This article is the first in a series written specifically as guidance for project managers. Superficially the requirements of projects and ‘business as usual’ may seem different. For the experienced practitioner, procurement for projects has much in common with other procurement practice, ideally drawing on a range of techniques from a comprehensive tool set.
Many projects suffer from the late involvement, or absence, of the procurement professional. It is the Project Manager’s responsibility to determine the requirement (or not) for specialist procurement skills. Irrespective of the makeup of the project team, it is most important that the procurement cycle is considered and planned from the project outset. This series sets out to explain why, to educate project managers in the essential considerations, and to inform the PM’s decision as to the need for specialist resource.
When and why do project managers need supply planning?
Supply planning needs to take place well ahead of making specific purchases. Here are three reasons why:
- the project manager needs to be sure that the supply market exists and is ready and accessible;
- unlocking the potential value that the supply market has to offer requires a carefully orchestrated approach;
- the opportunity to derive best value diminishes as the procurement cycle progresses… and the cycle starts much earlier than many stakeholders recognize.
For some projects the nature of the requirements – the specification of goods or services to be purchased – are well known. In other projects, the requirements may be influenced substantially by what the supply market is able to offer.
(a) There may be many ways in which the functional requirements can be met, including innovative approaches that initially are unknown to the project team.
(b) Alternatively, the supply market may not exist but the capability does. Potential suppliers need to be awakened – not just to the technical possibilities – to the commercial opportunity.
In both cases, (a) and (b) above, interaction is necessary with potential suppliers. The procurement cycle is underway at the very first approach to a supplier. It may have started much earlier, with desktop research and internal analysis of make-or-buy options.
Several iterations with suppliers may be necessary to define the final requirements. During this process there is a risk that the buyer’s commercial position will be weakened. Conversely, there will be opportunities to strengthen the buyer’s position. The interactions need to be managed to achieve the best commercial outcome.
The role of the procurement professional is to manage the commercial opportunity and risk while facilitating the process of sourcing the required goods and services. This may include developing the supply market and conditioning potential suppliers.
Even in the purchase of goods and services of a pre-defined specification, there are commercial opportunities and risks to be managed during supplier selection and the processes leading up to the commitment to an order or contract. Early involvement of relevant procurement expertise is essential if a cohesive approach to the supply market and the best commercial outcome are to be assured.
Other stakeholders may see the procurement specialist’s involvement as constraining. They may perceive that cost considerations will overrule functionality. With appropriate procurement expertise, this should not happen. Indeed, we would be looking to use commercial leverage to maximise value for money; to gain more value (in some cases more interest and functionality) from suppliers than would be the case without Procurement’s involvement. I can cite many cases where Procurement has initiated and secured successful innovations, where previously suppliers showed little or no interest in supplying or engaging at a technical level.
In reflecting on when to start supply planning, a final point to be borne in mind is that most projects are undertaken to create a lasting outcome. The success of the project can be measured not just by the completion of project milestones within timeline and budget, but also on the capability to fulfill the long-term need. There are often procurement synergies and conflicts between the immediate project requirements and the lasting outcome. Consequently, procurement considerations may be necessary at project definition, when the project scope is determined. For example, the project team for a capital investment project may be concerned with controlling capital cost. Attempts to control the capital cost in isolation from the continuing maintenance costs could lead to an increase in the total cost of ownership. In this case the project scope might extend beyond the immediate project deliverables, to consider the lifecycle of the project outcome. This would have significant implications for project procurement ‘packages’ and contract strategy.
In this article I have referred or alluded to a variety of procurement considerations including analysis of make-or-buy options, influencing the supply market, managing the procurement cycle, managing supply risks, the relative power of buyer and supplier, procurement packages and contract strategy. These are just a few of the considerations, familiar to procurement professionals, that need to be embraced by the project manager. Subsequent articles will cover the most important aspects in relation to procurement for projects.
In Part 2, I will address the key elements of supply planning and three tools used in the supply planning process.
In the meantime, if you need any help, please get in touch. For contact details: click here.
- Procurement for Projects? …or Business as Usual?
- Three Principles for Effective Services Contracting
- How to select suppliers to create value (Introduction)
- How to select suppliers to create value: Supplier Appraisal
- How to Select Strategic Suppliers – Part 1: Beware the Supplier’s Perspective
- How to Select Strategic Suppliers – Part 2: Reconciling Buyer and Supplier Perspectives