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Section 7. Economics and management
Kopani Xhevdet, Agricultural University of Tirana PHD in process, Faculty of Economics General Manager of "Eurosig" Sha Company,
Tirane-Albania E-mail: kopani_xh@yahoo.com
Best practices in the management of procurement and suppliers, as an important factor in the management of the project
Abstract: Procurement Plan identifies the products to be procured from external suppliers, timelines and methods of procurement.
The plan presents an overview of the external supply market, giving the confidence to the shareholders that the products are currently and actually on the market and appropriate suppliers are willing to provide it within the timeline and budget constraints.
The procurement plan is important not only to identify the list of products, but also insurance markets, terms of delivery, tendering procedures and preferred suppliers.
The project manager on the basis of procurement Plan and selection of products, services and suppliers drafts the supply agreements (contracts). Implementation of these processes is very important not only for the reduction of material costs but time costs also, providing quality goods and services and in the end make it easier to achieve success of the project.
Keywords: procurement, product, services, supplier, contract, manager, plan, project,
Selection, negotiation, implementation, etc. against taking it from within the business.
The first step towards determining the pro- We list and describe the products to be obtained curement plan is to identify products that will be sourced from outside of the organization. Also we need to specify the purpose of each product and the justification for its procurement from abroad
Table1. - Procurement Requirements
from the external market. Assign a number to each product (no/id), determine the quantities required and the budgeted cost of each. See table1.
Product Description No./ID of product Quantity Budget
1 2 3 4 5
Computer Hardware Computer specification Intel's latest PC version includes: • screen (monitor 19') • Computer Unit (the latest Intel processor) • Accessories (keyboard, mouse) • The latest operating system of Windows • MS Office software kit CH 1 Sum
1 2 3 4 5
Raw materials Construction materials, including: • Skeletons for walls • roof materials • Cables, wires and electrical switches RM1 Sum
Consultancy services General consultancy services, including: • Assurance of audit quality • Management of the project office • Bookkeeping Service CS1 Sum
We define the purpose of each product as shown in Table 2.
Table2. - The purpose of the product
No./ID of the product Product Purpose
CH 1 Computer Hardware To enable project managers and administrative staff to supervise the project by registering and following progress against the project plan
RM 1 Raw materials To physically build results to be produced by the project
CS 1 Consultancy services To create confidence that the project will achieve the timeline, cost and quality objectives through regular review and reporting.
To give a sound justification why the above products should be obtained from external suppliers towards obtaining them from within existing business, justification must be provided for each product, commodity or service.
Conducting a market research is critical to ensure that they are ready to deploy needed products, at the right price and at the right time. Questions such as "Which products are available?", "Will those meet the demand?" And "Are suppliers able to deliver the product at the right price and within the deadlines required?" All must be answered before the procurement plan is completed.
It is important to assess the market conditions, by studying its current environment and trends.
Besides research and assessment of the market we should evaluate the available products in the market. For this reason, a quick view of current suppliers and products available in the market is needed, in order to build trust to shareholders that there are available potential solutions to meet project requirements.
A table of procurement can be built including activities required to select a preferred supplier, to deliver the required products and to review the performance of the supplier.
We list any assumptions made during the procurement planning process. For example, it can be assumed that:
• procurement requirements will not change;
• There will be no change in the market price;
• The number of current suppliers will be available during the tendering process.
Enumerate any risk identified during the process of procurement planning. For example:
• Procurement requirements cannot be defined in important details;
• The methods used to review supplier performance may not be adequate;
• Resources allocated to undertake a review of the supplier could be not properly qualified.
Suppliers contracting
The usual method of selecting the preferred supplier (suppliers) is to carry out a formal tender management process. This is a method by which potential suppliers are identified, evaluated and selected to ensure the products (goods or services) for the project. This process involves the creation of several tender documents which describe the project's procurement requirements and information required from suppliers on the basis of which, a decision on the preferred supplier is made. The bidding process is carried out to ensure that the selection of preferred suppliers is
done in an impartial and fair manner. The procedures Specifically for the contracting of suppliers de-
are for the private sector and not for the public sector, tailed procurement table No.3 is used, as follows: as in this sector procedures are legally better defined.
Table3. — Detailed table of procurement
No. Task Name
1 Draft tendering documentation
2 Release a request for information (RFI)
3 Document the statement of work (SOW)
4 Document the request for information
5 Issue the tendering documents
6 Take and evaluate tender responses
7 Select a tender qualification list and notify suppliers
8 Release a request for proposal (RFP)
9 Update the statement of work
10 Document request for proposal
11 Release of tender documents
12 Gather and evaluate tender responses
13 Select the preferred tender and notify suppliers
14 Release the contract
15 Document the supplier contract
16 Negotiate the supplier contract
17 Sign the supplier contract
18 Start contractual obligations
19 Complete the tender process
20 Deliver products
21 Deliver goods
22 Deliver services
23 Review suppliers
24 Perform supplier review I
25 Perform supplier review II
26 Perform supplier review III
This tendering process should be carried out whenever it is required a product from outside the project and the selection of a preferred supplier is required. The process is initiated immediately after the approval of the procurement plan, from the procurement manager of the project.
Without any formal tender process, it may not be possible to show that the method by which they were selected preferred suppliers was rigorous and impartial. The tendering process is interrupted only when preferred suppliers are selected and supplier contracts are formally written.
The first step towards contracting ofthe preferred suppliers, is to determine the process by which will be selected.
The purpose of the tender process is to guarantee a clear, strong and impartial selection process of preferred suppliers for the purchase of the product for the project. In summary, the bidding process will be undertaken by the project through the implementation of three key processes:
• issuance of RFI (request for information);
• issuance of RFP (Request for Proposal);
• issuance of the contract.
Map of processes and procedures required to select a preferred supplier for the project are as follows;
• "statement of work " document (SOW);
• request for information document (RFI);
• Issuance of tender documents (RFI and SOW);
• Gathering and evaluation of tender responses,
• Selection of the tender qualifying list and notifying suppliers;
• Issuing the RFP (Request for Proposal);
• Updating the document of request for proposal (RFP);
• Issuance of tender documents (RFP and SOW);
• Gathering and evaluation of tender responses;
• The selection of the preferred tender and notification of suppliers;
• Issuance of the contract, the supplier contract document;
• negotiate the supplier contract, signing of the supplier's contract;
• Commencement of contractual obligations.
Tender responses are evaluated. After the response
period of the tender has expired, procurement manager unites responses received from suppliers from the list of qualifications and records the details of their company in the tender register. Tender responses then are formally assessed using more detailed criteria than those used during the evaluation process of RFI.
The final phase of the tendering process is the supplier contract negotiations. The contract forms the basis of the relationship and specifies the terms and conditions of delivery of the product for the project. Following procedures are undertaken:
• document of the supplier contract;
• negotiate the supplier contract;
• sign the supplier contract;
• Starte implementation of contract.
Responsibilities, the terms and conditions stated in the contract start to apply. The contract is deposited and a process of supervising the delivery of the product from the supplier is initiated.
It is important to determine the exact role of the various players in the bidding process and in particular the procurement manager and project manager. Procurement Manager is responsible for managing the entire process of tender management of the project. Project manager acts as a checkpoint to ensure that the management process of the tender is efficiently and impartially undertaken.
For the management, evaluation and documentation of completion of the tender process, the following documents are drafted:
Statement of work (SOW), which defines the procurement requirements of the project in sufficient detail to enable a potential supplier to determine if they can meet these requirements.
Request for information (RFI) which gives a brief summary of the project objectives, scope, results, main stages, general types of the product to be taken from outside the project and the reasons why should be taken there and the requirements to be fulfilled by suppliers in order for them to become the preferred supplier for the project. A RFI is a document issued by a project for a wider group of potential suppliers to enable them to describe how they will meet the procurement requirements of the project, as documented in SOW. Suppliers provide summarized information regarding: the size of their company, industries; Offer, product, training, documentation, support, approach, timeliness, prices. RFI is issued together with SOW to enable interested suppliers to understand the procurement requirements and give them the means of formal registration of interest in supplying the product to project.
Request for proposal (RFP), which requires a detailed proposal from each supplier, describing how he intends to meet procurement needs of the project. RFP is very similar to the RFI. The key difference is that the RFI seeks summarized information from each supplier to select a list of qualifications from potential suppliers, while the RFP requires a detailed proposal from each supplier to enable the project team to select a preferred supplier.
Supplier contract; is an agreement between the project team and supply company ("supplier") for receiving a variety of products designed to meet the procurement requirements of the project. Supplier's contract is a legal document used as a basis on which payments are made to the supplier during the procurement cycle. The contract specifically stipulates:
• products (goods and services) to be provided by the supplier;
• Responsibilities of the Project and the supplier in getting the products;
• Contract review highlights to assess the performance;
• The price of each product received;
• Billing and payment processes;
• Applicable Terms and Conditions.
Supplier's contracts should be used whenever requested a formal agreement between the project and a preferred supplier in receiving of the product. A supplier contract usually is documented in the final stage of the bidding process, after supplier proposals RFP are received and the preferred supplier is appointed. After approval of the supplier contract, the process of procurement management is initiated to monitor and control the supply of the product for the project.
Supplier contracts typically is written by the procurement manager and approved by the project manager or sponsor. Without the formal supply contract, it will be legally difficult to manage supplier performance. A written supplier contract will reduce performance management issues by specifying the duties and responsibilities of both parties to ensure that the procurement of the product is efficient.
In the supplier contract the following are described:
• The purpose of this document which clearly attributes responsibilities of the supplier and the project team to meet the requirements set out in the statement of work (SOW);
• The receiver group of the contract is identified;
• Definitions of key words used in the document that have potentially vague meaning are provided;
• The results that will be produced by the supplier to meet the requirements are clearly described;
• Lists products that will be given by the supplier for the project team and for each, the product is described;
• Identifies the level of training that will be provided by the supplier for the project team by describing: products that will require training, training
method, level of training and number of trainees;
• Determine the documentation that will be provided by the supplier for the project team;
• Gives a detailed timeline for delivery of products for the project;
• Describes responsibilities of project supplier in producing and getting the required products;
• Lists responsibilities of the supplier for fulfillment of the contract;
• Lists responsibilities of the project team;
• Defines procedures of performance review of supplier during the procurement process, setting a time limit and responsibilities of the parties;
• Identifies the prices to be paid for each result provided by the supplier, specifying the process of billing and payment;
• Identifies with what degree of sensitivity should be treated this information related to the contract by the supplier. For example: During the course of this contract confidential information can be obtained which is relevant to business, the project or customers. The Parties agree to keep this information strictly confidential at all times, even after the project has been concluded. It shall not be used or attempt to use it for personal benefits or for the benefit of any third party. Confidential information may be published only to the extent that such disclosure is necessary to execute responsibilities under this contract. This does not apply when the information is legally required to be published or made available and known to the public;
• The contract has to determine the conditions and processes that allow each party to terminate it, the terms of notice, payments etc;
• Describes the process of resolving disputes by means of negotiations, arbitration, judicial processes, and any indemnity clause demanded by each party of the contract.
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