4E1 Project Management

1. 4E1 Project Management Purchasing and Procurement 1

2. Key Concepts • Purchasing cycle • Invitation to tender • Negotiation • Ethical issues in purchasing • Sourcing • Product definition • Expediting • Purchase order documentation • e-procurement

3. Purchasing is Important in Projects • All projects involve purchasing • Bought-in goods may be the major cost • Materials • Equipment/capital goods • Labour • Contractor services • Purchasing must be efficient, effective, economic • Problems can lead to shortages, delays and costs

4. Purchasing Objectives • Classic definition • “The right goods, quantity, quality, source, time and price” • Analogy: shopping • Alternative definition • “To provide the interface between customer and supplier in order to plan, obtain, store and distribute as necessary supplies of materials, goods and services to enable the organisation to satisfy its internal and external customers.” • Analogy: process and customer-vendor relationship

5. Identify the project need Approve and pay invoice The Project User Receive and Inspect Specify the Goods Feedback The Purchasing Dept. Monitor & Expedite Short- list Vendors Choose Vendor or Order Invite Tenders Project Purchasing Cycle See Lock, p 381

6. Requisition Requirement The Purchasing Cycle • Conventional purchasing cycle

7. Purchase Requisition – Must State: • The need: what is required, how much/many, when • Justification • Why required • Planned purchase? (if not, justify expenditure) • Price estimate (if different from plan, explain why) • Other information • Source (or potential sources) • Who is making request (with signature) • Relevant project coding/accounting information • Time and date of request

8. The Purchasing Cycle • Conventional purchasing cycle Approval Quotation Order Requisition Requirement

9. The Purchase Order Purchase Order Acme Engineering Sandyford Ind. Estate Dublin 18. Tel. 01 2881345 Fax 01-2884321 Order Number: B14355 Date 11 November 2006 Delivery: Unit 6 Address Clonmel Industrial Est. Clonmel, Co. Tipp. Contact: Sean Maguire Terms: Standard To: Smith Widgets Ltd. 22 High Street Dublin 8 Supplier Code: T446 Supplier Ref: 04/332/02 Special Delivery: None Instructions Item Quantity Price VAT Total Brass 3 x 27 widget pno W644C 20 5.00 21.00 121.00 Total €2,100 €10,427 Requested by Authorised by Date

10. The Purchasing Cycle • Conventional purchasing cycle Approval Quotation Order Requisition Requirement Receipt of Invoice Acknowledgement of receipt Order receipt Checking Matching

11. Checking and Matching • Checking (goods received) • Are we expecting this? • Is it the right good and quantity? • Is the quality acceptable? Is there any damage? • Matching (invoices to goods received and orders) • Is it what we ordered? • Is it what we received? • Is it what we accepted? • Is it the correct price? • Are the terms correct? • Remedial actions

12. The Invoice Acme Engineering Sandyford Ind. Estate Dublin 18. Tel. 01 2881345 Fax 01-2884321 INVOICE To: Smith Widgets Ltd. 22 High Street Dublin 8 invoice No: 61344 Invoice Date: 21.11.06 Order No: B14355 Your Ref.: B14355 Item Quantity Price VAT Total Brass 3 x 27 widget pno W644C 20 5.00 21.00 121.00 Total Due €2,100 €10,427 Terms: 30 days net. Please detach slip below and send with your payment Payment slip To: Accounts Receivable, Unit 22, Sandyford IE, Dublin 18 Customer: Smith Widgets Cust. No.: 42330A Acme Engineering Amount paid €10,427.00 Cheques should be crossed and made payable to Acme Engineering Bank Transfer to AIB, 34/36 The High St. Dublin 8. A/C No. 34-11-92 02335371

13. The Purchasing Cycle • Conventional purchasing cycle Approval Quotation Order Requisition Requirement Receipt of Invoice Acknowledgement of receipt Order receipt Checking Approval Payment Matching Error Correction

14. Purchasing Options • Supplier selection • Single/multiple suppliers • Preferred suppliers • Contract types • One-off, draw-down, renewable, long-term • Tenders • Open bids/tenders, closed bids/tenders • Relationships • Direct or indirect/broker

15. Definitions Customer, seller, goods, contract Good/service Description, quality, time for completion, warranties Payment terms Prices, payment schedule, conditions Ownership Title, intellectual property Contingencies Indemnity, loss or damage, changes in the work, expediting, rejection, arbitration, sub-suppliers Buying from abroad Departure, carriage paid/unpaid, arrival, jurisdiction Standard terms and conditions Getting It Right: The Fine Print

16. Pricing and Delivery • Some common terms • EXW Ex works • FCA Free carrier • FAS Free alongside ship • FOB Free on board • CFR Cost and freight • CIF Cost, insurance and freight • CIP Carriage and insurance paid to… • DAF Delivered at frontier • DES Delivered ex ship • DEQ Delivered ex quay • DDU Delivered duty unpaid • DDP Delivered duty paid

17. Through contacts Purchasing department Salespeople Trade associations Fellow professionals Information gathering Invitations to tender Search (including bots, intelligent agents) Advertisement Exhibitions From publications Catalogues Trade directories Kompass, Rylands, etc. Web Yellow pages Databases Public and subscriber Trade journals Getting Sourcing Information

18. Appraising Suppliers • Indicators of likely ability to deliver • Financial health • Capacity and production facilities • Human resources • Quality • Performance • Other factors • Reputation • Environmental/ethical factors • Ease of doing business

19. Partnership Relationships • Outsourcing ‘partnerships’ • e.g. Boeing’s ‘working together’, BAA T5 agreement, Just-in-Time (JIT) manufacturing • Power in customer-supplier relationships • Can veer towards supplier • Knowledge imbalances • Building a relationship of trust • Requires vendor and customer to have shared goals • Typically not the case in procurement

20. Supplier Selection Policy - Sony http://www.sony.net/SonyInfo/procurementinfo/policy.html