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Procurement Strategy: Practice Question

Paul NaybourPaul Naybour

Published: 3rd June 2019

Within a procurement strategy, explain: build/buy decision, single/integrated/multiple suppliers, selection, conditions and form of contract, pricing and reimbursement.

1) build/buy decision often referred to as make or buy is the decision as to which parts of the project should be done in house and which parts should be procured from an external supplier. In reaching this decision an organisation will consider its internal resources, competencies and the most appropriate place for risk management. Some areas such as operations planning are often better done in house, whereas other such as construction are better don externally. Each project will be different depending on the organisational capability.

2) Clients face a choice of how they breakdown the contract work package. They could go for a single supplier which has ll the capabilities to deliver the contract, although in practice this single supplier may in effect sub-contract parts of the work. The may go doe an integrated project team that is often made up of different suppliers forming a partnership or joint venture. Or they can split the work into multiple suppliers often called a hub and spike model. In this case different suppliers do different parts. Each has significant advantages and disadvantages and careful consideration is needed to select the right approach.

3) When selecting suppliers most organisations go through a formal supplier selection process. In fact, for many sectors, this process is mandated by European procurement regulations. The aim is to provide a fair and level playing field for all bidders. It involves many stages but typical issuing an invitation to tender, receiving responses, selecting a supplier based on published criteria and then awarding the contract to the supplier who provided the best value for money.

4) A number of forms of contract are available when placing a contract. These set out the terms and conditions for the contract, including the responsibility of each party, scope, processes for invoicing and how disputes are resolved. Often these forms of contract are standardised within a sector. For example, civil engineers might use NEC whilst builders would use JTC. It is important that project managers understand the form of contract that is being used.

5) Within a contract there may be a number of different payment mechanisms, these can include a combination of fixed price and time and materials elements. So, for example, a contract may include fixed price element for the main construction work but the design work may be a day rate. Getting the right payment mechanism is important because it needs to reflect the risk in the contract. It is important that the project manager understand how the payment.

  1. Paul says:

    Hi, I added some examples below…

    Identify: The first step is to identify which stakeholders are relevant to your project. In a new project you might have to do this from scratch and use techniques such as looking at company org charts, speaking to colleagues, looking at websites etc… If you are in an organization familiar to you then you may be able to identify the majority of stakeholders yourself. For example if you were designing a New school you might start with the org chart for the school and identify the heads of departments.

    Assess: Next you must assess which stakeholders are the most important and which ones can have the most impact, either negatively or positively on your project. You can use a Stakeholder Management Grid which allows you to position stakeholders according to their power and interest, and whether they are for or against the project. Those stakeholders with the high power and high interest are the most important stakeholders to manage. So in our school example you would consider the head teacher and heads of departments as key stakeholders whereas pupils would be keep informed.

    Plan: Next you have to plan how to communicate with them and what the best methods could/would be to influence them. This should be documented in the communication plan and/or a stakeholder management strategy. In a school you might meet the Headteacher and Heads of departments regularly whilst pupils might get a news letter from the school.

    Execute: Execute the activities based on your plan and then assess whether this has gone to plan. If this doesn’t initially work then try a different method. So in our school example you would monitor feed back via a meetings with key staff and maybe survey parents and pupils.

    Reasses and re-plan: Reassess the attitudes and position of your stakeholders on a regular basis and update your stakeholder management plan and approach appropriately. This may need a change of strategy. So if we detect problems with pupils we may work with the school to arrange a parents meeting. Being flexible with stakeholders is always very important to a successful project.

  2. Paul says:

    Looks like a good answer to me, lots of detail, well done.

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