of delivery (Benslimane, Plaisent & Bernard, 2005).

Contract Approval and Decision Criteria

This section gives directions concerning the steps that must be followed before contracts are approved. The processes vary according to various companies.

Large organizations follow formal tendering procedures and selection of successful bidders. The decision maker in such a case is usually a tendering committee as chosen by the company. The process should be transparent and competent bidders in terms of cost and quality reputation are awarded the tenders (Egeland, 2009).

Vendor Management

Those awarded tenders for the provision of items and services need to be managed and supervised so that they deliver them in good quality, quantity, and time as agreed in the tendering agreement. This role is done by the project manager and purchasing department (Egeland, 2009).

Performance Metrics for Procurement Activities

Metrics is used to ensure the project goes on as scheduled and records progress of various vendors and their performance to point out inconsistency and inefficiency. This information can be used later in future procurement for selection suitable vendors (Egeland, 2009).

The Procurement Plan

Identification details

The clients in this project are Mirage Resort (MGM) and Dubai World. The title of the project is CityCenter and the project involves construction of a gaming center in Las Vegas. The project will begin on 1^st of November 2007 and last to 31^st of December 2008. This project is estimated to cost $5 billion (Gido & Clements, 2006).

Items to be procured

The project team, through its project manager, has presented the following procurement items that they determined as necessary for the project. The list has been reviewed by the office of the project management and approved as correct. They, therefore, should be submitted to the contracts and purchasing department for purchasing (Benslimane, Plaisent & Bernard, 2005).

Roofing tiles needed for constructing the roof. We can not make this item and will have to be purchased externally. Deadline for its delivery is on 23^rd august 2008. Electrical appliances are needed for supplying electricity throughout the building.

We could provide these internally, but the cost would be higher compared to that of procuring them. These should be delivered by 1^st of July 2008.

Drainage facilities are needed for draining sewage from the building. We could also provide these, but we can not meet the deadline as stated on the 1^st of January 2008. In order to restrict the project to the scheduled timeframe, it is recommendable that they are purchased externally (Hachmi, Moslemi & Campbell, 1990).

Sand/gravel is needed for the construction of the floor and walls. While we are able to manufacture blocks, we will have to procure gravel as we are not able to provide. These should be delivered by 1^st of December 2007. Wood is needed for constructing the roof.

We cannot provide wooden and has to be delivered by 15^th May 2008. Electric wiring services are required for connecting the entire building with electricity. We do not have experts for this service, so we shall have to procure. The services should be availed by 10^th July 2008 (Hachmi, Moslemi & Campbell, 1990).

Plumbers are required to install water systems and gas in the building. Although we have our own internal plumbers, they are not experts and familiar with handling large buildings. The quality of their services may be lower, thus risking the entire operation. We, therefore, have to procure these services from experts (Egeland, 2009).

The above list has been reviewed and approved by:

1. Paul Watkins, project manager.
2. Rick Meyers, head project management office.
3. Isabel OBrien, design technician.

Type of Contract to be used

The entire procurement process will use the Fixed-Price with Economic Price Adjustment contract. We preferred this type of contract as it protects the contractor from economic fluctuation that is likely to affect prices of items and labour during the period of performing the contract.

Economic fluctuations have been and continue to be experienced in the USA and the world at large. Besides, this is a big project that will take a long time to complete. Within the length of time, more fluctuations are likely to occur as the global economy continues to dive lower (Egeland, 2009).

The Economic Price Adjustments (EPAs) are calculated based on actual costs incurred, current market prices, and or cost indices of the materials and labour. At the completion of the project, a report on EPA will be submitted by the contractor, who together with the contracting firms will negotiate a reasonable price (Egeland, 2009).

Contract Approval and Decision Criteria.

A cost analysis on the items to be procured will be carried out. The cost of producing Items internally will be compared with that or purchasing them from outside. Besides cost, quality of the items will also be compared and the time frame for their delivery.

The process of approving the contracts will try as much as possible to cut costs, ensure good quality and schedule for the project. Items that can be provided internally but on a longer duration of time will be purchased so that the project is not derailed. Bearing all these considerations, the contracts committee will approve the procurement proposal (Gido & Clements, 2006).

The purchasing and contract departments will then send solicitations to vendors to bid for the provision of the items. Vendors will return their proposals to the same committee with all required quotations and specifications as outlined in the solicitations.

The committee will then embark on the process approving the proposals. It will also determine which proposal will meet the criteria as required by the project team and purchasing and contracts departments (Gido & Clements, 2006).

The approval process is categorized by the costs involved. Items costing less than $500,000 will be approved by the project manager alone. Those costing above this figure will have to be approved by the Contract Review Board. This board comprises the project manager, purchasing and contract departments, the finance department, and the project management office.

Representatives from each department as stated will sit on the board. Because of the high cost, approval will have to be carefully done so as to ensure that the items merit the cost by quality and quantity. This will also reduce incidents of fraud and corruption (Benslimane, Plaisent & Bernard, 2005).

The Criteria in selecting and awarding contracts will be guided the need to cut costs, work within the provided time frame, and ensure the quality of the project. Selecting suitable vendors will be based on the capability of the vendor to deliver items by the dates specified, thereby beating the deadline.

The chosen vendor should be able to provide goods and services of high quality, the costs should be reasonable; not too high, the items to be delivered by the vendor should not be those that can be produced internally, and the vendors reputation will be used to determine their suitability (Gido & Clements, 2006).

Depending on the costs involved, as stated above, the criteria used will be reviewed by either the contracts review board or the project manager.

In cases of contracts for items and services that are relatively few, procurement agents shall be combined to share the services amongst them to create a centralized procurement system. This will create economies of scale, which will in turn lower operating costs (Gido & Clements, 2006).

Vendor Management

After suitable vendors have been selected, the team manager will be fully responsible for managing and supervising the vendors. In order to ensure vendors meet their delivery deadlines, the project manager and purchasing and contract department will schedule for weekly meetings with the vendors to assess the progress in plans to avail procured items (Benslimane, Plaisent & Bernard, 2005).

In these meetings, tender specifications will be run through by both vendors and the project manager to ensure that all details as specified are met.

The purchasing and contract departments can also perform quality tests on the items to ensure that they meet desired standards. Assessment of how far the vendors are in delivering the items will also ensure that the items all will be delivered in good time (Benslimane, Plaisent & Bernard, 2005).

These meetings will also be used by both vendors and the involved departments to make necessary alterations and modifications to the procured items.

Deadlines can be adjusted as will be necessary and possible, quantity can be increased or decreased depending on new developments in the project such as adjustments in cost, or new vendors sought in good time if existing ones apologize for not being able to deliver the items as required (Egeland, 2009).

These meetings are very important to keep track of the delivery of items and services so. Adjustments are made early into the project so that the schedule for the project is maintained.

Items will be delivered according to the just-in-time system of delivery. In this case, once the quality and quantity of items has been certified through the meetings, vendors will deliver the items in a span of one to three days prior to the deadline.

This is in an effort to reduce the risk of the items getting destroyed during storage, lowering storage costs and security risks, and avoiding inventory costs (Benslimane, Plaisent & Bernard, 2005).

Assumptions

This project is based two major assumptions:

1. The summer period will last until July next year as is always the case.
2. The US Dollar will maintain its current value. However, if it surges, its depreciation rate will be less than 5%.
3. The rules and regulations concerning construction in the state of Nevada shall stay consistent as they are today for the entire period of the project.

Performance Metrics for Procurement Activities

The project manager will design performance metrics that will assess vendor performance. The metrics will be rated on a scale of 1-4 and will feature the following details:

• Vendor.
• Quality of product.
• Timely delivery.
• Cost of development.
• Time used in the development.
• Cost per unit.
• Efficiency of transaction.

1. Excellent efficiency.
2. Good efficiency.
3. Unsatisfactory.
4. Very poor efficiency.

Besides the rating, actual values will be indicated for each vendor so that they can bear future reference when selecting them for more procurement.

Conclusion

This procurement management plan provides a comprehensive step-by-step process that will be followed in the CityCenter project. A formal procurement plan as this may seem too bureaucratic and cumbersome to many, but the benefits of adhering to the plan surpass the hectic in following the plan.

The plan is intended to achieve three major things. It is to guide the contractor to spend the right amounts of money for the products and services. This need not be the lowest cost, but the most appropriate in proportion to the services and products given.

The plan will also ensure that the project is done and completed within the specified time period. It organizes delivery processes so that delay of items does not cause the project to delay in completion also.

Lastly, the plan is useful to help the contractor not to overlook important steps that may cause the project to stall or some bit of work to be undone. If these steps are not accomplished, the quality of the entire project might be compromised. This could also be costly to the project owner.

Reference List

Benslimane, Y., Plaisent, M., & Bernard, P. (2005). Investigating Search Costs and Coordination Costs in Electronic Markets: A Transaction Costs Economics Perspective. Electronic Markets, Vol.15 (3): pp.213-224.

Egeland, B. (2009). The Project Procurement Plan. Retrieved from https://pmtips.net/

Gido, J., & Clements, J. (2006). Successful Project Management. KY: Thompson South-Western.

Hachmi, M., Moslemi, A. A., & Campbell, A. G. (1990). A New Technique to Classify the Compatibility of Wood with Cement. Wood Science Technology, Vol. 24(4): pp.345-354.

Reasons for Procuring to be More Expensive by 2% for BBC Technology Compared to Other Companies

The reasons for procurement to be more expensive for the BBC Company than for the rest of the organizations can be explained by its size. With a range of affiliates all over the world, the organization required a large sum of money to carry out the procurement.

Reasons for Outsourcing to the Third Party Being Cheaper than to the BBC Technology

While collaborating with the BBC Technology in order to enhance the quality of the services provided by the organization seemed an obvious solution to the companys concerns, the decision to be made was fraught with a range of serious financial consequences. By selling BBC Technology, the organization could save the money required for outsourcing from the third party and at the same time increase its revenues, which would have been impossible with BBC Technology around.

Reasons for Choosing Privatisations

The reasons for the company to resort to privatizations are, in fact, quite basic  by carrying out the specified actions, the company invested into the staff, who would have faced the threat of losing their jobs otherwise. While considered unreasonable at first due to major losses taken in the process, the given step helped BBC gain the credibility and reputation that it had been striving to attain.

In addition to the above-mentioned advantage, the approach designed by the organization helped BBC improve the quality of its services.

Finally, the process of knowledge sharing, which the outsourcing approach launched in the BBC Company, can be viewed as a major breakthrough. This addition to the information management strategy, which the organization used to follow previously, will clearly help coordinate the work of the staff in a more adequate manner. As a result, the companys performance and overall competitiveness have been increased.

BBC and Porters Competitive Forces Model

From the perspective of Porters Five Forces Model, the choice made by BBC in terms of using outsourcing as the basis for its procurement strategy and the further expansion into the global market can be considered rather reasonable. Seeing that the threat of new entrants is rather high in the specified industry, the necessity for the company to increase its performance by acquiring new experience and increasing its staffs competence is rather obvious. The threat of substitutes, however, can be deemed as average, seeing that there are very few alternatives to news media in the realm of the 21^st century.

The bargaining power of buyers, in its turn, is rather high, as the latter is capable of identifying the quality of the news by comparing the information provided by the BBC Company to the actual facts. With the help of modern media, the data concerning inaccuracies or false evidence will be transferred from one potential customer to another, thus, launching the chain reaction of the companys demise. The bargaining power of suppliers, in its turn, can be considered average.

Risks and Advantages of Outsourcing before the Deal

For the BBC Company, outsourcing presupposed benefiting financially in an otherwise unfavorable scenario. In addition, the company upgraded the skills of its staff and the quality of its services. However, BBC risked failing to meet the demands of the target audience by betting on the wrong company for outsourcing; in the worst-case scenario, the organization would have lost a large number of its viewers.

Introduction

Procurement is an essential part of business activities because there are many benefits that are accrued from the process. The evolution of market economies has made it important for companies to focus on effective procurement activities because there has been a great need to improve the competitiveness of the production process. To maintain a competitive position in the global market, it is essential to have cost effective procurement processes to ensure an organization provides quality products at low costs (Cavinato, 1992). Procurement is an important part of the organizational processes, and a lot of attention should be paid to ensure the decisions made are right. However, there are various drawbacks associated with procurement, and managers should aim at reducing such challenges.

Procurement activities in an organization

According to Warrillow (1995), professional purchasing circles define procurement as covering not only the purchase of goods but also operations such as inward transport and stockholding para. 3. Procurement process controls all the production processes, the aspects of products, and other logistic processes in an organization. The activities of procurement involve requesting production materials, processing purchase orders, and establishing other contractual relationships with the suppliers. Today procurement has been focused on cost reduction mechanisms, quality improvement, and promoting the corporate social responsibility of an organization, among other aspects which embrace modern developments Warrillow (, 1995).

It is the obligation of the procurement managers to determine the capacity of the vendors so that they can determine whether to accept their supplies or not. The size and amount of supplies allotted to a particular supplier depend on the resources and credibility of such a vendor. As such, the organization must make a decision about the vendors to deal with. Managers have an obligation to select the vendors on a competitive basis so that the company can purchase high-quality products at the best price possible. On the other hand, the suppliers must be ready to provide supportive services to the company so that they can be accepted (Thomson & Mayo, 1960).

Importance of procurement activities

Procurement activities add value to the activities of an organization in the following ways:

Strategic perspectives

Procurement has encouraged companies to focus on globalization strategies as a way of promoting the performance of businesses. Outsourcing goods and services from foreign countries have become a common practice, and companies have made tremendous progress in the production and marketing processes. More opportunities to expand businesses have emerged with the emergence of multinational partnerships. As such, companies can interact and exchange various programs in global markets. Firms have changed their strategic perspectives due to the introduction of the global markets. It is through international trade that firms have been able to expand their operations (Mehra & Inman, 2004).

Procurement is applied when a company has adopted a differentiation strategy. This strategy is used when the managers have the desire to have unique products that are competitive in the market. Differentiation strategies can only be applied by liaising with different suppliers to provide different kinds of materials for the production process. Differentiation strategy is applicable when there is intense competition in the market, such that many companies are manufacturing almost the same product. To acquire more customers, a company specializes in manufacturing many products with different characteristics. This can only be achieved by procuring commodities from different suppliers. Therefore, procurement is used as a tool for implementing a differentiation strategy (Dimitri, Piga & Spagnolo, 2006).

Builds better relationship between customers and suppliers

Managers must consult their customers to identify their demand before placing bids for products from suppliers. As such, the suppliers should manufacture products that will satisfy the needs of the consumers. The managers act as a link between the suppliers and the consumers because there must be a link between the two parties for a better market system. With the introduction of global markets, suppliers have an obligation to have knowledge about the needs of consumers all over the world. A strong relationship develops between the consumers and suppliers due to the procurement activities (Chang, Markatsoris & Howard, 2004).

Suppliers associate with companies with a good public image, and it is important for managers to enhance good corporate social responsibility. When organizations embrace good CSR strategies, there is a good public image. Since consumers of products are the public themselves, companies with a good public profile promote demand for their products. As a result, the link between the suppliers and the consumers is established (Burt, Dobler & Starling, 2003).

Biding process

It is through procurement activities that an organization is able to tender some of the processes. The binding process adds value to the procurement activities of an organization in that it enables the organization to obtain the most effective organization in providing supplies. When firms are allowed to tender the provision of certain services or goods, it provides opportunities for competition among firms or suppliers. When competition prevails, it becomes possible to acquire the best supplies. As such, the activities of an organization are improved because the best supplier is allowed to supply products to the company (Cavinato, 1992).

Additionally, the binding process adds value to the processes of an organization by improving the relationship with all stakeholders. It is important to note that the binding process allows the organization to get the best quality services and products, and as a result, the performance improves. The welfare of the stakeholders is improved when the performance of an organization is promoted. Some of the stakeholders who benefit from such a process are shareholders, customers, and others (Cavinato, 1992).

The tendering process provides opportunities for an organization to interact well with other firms in the market. Some companies outsource the services of the tendering process, and this makes it possible to have a good relationship with other firms in the market. As such, a company must have a good relationship to acquire tenders from other companies. To achieve a better public image, it is important for the management to improve its corporate social responsibility status. By promoting corporate social responsibility, the company adds value to all stakeholders. Thus, tendering can be said to be a factor that encourages the managers to promote its public image, and this adds value to all activities of the company (Cavinato, 1992).

Make/buy decision

A make/buy decision must be made to determine whether a company should be involved in procuring certain products. As such, managers must evaluate the costs to be reduced when the company procures than makes the products within its own premises. It is important that the managers should drop the decision to procure if the costs exceed the costs of manufacturing the products internally. The managers may also decide to procure even when the costs exceed the cost of making the products internally when the managers evaluate that the process of manufacturing the products may hinder other processes (Thomson & Mayo, 1960).

Procurement provides an organization with the opportunity to improve its own facilities by concentrating on improving areas in which it can perform best. As such, a manager focuses on improving the strengths as well as reducing the weaknesses associated with a business. Outsourcing some commodities reduces strain on the resources of an organization and allows the managers to concentrate their efforts on improving the available resources. There is enough time to focus on how to promote the performance of all employees, and this enables the managers to reduce employee turnover. Employees are motivated positively when they are able to provide better outputs as a result of the motivation they get at the workplace (Mehra & Inman, 2004).

Sub-contracts

Procurement has encouraged the development of sub-contracts among organizations, and this has led to the establishment of more market opportunities for many companies. Some companies do not have the advantage of getting tenders, and they may get out of business, especially when there is low market performance. The establishment of sub-contracts allows companies with huge tenders to get bids for small business activities, which they may not be able to provide in a cost effective manner.

This strategy has improved the performance of many small companies because they can sustain themselves in all seasons. Subcontracts provide opportunities for the main company to have better and efficient service delivery systems. Procurement can, therefore, be said to add value to the welfare of small growing companies in the market by allowing them to participate in the tendering process (Dimitri, Piga and Spagnolo, 2006).

Subcontracts provide opportunities to improve the performance of a company because companies with the best services and goods are contracted to offer their services in areas where the main company has a weakness. Subcontracts create good relationships between companies because there is a sharing of resources and other essential facilities. This partnership improves the relationship between and among companies in a given field. As such, the companies gain from the synergies attributed to doing jobs together (Mehra & Inman, 2004).

Proper management of commodity risk

The process of procurement spreads risks among different organizations because the ownership of the property is divided among different companies. The companies participate in sharing the risk and costs associated with handling the goods. There are many risks associated with handling goods and services within an organization, and it requires securing such risks by covering the risks. When an organization outsources commodities, the risks are reduced, and this makes it possible to provide competitive prices. In modern business environments, many companies have developed to cover risks associated with transacting in different businesses, and this has provided opportunities for companies to protect themselves from unknown eventualities (Chang, Markatsoris & Howard, 2004).

It is the obligation of the supplier to cover for any risks associated with the commodities before they are accepted by the company. This enables the company to clear off its responsibility of taking the risk of handling the commodities within its premises. The transfer of risk to a third party is very important for large organizations because in case an eventuality occurs, the company does not incur a lot of losses. Procurement is one way of managing property risk, and it provides better opportunities for improving the performance of the company. This is because instead of investing resources in managing the risks, the company invests in other productive areas (Tage & Schary, 2007).

Drawbacks of procurement activities

On the contrary, procurement can be said to hinder the achievement of some organizational goals. First, managing international sourcing has been a great challenge to firms, and many hindrances concerning cross-border procurement activities have affected many organizations. Various countries have different legal systems that affect trade among countries. Trade barriers have been imposed by various governments, and this has hindered procurement processes among companies located in different countries (Morledge, Smith & Kashiwagi, 2006).

There is a need to train employees about the procurement procedures, and this creates extra challenges for the managers. Employees need continuous training about the procurement systems, and this imposes extra costs and obligations to the organization. Procurement procedures are complicated and adequate knowledge is required to promote efficient organizational processes. Organizations require having employees with knowledge about the legalities that are required to promote procurement activities within specific jurisdictions. Therefore, procurement creates extra obligations to firms and can be perceived to create more costs for the organization (Tage & Schary, 2007).

Collaboration between the departments of an organization is very important during the procurement process, but many managers find a big challenge to unite all the affected departments. The decisions about procuring certain commodities should be developed from all the stakeholders of the organization to ensure that the appropriate products are purchased at the right price. As such, managers should collect ideas from all departments to come up with a collective decision. Failure to incorporate the ideas of all stakeholders may hinder many other activities of the organization. Procurement is a very important activity of an organization, and managers may cause complete failure of other activities when poor decisions are made (Chang, Markatsoris & Howard, 2004).

Working in diversified environments is a common scenario in procurement, and this has prompted companies to establish strategies to overcome the differences that arise due to working with different stakeholders. There are many challenges associated with working in diversified environments, such as cultural conflicts and other barriers. During a procurement process, an organization may find it impossible to work within some environments due to differences in legal systems, religion, political, or any other system that has an impact on the activities of marketing (Tage & Schary, 2007).

There are many procedures involved in the procurement process, and it may take a lot of time to acquire assets that are urgent to an organization. In the case of government institutions, these procedures must be adhered to, and there are no opportunities to skip the protocols established. This may cause delays in important processes within an organization. In the international business, various legal systems have been established which should be followed, and failing to address such issues may jeopardize most of the activities of an organization (Burt, Dobler & Starling, 2003).

Conclusion

Procurement has promoted the development of businesses in the modern world. To achieve this, managers have applied different strategies to bring together different stakeholders so that they can improve the global markets. It is notable that procurement has created more opportunities for business people, governments, consumers, and other stakeholders. On the other hand, there have been several challenges associated with procurement, and these have hindered a smooth process. Organizations have encountered problems such as environmental diversity, need to train employees, among other challenges associated with procurement. Therefore, managers have an obligation to assess the procurement processes to ensure they get the best out of the entire process.

Bibliography

Burt, D. N., Dobler, D. W. and Starling, S. L. (2003). World Class Supply Management: The Key to Supply Chain Management. Boston, MA: McGraw-Hill Irwin.

Cavinato, J. L. (1992). Evolving Procurement Organizations: Logistics Implications. Journal of Business Logistics, 13(1), 27+. Web.

Chang, Y., Markatsoris, H. and Howard R. (2004). Design and Implementation of an e-Procurement System. Production Planning & Control 15 (7): 634646.

Dimitri, N., Piga, G. and Spagnolo, G. (2006). Handbook of procurement. New York: Cambridge University Press.

Mehra, S. and Inman.R. A. (2004). Purchasing Management and Business Competitiveness in the Coming Decade. Production Planning and Control 15(7): 710718.

Morledge, R., Smith, A. & Kashiwagi, D. T. (2006). Building procurement. Oxford: Wiley-Blackwell.

Tage S. and Schary, P. B. (2007). Managing the global supply chain. Denmark, Copenhagen Business School Press DK.

Thomson, H. C., & Mayo, L. (1960). The Ordnance Department: Procurement and Supply. Washington, DC: Office of the Chief of Military History. Web.

Warrillow, C. (1995). Market-oriented Public Procurement Systems. International Trade Forum 24+. Web.

Summary

Warships are incredibly sophisticated devices that demand meticulous attention to detail. A battleship must be capable of floating, maneuvering, and fighting. As elementary as they are, all of these aspects must be considered while designing a ship. The National Shipbuilding Procurement Strategy, commonly referred to as the National Shipbuilding Strategy (NSS), is a long-term initiative that aims to rebuild Canada’s shipments, notably the Canadian Coast Guard and the Royal Canadian Navy (Collins, 2021). The scheme is administered by the Public works sector and State Services and is separated into three components: the combat bundle, the non-combat shipment, and the lesser craft shipment (Collins, 2021). Although the technique began on June 3, 2010, the findings for larger packages were not made public until October 19, 2011 (Fortier, 2016, p. 102). Canada’s shipbuilding industrial base has stalled from the late twentieth century to the beginning of the twenty-first century, necessitating a new plan to revitalize the enterprise. Additionally, the country’s shipyards were deteriorating due to inadequate supply lines, machinery, and experienced labor.

As a result, an innovative method was required to help the maritime sector build vessels in the nation. The National Shipbuilding Strategy intended to design a long-term, consistent shipbuilding strategy that would contribute to the betterment of the nation in multiple ways (Collins, 2019). Canadian shipbuilding would be reinvigorated due to the concurrent building of boats for the Canadian Coast Guard and Royal Canadian Navy (Collins, 2019). The approach was initially valued at $ 38 billion, but by 2016 had risen to $ 50 billion (Ring, 2016, p. 4). As such, the NSS initiative is not only intended to construct and sustain the national fleet; it is also intended to optimize the nation’s financial opportunities, as mentioned in the value proposition section.

The Industrial and Technical Benefits Value Proposition

As previously stated, the procurement scheme was employed to foster commercial and regional development in Canada. A positioning statement is a promise made by a business to its clients regarding the value they will receive if they choose to purchase their commodities (Payne et al., 2017). Moreover, a value proposition is a commercial or promotional statement that outlines why a buyer should purchase a product or utilize a service (Payne et al., 2017). The advantages will be analyzed using a value proposition assessment approach that considers economic growth, supplier management, research and development, sales, and education and competencies.

Sector Growth

The National Shipbuilding Strategy has affected Canadian economic development both directly and indirectly. Directly, the vendors assigned to carry out this approach committed to contributing 0.5% of the worth of their NSS contracts in three primary priority areas: technological enhancement, human resource empowerment, and industrialization (Public Services and Procurement Canada, 2016). By the end of 2016, the operation’s agreements had added more than $7.7 billion to the nation’s gross domestic product (GDP). In addition, between 2012 and 2016, the initiative granted $6.1 billion in concessions, with $3,926, $585, $1,510, and $123 million allotted to big warships, small boats, replacement, refurbishment, and upkeep, and supplies, correspondingly (Public Services and Procurement Canada, 2016). This amount of funding considerably spurs economic growth both directly and indirectly, which is projected to prevail in the future years. Furthermore, the scheme is expected to generate or sustain 7,350 employment years between 2012 and 2022, both directly and indirectly (Public Services and Procurement Canada, 2018). As a result, the nation’s shipbuilding sector has grown enormously since the NSS project was implemented, supporting considerable GDP development and providing jobs for thousands of Canadians.

Supplier Development

Since the NSS program’s inception in 2010, Canadian entrepreneurs have reaped enormous benefits. The projects were given to Canadian firms, including Irving Shipbuilding Inc. and Seaspan Marine Corp. In addition, these businesses collaborated with other Canadian businesses to offer products and services for their activities. As a result, small and medium-sized businesses may join the shipyard’s distribution network and capitalize on multibillion-dollar construction. For example, Bluedrop Training & Simulation of Halifax was granted a $15 million agreement in April 2016 to develop cutting-edge simulated teaching and computation operating systems and innovations (Public Services and Procurement Canada, 2016). The purpose was to arrange and train employees for the Arctic and Offshore Patrol Ships being constructed under Canada’s National Shipbuilding Strategy. Conversely, Thordon Bearings Inc. has been approved to provide Irving Shipbuilding’s Halifax Shipyard with significant turbine machinery, saltwater, and corrosion prevention components at the cost of around $1 million (Public Services and Procurement Canada, 2016). As a result, the supply chain strategy has been used to promote indigenous firms in the nation, particularly small and medium-sized enterprises capable of providing products and services to prime contractors.

Research and Development

The NSS’s two primary construction companies have agreed to foster innovation and development of the nation through sponsoring key stakeholders. Each year, the firms pick other organizations to finance to assure continuing study into strategies to encourage growth across Canada. Irving Shipbuilding, for instance, contributes 0.5% of the cost of its contracts in research into strategies to develop a sustainable maritime economy in the nation (Public Services and Procurement Canada, 2016). As a result, this firm will have invested more than $12 million in exploration and development by the lapse of the agreement. Likewise, Halifax Shipyard joined with Nunavut Arctic College in 2016 to give $ 2 million to nine scientific studies encouraging numerous operations in Canada’s Arctic towns (Public Services and Procurement Canada, 2016). Innovative activities are critical components of the NSS venture, and the project’s continuing execution will result in multiple advantages.

Exports

Canadian firms can now accommodate local and global markets due to the NSS program’s revitalization of shipyards. The scheme provides a framework for local businesses to grow their professionalism as vendors of products and services. As SMEs remain involved in the project, their expertise and public image grow substantially, enabling them to compete in worldwide shipbuilding marketplaces. For example, in 2014, one of Irving Shipbuilding’s subcontractors, Lockheed Martin Canada, won a bid to modernize the weapons on New Zealand’s ANZAC-class vessels predicated on its considerable knowledge of the NSS software system (Public Services and Procurement Canada, 2016). Other businesses, including DRS, Ultra Electronics, Hepburn Engineering, and AutoNav, are capitalizing on the method’s expertise to undertake worldwide possibilities. The NSS program has helped local firms obtain the required knowledge and prestige to engage with international counterparts for various projects.

Skills Development and Training

The two primary construction companies involved in the NSS plan are committed to continual employee development through instruction and economic development initiatives. The firms utilize on-site simulators to replicate the vessel-building process, ensuring that personnel get relevant information about operating the system. This technique enables businesses to have highly skilled employees who are capable of achieving the NSS requirements. These typical activities are expert training, internship and mentoring initiative, safety and well-being standards, managerial and administrative training, talent exchange, and recruit assessment. Moreover, Irving Shipbuilding developed an Innovation center at Nova Scotia State University to promote marginalized populations in the shipbuilding sector through two education courses.

Assessment of Current Status of the Strategy

Current Status of NSPS

The NSPS has solidified Canada’s military and defense objectives by compelling prolific bidders to attain an intended outcome. At that time, they will have the competence to manufacture warships at recognized worldwide standard production efficiency. The present state of the NSPS includes the Arctic Offshore Patrol Ships (AOPS) that consists of 6 warships (Public Services and Procurement Canada, 2016). Irving Shipbuilding is the project leader of the AOPS cruisers and manufactures them at its Halifax facilities. BMT Fleet Solutions has finished the preliminary conceptual design. The Offshore Oceanographic Science Vessel (OOSV) has one vessel (Public Services and Procurement Canada, 2016). According to Public Works and Government Services Canada design specifications, this program purchased a single container of 90-100 meters in length designed to transport 30 staff and 37 researchers (Public Services and Procurement Canada, 2016). The first phase of the procurement procedure for OOSV was announced in 2009, together with three OFSV boats. In addition, the government published a Solicitation of Interest and Qualification to seek competent designers.

Additionally, the Joint Support Ship (JSS) features three vessels performing the first concept development agreement. Thus, this will enable Vancouver Shipyards Co. Ltd. to fully assess the Berlin class, off-the-shelf ship design from ThyssenKrupp Marine Systems Canada (Public Services and Procurement Canada, 2016). Finally, the Polar Icebreaker with one submarine is one of Canada’s Northern Initiative cornerstones, which focuses on enhancing Canada’s Arctic independence, northern socioeconomic development, and conserving the North’s ecological legacy.

Issues and Challenges

A major issue affecting the NSPS was a power imbalance between the National Defense and the PWGSC. PWGSC handled the demand for propositions due to the importance of the issue. NSPS components were negatively affected, and lower staff mediators were under pressure due to personality incompatibility with the other party involved. In the course of the procurement process, there were various shocks and inadequacies. Many people are perplexed why the specifics of how and when NSPS will take place were so vague. However, they contend that NSPS emerged once the shipyards were chosen rather than resulting from an agreed-upon master plan. Some argue that before the commencement of NSPS, decisions on the order of priority should have been made concerning the construction of the Coast Guard Polar Icebreaker and the Navy’s Joint Support Ships. Both clients wished to get their ships as quickly as possible, but no conclusions were drawn until after the NSPS had been put into place. When it comes to efficiency and effectiveness, they both suffer – ships were not completed promptly, and projects’ early success was less than conciliatory.

Is the Strategy Meeting Its Original Objectives?

The NSPS has met its initially stated objectives through the accomplishments of those goals as discussed herein. First, no documentation has been offered to support the claim that the governmental boats can be manufactured more cheaply anywhere globally than they are being reconstructed in Canada by the NSPS. As a result, Canada’s loss of wider economic advantages may probably outweigh any potential cost reductions from offshore construction. Second, Canadian shipbuilding has been revitalized by NSPS due to increased employment and economic advantages that will persist for some time in Canada’s future. Lastly, the revenue for taxpayers has been maximized, while growth opportunities are fostered. The fulfillment of this aim is one of the most problematic aspects of the NSPS because it implies that the state accepts compensation for manufacturing ships in Canada.

References

Collins, J. F. (2019). Overcoming’ boom and bust’? Analyzing national shipbuilding plans in Canada and Australia. Canadian Global Affairs Institute.

Collins, J. F. (2021). Defense procurement and Canadian foreign policy. In The Palgrave Handbook of Canada in International Affairs (pp. 275-295). Palgrave Macmillan, Cham.

Fortier, G. (2016). What’s the deal with shipbuilding?-A review of Canada’s national shipbuilding procurement strategy.Carleton Perspectives on Public Policy, 3, 93-113. Web.

Payne, A., Frow, P., & Eggert, A. (2017). The customer value proposition: Evolution, development, and application in marketing.Journal of the Academy of Marketing Science, 45(4), 467-489. Web.

Public Services and Procurement Canada. (2016). Generating economic benefits: National shipbuilding strategy: 2016 annual report. Web.

Ring, T. (2016). The national shipbuilding procurement strategy: How did we get to where we are now? Canadian Global Affairs Institute.

Project Description

The analyzed project is the Rügen Bridge, otherwise known as the Rugia Bridge or the second Strelasund Crossing. The construction of this bridge is finished, and the result is currently situated in Germany between two islands – Stralsund and Rügen as a viaduct for motor transport. Planning of the bridge started in the summer of 2004 and ended in the fall of 2007 (Phereclus, 2017). During this time, the company in charge of the project had not only built a bridge, the core part of which is 4100 meters long, but also contracted other businesses to prepare the surface, smooth out and fill in the land, and deal with the issue of corrosion. The Rugia Bridge is a cable-stayed bridge that has three lanes. It is made of steel and concrete (Schüßler-Plan, 2017). The bridge’s surface is covered with a unique corrosion protection system.

The system used in this bridge was considered innovative at the time of the construction. Schüßler-Plan (2017) notes that “parallel stranded cables were used for the very first time in Germany on the cable-stayed bridge.” The unique systems used in this design prompt the idea of the Rugia Bridge being a complex project that required outsourcing. According to Phereclus (2017), the company that was in charge of the bridge’s project planning and corrosion protection, the cost of the project amounted to 125 million Euros. The actions of this firm can be considered the primary safety-related part of planning, as their duties included all analyses and check-ups of the place and the calculation for the final project. The company Max Bögl Steel and Plant Construction Inc. & Co. was in charge of the bridge’s installation, while the pre-planning and tendering processes were outsourced to Schüßler-Plan. The combination of these companies’ activities is discussed in the following analysis.

Make-or-Buy Analysis

The procurement part of the construction process for this project was sourced out for a number of reasons. First of all, the services of Phereclus were required as this firm performed activities that the building company was not skilled enough to do on its own. The safety requirements for this bridge did not allow the company to analyze the state of the land plot without outside help, as the construction type was new to the business. The unique system that was mentioned above has not been used in the country before which called for additional safety considerations. Moreover, the duties for planning had to be bought elsewhere as well because Max Bögl Steel and Plant Construction Inc. & Co. most probably did not possess workers and necessary equipment for safety measurement and landfilling activities. Just as the steel for the bridge was purchased from another vendor, the corrosion protection system was also bought from another firm. Thus, the procurement plan had to be outsourced.

Furthermore, the process of project calculation was outsourced to Phereclus as their planning included preparation and post-production quality control. They also managed the procurement of all supplies for corrosion protection as the contracting company did not know which materials would be the best for the situation. Although another company did not manage the purchasing of steel, the acquisition of materials and equipment required for surface preparation, corrosion protection, and other finishing touches had to be outsourced to ensure a high quality of the final product. Outsourcing allows companies to guarantee the safety and the quality of its finished product. It is much easier for construction firms to hire other professionals to perform activities for which the former are not equipped adequately. In this case, the problem of corrosion protection became the main reason for outsourcing.

Here, the issue of knowing the best materials is crucial to deciding to buy another company’s services. It is the main advantage of outsourcing as opposed to keeping all activities within the project team. While it was possible for the construction company to give the job to its employees, it would require much more money to train workers and purchase materials and equipment. The services of another firm are cheaper as a result, as they already possess necessary machinery, have educated professionals, and have connections with materials’ suppliers. Another benefit of outsourcing is the ability of the company to distribute managing duties to other people. Therefore, Phereclus’ management, for instance, became responsible for its workers and their performance, while the main company did not need to oversee every step of the process.

The main drawback of outsourcing is the issue of control. While it is beneficial that the management team does not have to oversee every step, the hired firm’s unregulated performance may be unsatisfactory in the end. If the company decided to keep all parts of the project within the team, its managers would be able to check the quality of every operation. Outsourcing, on the other hand, does not have the same level of control.

Sometimes outsourcing is not needed, as the company can quickly adapt its existing resources for new operations. While here it is not the case, some construction projects can be done by a single organization even if it has to train its workers or choose different materials. The decision usually depends on financial expenses and time constraints. The scheduled deadline seems fair as the company finished the project in three years. Due to the fact that the technique used in the construction of this bridge was new for the country, it was reasonable to spend additional money on outsourcing some parts of the project. Moreover, safety considerations are also justified as this bridge is the main connection between two islands and is used by vehicles often.

Contract Type Selection

A number of contracts can be discussed in this situation, including the fixed price model, the time and material model, and the dedicated team model. The first type can be used in short-term projects with a defined goal, where the communication and control are not of the highest priority. It usually has a fixed price and does not result in overpayments (Walker, 2015). The second type, the time and material model, is a better fit for longer projects, as it does not require both parties to estimate all costs at the beginning of construction. In this case, the hired team has a flexible budget. However, this type of contract has no set deadlines. Finally, the dedicated team model contract offers the most interaction out of all described contract types. Here, the hired team works on a single project at the time of the production. It is continuously monitored by the company and becomes a part of the personnel. This type of contract is expensive and time-consuming, but us is also highly efficient.

The duration of the described project was relatively long, as the outsourced firm had to prepare the land for construction, oversee the process, and apple corrosion protection at the end. The budget for the project was most likely not very flexible as it was a set of operations which the hired business performed often. The final product was clear, and the tasks flexibility was rather low. The fixed price model contract could work if companies agreed on a specific budget and trusted each other to deliver the best results without supervision.

References

Phereclus. (2017). Project example: Second Strelasund Crossing. Web.

Schüßler-Plan. (2017). Rügen Island bridge. Web.

Walker, A. (2015). Project management in construction (6th ed.). West Sussex, UK: John Wiley & Sons.

Procurement Contract Award

Once the proposals from the selected vendors are evaluated, Max Bögl takes a decision based on the quality of the presented project plans. According to the list of the vendors, the proposal by Anakletos is recommended to the company executives. The most successful contractor receives an award letter with the evaluation decision notice. The award letter means the beginning of the standstill stage in the process of procurement. Therefore, it should be composed properly to avoid legal risks and delaying the contract award.

An award letter to the successful bidder should not include any promises to offer a contract based on the proposal made by the vendor because it might lead to legally binding. To avoid a legal challenge, the company authorities should stress that this award notice is not a legal acceptance of the proposal. Still, it should be written in a positive manner to ensure encouragement of the successful vendor and contain information relevant to the proposed project plan. The letters to unsuccessful vendors should be sent at the same time as well.

Procurement Risks

Risks can be regarded as uncertain events, which have an impact on the performance of the project. It is stated that the main benefits of risk management are lowering overall costs, minimizing chaos during the work process, increasing chances to achieve success by triggering risk prevention plans, and effective project control (Kendrick, 2015). The vendor is usually concentrated on its responsibilities and obligations and might have risk management relating to its part of the work. Thus, it is necessary to detect potential risks from the company standpoint before awarding a contract.

The risk evaluation process showed that the performance of the procured work by Anakletos is associated with such risks as schedule, cost, technical, and labor. The list of the identified risks is provided in the following table where each risk factor is rated on a five-point scale according to the likelihood of its occurrence and potential impact on the project outcome. Potential costs of the risks are estimated as well.

Table 1. Analysis of Risks.

The analysis of the risks is based on the vendor characteristics used for the source selection. The selected vendor might cause the increasing of project costs and changing technical requirements during the work. This contractor also might have problems with providing some of the required specialists and following the schedule. These factors cause such risks as delaying of project completion and lack of labor. It should be noted that the last two risks are the most common in working with the contractors.

The detailed discussion of the possible risks at the early stage of the project is recognized to be effective in finding the ways to prevent their occurrence. Such factors as project complexity, payment methods, and management approaches might influence the potential risks as well. Therefore, the mitigation strategy for prevention of such risks as schedule following and lack of labor should include timely payments and detailed discussions of each project stage with the vendor to evaluate potential delays. The strategy of mitigating such risks as cost increasing and technical problems should include encouraging of the dialogs with the vendor in case of any problems.

Procurement Management Process

The selection of the right vendor is crucial because it has an impact on the financial health of the company and its productivity (De Araújo, Alencar, & de Miranda Mota, 2017). It is necessary to update the existing schedule of the project and include the new tasks that will be performed by the procured workers. The schedule of Rugia Bridge project will be expanded by such extra tasks as project planning (analysis, calculation, quality insurance, and management), corrosion protection (surface preparation, landfilling, bridge coating/spraying, sanding, undercoat, and varnishing), and finishing activities (quality analysis, corrosion protection, layer evaluation and testing). Each of the tasks will have its time limits according to the approved dates of the activity.

The contingency budget of the project should also be updated to include the additional costs of risk resolving based on the results of the risk evaluation process. The potential costs of the indicated risks amounted $ 20 000. Thus, the budget will be increased by this sum.

The organization of an appropriate communication process with the vendor guarantees that the mutual interests and important issues related to the project completion will be discussed. The communication between Max Bögl and Anakletos should include weekly formal meetings based on current issues and schedule status information, as well as monthly reports provided by the vendor. It will ensure that the vendor will meet all the company requirements and follow the schedule. The vendor will also have a chance to discuss the difficulties occurred in the process of the work to eliminate potential unexpected risks.

Contract Administration Process

Contract administration process assists in meeting the objectives and goals of the project, following the schedule, and ensuring the appropriate work of the vendor. It is usually divided into pre-contract, execution, and post-award phases. During the pre-contract phase, the selected vendor is evaluated to meet the criteria of risk management and contingency budget limit. The communication process should also be determined at this stage to organize the activity on designing the contract strategy. During the pre-contract communication at the status meetings, the parties should come to the final agreement after determining the procedural rules and critical issues, establishing common goals, and selecting the appropriate behavioral rules.

Award contract activities include some checkpoints to ensure that both parties are aware of their responsibilities, secure the agreed process of contract administration, and distribute the knowledge from the vendor and company members to contract management team. At the stage of contract management, the changes of the agreement conditions are believed to be inevitable because it is an opportunity for the parties to improve the outputs of the contract. Still, construction contracts should be changed very carefully because even small editions might influence the cost of the project. Thus, if the changes take place, it is advisable to make a contract review before the final process of sign-offs.

The agreement with Anakletos vendor is a standard form of a fixed price model contract. Therefore, the pre-contract meetings should be limited to those that discuss the prevention of the potential risks. There will not be any changes in the contract structure, and it will be signed after its formal review at the common meeting. The vendor is obliged to perform a preliminary project planning, works on corrosion protection of the bridge, and quality testing and analysis. The buyer is obliged to pay the indicated sum to the vendor and ensure consultations during the stage of performing the works, as well as assist in troubleshooting. The vendor has the right to control the performance of the work at all stages. The problems should be resolved in a timely manner after the appropriate discussion of the possible decisions and selecting the most cost-effective one.

Change Control Process

It is noted that “construction project offers recurring challenges and uncertainty that test the competence of project managers” (Sunindijo, 2015, p. 68). Therefore, all the stages of the working process should be controlled and supervised. Change control process deals with the submissions of change requests from the vendor. Such requests guarantee that the contractor will not make anything without a buyer’s consent, keep the project on the schedule and within the approved budget. The goals of change management are to control each request and evaluate the impact of changes. Some small changes are usually acceptable in the project. The sample of a change request form is provided below.

Each change is submitted through its identifying, validating, and analyzing. The control over the review and approval process of the small changes is the responsibility of the project manager. There is a defined procedure of submitting big changes as most of them affect the schedule and budget. Such changes are reviewed by the Steering Committee which makes the final decision.

Quality Control Plan

A quality control plan is considered to be a crucial part of every project. It identifies the quality standards set by the customer and provides the methods of inspecting and verifying the procured work. The quality plan is essential to guarantee that the completed work will meet the requirements of the buyer.

The inspection and verification of the work performed by Anakletos vendor will be executed by the project manager and Max Bögl company authorities. It should be noted that the vendor is responsible for testing and quality analysis of the corrosion protection layer of the bridge. The company authorities will evaluate the performed quality analysis and testing and compare them with the results received by the third party representatives. If the results of the work will be rejected due to noncompliance with the requirements described in the contract, the vendor pays the penalty and is obliged to improve the quality of the performed work.

Performance Reporting Plan

Performance reporting deals with processing project information, assessing project progress, and estimating the current status of the works. It is based on the performance reports made both by the company and the vendor. Project management plan contains the information about project baselines such as scope, schedule, costs, as well as quality and technical parameters.

To track the performance of the vendor, the specific reports of the schedule progress and deliverables status will be produced. These reports should be provided monthly to the executives of the company by the representatives of the vendor. The mock-ups of the reports are provided below.

Project Procurement Legal Rights and Responsibilities

Legal aspects related to the management and closure of the contract include possible pitfalls, the arbitration process, contract design, provisions, as well as dispute resolution cases and claims. Alternative dispute resolution is used by the parties to come to the agreement in the cases of claims, disputes, and outstanding issues. It includes techniques and processes of dispute resolutions and usually is divided to the mediation of the case, its arbitration, and evaluation. The parties have the right to terminate the contract using such document as the notice of contract termination as a formal declaration to notify a party about the end of the agreement and indicate the date of termination.

Usually, procurement closure is performed at the end of the works after the quality analysis and testing were verified by the company. In such case, the vendor receives the formal acceptance notice about verification of the performed works that meet the requirements of the company. If the works are not completed, the parties still have to go through the process of contract closure procedure, and the vendor should be informed about contract termination.

Project Procurement Closeout

Closeout of a procurement project includes bill payment and closing the procurement contract. The project can be regarded as completed if all the works planed in the schedule were performed and the quality of the work meets the demands of the buyer. Final payments usually are big enough to motivate the contractor to give the closing project high priority and complete the final stage of work. When the work is completed, all the problems are resolved, and the necessary corrections are performed, the project team makes final signs-offs, and the contract is submitted to the accounting department for final payments.

The final documentation included in the contract closure package should include such main items as original budget, charter documents, change documents, scope statement, and project manager’s summary of the lessons learned. The lessons learned in the course of the project are described by using such techniques as categorization by the project area, problem description and its impact on the project, as well as provision of recommendations for the similar projects in future. This document might include the similar lessons from the previous projects.

References

De Araújo, M. C. B., Alencar, L. H., & de Miranda Mota, C. M. (2017). Project procurement management: A structured literature review. International Journal of Project Management, 1(8), 1-25.

Sunindijo, R. Y. (2015). Project manager skills for improving project performance. International Journal of Business Performance Management, 16(1), 67-83.

Kendrick, T. (2015). Identifying and managing project risk (3rd ed.). New-York, NY: American Management Association.

Introduction

The internet has globalized this world to an extent that it looks like a virtual communal centre. People can send and receive electronic messages through e-mails. They can also make calls from literary anywhere in this globe and receive instant feedback. This has taken a new twist in the business world as prospective employees find jobs online.

Outsourcing has boomed with new technologies emerging in the information systems and technology markets. This has encouraged emerging markets and e-commerce that is trying to catch up with the latest technologies. Another product that has steadily grown over the years is automation of invitation to tender.

Tenders can now be awarded overseas and to international companies with a click on the button. This paper will explore the effects of automation of invitation to tender on the development of companies.

Invitation to tender

Invitation to tender, also known as call for bids or request for tender refers to the process of generating several rival offers from various bidders who are hoping to muscle each other to the award of business doings such as supply, works or services. These tenders usually come after a prequalification questionnaire is filled. The tenders can be either open or restricted.

The latter is usually meant for specific suppliers or military contracts, which are of special interest to the country’s security, among others. In the manual case, tender boxes are always located at specific areas of the organisation or in the post offices specifically meant for tender documents.

Virtually all public sectors are obliged to provide tenders for their works and services. These are always posted on the local media, posters and their websites, among others. With the globalization, electronic procurement has taken shape and is fast increasing as different local and multinational companies try to outsource services offshore to speed up the process.

Automated Invitation to tender

IS/IT procurement has increasingly risen in the modern world, with different companies using modern software to speed up the process of procurement as well as make use of the globalized world which has brought everything close.

Procurement as a process is extensive and tasking, invitation to tender can take several months to arrive at a winner, and it is time consuming especially, when post office and/or manual delivery of tender is involved.

In a world where virtual telecommunication and video conferencing, thanks to information and systems technology, has eased the other factors of production, it is only wise to make use of such technologies to fasten the extensive process of procurement. Automation of invitation to tender has been practiced for several years now and its increased use is credited to its advantages.

E-procurement has several advantages as suggested above; it saves time, reaches out to a wide range of competitive bidders, economical, convenient, reliable and efficient. In addition, it has the potential to generate the best of the best for the service required. Its flexibility and cost effectiveness makes it easier for an organisation to subscribe to tender alerts to be kept updated of any need for their services.

Since several companies around the globe seek to achieve competitiveness and economies of scale, automation of tender services are on the increase. The slowest to move in to automation is the industrial and manufacturing world, but this trend has changed as more and more of these companies seek improvements on their services and production.

Tenders from manufacturing and industrial centres have increased with such bids afloat globally. Information system and information technology has therefore become an integral part of the modern world. It helps in service delivery and production.

Underlying concepts and background

All public sectors are obliged to provide tenders; e-procurement has made it much easier and fast. The need to keep pace with technological world and the urge to be competitive has soared necessitating the call for automation tenders.

Digital technology has enabled automation of tenders to achieve their core business objectives. Several organisations have initiated private services to help market automation tenders through their websites and other sources.

This has brought into place the huge pool of bidders and organisations in need of their services together through online procurement systems. An example is ESA international, which is an organisation that deals with EMITS (electronic mailing of invitation to tenders) ITT.

Such companies have created awareness of these services worldwide thereby increasing their capacities and efficiencies. Furthermore, such linking agencies act as a communication network between industries as well as companies, thereby simplifying the procurement process.

In applying PESTLE analysis on Automation of invitation to tenders, it is quite handy to note that the overall result is encouraging its growth throughout the globe. Considering the factors in question such as, the environmental, economical, political, legal, sociological and technological, it is important to note that these factors have had positive effects on the development of automation of invitation to tender.

For instance, there is virtually no political obstacle to the development of tender automation industry; the legal factors are related to the security of information against hackers and privacy, for example in that case of military contracts. However, even this can be accommodated, as there are various ways of ensuring information security such as encryptions.

Social factors are more likely to encourage e-commerce, and no or less pollution to the environment since the use of posters are minimized. Both economic and technological factors are set to gain from reduced spending and more research to improve technology. In essence, the automation of ‘invitation to tender’ is the important, and will continue spur the modern world.

The current situation of Automation of Invitation Tender in the world

The current trends show increase in automation industries all over the world. Europe and the United states have developed their automation to an exceptional level with specific agencies assigned the responsibility of ensuring the process is handled in a professional manner.

An example is the ESA agency in Europe, which offers exceptional standards of service to bidders and companies seeking their services. These procurement agencies have put in place complex framework aimed at providing professional services. They also offer post-awarding services, which include follow-ups, sourcing, ordering, fulfilment, billing and payment on behalf of the purchasing authority.

Modern automated tendering is efficient and backed with complex software that is aimed at preventing hackers and private information from unintended users. Information and System technology has played an important role in ensuring safe running of such tenders.

Several industrial and allied companies such as producers and manufactures are moving into automated information systems. Web portals are on the increase with industrial worlds like china, India, United States, Britain, Germany and France, among others making notable advances into paperless tender.

Evaluations of tender bids have also taken a new shape with most companies doing automated evaluation, thereby reducing on evaluation costs. The world is hence becoming smaller and smaller with the development of new technological advances that improve automation of industries.

India presents an example of an industrial hub, in which implementation of automated tender would be of great significance to their productivity, no wonder most of Indian industrial sectors have embarked on a plan to achieve full automation.

The whole world from Africa, to America, Europe to Asia and Australia are all pressing their buttons in invitation to tender. This system is especially taking a new twist in the developing world, with most countries either acquiring or stepping up their already acquired automation information systems.

Summary

Automation of invitation tenders makes it as one of the most important technological achievements of the past decade. Having started in the developed world, it has been embraced in virtually every country in the world. Among these are India and China who are implementing it for heir industrial sectors at a fast rate. Automation of tender is very important in bring together the various companies seeking what they need.

Developments of electronic procurement agencies have been essential in organisational development. Their knowledge in procurement procedures as well as evaluation and follow-ups has reduced the cost and complexity of the once so extensive task.

The PESTLE analysis conducted on automated invitation to tender gives an indication of a viable product in the market, which would help improve production and service delivery. Every company aims to achieve competitive edge over others and this service provides an ideal way of not only attaining this but also reducing on tender costs.

Conclusions

Automation of invitation to tender is one of the most important landmarks of technology. It provides for process automation by systematic invitation to the purchasing authority, and act as a communication channel between industries. It also provides automatic evaluation for invitations thereby saving on cost and time, which are important inputs into productivity.

Recommendations

IS/IT procurement is essential to all kinds of businesses and should be encouraged all over the globe as a way of generating competitive bidders. Automated invitation to tender is convenient in the modern world and should be provide in every institution that target competitiveness and economies of scale.

Introduction

Procurement can be defined as the acquisition of services or goods in the right quality and quantity, at the best possible total cost of ownership, in the right place, at the right time. This is normally for the benefit of individuals, corporations or governments through a contract. When the procurement is simple, it involves repeat purchasing. When it is complex it involves getting co-destiny suppliers or finding long term partners. This paper is dealing with procurement systems currently used in project management. There is an explanation for the benefits and the disadvantages of each system both to the contractor and the client. This paper is also dealing with procurement systems and contracts (Arrowsmith and Arwel 1998).

Types of Procurement Systems

Procurement system is actually a means, contractual or non contractual through which the objectives of a residential project is achieved. There are various types of procurement systems that are used for Australian residential project development. An example is the delivery system.

Delivery System- Single Contract Delivery System

This is one of the systems that are commonly used in procurement of various projects. Within the delivery system there are various contracts. They include multiple contract, single contract etc. For instance in the process of selecting a procurement system, one can decide to adopt a single contract for the system. Research on procurement systems used in many nations shows that single contract delivery system has got advantages therein. This is because it actually provides an avenue for compression of time especially when early completion is a matter of importance in the project. This is implemented by the documentation of all the components of a particular project development (Alario, 1997).

Advantages

This system is of real benefit to contractors globally. This is because it gives a prospect for specialist contractors to be directly engaged. It also does away with the need of arrangements that are complex contractual in nature. In other words there is the simplifying of the entire contractual system. These complex contractual arrangements include the incorporation of nominated subcontractors who play a big role in complicating the whole process. There is also allowance for direct purchase of materials from suppliers.

It also enhances control of expenditure that the agency uses in the procurement. This system actually allows staging the prospect to accelerate various projects in a region. It however has the potential to delay the work too. This system provides an economical method of controlling budget costs. This is accomplished through omission of work in case the time or cost overrun is actually expected. It is implemented through reduction of standards in procurement. This method is also very simple in nature. It can also work through addition of work if work and funds allow (Baldwin, 1997).

The system works through the use of an agency carrying out direct selection of package contractors or trade hence providing better control of the finished product’s quality. When this system is used there is reduction of impact of work changes to work nature in the management of projects. There is also reduction of impact of project termination and restrictions of cash flow. It facilitates the project such it is in a position to meet requirements of funding. There is minimization of cost impacts of claims of delay since packages are progressively let.

Disadvantages

The disadvantage is that the agency carries interface and coordination risks. The preparation of administration and documentation needs many resources of agencies to be used. There is a likelihood of increase in costs if agency generates changes because of the system’s flexible nature. The system has the potential of increasing discrepancies amongst contract packages. The agency is normally committed to the project even before having the knowledge of the project’s bid price.

Adversarial To Cooperative Relationships

Procurement in project management involves various relationships between different parties. Clients in many sectors are expected to adopt a non-adversarial and cooperative approach in their business endeavors. This is expected at all the levels of interactions in business transactions. Suppliers, contractors and subcontractors should also incorporate a cooperative approach in every level of their business dealings. This is also expected of industry associations, employers and unions. This enhances smooth running of entire procurement process in the project management (Ashenfelder, 1997).

Reference

Arrowsmith, S. and Arwel D. (1998): Public Procurement; Global Revolution; London; Boston; Mass; Law International.

Ashenfelder, O. (1997): Contract Form and Procurement Costs; the Impact of Compulsory Multiple Contractor Laws in Construction; Rand Journal of Economics; 28, S5 – S16.

Alario, E. (1997): Project Agreements and Government Procurement; Journal of Labor Research; 18 (1), 17-30.

Baldwin, L. (1997): Procurement Systems in Australia; Journal of Economy, 105(4); 658-699.