Category: Procurement

Introduction

Procurement cycle is part of an organisation’s process since it ensures cost effective ownership of products for a company. The various processes involved while carrying out procurement normally challenges and pressures the managers’ values and beliefs. New approaches are called for when a company adopts to new procedures and practices.

These approaches should aim at aligning human and financial capital towards the company’s operations. This paper focuses on the current procurement cycle that is used for purchases in Hewlett –Packard (HP) Company, and then sheds some light on how the procurement process can be re-engineered for greater effectiveness in the organization.

Discussion

Every company has an obligation of coming up with an effective procurement process that necessitates effective procurement strategies, adequate preparation for contracts, and proper selection of suppliers. There are many challenges that are currently facing business operations. One of these challenges includes technology innovation, which is currently forcing the old business paradigm out of market.

About a decade ago after the introduction of flash memory for the cell phones, the HP Company was faced with competition crises for flash memory. This innovation resulted to a high demand for the flash memory, and thus led the cell phone manufacturers to buy this memory in bulk (Nagali, 2010).

The high demand and the low supply of the flash memory facilitated an increase in prices for the HP printers. There was therefore a correlation between increased prices for the flash memory and increased prices for the HP printers.

Due to high demand, low supply, and high prices for the flash memory, the HP Company has already changed its procurement strategy by adopting a long-term vision. This approach is vital since companies that commit themselves to implementation of long-term goals are more likely to experience a greater success than those that implement short term or “damage control” practices (Shah, 2009: 297).

Currently, the HP Company’s success depends on proper preparation for contracts with the major suppliers of the flash memory. However, the HP management was later faced with anxiety due to a high degree of uncertainty of the demand and supply of the flash memory, which in turn affects the prices of the printers (Nagali, 2010).

Therefore, the HP Company has considered a number of factors in order to come up with an appropriate contract. These include assessing the price of the flash memory on a long-term basis, assessing the acquisition of product from the supplies, evaluating the duration of the contract in relationship to cost benefit, and carrying out a proper management of compliance (Nagali, 2010).

The Current Procurement Cycle That Is Used For Purchases

An appropriate contract arrangement involves the evaluation of demand and supply curve. This helps in coming up with an appropriate buying strategy that will reduce the chances of incurring losses (Kloppenborg, 2008: 332).

Due to the current high rate of technology innovation that has the capacity of interfering with the demand and supply of the flash memory, the HP Company has managed to limit the chances of incurring losses by eliminating fixed quantity purchasing strategies (Nagali, 2010). The HP Company therefore uses a framework that forecasts the demand, supply, and the price of the flash memory.

The HP Company handles its procurement cycle by defining the roles of the planning department, assessing the effectiveness of the supply chains, and defining the role of the financial and the marketing department (Nagali, 2010).

The contract evaluation of the procurement is done after successfully monitoring and forecasting the contract. The performance of the contract is then evaluated using the HPRisk software. This software facilitates greater effectiveness in HP Company due to the following reasons

1. Increased savings on material cost as it facilitates reduction of supplier’s cost that results from inappropriate planning process.
2. Prediction of costs
3. Ensures adequate supply of commodity at all times.
4. Reduces costs associated to inventory from within as well as outside the company, and hence improves the supply chains (Nagali, 2010).

In spite the fact that the HP Company has managed to make a successful procurement through sharing and lowering the risks with the supplier, the process is faced with a number limitation which when re-engineered, could bring rise to an effective procurement process.

How the Procurement Process Can Be Re-Engineered For Greater Effectiveness

In order for the HP Company to have an effective procurement procedure, it must take a careful consideration while positioning their products to their customers in the global market. The company has to overcome a number of technology terminologies and give way to the marketing terminologies (Gay et al. 2007).

Adjusting to marketing terminologies is paramount since the first step of the procurement process entails having a clear knowledge for the demand of the company’s product (Cartlidge, 2004: 318). This knowledge can be achieved by applying flexibility while dealing with different cultures.

The HP Company should put into consideration that different professions have different terms or words that they identify themselves with. Handling the challenges that emanate from culture can be achieved by designing a framework that helps to distinguish between the internal and the external networks of their products (Osmonbekov et al., 2002).

This framework should be fashioned in a way that provides universal language standards as well as reliability and quality of HP products. This can be achieved by evaluating the social environment, legal environment, the competitive forces, and the customers’ demand for the products (Rajagopal & Benard, 1993).

Due to the high rate of technology innovation, it is a necessity for the HP Company to note that the suppliers’ goods are in line with the current technology trend in order to meet the demand of the global market. In cases where product becomes obsolete, the worth of the product must also be put into consideration besides considering the tender price (Hamilton, 2003:392).

In order for the HP Company to establish a market dynamics from a wider perspective, increasing the level of accuracy for global operation through internet is essential, as it will help the Company to become conversant with the high value metrics for the aspects of marketing such as advertisement, distributions, and assessing the customers’ perspective (Osmonbekov et al., 2002).

The HP Company should fully adopt the electronic procurement in purchases since it is associated with effective procurement procedures, which result to substantial benefits such as reduction in product prices, improved contract agreement, effective management of inventory, reduced procurement cycle, improved supply chains, and improved production accuracy due to controlled inventory (Hawking et al., 2004).

Although the HP Company has taken an approach of continuously assessing the demand, supply and price uncertainty, it should initiate a purchasing Manager’s Indexes (PMI) as this will serve to curb this uncertainty.

The use of PMI index is vital since it plays a critical role in controlling the exports based on the current indicators of the economic trend of a particular country. The global economic indicator of the GDP growth can be effectively obtained by standardizing the PMI as this helps to reflect the current economic condition of a country (Williamson, 2002).

The HP website should have a central storage area for data that facilitates effective procurement through a collaborative framework (Brown & Vashistha, 2002).

This website should not include online specialists terms since the IT specialists perceive a company as a system that provides information, while businesspersons perceive a company as an entity that undergoes through a process innovation taking due consideration that their vision is closely associated with the activities of the people(Gardner, 2000).

Bartezzaghi and Ronchi (2003) assert that the use of electronic procurement serves a critical role in reducing the communication barriers as well as the communication costs, thus increasing the levels of transactions.

The matching of demand and supply can be effectively evaluated by considering the various available alternatives. Through this information, the HP Company can be able to evaluate whether the customers’ requirements are in line with the suppliers.

By adopting the internet-based procurement, the company gets into a position of engaging itself in the virtual community. This community is vital since it facilitates social interactions and hence, breaks the political and geographical boundaries in order to pursue mutual goals and interests (Taras et al., 2007:275).

This serves the role of reducing the procurement cycle since the alliance formed through the internet facilitates tracking the levels of the inventory, which in turn sends purchasing orders to the relevant suppliers (Kheng & Hawamdeh, 2002).

Conclusion

The HP company should note that effective procurement does not only result from assessing the demand, supply, and price uncertainty levels but by seeking for diverse supplies, being informed on the current technology trend, and finding ways and means of adopting an efficient communication strategies.

This helps in evaluating errors that result from miscommunication between the company and its suppliers (Teo & Lai, 2009).

List of References

BARTEZZAGHI, E., & RONCHI, S. (2003). Internet supporting the procurement process: lesson from four case studies. Integrated management systems. 4, 632.

BROWN, S., & VASHISTHA, A. (2002). Igniting the services value chain. Marketing management.11, 12.

CARTLIDGE, D. P. (2004). Procurement of built assets. Oxford, Elsevier Butterworth-Heinemann.

GARDNER, D. (2000). How to avoid IT project failures. Consulting to management.11, 21.

GAY, R., CHARLESWORTH, A., & ESEN, R. (2007). Online marketing: a customer-led approach. Oxford, Oxford University Press.

HAMILTON, S. (2003). Maximizing your ERP system: a practical guide for managers. New York, McGraw-Hill.

HAWKING, P., STEIN, A., WYLD, D., & FOSTER, S. (2004). E-Procurement: Is the ugly duckling actually a swan down under? Asia pacific journal of marketing and logistics.16, 3.

KHENG, C., & HAWAMDEH, S. (2002). The adoption of electronic procurement in Singapore, Electronic Commerce Research. 2, 2002.

KLOPPENBORG, T. (2008). Contemporary Project Management. Independence, KY, Cengage Learning.

NAGALI, V. Procurement Risk Management Group Hawlett-Packard Company. Web.

OSMONBEKOV, T., BELLO, D., & GILLILAND, D. (2002). Adoption of electronic commerce tools in business procurement: Enhanced Buying. Journal of Business & Industrial Marketing. 17,151.

RAJAGOPAL, S., & BENARD, K. (1993). Globalization of the procurement process. Marketing intelligence & planning. 11, 44.

SHAH, J. (2009). Supply Chain Management. Noida, Pearson Education India.

TARAS, D., BAKARDJIEVA, M., & PANNEKOEK, F. (2007). How Canadians communicate II: media, globalization, and identity. Calgary, University of Calgary Press.

TEO, T., & LAI, K. (2009). Usage and performance impact of the electronic procurement. Journal of business logistics. 30, 125.

WILLIAMSON, C. (2002). The global purchasing manager’s index. World economics. 3.

Adapting towards changes is not an easy task, especially in the XXI century, when a company must keep in pace with both technological and business innovations. At present, it seems that DVS is facing three key issues, which are sourcing, procurement and the problem of overcrowding.

Despite the fact that the three concerns mentioned above cannot be related to the same field, they can still be tackled by changing a single aspect of the company’s operations.

When it comes to the issue of sourcing and the issues that the DVS Company is currently facing in the given field, one must admit that the company’s problems stem mostly from inadequate sourcing.

The latter, in its turn, has clearly been caused by the change in the strategies of sourcing and procurement, which, in their turn, were triggered by the appointment of a new person in charge of the above-mentioned processes (Coyle, Langley, Novack, & Gibson, 2013). Consequently, it would be logical to suggest the company to return to the previously adopted strategies.

However, in the light of the factors that have caused the current issues, such solution may seem unreasonable. Indeed, when considering the issue closer, one will find out that the basic issues related to sourcing are caused by the lack of adequate technology.

Thus, it can be assumed that the DVS Company should start using the latest techniques in information management and get the equipment that will help make production process faster and more efficient.

For example, it can be assumed that a specific password-protected database, which every member of the company has the access to, should be used to store the data concerning the company’s performance (Langley, Gibson, Novack, & Bardi, 2009). The problem of procurement is considerably easier to handle.

It is important that DVS should get its priorities straight and choose whether it is more important for the company to maintain its reputation by providing the TA with the products of the same high quality, yet with a slight delay in delivery, or whether the company should make a step backwards in the quality of its goods and put the emphasis on the speed of durable vinyl siding production.

At the given stage of the DVS development, though, it seems that putting the company’s reputation as a high-quality service is rather dangerous; instead, the deadlines could be moved to a more reasonable date.

Finally, the issue of overcrowding can be resolved by reconsidering the product placement and arranging the goods in the warehouse so that the customers could split into several major groups and, therefore, check the goods that they need without creating “traffic jams” in the middle of shops.

Undergoing a range of changes related to the recent appointment of a new director and a sourcing manager, DVS has to shape its strategies so that they could contribute to the company’s growth instead of contributing to the company’s stagnation.

What used to work previously has clearly become dated in the XXI century; it is evident that the company’s processes, as well as the information that the company acquires and uses, must be arranged and stored with the help of the latest technological innovations.

Although it will be unreasonable to abandon the time-tested strategy completely, and that there can be a number of useful ideas to use in future in the approached adopted earlier, DVS clearly needs an update on its procurement strategy.

Reference List

Coyle, J. J., Langley, C. J., Novack, R. A., & Gibson, B. J., (2013). Supply chain management: A logistics perspective (9th ed.). Mason, OH: South- Western Cengage Learning.

Langley, J. C., Gibson, B. J., Novack, A. R., & Bardi, E. J. (2009). Supply chain management: A logistics perspective (9^th ed.). Mason, OH: Cengage Learning.

Introduction

In an article titled, Competitive Advantage, which was published in 1985, Porter dismissed the role of procurement/purchasing and articulated that it played a supportive role in an organization. While that was the case then, the role of procurement in contemporary business environment has changed.

Indeed, Porter agrees with the assertion by saying that procurement process is one of the areas where companies can create value for the shareholders and the society.

According to Porter & Kramer (2011, p. 62), companies have possessed a narrow perspective of increasing the profitability of their organizations at the expense of the society.

To rectify these imbalances, a myriad of companies have embarked on corporate social responsibility (CSR) as a way of taking care of the stakeholders in the periphery. Porter & Kramer (2011, p. 66) introduce the concept shared value within the value chain.

Particularly, they point out that companies could create value through the procurement process where all stakeholders stand to benefit. This paper seeks to agree with Porter’s assertion that procurement is vital for businesses and is one of the pillars for improved performance.

Procurement: Pillar in the Success of a Project

Previously, procurement served a diminutive function in an organization. Although it used to be a common aspect of many companies, it entailed simple buying of common goods and raw materials especially those that the production department recommended.

Chadwick & Rojogopal (1995, p. 234) explain that the procurement skills were still in their bookkeeping stages and were applicable in all operations of organizations.

For instance, after the manager received a list of requisitions, his or her main role entailed looking out whether the information presented was accurate and sufficient to allow the purchasing process to begin. Ideally, many companies had pre-established their respective suppliers and agreed on prices.

However, these terms would be renegotiable to allow for further bargains in prices and the dates of delivery. In large organizations, buyers were so much engrossed in making numerous purchasing orders and bargaining for supplies of virtually all organizational departments (Dobler 1994, p. 45).

To that end, purchasing department was perceived to belong to skilled and dexterous employees due to the high number of orders, complexities in delivery dates and resolving misunderstandings and queries.

However, these activities did not allow an organization the required time to strategize on the most efficient way to procure goods and supplies.

Porter & Kramer (2011, p. 71) say that different firms across the world have begun to perceive procurement as major driver of success. Despite previous failure to notice the importance of the process, many firms have begun to source for supplies in competitive areas.

Countless companies have become global organizations. As such, they have begun to shift and change their procurement processes to suit their new stature.

Companies have also recognized that locating their activities and operations in areas perceived to have low wages for workers is not enough for a company that seeks to create shared value.

To this end, companies have embarked on synergized procurement process where different units work together in the process of procurement. Synergy does not only apply to the internal environment of a company but also to the external environment (Farmer 1997, p. 87).

This implies that similar companies at the global market environment will synergize their procurement operations to derive value for all stakeholders. Companies are realizing that synergizing operations has costs that challenge the achievement of their objectives and plans.

Hence, organizations have appreciated ‘time to market’ and efficiency strategies that require procurement function of an organization to play a focal role. This was contrary to the initial strategies by organization that entailed expanding their operations with the hope of increasing their profits and revenues.

Synergy in procurement and dynamic nature of organizations have both worked together to increase the role of purchasing within an organization (Farmer 1997, p. 97).

Further, it is important to mention that procurement is an avenue for value creation in an organization. Porter & Kramer (2011, p. 72) argue that procurement should be a strategic tool that an organization uses to increase the well-being of all stakeholders.

This is contrary to the previously held notion that an organization can improve the wellness of a community in which it operates only through CSR. Shared value means that every member or stakeholder of a company should derive benefit from the company (Day 2002, p. 84).

For instance, construction companies aiming to increase their presence in a new market should seek to increase the efficiency of their suppliers to stand a chance of success.

Day (2002, p. 84) asserts that this may be possible through providing financial incentives for the suppliers to increase their productivity through acquisition of new technology to produce construction materials in demand.

Simultaneously, the suppliers’ capability increases in terms of volumes produced and efficiency in production.

In addition, strategic procurement process allows a company to create value by identifying areas for potential savings. This is possible by increasing the importance of innovation-driven models when purchasing and procuring supplies in order to review their structures of costs (Lamming 2002, p. 17).

For instance, companies have begun to adopt procurement models that turn conventional fixed costs into variable costs. Although procurement does not influence all costs that an organization incurs, Chadwick & Rojogopal (1995, p. 234) say that procurement influences over 75 percent of total costs incurred by a company.

To that end, it is apparent that when companies evaluate their disposable resources, procurement function of a company can support it in attaining critical efficiency improvement (Chadwick & Rojogopal 1995, p. 124).

To achieve this, it is important to look into the major purchase levers of price and volumes that the company intends to purchase.

Due to synergy in procurement process, the support of other companies is important to allow the procurement function to evaluate and bargain the prices with the suppliers across the market in search of the most competitive prices (Turner 2003, p. 108).

On the other hand, volumes that a company intends to purchase can influence the negotiating power of the procurement function of an organization.

To that end, it is noticeable that the role of procurement has changed immensely overtime. As such, strategic procurement is an important function of an organization as well as a driver of success.

Another factor that could have led Porter’s change of perception of procurement is the increase in appreciation of change in business environment. Today, procurement has taken many dimensions. Particularly, Porter was oblivious of the importance of strategic procurement.

It involves the application of the right sourcing strategies for all units involved in the process of procurement (Kraljic 1983, p. 112).

Contrary to the initial short-term focus of expanding and focusing on profit maximization, companies are adopting long-term strategies such as strategic procurement (Gardiner 2005, p. 27).

The rationale is that the process also involves buy-in from all the units of an organization and increased negotiating and analytical skills of the human resource. Strategic procurement addresses the question of the best and most feasible outsourcing strategy that could lead to increased efficiency for an organization.

Although there is no specific strategy that is right for all companies and organizations, strategic procurement promises to provide the purchaser a wide array of approaches when choosing the correct sourcing strategy.

Besides, the process considers the organization’s strategy and the financial importance of the goods to be sourced (Turner 2003, p. 123).

Strategic procurement facilitates the company to comprehend the market conditions faced by suppliers of the specific goods. Therefore, the process of purchasing has become an integral component of strategic plans that an organization and it contributes importantly to the success of the company.

Turner (2003, p. 45) asserts that companies have continued to integrate procurement internally with other functions. Although internal integration of units has been overlooked, companies are finding it important to integrate their units, as is the case with suppliers and customers.

Integration is a necessity in order for the organization to benefit from information sharing. In addition to gaining from decisions of procurement, an organization will also benefit from effectiveness from other units that attempt to meet their cost saving objectives.

At this level, Gardiner (2005, p. 37) says that procurement has begun to serve the role of increasing the commitment level of senior management team by demonstrating its importance in the organization and aligning its strategies to the organization’s objectives.

This continued appreciation of procurement as an important driver of success has led to the expansion of procurement department into analyzing other drivers of expenses within an organization.

This implies that procurement has become a critical function of an organization in examining costs of such functions as sales and administration (Kraljic 1983, p. 111).

To illustrate the changes that procurement has undergone to become a major factor in the success or failure of an organization, it is important to look into various aspects of an organization.

Kraljic (1983, p. 112) points out that procurement functions have expanded their remit into the management of risk and business propensity in the supply chain. This is particularly important due to the increase of companies operating in the global market.

Besides, procurement functions of different companies have comprehended the complexities that emanate from the volatility of supply chain (Arjan 2010, p. 93).

For instance, due to the constant fluctuations of exchange rates across the world, procurement departments have constantly been able to understand the financial market and maximize on them.

Instead of the potential costs that an organization would stand to incur when purchasing using a poorly performing currency, the procurement’s comprehension of the dynamics will facilitate the maximization of profits.

Porter & Kramer (2011, pp. 67-85) articulate that organizations have enabled their procurement functions to evolve and be able to manage risks such as disruptions in supply and shortages that may pose challenges to the suppliers.

Further, organizations have continued to forge strong and meaningful relationships with their suppliers. This implies that relationships between procurement and suppliers has changed and evolved overtime contrary to the perception held by Porter.

Organizations are working together with their respective suppliers implying that they have adopted collaborative approaches. This allows companies to share risk and returns in addition to increasing the level of innovation between them.

The collaborative approach between the procurement function of an organization and the suppliers is important in the sense that it allows the sustainability of the company (Lamming 2002, p. 19).

This is in the way the two actors initiate environmentally friendly solutions especially in packaging in addition to ensuring that the global supply chain is typical of favorable conditions for workers.

All these changes in the procurement function have contributed significantly to the adoption of high-end outsourcing and sourcing strategies in an organization.

To that end, it is imperative to assert that the changes that have taken place since Porter’s claim regarding procurement have made him to rethink his stand on procurement process.

In the contemporary world, procurement has changed its role and increased focus on devising ways that companies are able to manage their inputs (Gardiner 2005, p. 40). This is in the way an organization transforms the inputs into products.

As aforementioned, the role of procurement has changed over the last few decades. This implies that the department of procurement in every organization has continued to take in increased roles and responsibilities.

This leads to increased value of the organization as well as improved skills required to operate the procurement function (Arjan 2010, p. 102).

Indeed, trained and skilled employees within the department have shifted their focus to development and implementation of initiatives that lead to increased creation of value for all stakeholders.

This is in addition to ensuring that the company’s objectives and targets are met in terms of increasing sustainability of the organization and acquiring new technology.

Despite the increasing demands in the procurement function of an organization, Arjan (2010, p. 105) articulates that there exists apparent disparities in the demand and supply of such personnel.

To this end, companies have recognized the need to retain their employees within the procurement department for consistency and efficiency.

Besides, companies have invested heavily in ‘on job’ trainings that seek to develop the skills of newly acquired talent in order to augment their productivity and performance.

Essentially, companies have increased their ability to attract and retain talented and skilled professionals who are able to uptake many roles within the organization.

Considering the amount of resources that contemporary organizations are putting in procurement, it is obvious that the roles of procurement have increased. This is in the way they drive an organization into success.

Conclusion

In summary, Porter’s perception that procurement was until 1985 a supportive function of an organization has changed. The rationale is that organizations across the world have evolved overtime and continued to place emphasis on procurement.

At the outset, many companies have changed and evolved into global enterprises that require them to change their procurement processes to suit their stature. Companies have also understood some volatility aspects of the supply chain especially regarding the fluctuations in exchange rates.

Additionally, it is important to mention that integration of internal business units, establishment of strong relationships with suppliers and retention of procurement professionals have typified the modern business organizations. The companies have also appreciated the importance of value creation as opposed to CSRs.

The roles of procurement have increased due to the apparent evolution of companies. Indeed, it has become a driver of success according to Porter & Kramer (2011, p. 70).

References

Arjan,W 2010, Purchasing & Supply Chain Management, Analysis, Strategy, Planning and practice, Cengage Learning, Boston.

Chadwick, T & Rajagopal, S 1995, Strategic Supply Management, Butterworth Heinemann, Oxford, UK.

Day, M 2002, Handbook of Purchasing Management, Gower, Aldershot, UK.

Dobler, D 1994, ‘Letter from America: A new venture aptly timed’, European Journal of Purchasing and Supply Management, vol. 1 no. 1, pp. 82-123.

Farmer, D 1997, ‘Purchasing myopia – revisited’, European Journal of Purchasing and Supply Management, vol. 3 no. 1, pp. 35-231.

Gardiner, P 2005, Project Management – A Strategic Planning Approach, Palgrave Macmillan, Basingstoke, UK.

Kraljic, P 1983, ‘Purchasing must become supply management’, Harvard Business Review, vol. 61 no. 1, pp. 109-117.

Lamming, R 2002, Purchasing and organizational design, Gower Publishers, Aldershot, England.

Porter, E. & Kramer, R 2011, ‘Big Idea: Creating Share Value’, Harvard Business Review, vol. 1 no. 1, pp. 62-77.

Turner, J 2003, Contracting for Project Management, Gower, Aldershot UK.

Introduction

The dynamic nature of modern business environment, coupled with rapid advances and complexities in communication and technology have resulted in development of diverse business strategies aimed at promoting business competitiveness in the global markets (Bower 2003).

Companies are currently seeking positions of competitive advantage over their rivals by strategizing towards the creation of long term consumer and supplier loyalty.

In addition, business leaders are pursuing new and advanced business paradigms that provide opportunities for their companies to work closely with long term and new business partners in order to effectively adapt to the rapid changes occurring in the market place (Bower 2003).

New and beneficial business relationships are arrived at through development of project procurement strategies that aim at striking a balance between work, motivation, and risks for long term sustainable business efficiency.

Procurement refers to the process of acquiring new services and products at the most efficient prices and incorporates activities such as contract strategy, contract documentation and contractor selection (Bower 2003). In simpler terms, procurement concerns itself with the function of purchasing inputs that are used in the firm’s value chain such as raw materials, supplies, machinery etc.

The process employs specific technology which facilitates in dealing with vendors, qualification tools, and information systems (Barnes & Open University 2001). Procurement practice is one the processes that organizations and teams acknowledge as a most important element of project management (Dinsmore 2010)

Project Procurement Management

Project procurement management knowledge is essential for firms to operate efficiently (Tomczyk 2005). Knowledge and expertise in this field assists in decision making on purchasing of goods and services from external suppliers, contractors, and suppliers. Project procurement deals with the interactions between purchasers and contractors as well as contract administration (Tomczyk 2005).

Project procurement management is further concerned with inventory management which is especially important due to the tremendous amount of uncertainties associated with the same (Willoughby 2001).

Consequently, effective procurement management requires a comprehensive understanding of project management processes, ability to utilize specific procurement tools at each stage of the project and a clear understanding of the benefits associated with integration of procurement tools rather than executing the procurement process in isolation (Hairston 2005).

Project procurement activities are spread throughout the firm with the purchasing and contracting function being conducted by the purchasing department, plant managers, office managers, sales persons, or in some cases by the chief executive officers (Barnes & Open University 2001). A particular procurement activity is often associated with specific value activity which it supports.

Consequently, procurement choices are geared towards value maximization by making the most efficient choices regarding contracts, engaging stakeholders, as well as linking business strategy to project selection (Rowlinson & Walker 2007).

Procurement choices should be made in such a way that they ensure balancing demands and responsibilities, protecting the reputation of those involved in the projects, encouraging innovation and promoting knowledge transfer where it can reap value (Rowlinson & Walker 2007). In addition, such choices should seek to attract and develop a skilled pool of talent which has the ability to deliver expected value to the stakeholders.

The cost of project procurement in most firms represents an insignificant proportion of the total costs. However the cost has a large impact on the overall cost of the firm which demands procurement executives to improve procurement and purchasing practices in order to achieve maximum efficiency.

In response to this, companies have adopted E- Procurement strategies which have become an increasingly important cost reduction tool. E- Procurement is being implemented in most organizations in a bid to reduce overall operational costs (Buchanan 2008).

In order to further manage associated costs, project management processes require the executives to focus more on the risks associated with the project, definition of track and measurement of quality, as well as effective control and communication (Great Britain 2002).

The Concept of Value

The definition of value depends on the perspective taken as well as the perceiver’s needs at the specific moment (Moser 2007). Numerous scholars have sought to define the concept of value in terms of financial benefits, social benefits, goal attainment and competitive advantage.

These diverging explanations have served to prove that value is a multi-dimensional construct that can be evaluated through various approaches. The concept has been widely used while referring to consumer needs with much less emphasis being put on the integration of suppliers in the value concepts.

However, in business procurement, researchers conceptualize value in business relationships in terms of the value of the supplier bundle of products and services that is exchanged at a price to the purchaser and the long term costs and benefits associated with the relationship established between the purchasing firm and the supplier (Moser 2007).

The value of the relationship depicts the aggregate worth of all the transactions that will be undertaken by the two firms over the contractual period while the perceived financial value refers to the present value of cash benefits accruing from the current and future transactions (Moser 2007).

The client expects to obtain value from their investment, timely delivery of project, durability of the end product, reasonable running costs, and defect free completion of the project from the contractor (Masterman 2002). In order to achieve this, the client’s needs and objectives must be addressed in the project procurement process.

The financial based perception of value is limited to cash benefits and does not account for non cash benefits associated with effective business procurement management such as technological transfer and continuous quality improvement derived from the interactions between the purchasers and suppliers (Koppellman 1998).

In the past, supplier selection focused on issues such as costs, quality, and delivery of the goods and services in question. This focus has however shifted towards supplier’s long term capabilities and the long term benefits that the purchaser is likely to derive from such interaction.

Benefits of Effective Procurement to Business Organizations

Effective procurement is important in firms since it facilitates appropriate decision making with regard to purchase of the right product and service at the right price (NCC 2006).

The process maximizes the level of service provision and plays an important role ensuring a balanced budget for the organization, promoting savings, creating a diverse market, promoting innovation, and delivering an organization’s strategic objectives (NCC, 2006). Effective procurement practices significantly cuts costs and improve efficiency within an organization (CIPS n d).

In modern business environment, more focus is being awarded to efforts aimed at cutting costs through elimination of unnecessary costs. However, these strategies are often associated with increased time consumption, widespread unemployment and often create severe staff morale problems (CIPS n d).

Consequently, organizations’ managements are seeking to devise other means through which they can cut costs within their organizations. Procurement provides one such opportunity that organizations can manoeuvre to reduce overall operational since the value of input products and services forms a substantial part of the firm’s turn over (CIP n d).

The world’s major airlines have been experiencing cost related difficulties in the recent past. For instance, the British Airways has faced numerous challenges ranging from terrorist threats to deteriorating business climate which has put the organization’s procurement function under question (CIP n d).

This prompted the organization to enhance its procurement function by negotiating lower prices through electronic auctions and limiting the number of suppliers. This move led to reduction in cost amounting to 650 million pounds in 2004 and savings worth over twenty million (CIP n d).

Improving efficiency in procurement and supply chain management generates benefits beyond price reduction for products and services (CIP n d). An organization’s ability to effectively manage its supply chain provides the real benefits to the organizations. For example, a retailer seeking to refurbish his sites would have to look for contractors who will guarantee maximum return from the investment.

Consequently, the retailer should carefully evaluate the options available in the supply market and cooperate with the selected contractors in order to reduce operation costs and duration. Failure to effectively manage the procurement process often results in project delay which in turn increases overall costs. In addition, Effective procurement promotes security of supply (CIP n d).

The process promotes timely risk identification which creates room for risk mitigation and management (NRC 2005). Further, establishment of good relationships between purchasers and suppliers ensures continuous flow of goods and services to the firm which in turn promotes consistency in production and service provision.

Establishing good relationships with suppliers enables a firm to access new and advanced products on a timely basis. A firm may reap additional benefits by engaging suppliers in the product design process which promotes technology transfer where both the purchasers and suppliers exchange ideas in order to achieve product innovation (CIP n d).

Procurement and supply chain management process has the ability to deliver value if it is managed as a whole. The suppliers and purchaser must work together in order to reap the benefits associated with effective procurement management.

This is because in absence of cooperation between the stakeholders, each function pursues its own interests which often results in conflict of interest. Therefore, firms must ensure consistency between the purchase and supply management decision making which in turn translates to the organization’s objectives, culture and structure.

Example of Project Procurement in the Construction Industry

In the construction industry, effective procurement is manifested in sustainable and sensitive use of resources, affordable and well functioning designs incorporating high standards of inbuilt utility and safety (Harris 2006). This can only be achieved by engaging able project managers who in turn make appropriate choices in awarding of contracts to competent and skilled designers and contractors (Harris 2006).

As shown in the figure below, construction projects are complex and require extensive planning. Indeed, according to Brown et al (2001), construction projects, regardless of their simplicity involve the participation of people from different teams who are integrated into a single team that is expected to efficiently execute a particular task.

According to Alhazmi & McCaffer (n.d), it has been estimated that the selection of an appropriate procurement method would result in approximately 5% reduction in construction production costs. Since each project has its unique set of requirements and characteristics, the chosen procurement method must address the technical issues of the project as well as the client and contractor needs (Alhazmi & McCaffer n d).

Various procurement considerations arise while undertaking construction projects (Edgerton 2008). The person wishing to pursue a construction project should put into considerations factors such as the objectives and constraints of the project, skills, and experience of the contractor firm (Edgerton 2008).

Brown et al. (2001) conducted an extensive analysis of the UK construction industry and revealed that the highly differentiated nature of the industry resulted in poor quality, cost escalations, and schedule overruns. The costs were attributed to lack of cooperation between the stakeholders in the project.

Consequently, firms in the industry sought to reduce construction costs by awarding tenders to contractors who focused on project duration cost and client expectations (Brown et al., 2001). In order to overcome the challenges prevalent in the industry, contractors developed new strategies which aimed at achieving cooperation between the contractors and the clients.

Further, a new project delivery process was established as a means of promoting improvement and innovation in the UK construction industry (Brown et al., 2001).

In conclusion, business organizations are moving towards online procurement which has proven to be especially effective in large corporations (Davila 2002). E-Procurement facilitates acquisition of goods and services via the internet and enhances work automation, organizational spending and information availability.

Advance in technology has aided firms to move towards the creation of collaborative supply chain management tools which serve to reduce administrative costs, reducing the project life cycle, lowering inventory and price levels and increasing inter organization collaboration.

Reference list

Alhazmi, T., & McCaffer R., 2000. Project Procurement System Selection Model. Web.

Barnes, D., & Open University, 2001. Understanding Business: Processes. London, Routledge.

Bower, D., 2003. Management of Procurement. London: Thomas Telford.

Brown, C. D., Ashleigh J. M., Riley J.M., Shaw D R., 2001. New Project Procurement Process. Web.

Buchanan, M., 2008. Profitability Buying Strategies: How To Cut Procurement Costs And Buys Your Way To Higher Profits. New York, Kogan Page Publishing.

CIPS. Not dated. Why Purchasing Key-The Message to Business Leaders. Web.

Davila, A., 2002. Moving Procurement Systems to the Internet to the Internet: the Adoption and Use of E-Procurement Technologies Models. Web.

Dinsmore, C. P., 2010. The AMA Handbook of Project Management. New York, AMACOM Division American Management Association.

Edgerton, W. W., 2008. Recommended Contract Practices For Underground Construction. London, SME Publishing.

Great Britain, 2002. Business Benefits through Project Management. London, The stationery Office.

Harris, F. 2006. Modern Construction Management. London, Wiley Blackwell

Hairston, J., R., 2005. Integrating Procurement and Project Management. Web.

Jagger, D., 1988. Logistics Information Management MCB UP Ltd. Journal of Enterprise Information Management. Web.

Koppelmann, U., 1998. Procurement Marketing: A Strategic Concept. Berlin, Springer.

Masterman, E. W. J., 2002. Introduction to Building Procurement Systems. New York, Taylor & Francis.

Moser, R., 2007. Strategic Purchasing and Supply Management: A Strategy Based Selection of Suppliers. Wiesbaden, DUV.

National Research Council, 2005. The Owner’s Role in Project Risk Management. Washington DC, National Academies Press.

New Castle City Council, 2006. Supporting People: Procurement Plan. Web.

Tomczyk, A. C., 2005. Project Manager’s Spotlight on Planning. California, John Wiley & Sons.

Rowlinson, M. S & Walker T.H.T., 2007. Procurement Systems: A Cross-Industry Project Management Perspective. London, Routledge.

Willoughby, A. K., 2001. Project procurement and disposal decisions: An inventory management model, NY: Elsevier. International journal of production economies. Web.

Abstract

Procurement is one of the most important business processes in any given business organisation. The success of this practice can make or break the competitive advantage enjoyed by the company in the market. In this paper, the author looked at procurement practices of two companies operating in Victoria, Australia.

The two companies are Montana Foods Limited and High Country Meats Limited. The author settled for the two companies given that their operations mostly revolve around Victoria. It was found that the success of these two companies is informed by their procurement practices.

Both companies have automated their processes. However, it was found that the participation of other employees in the procurement process varies in the two companies.

Introduction

Every organisation makes purchases, including for services and commodities, to meet most of its objectives. The procurement process is, therefore, meant to add value to a company’s operations (Garrido & Gutierrez 2004, p. 322). Depending on the organisation, the tendency to purchase and procurement procedures varies.

To understand some of the procurement processes, the author of the paper identifies two organisations, both found in Victoria, Australia. The two organisations identified for the study are Montana Foods Limited and High Country Meats Limited.

The author examines the procurement practises of the two companies. The author draws parallels between the procurement practices in the two companies in a bid to find out which set of procurement practices is best suited to a company.

The author relies on the aforementioned comparison to identify some of the inefficient procurement practises. To this end, the theories learnt in the coursework will be applied in a bid to improve procurement practices.

The author will examine some aspects of procurement to give credence to the topic. According to Christiansen & Maltz (2002, p. 46), the activities of Supplier Cooperation Program have a direct impact on the procurement practices.

The direct impact is precisely the reason why the paper examines such activities in the two companies. The activities are examined in relation to the product, process, and logistical developments between the company and the suppliers. The two companies are Montana Foods Limited and High Country Meats Limited.

While still on the aspects surrounding procurement practices, the author examines the stress testing conducted on the processes. In addition, the paper examines several categories of risks involved during the procurement process.

Upon the establishment of risk, the author will apply the theories learnt to analyse how the risks can be minimised and, ultimately, eliminated.

Montana Foods Limited

Montana Foods Limited is a private business entity that has been in operation for close to a decade, having been registered in 2006. According to Manta (2013, p. 13), the company is situated within the Broadmeadows area of Victoria, Australia.

Operating in the manufacturing industry, Montana Foods deals with the processing of milk by-products and, more specifically, cheese.

From Manta (2013, p. 13), it is established that the company, famously known for its Beer Cheese, has a staff of about 173 individuals.

It is important to note that the company is gender sensitive, owing to the fairly even gender distribution among the employees. Out of the 173 personnel, 100 are female, evenly distributed in all positions in the company.

With a steadily growing reputation of cheese supply, the company has a significant stake in the dairy market within Victoria area. With only one location, the company has an annual turnover of more than $20,000,000. It is, therefore, evident that the company’s marketing strategies are paying off.

High Country Meats Limited

High Country Meats Limited is a private company located within the Cobram area of Victoria, Australia. Registered in 2008, the company deals in meat and related products. It is both a wholesale and retail distributor (Manta 2013, p. 18).

High Country Meats has a staff of about 150 personnel. Gender is factored into the engagement of staff owing to the equal distribution of people from both genders in the business enterprise.

It is important to note that the company has a single location in the Cobram area. Such a situation allows it to command a huge stake of the meat market in the region.

According to Manta (2013, p. 26), the company has an annual turnover of more than $50,000,000. Such a figure attests to the company’s competitive edge in the market. From the stated figure, the turnover can only get higher.

The Procurement Process

As Chopra & Sondhi (2004, p. 53) rightly put it, procurement is the process where a company purchases goods and services whenever they are required at a favourable cost. The fact that procurement is a process implies that there are steps to be followed.

Several companies have developed different approaches of procurement process, all in a bid to give them a competitive edge in the market.

It is important to note that most companies have automated their procurement processes. One of the systems employed in the procurement process is the Enterprise Resource Planning (ERP) system. The system is business management software that companies use to manage their operations.

It is used in such diverse areas as material purchasing, product planning, inventory control, and distribution. In addition to the ERP, companies use the Electronic Data Interchange (EDI).

Both systems help to hasten the procurement process. EDI is the standardised method of transferring data from one computer to the other over different systems or networks.

It enables companies to conduct business transactions, such as sending orders to warehouses, tracking shipments, sending invoices, and other e-commerce transactions. Notwithstanding the automation, the steps in the procurement process remain relatively the same.

According to Zsidisin & Ritchie (2009, p. 34), the first step in the procurement process is the identification of what the organisation requires. It could be anything from raw material, a service provider, components that go to make an end product, among others. To this end, a Purchase Requisition (PR) is prepared.

Regardless of whether the process is automated or not, the buyer is furnished with a PR, which indicates the commodity or service required by the ordering department.

The purchase requisition could go to a procurement department with a whole team of people dealing with the order, or one person who could be designated as a procurement officer. From there, the process proceeds to the next step.

The second step is the evaluation of suppliers (Supply Chain Management 2013). The buyer identifies the various suppliers in the market. The supplier must, naturally, supply the commodities relevant to the buyer’s requirements.

Upon the establishment of the suppliers available, the buyer then proceeds to tender out the process. At this point, suppliers place bids from which the buyer will carefully select the most cost effective to meet the required quality standards.

The tendering process is guided by a set of criteria followed by the procurement staff to make sure that basic standards are maintained in picking the right suppliers.

The criteria can be set on minimum or maximum costs within which to operate and the type of material needed. The criteria make the procurement process less cumbersome.

After the tendering process is completed, the buyer will then have to approve a supplier, depending on the merits of the bid. At this stage, the buyer will issue a purchase order (Esper & Davis 2007).

From the purchase order, the supplier will be furnished with the quantity and date of delivery of the commodities demanded by the buyer. It is incumbent upon the supplier to ensure that the specifications indicated in the purchase order are fully met.

Failure to meet the specifications may lead to a breach of contract or a reorder at the cost of the supplier, which will delay production operations, where time is of essence.

Finally, the procurement process is terminated upon the receipt of the commodities purchased from the supplier. All the relevant documentations confirming the supply should be kept by both the supplier and the buyer. It is from such records that payments and any other enquiry with regard to the procurement are made.

Confusions can arise with regard to the process, which may force the parties involved in the procurement process to refer back to the documents to clear any issues that may arise from the order.

The ultimate goal, however, is for the buyer to ensure that the cost of the purchase made notwithstanding, the business is capable of making profits. That is the core mandate of every entrepreneur.

As earlier indicated, companies follow the steps mentioned above in their procurement processes. However, to remain competitive, various companies have employed practices that give their respective procurement processes a competitive edge.

Some of the practices include supplier – buyer relationship, the use of technology, and the team- based procurement approach. According to Zsidisin & Ritchie (2009, p. 51), a company’s procurement process is best evaluated using such practices as those mentioned and discussed above.

The Procurement Process at Montana Foods Limited

By virtue of operating in a manufacturing related industry, Montana Foods purchases a wide array of commodities. Such commodities range from raw materials to machines, as well as related parts (Manta 2013, p. 76).

In order to remain competitive, the company opted to automate its procurement processes to make them more efficient. It is the practice of automation of the procurement process that sets Montana Foods Limited apart from the rest in the industry.

Several benefits of the electronic procurement process at Montana Foods worth noting include the improved contract compliance, as well as the shortened procurement cycles.

In addition, the electronic procurement practice has increased the accuracy of the production capacity. It is also important to note that the practice has improved the visibility of the supply chain.

The Procurement Process at High Country Meats Limited

The meat wholesaler and retailer have incorporated several practices into its procurement procedures. First, the company has automated most of its procurement processes. Procurement processes at all levels, which include direct and indirect procurement (Manta 2013, p. 78), have been automated.

In addition to the automation, the company has built long term relationships with reliable suppliers. It is, therefore, interesting to note that High Country Meats has not changed any of its suppliers for a long time.

Finally, the company has transformed its procurement process to make it more of a team effort as opposed to a one man show.

Comparison of Procurement Practices in the Two Companies

After looking at the procurement processes and practices carried out by the respective companies, the author finds it interesting that both companies have automated their procurement processes.

However, the variance of the procurement practices is distinguished by how High Country Meats adopts a holistic approach. High Country Meats makes the process a team effort and, further, builds a budding relationship with customers. On its part, Montana Foods remains rigid on the two fronts.

For instance, whereas High Country Meats improves the supplier relationships, Montana Foods does not make any relevant improvement as far as relationships with their clients are concerned. As a result, inefficiencies in the procurement process arise when some suppliers fail to meet the set deadlines.

According to Esper & Davis (2007, p. 57), such inefficiencies have prolonged the procurement cycle. A prolonged procurement cycle affects the normal operations of a company and, subsequently, dilutes possible gains in profits.

In the opinion of Christiansen & Maltz (2002, p. 177), a good relationship between a supplier and a buyer is beneficial as it improves service delivery to customers. The two argue that sustaining one trusted supplier is better than interchanging suppliers, owing to the reliability factor.

A trusted supplier will, subsequently, minimise the costs of procurement, owing to the abolition of certain aspects of the procurement process, such as bidding.

Another discrepancy in the procurement practices of the two companies is the teamwork aspect. In Montana Foods, the procurement process is designated to a single officer. On its part High Meats has turned the process into a team affair.

In High Country Meats, representatives from each department are nominated to sit in the procurement committee. It is from there that decisions are made.

Chopra & Sondhi (2004, p. 54) point out that turning procurement into a teamwork affair boosts the morale of the members of staff. As a result of this, the process becomes more efficient.

Supplier Co-operation Programme Activities

In order to ensure that there is an improved cooperation between the supplier and the buyer, there are several activities that are undertaken with that regard. According to Christiansen & Maltz (2002, p. 189), some of the activities include the logistics development, as well as the process and product development.

As far as High Country Meats is concerned, the activity most looked into is the Logistics Development.

As already discussed, the company has a single source logistics procedure, which is beneficial both to the supplier and to the buyer. The most outstanding benefit, according to Christiansen & Maltz (2002, p. 189), is the short procurement cycle on the buyer’s part.

On the supplier’s part, the most conspicuous benefit of the single source logistics is the improved supply chain visibility.

Categories of Risk

According to Wu & Blackhurst (2009, p. 162) and Chopra & Sondhi (2004, p. 57), there are four categories of risks. The categories include disruptions, delay, systems, and capacity. Each of the categories is brought about by various factors unique to them.

The two companies discussed in this paper have risk factors associated to them when they are examined individually and, subsequently, compared to each other.

High Country Meats Limited

Chopra & Sondhi (2004, p. 57) point out that the procurement process risks being disrupted owing to several factors, which the author finds unique to High Country Meats.

For instance, the company’s reliance on a single source supplier, who cannot meet the production capacity, risks delaying normal operations of the company in the event that the supplier fails to deliver the order on time.

As a result of insolvency, a supplier may, likewise, be incapacitated and the failed delivery will result in a chain reaction of events that will, subsequently, disrupt the service delivery of the company. In order to avoid such a situation, Chopra & Sondhi (2004, p. 57) argue that it is important to evaluate all the suppliers.

When it comes to delays as risks in the procurement process, Chopra & Sondhi (2004, p. 58) find that inflexibility at the supply source is a contributing factor.

In addition to that, the two propose that high capacity utilisation by the suppliers is another contributing factor. As far as High Country Meat is concerned, the author is of the opinion that the company should increase responsiveness in order to mitigate such risks.

Montana Foods Limited

As far as the procurement of commodities at Montana Foods is concerned, the author finds that one of the procurement related risks results from the systems. From the practices initially outlined, it was established that Montana Foods relies heavily on its electronic procurement processes.

From Chopra & Sondhi (2004, p. 57), it is evident that overreliance on systems is potentially risky in the procurement process.

One major contributing factor is that the systems may malfunction and, as a result, compromise the whole procurement process. To mitigate the effects of such a risk, it is incumbent upon the company to ensure that there is prior or alternative back up in case the systems fail (Esper & Davis 2007, p. 57).

Capacity is yet another risk factor associated with procurement, according to Chopra & Sondhi (2004, p. 57). Owing to the volume of its operations, the capacity of procurement at Montana Foods is relatively high. The high capacity is in itself a risk factor, owing to the costs involved.

For instance, a supplier can cite financial constraints as an inhibiting factor to the delivery of the commodity required.

To mitigate the effects of such a risk, the author opines that there should be an aggregate demand associated with the procurement process. According to Svensson (2000, p. 168), this demands that a manufacturing company should purchase commodities that are urgently needed.

Conclusion

It is evident that no organisation can avoid making purchases. From such purchases, the normal operations of the organisations are realised. It is incumbent upon each and every member of the procurement team to invest in practices that will put their company at the pinnacle of success.

Some of the most relevant procurement practices include embracing technology and making the procurement process a team affair. It is important to note that by improving the relationship between a supplier and a buyer, the procurement process yields more benefits to a company.

Some of the benefits that a company stands to gain from enhanced procurement practices include reduced costs and improved visibility of the company.

According to this author, companies should strive to ensure that they develop proper procurement practices. According to Monczka, Landfield & Guinepero (2008, p. 98), this is important in order for the company to remain relevant.

Companies should strive to adopt the most efficient procurement processes that will enable them meet their timelines in the production process, as well as meet the demand of their own clients within normal reorder levels.

It is also important to note that if the best practices in the procurement process are adhered to and scaled down to the employees of the company, then efficiency and cost saving to boost profits are realised.

Companies should be able to experiment with varying methods used in the procurement practice to see what works best for them in relation to their core business. It is important to note that what works best for a service provider will not necessary work for a goods provider. The opposite is true.

Procurement managers must take this into account when they are choosing the appropriate procurement method.

As demand grows, it follows that procurement managers need to review the procurement procedures that will accommodate the growth and still maintain the profit margin of their companies, bearing in mind the efficiency levels of the process chosen.

The roll out of any new system or change of procurement process should bring on board all members of staff to enhance smooth transition with minimum hitches and interruptions.

Procurement practices can make or break the companies’ edge in the market. In case of a lapse in the purchasing and supply system, there are setbacks in other processes associated with the company.

It is, therefore, important for any company to optimise the operations of its purchasing department to make sure that the department maintains its position in the market.

The importance of the procurement process in any company cannot be downplayed. The point was highlighted by comparing two companies operating in Victoria, Australia.

References

Chopra, S & Sondhi, M 2004, ‘Managing risk to avoid supply-chain breakdown’, MIT Sloan Management Review, vol. 46 no. 2, pp. 53-61.

Christiansen, E & Maltz, A 2002, ‘Becoming an “interesting” customer: procurement strategies for buyers without leverage’, International Journal of Logistics, Research and Application, vol. 5 no. 2, pp. 177-195.

Esper, F & Davis, S 2007, ‘Logistics learning capability: sustaining the competitive advantage gained through logistics leverage’, Journal of Business Logistics, vol. 28 no. 2, pp. 57-82.

Garrido, MJ & Gutierrez, J 2004, ‘Determinants of influence and participation in the buying centre: an analysis of Spanish industrial companies’, Journal of Business & Industrial Marketing, vol. 19 no. 4/5, pp. 322-323.

Manta, M 2013, High Country Meats. Web.

Monczka, R Landfield, R & Guinepero, L 2008, Purchasing and supply chain management, South Western Cengage Learning, Ontario.

Supply Chain Management 2013, What is a supply chain?, .

Svensson, G 2000, A typology of vulnerability scenarios towards suppliers and customers in the supply chains based upon time and relationship dependencies, Vaxjo University Press, Sweden.

Wu, T & Blackhurst, J 2009, Managing risk and vulnerability: tools and methods for supplying chain decision makers, Grubers, Kent.

Zsidisin, G & Ritchie, B 2008, Supply chain risk: a handbook of assessment, management and performance, Ridurt Books, Boston.

To achieve success in project management, a planner is to take into consideration multiple factors, the most important ones are time, cost, and performance; these factors help a planner to have better control of the corporate resources (Kerzner, 2009). The aspects of time, cost, and performance form a triangle demonstrating the cycle of the development of the project, which is rather challenging to stay within for a planner due to the uniqueness of most projects and the absence of the universal standards and rules related to the planning and organization of different types of projects (Kerzner, 2009; Griffiths & Payab, 2010). The present paper describes the time, cost, and performance factors of the selected course project referring to the purchase of 25 sedans for government use and the issues that may affect their procurement.

The term procurement denotes an acquisition of services or goods that involves two interacting sides with different goals, and that can maximize the profitability of a company due to the optimization of costs, search for the best deals, and the contracts with the most suitable partners (Kerzner, 2009). In the present project, 25 leased sedans for the government use need to be procured. The chosen brand of a sedan is Toyota Camry. Besides, all of the procured vehicles will require insurance, to avoid the loss of income because of unplanned damage of the goods. To ensure the quality of the vehicles and their readiness to be exploited, they will also need preventative maintenance.

One more expenditure item in this project will include fuel for the vehicles, namely, 100 fuel cards/per quarter at 50 KD each. Moreover, to treat the managed vehicles responsibly, the plan will need to include 24-hour towing service and repair service. Time is a crucial factor in this phase of goods and services management. The main problem here is that multiple expenditures need to be managed at the same time, which could be frustrating for a planner and take a significant amount of time to arrange. To avoid this issue, the procurement process could be automated, the problems here may occur because of a lack of standardization and the insufficient development of services or software designed for e-procurement in particular areas (Griffiths & Payab, 2010).

According to Kerzner (2009), the process of contract management can be compared with art and science as they require both creativity and precision. Contact management is performed by both sides included in the contract agreement – the buyer and the seller. At the same time, the phases of contract management differ for the two parties. While the buyer’s management of the contract includes plan and conduct procurements, the seller is to take care of the presales activities, bid or no-bid decision-making, bid or proposal preparation, contract negotiation and formation (Kerzner, 2009). The last two stages of contract management (contract administration and contract closeout) are the same for both the buyer and the seller since the two parties follow the same terms (Kerzner, 2009).

Discussing the time management required for this project, it is important to mention the time frame of the contract procurement will be based on. The duration of the contract will be one year, be more precise – from the 1^st of September 2016 to the 31^st of August 2017. To be in time with the planning, the purchase order for each item or service will need to be released three months ahead. At this stage, it is vital for both participants of the contract to ensure appropriate contract administration and make sure both sides stick to the obligations and requirements assigned to them by the terms of the contract (Kerzner, 2009).

According to the conditions of the contract, the vendor is obliged to deliver the items and services by 12:01 am on the 1^st of September 2016. This is the precise time that will dictate the purchase order planning and release since the implementation of all the necessary measures is planned to take three months. Besides, this is the date that signifies the beginning of the contract closeout that demands the verification that all the requirements of the contract are met. If one or several items outlined by the terms of the contract are missing the contract is considered violated.

To make sure that the conditions of the contract are followed, and all the required services and goods are in place, an inspection upon release is needed. Within the present project, the contract will ensure the performance of monthly dispatch inspections that will be delivered based on a 28-day cycle. This measure will help the vendor and the client make sure that the goods and services outlined in the contract match the requirements and are in perfect condition. Regular inspections are important not only because they ensure the quality of goods and services but because they directly impact the relations between the vendor and the customer. This way, in case, if one of the Toyota Camry vehicles provided by the vendor will be out of order, the vendor is obliged to replace it with an alternate vehicle. The location of the goods and services delivery in Camp Arifjan, Kuwait, “Park and Ride” parking lot.

Payment terms are another necessary aspect of the contract. In the present project, the contract agreement dictates that the requirement will be funded at the commencement of the Period of Performance (also referred at as the POP). Project Planning Estimate (or PPE) will determine the funding conditions for each Period of Performance. This aspect of the procurement relies mainly on the factor of performance which is the determinant of the payment. This is why the payment is broken down into parts each of which requires the payment to be delivered based on the quality of performance – this kind of payment is preferable for the buyer as it minimizes the risk of overpayment. For the seller, the gradual acquisition of the funding is also convenient because it makes the micro procurement easier since each payment and performance period can be managed as a separate sub-project that will simplify the planning through the optimization of the number of operations and processes run within the project.

When it comes to the budget of the services and items outlined in the plan, the requirement is all-inclusive. Besides, the budget for each item/service is specified in the Independent Cost Estimate (or ICE), and all the additional budget information is provided in the Project Planning Estimate (or PPE). Since the additional resources may drive up the cost of the services and goods very fast, the problem may appear is the additional budget is not outlined in the contract before its implementation or if the additional costs exceed those mentioned in the contract (Kerzner, 2009). In such a case, the vendor is to employ cost control management. Besides, the use of additional resources is often directly connected to the need for the additional time that causes a delay in service or goods delivery and equals as negative performance.

As a vital element of planning, time is to be treated with special attention. This is why Brandon-Jones and Carey (2011) discuss e-procurement as a method to optimize the time management of a project that will also help to reduce costs through the minimization of needless operations. At the same time, the authors mention that e-procurement, though profitable and convenient, requires compliance from the side of the user, and this assumes training, coaching, classes designed to teach the users how to employ e-procurement appropriately and use its full capacity.

To conclude, time, cost, and performance are the most significant factors of project management and procuring. All of these factors are the parts of each aspect of a project and are relevant at every stage of its planning and implementation. In the business environment, the failure to deliver each of these factors adequately as outlined in a contract or management plan will lead to loss of income. At the same time, the optimized management of time, cost, and performance will maximize the profit of the selling side as well as their reputation. This is why procurement needs to include multiple aspects of a project and refer to all of its details synchronizing the operations for the achievement of the maximum efficiency.

Reference List

Brandon-Jones, A. & Carey, S. (2011) The impact of userperceived e-procurement quality on system and contract compliance. International Journal of Operations & Production Management, 31(3), 274-296.

Griffiths, G. & Payab, H. (2010). Supply on the heels of demand: Issues of e-procurement. Journal of Global Business Issues, 4(2), 29-35.

Kerzner, H. (2009) Project management: A systems approach to planning, scheduling, and controlling (10^th ed.). New York, NY: Wiley.

Executive Summary

The following paper is an integrative assessment of procurement and supply. The assessment is divided into five key areas of procurement. The first section entailed the analysis of the practical roles of stakeholders in the process of procurement. This was about procurement and supply in the management of expenditures. The second section entailed exploring the techniques that can be applied to the area of expenditure to enhance the creation of value.

The PESTLE model was used to aid the analysis. The third section explored the factors that make a contract to be legally binding and inclusions that can be made with a key focus on the technological and environmental requirements in the seismic acquisition survey. In section four, Kraljic’s Supplier model was used as the basis for selecting the best supplier. The final section entailed the application of the 5-R model to examine the aspects of the purchase that call for negotiation.

This is about the negotiation between the purchaser and the suppliers. The main findings from the sections were that effective supply management creates value for organizations by ensuring that there is a beneficial business relationship between an organization and the external suppliers. ADCO should apply Key Performance Indicators (KPIs) to streamline the supply and procurement process by putting in place measures to ensure that suppliers are evaluated regularly to ensure that services and products are delivered to the company as required.

Role of Procurement and Supply in Managing Expenditures

Introduction

Procurement and supply play a strategic role in helping businesses accomplish their operations and gain a competitive edge. Effective procurement is integral in lowering the expenditures of a business. Effective procurement ensures that there is timely delivery of materials to ensure the continuity of a project. In modern times, procurement is considered as a factor in the creation of value in an organization. Erridge and McIlroy noted that the function of procurement has become a department of managing external resources (54). This section covers the role of procurement and supply in managing expenditures about expenditures in the seismic acquisition survey; the section underlines the inputs that should be made by the key stakeholders in the onshore seismic drilling survey.

Seismic Acquisition Survey

Seismic surveying is a process of exploring gas and oil by the production of detailed images of the rocks and their location on the earth’s surface to establish the reservoirs for oil and gas. The onshore exploration entails the use of specialized equipment and trucks that are vibrated to produce a seismic signal. The Abu Dhabi Company for Onshore Petroleum Operations Ltd. (ADCO) caries out onshore seismic surveys by employing the best industry practices. To achieve the mission, the company has to ensure that the procurement and supply process is carried out effectively to enhance efficiency. The efficiency entails a systematic assessment of the entire supply chain to ensure that the most qualified bidder is contracted. The contract is reviewed regularly to make sure that ADCO creates value for its shareholders.

Effective Procurement in the Onshore Seismic Survey

Efficiency in procurement is established in terms of the price of the material or service, the quality and quantity affect the overall expenses. Holm pointed out that the effectiveness of procurement is a foundation for sustainable success (11). For instance, procurement imbibes the savings that are delivered in an organization. Erridge and McIlroy stated that organizations need to devise measures that ensure sustainability in the core areas of operations such as procurement to manage expenditures (59). ADCO procurement process is multifaceted; this means that it is based on the type of equipment or service being sought.

For example, in the procurement of key seismic equipment, the ADCO strategy is to rely on trusted providers that have provided the service before. On the other hand, some services are based on competitive tendering in which the lowest bidder is given priority. This is normally in cases of services and equipment that complement ADCO seismic surveying such as transport and stationery needs. The award of contract in the company entails evaluation of the value in terms of the strategic importance against the risks based on the contribution to the overall performance. Shareholders are involved in the entire sourcing process.

Assessment of a Service Provision Contract for the Survey

The procurement process employed by ADCO is based on strategic importance which calls for close collaboration with the key stakeholders. The result is an established relationship with suppliers to avoid compromising the quality of work. There is great consideration of the efficiency and effectiveness of the services being acquired. Therefore, the core considerations before the award of any contract include:

• Definition of the requirement: This is based on the scope of the contract based on the quality, specifications, quantity and time required.
• Pre-qualification: The various suppliers are appraised based on their past performance and the overall business relationship with the company.
• Invitation of the most qualified service providers: The most qualified suppliers are invited to submit their bids as per the specified requirements.
• Evaluation: The bids are evaluated and the most efficient and cost-effective supplier is listed.
• Negotiation: The procurement department then engages in negotiations with the identified supplier to agree on key terms of the contract. The negotiations include the legal and business obligations of the parties, i.e. ADCO and the identified supplier.
• Contract awarding: If the parties agree on the terms and conditions, the contract is signed and thereafter implementation starts. ADCO supervises the process to ensure that the interests of all stakeholders are met.

A case in point, ADCO procured services of RPS Energy Ltd to enhance the efficiency of the seismic processes. ADCO required strategic services to enhance safety and cost-effectiveness. The identification of the RPS Energy was based on the prior business relationship and lower bidding upon the invitation for the bids. The contract added value to ADCO by reducing exploration costs by increasing computer power and software capability in the development of real-time data.

The contract was awarded by putting into consideration that effectiveness without efficiency does not lead to the ultimate required goals (Borgström 6). Figure 1 is a representation of the role of effective procurement in the creation of value for the stakeholders. Thus, incorporation of the RPS Energy in the seismic survey enhanced efficiency that in turn resulted in cost-saving mechanisms that created value for stakeholders.

Inputs of Stakeholders

The inputs of stakeholders determine the outcome of the project. The key stakeholders for the ADCO’s seismic surveys include:

• UNEP.
• Government.
• Public.
• Suppliers.
• Shareholders.

The main areas of concern of the stakeholders relate to the prevention of environmental pollution in the process of survey and the management of natural resources. Stakeholders have expectations that must be met in the implementation of a project. The seismic surveys have a great impact on the environment; thus, one of the key stakeholders for the onshore seismic acquisition surveys has been UNEP, which represents the global community on matters related to environmental safety. The role of the body in the seismic survey has been to ensure that the ethical concepts of the environment are followed. This is not carried out in a supervisory manner, but on a consultancy and advisory basis to ensure the integrity of the project. Even

though the UNEP role is directly aligned to environmental impact, it has an indirect effect on the financial integrity in ensuring that exploration techniques are tested and proven for environmental safety; which in turn leads to efficiency and effectiveness.

The government as a stakeholder is concerned with ensuring that seismic surveys do not interfere with the ecological system. For a contract to be effective and acceptable, the parties have to outline measures that will ensure the balance of the ecosystem is maintained. Suppliers determine the efficiency and cost-effectiveness of the overall process. In ADCO, they are treated as business partners and create value for the organization by ensuring that the supply chain is not disrupted. The shareholders for ADCO are ADNOC, Total, JODCO, and GSE. The shareholders are represented in the key management departments of the organizations. They approve the budget for the survey projects, they review and approve the bidder’s list. Also, if a project is to be extended they are involved in approving the additional budget. In the selection of the right supplier in terms of the pricing, the following steps are crucial.

To sum up, it important to note the responsibility charting is through the application of the RACI framework. This entails identification of functional areas of the surveys, the main activities, dealing with ambiguities and problem solving through team effort; i.e. selecting the person (R) responsible for the work, gauging the (A) accountability, (C) Consulting and (I) informing. The shareholders act as the owners of the project; hence, they establish ‘consults’ and ‘informs’ other stakeholders to streamline the communication and execution of the project. It is worth noting that the main goal is not only to save money but to attain value in the process of procurement.

Techniques that can be applied to the Area of Expenditure to Improve Added Value

Introduction

ADCO’s seismic surveys are based on practical excavation, which requires precision to avoid the accumulation of costs. Due to the comprehensive nature of the surveys, they are influenced by different factors that affect the procurement process. To uphold value, the PESTLE technique is one of the main techniques that can be used in the area of expenditure to improve added value.

PESTLE analysis

PESTLE analysis is a strategic planning tool that deals with macro-environmental factors that affect the operation of a business by offering an overview of the external factors that affect the operation of any business (Vrontis and Pavlou 291). This is about social, technological, economic, environmental, political and legal factors (Peng and Nunes 7). Table 1 is a general overview of the factors. However, in the context of ADCO’s seismic surveys, the main area of concern is the economic and environmental elements.

Table 1: A summary of the factors to consider when carrying out a PESTLE analysis.

Political

Most of the processes that relate to the exploration of natural resources are closely monitored by the governments. ADCO’s seismic processes have to be cleared by the government regulatory bodies before they are executed. Hence, ADCO invests a lot of resources to ensure that all service providers comply with the government requirements on the use of equipment and chemicals.

Economic Implications

Economic changes have a direct effect on the operations of ADCO.

For instance, the changes in the prices of the materials and tools used in the ADCO’s seismic acquisition survey such as the exchange rates, the taxes, and the prevailing growth trends affect the outcome of the project. In a seismic survey, ADCO requires a lot of energy from fossil fuels for geophysical acquisition techniques. Changes in the cost of fuel have had a great impact on the cost of the survey. The main challenge has been the fluctuation of the fuel costs in the international market; hence, the need to keep on renegotiating contracts based on the prevailing fuel prices. In the first two quarters of 2016, ADCO has had to renegotiate contracts awarded to the oil supplier RPS Energy to ensure quarterly review of prices. The adoption of the measures has resulted in the creation of value for the stakeholders as the prices are adjusted based on the market trends. The main gain has been about the cost of oil, which accounts for 30% of the costs for seismic operations.

Technology

The procurement of service providers for the seismic acquisition survey is dictated by the technological requirements. For example, the contract between ADCO and RPS Energy Ltd for the provision of the computerized services was influenced by the technological requirement and the capacity of the supplier to provide the software applications required for the seismic processes. About technology, only technically acceptable suppliers are considered. To select the right supplier, shareholders participate in the assessment of the bidders in terms of technological capacity and their prices. Priority is given to the lowest bidder who meets the specified technological requirements.

Legal factors

The relationship between ADCO and the suppliers is guided by different legal factors. The legal factors entail the general terms of contracting as laid out in the constitution. Further, the partners are bound by contractual terms for the agreement. For example, ADCO has to negotiate and agree with the suppliers by following the legal framework that relates to the specified contracts. This includes the tax obligation, safety, and terms for terminating the contract.

Environmental factors

The onshore seismic surveys affect the marine and terrestrial lives near the operational areas. This is about noise emitted by the equipment being used, vibrations, and gas and liquid discharged during the project. Due to the implications, there are a lot of regulations both at the local and international levels. As a result, ADCO has had to partner with key stakeholders in drawing the contracts with various suppliers to ensure compliance with set standards. All the service contracts are signed based on the government policy on environmental conservation. ADCO has been compelled to procure services of UNEP to provide consultancy on a review of equipment used for the surveys. For example, assessments of the environmental impact for the special trucks that are vibrated to produce a seismic signal.

Inclusions that should be made in Contracts

Introduction

Contracts play a great role in establishing a measure of certainty. To carry out its functions effectively, ADCO procurement and supply is mainly done based on the prior business relationship between ADCO and the suppliers. However, the selection of the suppliers is guided by the need to ensure cost-effectiveness. Hence, each contract is drafted to ensure that important inclusions are put into consideration to guarantee the mutual benefit of the parties.

Inclusions in a Contract

The best approach practices in the design and management of contracts ensure that a contract is clearly defined. A contract should have specifications and a clear outline of the terms of engagement. The main reason for procurement is to reduce commercial risks and enhance the value for stakeholders. In general, it is expected that the personnel in the procurement department should draw contracts to control the expenditures that are made with suppliers. One of the core inclusions in any contract should be the statement of willingness. The statement should be specific in defining the terms of engagements (Bausman, Chowdhury, and Tupper 9).

About ADCO’s survey, the terms should relate to the materials and equipment needed, their quality, and the agreed price. The terms are negotiated based on market standards. Also, the specifications are drawn to ensure that they are in line with legal requirements and set out environmental standards. The inclusions guarantee better value by the integration of various factors that include a reduction in the risks, right prices, agreed timescales and reduction in the commercial risks.

For example, in the contract between ADCO and RPS Energy for the oil supply for the trucks, the main inclusions included clear specification of the oils required for the survey. The inclusions for the contract between the RPS Energy and ADCO are captured in the various sections of the contract template which include:

• The agreement.
• Commercial section.
• Technical section.

The Agreement

For a contract to be legally binding, one of the key elements is a mutuality of obligation. This denotes that parties should agree on the terms. Based on the current emphasis on environmental sustainability, all ADCO contracts are assessed by an environmental regulatory body before being actualized. This is guided by ADCO’s policy that environmental sustainability processes are part of the sub-elements in the mutuality of any obligation.

Commercial Section

This is an important inclusion for ADCO as it dictates the value shareholders realize from the business relationship with the suppliers. The section contains the gist of the business relations between the supplier and the buyer. ADCO outlines the key parties to the contract in this section and its mandate. In this case, ADCO is defined as the buyer. On the other hand, the supplier is defined in terms of the services or goods to provide, the general conditions, special conditions, and the payment terms.

For example, in the procurement of the fuel, ADCO was defined as the buyer with the sole obligation of paying for the services. RPS Energy was defined as the supplier for fuel products and the terms for contracts including the payment terms were outlined and signed by both parties. It is important to note that, RPS was also involved in the provision of software services; therefore, there were two contracts between ADCO and RPS Energy.

General Conditions

The general conditions included the definitions and interpretation of the contract terms. Also, it included the contract duration and termination. For example, a special inclusion about duration was that durations and extensions shall be provided in the special conditions. For extension of the supply or early termination, the initiator should give written notice under the general agreement. This includes the right to cancellation in case a party does not deliver its mandate.

Special Conditions and Compensation

Under the commercial section, the contract included special conditions upon which the contract should be executed. It entailed the operational acquaintance, standard of performance and the work progress. On the other hand, the compensation included the terms of payment for the services rendered. The key areas captured are the pricing schedule agreed upon by the parties and terms of review. As noted earlier, with the fluctuation in oil prices, there were great cost implications on the annual review; thus, one of the inclusions in the revised contract was the quarterly review. The payment included the process of invoicing, time and mode of payment.

Technical Section

The inclusions in this section included the technical specifications of the oils that are to be supplied for the survey purpose. In the context, this mainly centered on the fuels that are supposed to be provided by the supplier, delivery terms, storage and the cost for the product and the related services. For example fuels for the jet, drilling machinery fuels and those for the special trucks used for the seismic acquisition survey. The other technical specification included the quality management systems to ensure that the fuels are not polluted with impurities in the process of transportations and storage. This included aspects of safety training for employees to avoid contamination of the stored oils.

Measures that can be taken to select Effective Suppliers

Introduction

Effective suppliers ensure that the terms of contracts are met without coercion. Also, effective suppliers are critical in the completion of a project. Just like in other business operations, positioning of suppliers is critical in achieving a competitive advantage. To understand the supplier position, the critical questions to ask include which supplier? Where to focus on effort? The type of relationship to cultivate during the supply process, and the issues that might arise in the supply process? In the context of the present seismic survey, the questions are integral in ensuring that the supplier chosen has the capability and complies with the technical requirements. One of the best ways to select effective suppliers is by use of the Kraljic’s Matrix as the basis for assessing the suppliers.

Selection of the Effective Supplier

The process of sourcing for the supplier should be based on the knowledge level of the technical and financial capability of the supplier. The selection should be comprehensive to establish the added value of the purchase, the priorities of the internal stakeholders, management of all stakeholders to avoid conflicts, and clear knowledge of the laws and procedures governing the selection process. According to Bausman, Chowdhury, and Tupper, the prequalification for suppliers should be based on financial stability, the technical abilities, experience in the field of the supply, a track record of the suppliers, the employment policies of the suppliers, compliance with the various regulations and the environmental sustainability capabilities (8).

Concerning the selection of the supplier by application of the Kraljic’s Supplier Model, the main factor to be considered is normally the type of the product to be purchased. The nature of the product helps in the setting out of the general terms of doing business with the identified suppliers. In the seismic surveys, the key requirement to enhance efficiency is by ensuring that the right services and products are procured based on the technical requirements. For example, the services of RPS Energy were to ensure that data acquisition is simplified for the survey.

Kraljic’s Supplier Model

This model is based on four quadrants that are used to rate the products to decide on the supplier who can best deliver the product. They include classification of the product, analysis of the market, strategic positioning, and action planning (Glöckner, Pieters, and de Rooij 5). Figure 3 is an outline of the model. It is based on planned risk management and it helps buyers in the selection of the most effective supplier based on the product classification. The result is the maximization of caution in choosing the right supplier based on the type of product being procured. Thus, the identification of the supplier becomes a strategic undertaking.

In the strategic application of the model in the seismic survey, the quadrant which was more applicable than the others was the ‘strategic items’. This was because most of the equipment required for the acquisition processes are specific; hence, a limited number of suppliers who can provide the products. In essence, the selection of the supplier becomes more of a strategic process rather than transactional activity. The model is key in helping ADCO to maximize supply security; hence, the multifaceted approach in the identification and award of contracts. Strategic items such as oils, seismic mapping, and analysis services are given to suppliers who have proven capacity based on their work relationship with ADCO.

Strategic Items

The strategic items have a high-profit impact and high supply risk. For example, the machinery required, data acquisition systems, and the general technological requirements can be provided by people who specialize in the field of geological surveys. A case example, in the selection of the RPS Energy for the supply of oil and computer software for the seismic acquisition survey, consideration was based on the knowledge, expertise in the field, financial capability and past performance of the suppliers. Therefore, the efficiency of the suppliers was the preference; therefore, the rationale for single sourcing instead of the tendering process.

The rationale was anchored on the facts provided in Kraljic’s model that in dealing with items that have a great influence on the project, attention should be paid to ensure that only the suppliers with the capability to deliver are contracted. As a result, a single-sourcing framework became more applicable. It is worth noting that in the seismic survey, data acquisition is crucial in determining the outcome; thus, the necessity to source for excellent service providers tested before. On the other hand, the environmental implications, and time required to complete the project called for a known oil dealer. Besides, fuel accounts for substantial cost in the whole project; therefore, making the product a strategic product.

Aspects of the Purchase/Supply that may require Negotiation

Introduction

Negotiations in the procurement and supply process play a critical role in ensuring value for either party. This is attributed to the contribution of the function in the cost reduction and improvement of quality in organizations (Driedonks, Gevers, and van Weele 288). To ensure value, negotiations become part of the sourcing process. This section analyses the aspects of negotiations that could be raised with contracted suppliers to enhance performance in their performance.

Aspects of purchasing that may require Negotiation

According to Driedonks, Gevers and van Weele, negotiation is a matter of taking and give (299). Several factors influence the commercial negotiation process. Negotiations are carried out based on the understanding that purchasing is a function that has a high potential to influence the long-term performance of an organization. This denotes that negotiation requires an in-depth review of the entire purchase process to ascertain the points of value addition which are subject to negotiation. For example, ADCO has had a close business relationship with RPS Energy. The company provides services and supplies fuel to ADCO. About the supply of the fuels, there are recorded cases of delays, shortages and price issues that have been recorded over the past year. Therefore, to enhance performance, the key areas of negotiations with RPS Energy include the time, price, quantity, and quality of the fuels supplied. Therefore, to enhance the execution of the contracts, the negotiations should be analyzed by use of the 5-R model, which is based right quality, right quantity, right time, right source, and right price as outlined in figure 4.

Negotiations Based on 5-R model

Right Quality

The right quality designates the use of the standard specifications, efficiency and environmental considerations. Having been a long term supplier, cases of quality compromise have been reported. As a result, ADCO has to renegotiate the quality terms with RPS Energy to ensure that value of money is realized. In this case, ADCO has the bargaining power as a continued breach of the contractual term can lead to termination of the contract which RPS has enjoyed for the past two-three years.

Right Time

The right time is a critical factor in the purchase process. Many disputes arise due to late suppliers. There is a need for consensus between ADCO and the suppliers on timescales for delivery or commencement of products. For instance, a point of negotiation between ADCO and RPS Energy would be the delivery time. In many past instances, RPS Energy has cited logistical hurdles that have resulted in delayed supplies. Therefore, the point of negotiation would be to readjust the contract terms for the supplier to come up with mitigation measures in case of delayed supply. One area of negotiation is to agree on special supplies for each delivery which will be reconciled and compensated every quarter. Agreement on the extra supplies will avoid the unforeseen instances of fuel shortages due to the logistical hurdles that in many cases affect the efficiency of the seismic onshore survey.

Right Quantity

The right quantity entails an agreement with the supplier on the regular flow of the materials (Christopher 12). The value of money is realized by ensuring that the right quantities are delivered to the organization. Currently, the key contracts between ADCO and suppliers that have a direct effect on the performance include the data acquisition services and the supply of the fossil fuels for the seismic work. Therefore, the points of the negotiations between the suppliers should center on the points of improvement to ensure that quantity is delivered as agreed on the contract. Also, a point of negotiation would be in areas where there is a need for a reduction of the agreed quantity. For example, as the work progresses, many activities have been completed and the demand for the fuels has been reducing. As a result, ADCO needs to renegotiate the quantities of fuel in the context of the projected works to avoid cases of surplus.

Right Source

As pointed out, seismic surveys have a high potential of interfering with the existing ecosystems. Therefore, the products used by ADCO for the process should be from certified producers who have been approved to be compliant with sustainable environmental practices. For example, in the case of oil suppliers, negotiations should center on ensuring that RPS Energy obtains its oils from trusted international dealers for the supply of clean oils.

Right Price

After the changes in the oil prices experienced in 2015, the point of negotiation between ADCO and RPS Energy should be on adjustment of the cost of the oils to reflect the prevailing international market prices. Also, another point of negotiation about the fuel supply is for ADCO to request at least 10% discount on all fuel supplies made between February and August to compensate the oil drops recorded at close of 2015 in which RPS Energy did not adjust the prices on the fuels it supplied to ADCO. Agreement on the proposals will enhance business between the two companies and create value for ADCO’s shareholders.

Conclusions and Recommendations

Conclusion

Supply management plays a critical role in the creation of value for organizations. Proper assessment of the entire procurement process can lead to understanding the gaps that arise in the process and hence, put in place measures to bridge the gaps. This was evidenced in the areas of managing expenditures, development of contracts, sourcing the right suppliers, and negotiation in the procurement process.

A key finding in these sections was that in-depth analysis of the supply management can lead to the incorporation of processes that make the supply of the products and services for the seismic survey more specific; thus, impacting on the efficiency and cost-effectiveness. Therefore, it is true to draw generalizations that supply management is a strategic process that should be undertaken by people with the right expertise to deliver the required value for all stakeholders.

Recommendations

Therefore, one key recommendation for ADCO is to adopt Key Performance Indicators. The KPIs must form the basis for evaluation to set indicators for drafting comprehensive contracts and negotiations. In this respect, the KPIs should be incorporated to:

1. Improve performance in the procurement process. This should entail putting in place indicators for measuring the performance of suppliers. This can be achieved by capturing data on performance overtime to draw comparisons. The KPIs should be specific, measurable, attainable, realistic, and time-based for value to be realized.
2. Improve quality: about the quality, first, KPIs should be designed to measure the defect rate of the supplier in terms of complying with the laid down technical requirements. For example, quantifying whether the technical provisions in the contract have been met as agreed. Secondly, quality should be measured in the context of the procurement cycle time. The procurement cycle time is classified based on the length of turnover that is recorded between the requisition and delivery time. Thirdly, the KPIs should evaluate the suppliers’ compliance with the provisions provided in the contract. The compliance relates to the agreement during negotiations, ensuring that prices are negotiated based on the international market trends, sticking on the general contractual terms, and the delivery times.
3. Improve the rate of return on the procurement, the KPIs should also be used to analyze the cost to ensure cost savings, cost avoidance and measure cost-effectiveness for the process.

Works Cited

Bausman, Dennis, Mashrur Chowdhury, and Lee Tupper. “Best practices for procurement and management of professional services contracts.” Journal of Professional Issues in Engineering Education and Practice 140.3 (2013): 1-13.

Borgström, Benedikte. “Exploring efficiency and effectiveness in the supply chain: A conceptual analysis.” Proceedings from the 21st IMP Conference, 2005. Print.

Christopher, Martin. Logistics and Supply Chain Management ePub eBook, London: Pearson, 2013. Print.

Glöckner, Hans-Heinrich, Reinder Pieters, and Wim de Rooij. “Importance of the Kraljic matrix as a strategic tool for modern purchasing.” LogForum 1.1 (2005): 1-11. Print.

Driedonks, Boudewijn A., Josette MP Gevers, and Arjan J. van Weele. “Success factors for sourcing teams: How to foster sourcing team effectiveness.” European Management Journal 32.2 (2014): 288-304. Print.

Erridge, Andrew, and John McIlroy. “Public procurement and supply management strategies.” Public Policy and Administration 17.1 (2002): 52-71. Print.

Holm, Peter. The Dynamics of Procurement Management: A Complexity Approach, Copenhagen: Copenhagen Business School, 2012. Print.

Peng, Alex, and Miguel Nunes. “Using PEST analysis as a tool for refining and focusing contexts for information systems research.”6th European conference on research methodology for business and management studies, Lisbon, Portugal. 2007. Print.

Frontis, Demetris, and Pavlos Pavlou. “The external environment and its effect on strategic marketing planning: a case study for McDonald’s.” Journal for International Business and Entrepreneurship Development 3.3(2008): 289-307. Print.

Bibliography

Feisel, Edda, Evi Hartmann, and Larry Giunipero. “The importance of the human aspect in the supply function: Strategies for developing PSM proficiency.” Journal of Purchasing and Supply Management 17.1 (2011): 54-67. Print

Kakwezi, D., and P. K. Nyeko. “Procurement Processes and Performance: Efficiency and Effectiveness of the procurement function.” Retrieved April 3 (2010): 2011. Print.

Paulraj, Antony, Injazz J. Chen, and James Flynn. “Levels of strategic purchasing: impact on supply integration and performance.” Journal of Purchasing and Supply Management 12.3 (2006): 107-122. Print.

Tassabehji, Rana, and Andrew Moorhouse. “The changing role of the procurement: Developing professional effectiveness.” Journal of Purchasing and Supply Management 14.1 (2008): 55-68. Print.

Zheng, Jurong, et al. “An analysis of research into the future of purchasing and supply management.” Journal of Purchasing and Supply Management13.1 (2007): 69- 83. Print.

The case study is about the Fauquier Gas Company. The company deals with the supply of gas pipes for construction sites. In this case, the company is converting agricultural land into commercial and residential development. In effect, it has been tasked with the responsibility of supplying the gas pipes in a given timeline. As one of the many companies in the nation, the Fauquier is tasked with ensuring the supply of 3 ½ miles of new pipes that should be ready for deployment by September. The manager for supply and purchasing, Bill Murphy, is concerned with the provision of the required tubes within the given time, although it is possible that the company will not be able to make the purchase in a timely way. Essentially, Murphy has not been able to receive the purchasing requirements and specifications for the design team since the 14^th of April, yet these materials are known for having a longer lead time. Notably, the company’s vice president seems to be in charge of the entire organization’s operations, including the purchasing function handled and managed by Murphy. Other departments that the vice president is in control of include the construction department and the design team. In effect, this case analysis seeks to analyze the procurement and purchasing problems facing the company, the various issues that face Murphy and the solutions that can be applied to handle the situation.

Key Facts

An analysis of the case reveals fundamental facts about the purchase of the gas pipes required for the project. First, gas piping materials take long lead times before they can be delivered and before the project can commence. Second, the project has a completion deadline. The project is only six weeks away before it can commence, meaning that there is a limited time. Third, the company’s purchasing function is dysfunctional. As it is, the company does not have a purchasing function to oversee the purchasing process, as the activity is handled by different people from different departments.

Problems from the Case

There are some problems with how the purchase of the pipes is being handled by the company. The first problem is that there is poor communication. Notably, although Murphy is responsible for handling all the purchasing functions of the enterprise, he is not notified about the impending pipe purchases. Surprisingly, he only knows about the pipes when he hears the vice president’s conversation on the phone regarding the same.

Secondly, Murphy is confronted with the problem of poor communication between the various parties involved when he begins to purchase the pipes. It is imperative that decision making is spread out for all the parties involved to ensure effective decision making (Tarara, 2005). Essentially, some people get involved in the purchase process before the order can be made. These are the vice president and then the design team. Other than the vice president’s poor communication, the design team is also not very sure about the product specifications and does not communicate the required information to Murphy to enable him to make the purchases.

Third, there is little consideration for the project scope. April comes and the company has not commenced any purchases, yet the acquisition and order of pipes may take longer lead time. Further, all the parties involved in the acquisition, besides Murphy, do not seem in a hurry to ensure that the pipes are delivered timely. Mostly, the lead times for this kind of purchase take longer to be completed, but the team seems not to agree on whether the pipes will be wrapped or not. Further, in the case of wrapping, it is imperative that the decision is implemented immediately as the wrapping company is located in Philadelphia and the pry tech wrapping business in Atlanta. Given these logistics and transportation issues, such decisions should be undertaken in time to ensure the completion of all these processes.

There is also a problem with project completion and project team members. It is imperative that every important project is managed and governed by a team leader and team followers (Wysocki & McGary, 2003). However, this particular procurement project does not have any project leader or team members. Preferably, the company ought to integrate the operations of a cross-functional team to enable successful project completion (Bakker, Walker & Harland, 2006). Cross-functional teams include a key member of each department capable of offering expert and with the ability to offer guidance on the right decisions to be undertaken (Love & Roper, 2009).

Further, there is a problem with the assumed specifications. One requirement that the development of the commercial and residential plots requires is that the company provides 3.5 miles of new pipes, which must be installed before or during September. The specifications that have been drafted for this particular order are 24 inches, with a thickness of 3/4 inches and a length of 54 feet. This is not in compliance with the previous specifications that required the pipes to be 3/8 thick; with random double thickness, which is about (40 feet plus or minus 5 feet). These new specifications, as presently ordered, are changing and different from the previous specifications that the company used to acquire. For instance, they were specified at 3/4, instead of a 3/8 thickness.

Possible Solutions

1. Murphy can talk to Law, the person in charge of purchasing approvals, and determine the status of the acquisition.
2. The purchasing manager can engage Wilson to determine the status of the purchase. Such an engagement should allow Murphy to understand why there is a hold in the purchase.
3. Murphy can choose to deal with the vice president as he is the final authority in the purchasing function, other than making inquiries through subordinates. With the vice president, Murphy can be able to emphasize the severity of the purchasing matter and explain why there is a need to ensure that the request is approved within a short time.
4. Another option is Murphy to call Mills, the suppliers he has worked with before, and explain to them the requirements of the pipes. He could further request them to avail of the pipes and place them ready for supply before June. This way, Fauquier could source and distribute the pipes in time (Chima, 2007).
5. Murphy can request a meeting with all the three individuals involved in the purchasing process and chart the way forward, especially in matters regarding improving communication.

Choice and Rationale

I choose the last option of engaging all the parties affecting the purchase of the pipes. Meeting all four individuals concerned with the purchasing of the pipes would ensure that all the four parties can discuss and communicate the way forward. It is also possible for the parties to agree on a way forward collectively, keeping in mind the short time remaining, the long lead times, and product specifications (Bedey et al., 2009).

Implementation

First, Murphy should call a meeting with all the concerned parties. This way, he can explain to the parties that the purchasing function is being handled inappropriately. Among the issues he could raise is that there is no relationship between construction and purchasing. Further, he could explain the change in specifications and poor communication going on. Further, he could be able to communicate with both Charlie and Law about the importance of being incorporated in drawing the specifications. He further needs to explain that such decisions should be communicated to him with the knowledge that he is in charge of the department and responsible for ensuring that the supplies are available to him in time. However, it is imperative that the vice president of operations comes on board for this implementation to be successful.

Conclusion

The major problems in the company are caused by the lack of a purchasing function. The Fauquier Gas Company faces a myriad of problems, as it lacks a standard procurement process due to a poorly developed purchasing unit. In effect, there are bureaucracy issues, with the purchasing manager having to rely on the vice president’s approval on orders before purchases can be implemented. Such a function ought to be conducted by a purchasing unit under the directive of the head of procurement. As a result, there are other issues arising, like poor specification records, lack of standard procedures, and poor collaboration among the functional teams. In response to these problems, it is imperative that procurement and purchasing functions be handled by the purchasing unit, with collaboration from other departments.

References

Bakker, E., Walker, H., & Harland, C. (2006). Organizing for collaborative procurement: An initial conceptual framework. Web.

Bedey, L., Eklund, S., Najafi, N., Wahrén, W., & Westerlund, K. (2009). Purchasing management. Web.

Chima, C. M. (2007). Supply-chain management issues in the oil and gas industry. Journal of Business & Economics Research, 5(6), 27-36.

Love, J. H., & Roper, S. (2009). Organizing innovation: complementarities between cross-functional teams. Technovation, 29(3), 192-203.

Tarara, M. J. (2005). A content analysis of how participatory decision making and teamwork affects employee satisfaction and employee commitment (Unpublished doctoral dissertation) University of Wisconsin-Stout, Menomonie, Wisconsin.

Wysocki, R. K., & McGary, R. (2003). Effective project management: traditional, adaptive, extreme. Hoboken, NJ: John Wiley & Sons.

E-Procurement for Contemporary Organisations: How E-Procurement Changes the Role of Purchasing and Its Relationships with Suppliers

Nowadays, the interest in purchasing and supply management has been considerably increased because e-procurement and other e-operations have changed the role of these processes. Purchasing tries to maximize its contribution to the organizational performance considering different financial, operation, and supply chain aspects (Kim, Suresh, & Kocabasoglu-Hillmer 2015). At the same time, purchasing aims at ensuring economic supply and keeping a company in operation procuring goods, services, and supplies. Can it happen that e-procurement can change the role of purchasing and its relationships with suppliers? This paper investigates the current changes in purchasing and supply management about e-procurement and other opportunities available on the Internet.

Companies should control the flow of money, promote control, develop effective supply sources, and maintain good relations with suppliers (Pooler & Pooler 2012). The appearance of a new platform, the Internet, has already influenced the way of how the majority of business transactions occur. People start spending less time on the recognition of their needs, the identification of possible suppliers, the analysis of the opinions, the determination of delivery issues, the processes of placement and payment of their orders, and even the development of the relations with the suppliers from different parts of the world.

Pablos et al. (2012) admit that purchasing that is also defined as procurement is the main process that links suppliers and organizations. In case some changes take place in the process (in this case, ordinary purchasing turns into e-procurement), the relations between suppliers and companies should undergo certain changes anyway. The investigations show that not all organizations have successfully implemented even some basic e-procurement systems (Quesada et al. 2010).

Therefore, not all organizations and suppliers can use the same schemes in their work. They have to spend some time to analyze their opportunities and choose the most appropriate methods in the development of their relations. Still, the companies and people, who have already tried e-procurement, realize how electronic operations may change the role of purchasing and supply management. The following aspects attract the attention of organizations and people, who want to benefit with e-procurement:

• The reduction of paper processes is the most evident contribution of e-procurement;
• The decrease of damaging supply interruptions that can influence the performance (Caniels & Gelderman 2005);
• A considerable reduction of delivery time;
• A possibility to gain control over ordering costs and practices;
• The access to the information about suppliers.

These changes help to save time and efforts of people to improve their purchasing practices and performance. As a result, they focus on the quality of services they offer and the guarantees they provide their consumers with. To experience all positive outcomes of e-procurement, companies should choose appropriate strategic designs and improve their supply chain management processes. The supporters of e-procurement underline the necessity to implement new systems and overcome the existing barriers that are may be based on various cultural, social, and economic differences but not to spend time on analyzing the benefits of innovations.

Reference List

Caniels, MCJ & Gelderman, CJ 2005, ‘Purchasing strategies in the Kraljic matrix – a power and dependent perspective’, Journal of Purchasing & Supply Management, vol. 11, pp. 141-155. Web.

Kim, M, Suresh, NC & Kocabasoglu-Hillmer, C 2015, ‘A contextual analysis of the impact of strategic sourcing and e-procurement on performance’, Journal of Business & Industrial Marketing, vol. 30, no. 1, pp. 1-16. Web.

Pablos, PO, Lovelle, JMC, Gayo, JEL & Tennyson, RD 2012, E-procurement management for successful electronic government systems, IGI Global, Hershey. Web.

Pooler, DJ & Pooler, VH 2012, Purchasing and supply management: creative the vision, Springer Science & Business Media, New York. Web.

Quesada, G, Gozalez, ME, Mueller, J & Mueller, R 2010, ‘Impact of e-procurement on procurement practices and performance’, Benchmarking: An International Journal, vol. 17, no. 4, pp. 516-538. Web.

Each business project consists of multiple phases such as project initiation, planning, execution and closure (Westland, 2007). Throughout all of these stages, the cooperating sides are to be in ongoing communication with each other, and these interactions and steps are referred to as the life-cycle of the project (Kerzner, 2013). Project initiation includes the definition of the project, determination of the goals of the buyers and seller, the first offer, negotiations, discussion of terms and conditions. Project planning includes multiple details and schemes designed to coordinate the operations within the project during its implementation. That is done to achieve the highest level of productivity and quality.

The stage of execution is accompanied by constant monitoring and control over the result of the interaction of the parties, and the fulfillment of their obligations and duties outlined in the contract terms (Westland, 2007). Finally, the project closure also referred to as close-out is the post-implementation stage that serves to review the performance of both sides, make and conclusion, and prepare the contract to the completed and archived. This phase occurs before the final payment and signifies that the work under a particular contract has been completed. Contract close-out is the responsibility of both of the sides (the buyer and the seller) to ensure that all the terms outlined in the contract were followed, and all the deliverables are exchanged by the parties. As a result, the stage of contract close-out has multiple aspects and obligations for the contracting sides.

The Tasks Associated with the Close-out of Procurement Contracts

First of all, the contractor is to make sure that all the documents related to the contract are gathered and turned over to the procurement officials. That is necessary to be done in time, so the close-out phase begins without any delays. The documents serve to notify the agency of the contractor that all the work they had to do within the terms of the contract is completed. Secondly, the contractor is to make sure that the documents concerning process monitoring issues are arranged and turned in. That includes all the safety management papers and conclusions. Thirdly, the deliverables mentioned in the contract need to be documented based on the information denoting whether or not they were provided, reviewed and received. Finally, one more task necessary to fulfill during the contract close-out is a property closeout. This task signifies that the contractor has submitted a final property report. This document is to mention the ownership rights – private or government-owned.

When it comes to the funding, the contractor is to turn in the papers concerning final payment invoices and payments that include all the costs, performances, and commodities that were disallowed or discontinued, in addition to all the refunds and excessive costs. Besides, the contractor is to compile a report about all the payments received under the contract. Moreover, to complete the set of documents required for the contract close-out, the contractor needs a vendor’s performance report and a contract completion statement. The latter is typical issues after the final payment has been received. The contract completion statement notes that all the documents and papers for the contract have been prepared and processed and the contract may be closed and appropriately archived. Developing a contract close-out plan one is to remember that each contract is different which means that the procedure of close-out and the tasks included in it need to be customized based on the unique features and aspects of each particular contract.

Termination of Contractual Relationships and Settlement of Seller Claims

Termination of a contract can be defined as the annulment of the contracting terms and obligations of both parties after at least one of them has already performed some of their duties (Callahan, 2009). Contract termination is viewed as a remedy, and it provides the sides with the opportunities to determine the conditions for termination on their own. Contracts can be terminated for a wide range of reasons.

For instance, a termination may happen based on the mutual agreement of the sides. This form of termination has a sub-category such as abandonment of the contract which signifies that neither of the parties is interested in continuing the cooperation, and it is clear from their conduct that the contract is to be terminated (Chapple, 2010). The abandonment of a contract occurs when after a long period none of the parties showed attempts to perform their duties.

Another type of contract termination may be caused by the breach of one of the necessary conditions by one of the sides. In the case of termination upon breach, the cooperating sides are to identify the term that was violated and then to establish the level of its importance. The violation of terms defined as essential leads to an immediate breach of a contract.

Moreover, one more type of contract termination occurs due to repudiation. In other words, termination happens when one of the parties refuses to perform their duties and follow the terms and obligations because of their unwillingness or inability to continue the cooperation (Chapple, 2009). Repudiation also occurs when one of the sides states that they would only agree to perform their duties based on the conditions that are incompatible with the terms and requirements of the contract. Breach upon repudiation will be followed through only in case if the innocent side is willing to accept the repudiation.

Besides, the innocent side is considered innocent only if they are determined to continue with the contract. Repudiatory conduct in relevance to a contract should not be taken lightly as it is an extremely serious matter. It can be worked around in a contract but only after the innocent side accepts the repudiation. Also, unwillingness or inability to perform the duties by one of the sides can be a single act or a complex of several decisions. Moreover, repudiation may happen due to the initial miscommunication between the cooperating parties or the misapprehension of the terms and conditions of a contract by one of the parties.

One of the most common causes of contract termination is the default. For example, in construction and design contracts, there are often lists of possible defaults which outline the contractor’s inability to complete the contract and provide the necessary results within a particular period. Besides, some of the default termination permits focus on the systematic breach of the contractual terms and regular failure to follow through with the requirements and obligations (Callahan, 2009).

Also, the right of termination may be lost by one of the parties under particular circumstances. For instance, the right to terminate a contract is lost when one of the sides induced a certain expectation on the other side knowing that this expectation would be assumed but not fulfilled later (Chapple, 2010).

How to Determine If All Requirements of a Procurement Contract Have Been Fulfilled by the Buyer and the Seller

Contract close-out is not a very complex procedure, but it includes many steps since it is a detailed administrative process. The main objective of the contract close-out is to establish that both of the sides have fulfilled their duties and followed their obligations, and all the payments are made, and all the deliverables are received. Besides, the contract close-out serves to determine the level of success of a contract. As a result, this procedure includes multiple reports, signatures, documents concerning the costs and funding, properties, materials, and equipment, performances and obligations of both sides, time frames, and the levels of satisfaction of the parties with the final results. For the convenience of the parties, the close-out procedure may be based on a checklist that reflects all the aspects that need to be covered and verified. Checklists can be specifically designed for each particular contract based on its type and the kind of performance and deliverables it outlines (Knauer, 2007).

Contract close-out procedure is to include all of the stages of the contract and deal with all obligations, performances, and expenditures. During this process, it is important to reveal all the deficiencies (if any) that could have happened while the contract was implemented. To determine if all the requirements have been fulfilled by the buyer and the seller the parties need to answer a series of questions such as “were the objectives outlined in the terms of the contract achieved?”, “were all the deliverables received and accepted in time?”, “did the performed result match the expected budget and time frame?”, “was the buyer satisfied with the quality of the final result or product?” (Westland, 2007).

Flowchart Showing How to Properly Close-out a Contract

The flowchart above presents various aspects of the project closure and the activities that need to be accomplished at these stages. Not all of these stages would apply to any type of contract. For example, particular projects do not include any new technologies and patents, so that part can be skipped. Overall, the close-out of a project consists of only two main phases which are the performance of the project closure and the following review of the completion of the project (Westland, 2007; PO Closeout, n. d.).

How Invoices That Have Not Been Submitted by Vendors or That Have Been Submitted by Vendors but Not Yet Paid Should Be Handled

Payment is one of the most vital aspects of any business project. There are different ways to handle the invoices during the business cooperation of the two contracting sides. The parties are to establish the conditions under which the payments will be submitted and received in different situations at the stage of contract planning and preparation. That needs to be done to avoid further misunderstandings between the participants or potential conflicts. The dates of payments may be assigned and put into a schedule; such an approach obliges both the seller and the buyer to deliver their duties strictly on time. This way of invoicing is rather restrictive, but it enforces very clear discipline and minimizes the chances of delays within the process of the contract execution. Besides, the payments may be submitted separately for each portion of the work or series of goods delivered by the vendor. For that, the parties would have to divide their working process into several parts.

As a result, each portion of work and the following payment may be treated as separate plans, and this makes it easier to coordinate the tasks and operations of the delivery side. Moreover, the invoices may be submitted based on the acquisition of the deliverables. In other words, each time the buyer receives the products – they are to submit payment for them. This approach allows the contracting sides to coordinate their financial reports easier and avoid misunderstandings concerning the payments. Finally, one more way to handle the invoices is for the buyer to pay for the final result beforehand. In this case, the expected sum of money is acquired entirely by the vendor before they start the execution of the contract.

This kind of payment is practiced quite rarely due to its risky and impractical nature since the contract may be breached, its terms and conditions may be violated, or a delay may occur. All of these incidents are likely to impact the financial side of the contract and cause confusion. From the perspective of the optimization of the working process, it is easier for both the buyer and the seller to submit and receive the payments multiple times during the process of the contract implementation and document all the payments along the way for the final report. Also, there is a chance that the parties may clash because of the invoices that are disputable. If such a situation happens, the part of the invoices that do not cause any doubts should be submitted, and the remaining payments need to be reviewed by the project team and the officials separately (Westland, 2007).

Three Questions Listed in the “Procurement Management Conformance” Checklist

Were formal supplier performance reviews regularly undertaken?

This question is crucial to ask when completing a project and closing a procurement contract. The role of performance reports and reviews is to determine the level of success at each stage of the project execution. Regularly undertaken performance reviews allow both sides to monitor their performance and the performance of their partners. With the help of the regular performance reviews, the sides will be able to determine the possible weaknesses of their work, resolve causes of all the possible future conflicts and dissatisfactions, identify the problematic areas, and address them before the issues become too serious. The failure to undertake performance reviews regularly and after each significant stage of performance may lead to unmet expectations, delays, and cause tension between the sides of the contract.

Did any supplier issues remain unresolved throughout the project?

This question is necessary to ask for the parties to evaluate the thoroughness of their performances. Project and contract execution is a multilayered process that includes a variety of tasks for both the buyer and the seller. As a result, the sides may clash, develop misunderstandings, and have arguments. Ideally, all the issues, no matter how minor, are to be addressed, analyzed, discussed, and resolved during the stage of the contract implementation. Besides, when the issue has to do with the performance of the supplier, the buyer should clarify all the problems so that they can be avoided before a new contract is signed as the relationships between the buyers and the suppliers often have a lengthy character. Establishing fair and respectable interaction with the supplier, a buyer invests in their future creating profitable connections.

Did any supplier issues lower the quality of deliverables?

The quality of the products is the main concern of the buyer. That is why it needs to be carefully monitored and analyzed. In the case of the buyer finds out that the quality of the deliverables was caused by the issues with the supplier, the situation needs to be addressed and discussed. The kind of issues of the supplier and their causes determine the future of the cooperation between them and the buyer who ended up getting the products of lower quality. The buyer needs to make sure whether or not such issues with this or any other supplier may occur again and find the ways to address or avoid them for the sake of the product quality and stable cooperation with the partners.

Conclusion

Procurement contract close-out is not a complex but a multidimensional process that involves a variety of necessary administrative moments. The stage of project closure requires a documented verification of the completion of the project and all of its aspects (properties, deliverables, duties, and obligations, payments, unplanned problems, violations of conditions, terminations of plans, legal issues, to name a few). The purpose of the final stage of the project is to review and evaluate the execution of the contract and the level of performance of each of the sides.

Reference List

Callahan, M. (2009). Termination of construction and design contracts. Austin, TX: Wolters Kluwer Law & Business.

Chapple, S. (2010). Termination of Contract: A practical guide on when and how to terminate a contract and common mistakes. Web.

Kerzner, H. (2009) Project management: A systems approach to planning, scheduling, and controlling (10^th ed.). New York, NY: Wiley.

Knauer, R. (2007). Contract Closeout Guidebook. Web.

PO Closeout. (n. d.). Web.

Westland, J. (2006). The project management life cycle. London, UK: Kogan Page.