Slide 13.1

4E1 Project Management

Purchasing and Procurement 2

Slide 13.2

Tenders

Asking potential vendors for proposals• Allows transparency in procurement

• Aims to reduce price, improve quality through competition

• Used in private and public sectors

• Proposals AKA tenders, bids, quotations

Considerations• Cost, time, effort (vendor and customer)

• Legal obligations

• Existing suppliers

Different types• Public, restricted, negotiated

Slide 13.3

Invitation to Tender (ITT)

Requests for Tenders (RFT, RFP)• Also Request for Expressions of Interest (EoI)

• Also Requests for Information (RFI)

Must state• What is to be provided

• Quality requirements

• Delivery and payment terms

• Any special contractual conditions

Different types of bid• Indicative, offer, BAFO

• May be sealed

Slide 13.4

Evaluating Tenders

Criteria• Vary from single/simple to many/complex

• Weighted ranking

• Simple Multi-Attribute Rating Technique (SMART)

Formal and informal evaluation• Stakeholders involved

Rules of the game• Private sector, public sector

Managing risks

Slide 13.5

Weighted Ranking

A widely used formal evaluation technique• Useful when there are multiple comparable options

• Costs (rewards?) must be known

• Requires formulation of distinct assessable criteria

Often used in purchasing• Capital assets e.g. earth-moving equipment

• Materials e.g. concrete, aluminium sheeting

• Services e.g. contractors, consultants

Slide 13.6

Weighted Ranking - ComplicationsCriteria may be hard (objective) or soft (subjective)

• Usually a mixture

Information may be• Uncertain• Missing• Fuzzy

These can all be handled• Dealing with uncertainty using PERT-type scoring• Dealing with soft criteria using scales

Slide 13.7

Weighted Ranking: Step 1

Identify all criteria• Value trees, stakeholders, …

• Classify each criterion as qualifying or award

Qualifying - absolute (“must”) requirements• Hardness must be at least 40B (Rockwell scale)

• Must be able to lift at least 2.5 tonnes

• Must comply with ISO9200

Award – important but non-essential (“should”)• Supplier should have local maintenance capability

• Cost should be <€450,000

Slide 13.8

Weighted Ranking: Step 2

Assign weights to award criteria• 10: criterion is extremely important

• 1: criterion is fairly unimportant

• 0 is not a permissible value (why?)

Use care when quantifying soft values

Lay out on a grid/spreadsheet (see over)

Slide 13.9

Weighted Ranking: Step 3

CriterionOption 1 Option 2 Option 3Class. Weight

Q

Q

A

A

A

A

A

8

7

5

4

2

CRITERION 1

CRITERION 2

CRITERION 3

CRITERION 4

CRITERION 5

CRITERION 6

CRITERION 7

Slide 13.10

Weighted Ranking: Step 4

Evaluate options under each criterion• Decide range of scores in advance

Scoring and weights should be independent

Multiple evaluators• Consensus

• Averaging

• Psychology of group decision-making

Slide 13.11

This brings us to…

CriterionOption 1 Option 2 Option 3

CRITERION 1

CRITERION 2

CRITERION 3

CRITERION 4

CRITERION 5

CRITERION 6

CRITERION 7

Yes

Yes

9

7

2

8

4

Yes No

Yes

Yes

9

6

5

8

10

Option 2 fails to meet an qualifying criterion and is eliminated

8

7

5

4

2

WeightClass.

Q

Q

A

A

A

A

A

Slide 13.12

Weighted Ranking: Step 5

For each option• For each criterion, multiply weight by score

• Sum the results to give option’s weighted score

Take care in interpreting the result

Observe any rules (e.g. public sector)

Slide 13.13

Weighted Ranking – Final Outcome

CriterionOption 1 Option 3Weight

8

5

5

4

2

CRITERION 1

CRITERION 2

CRITERION 3

CRITERION 4

CRITERION 5

CRITERION 6

CRITERION 7

9 72

7 35

2 10

8 32

4 8

9 72

6 30

5 25

8 32

10 20

PerfectScore

TOTAL

% TOTAL

10 80

10 50

10 50

10 40

10 40

260 157 179

60% 69%

Class.

Q

Q

A

A

A

A

ASelect o

ption 3

Slide 13.14

Negotiation

Negotiation is formal, explicit, interpersonal communication aimed at agreement

It involves • representatives of all interested parties

• conflicts of interest

Negotiation is a specific skill• Ability to compromise and communication skills also required

Negotiation may be adversarial or cooperative (partnership)

Slide 13.15

NegotiationStrategies

• Win-win, win-lose or win-don’t care?• Depends on goals

Power in negotiation depends on knowledge of other party’s “best alternative to no agreement” (BATNA)

• Timing is important• Analysis of buyer and seller’s strengths and weaknesses

• Knowledge of market• Understanding of dependency relationships

Slide 13.16

Negotiation - Positions of Strength

Buyer

Seller

Need is urgentMonopolyIndifferent about businessExceptional productGood information

Need is not urgentMany alternative suppliersSuppliers keen to get businessBuyer is only buyer.There are substitutes.

Slide 13.17

Ethics

Temptations

Smaller inducements• Pens, bottle of wine, gimmicks

Larger inducements• Golf outings, visits to plants in exotic locations, entertainment

Corruption• Bribes - cash and/or kind, kickbacks

Clear written policies

Slide 13.18

TimingLead times!

Include key orders in the project plan• Delivery time as a task (may be on critical path)• Contractual implications

Expediting• Routine approach: flagging, reminders• Urgent expediting• Alternative sourcing• Escalating

When does the Project Manager get involved?

Slide 13.19

e-Procurement

Electronic purchasing e.g. via Internet, EDI, ERP, etc.

Advantages• Convenience, speed, wider reach, improved information

Issues• Security: fraud, confidentiality, etc.

• Legal: contracts, enforcement, etc.

Related concepts• Vendor-managed inventory

• Intelligent agents

• Just-in-time delivery

• Evaluated receipt settlement

Slide 13.20

Irish Government e-Procurement

www.e-tenders.gov.ie/

Slide 13.21

Examples of RFTs

Slide 13.22

Searching for Tenders

Slide 13.23

Examples of Tenders

Slide 13.24

Product Service Information RequestPurchase requestPayment or payment advice

Supplier

Response to Fulfilment RequestShipping Notice

Electronic Market(Txn Handler)

Electronic Commerce Network(Infrastructure)

Response to information requestPurchase acknowledgement

Shipping noticePurchase/Service delivery

Payment acknowledge

Purchaser’sbank

Supplier’sbank

Transaction Handler’s Bank(Automated Clearance

House)

Payment Remittance NoticeElectronic Funds Transfer

Electronic Funds

Transfer

Purchaser

Electronic Purchasing

Slide 13.25

Purchasing Organisation in Projects

Role of the purchasing department

Project Engineer

H.O Purchasing Agent

Suppliers

Site Manager

Shipping Agent

Overseas supplier

Overseas PurchasingAgent Local Suppliers

Subcontractors

Project ManagerThe Client

Slide 13.26

Summary: Key Points

Purchasing is important in most projects• Projects may use the company purchasing function

• Or do their own

There is a standard purchasing cycle

There are different approaches to purchasing

There are many skills involved, including:• Negotiation

• Relationship management

• Administration