CONTEMPORARY PROJECT MANAGEMENT, 4E Timothy J. Kloppenborg Vittal Anantatmula Kathryn N. Wells 1 Chapter 13 Project Supply Chain Management 2 Chapter 13 Core Objectives: • Identify the role of supply chain management in project management and its importance for ensuring project success. • Describe how to plan, conduct, & control project procurements. Chapter 13 Technical Objectives: • Describe the various formats for supply contracts and when each is appropriate. • Given a project situation, determine which activities, supplies, or services should be purchased; create bid documents; determine criteria you would use to select a seller; & determine which type of contract you would use. Chapter 13 Behavioral Objectives: • Explain how to use the contemporary approach to project partnering and collaboration. Super Absorbent Polymer Turf (SAPTURF) “The SAPTURF project required a strong team. Successful commercialization of IP is a long shot, so room for project management error is slim. I realized I would need to compensate for lack of in-house resources. Lack of in-house resources is an advantage! I was free to look for the best resources…” Chris Tetrault, owner and founder, SAPTURF Introduction to Project Supply Chain Management • Inter-organizational purchasing-related issues supply chain management • A supply chain consists of all parties involved in fulfilling a customer request • Integrating SCM into PM can significantly enhance the effectiveness of project management Introduction to Project Supply Chain Management Supply management Purchasing Integration of related functions to acquire needed products and services Procurement Project Supply Chain Management A system approach to managing flows of physical products, information, & funds from suppliers and producers, through resellers the project organization for creating customer satisfaction SCM Components • • • • Make-or-buy decision Contract types Collaboration and cooperation System integration Make-or-buy decisions – deciding whether to make something inhouse or purchase it from a vendor SCM Factors The importance of SCM to general project management depends on a number of factors: Value of outsourced products/services relative to value of the project Role of the outsourced work in the entire project The timing of the work being purchased Number of suppliers required Capability of the project team Structure of the procurement supply chain SCM Decisions Distribution network configuration Inventory control in supply chain Logistics Supply contracts Distribution strategies Supply chain integration & strategic partnering Outsourcing & procurement strategies Product design Information technology & decision-support systems Matching internal inadequacies with external experience Project Procurement Management Processes 1. Plan Procurement Management 2. Conduct Procurements 3. Control Procurements Plan Procurement Management • Plan for purchasing and acquisition • Complete most of project planning first • A minimum requirement is the project scope statement Plan procurement management – determining how project procurement decisions, approach, and dealing with sellers will be accomplished and documented Outputs of Planning Procurement management plan– portion of the project management plan that describes how a project team will acquire goods and services they choose to purchase Procurement management plan provides guidance for: Types of contracts Risk management issues Selection of suppliers Acquisition of materials and services The procurement statement of work ensures that the contractor and client companies understand the work that is being requested. Procurement statement of work – documents the portion of work to be purchased, described in enough detail so potential suppliers can decide if they are capable of and interested in providing it. Make or Buy Decisions • Seller may be called a supplier, supplier’s supplier, or contractor • Buyer may be called a customer, service requestor, or purchaser • A firm’s competitive advantage may be defined as lower cost, better quality, and/or fast delivery Reasons to Make or Buy Outsourcing Issues • Loss of time control • Potential conflict of interest • Lack of cost control • Ineffective management • Gradual loss of special skills • Loss of confidentiality • Loss of project focus • Double outsourcing • Sharing of proprietary knowledge that impacts competitive advantage Procurement Documents Prospective contractor companies have capability and motivation to provide proposals Procurement documents – documents that define the requirements and contractual relationship between suppliers and customers of services and products used on a project. Project procurement requests Request for Information (RFI) -- “a proposal requested from a potential seller or service provider to determine what products and services are potentially available in the marketplace to meet a buyer’s needs and to know the capability of a seller in terms of offerings and strengths of the seller.” Request for Quotation (RFQ) – a type of procurement document “used when discussions with bidders are not required (mainly when the specifications of a product or service are already known) and when price is the main or only factor in selecting the successful bidder.” Request for Proposal (RFP) – a type of procurement document used at “an early stage in a procurement process issuing an invitation for suppliers, often through a bidding process, to submit a proposal on a specific commodity or service.” Quotes taken from https://www.tutorialspoint.com/management_concepts/procurement_documents.htm Conduct Procurements • Sources for Potential Suppliers • Approaches Used When Evaluating Prospective Suppliers • Supplier Selection Process Conduct procurements – the process which includes receiving seller responses, selecting a seller, and awarding a contract Sources for Potential Suppliers • • • • • • • • • • Supplier websites Supplier information files Supplier catalogs Trade journals Phone directories Sales personnel Trade shows Professional organizations and conferences Electronic search engines Published info by local, state, & federal governments Selecting a Design-Build Contractor Selecting a Design-Build Contractor Exhibit 13.4 continued Approaches Used When Evaluating Prospective Suppliers • Supplier surveys • Financial condition analysis • Third-party evaluations • Facility visits • Quality ability analysis • Delivery ability analysis Supplier Selection • Invite suppliers to submit bids • Most common procurement document, the RFP, includes: Purchasing overview Basic supplier requirements Technical requirements Managerial requirements Pricing information Appendices Supplier Selection • Supplier selection a decision tree • A choice between alternatives under uncertainty • Outcome concerned with price and performance • Rate proposals and other supplier characteristics • Most important evaluation criterion is typically price • Goal is to award a contract to each selected seller Tools and Techniques Used in the Seller Selection Decision Process • Weighting system • Independent estimates • Screening system • Seller rating system • Expert judgment • Proposal evaluation techniques *See Exhibit 13.5 on p.438 in textbook The Contract • • • • A legal relationship between parties Seller must deliver what is promised, and buyer must pay Buyer is internal to the organization Seller is external to the team Contract – a mutually binding legal agreement created between buyer and seller Major Contract Components Statement of work Schedule baseline Period of performance Roles and responsibilities Pricing Payment terms Place of delivery Limitation of liability Incentives Penalties Contract Types Fixed-Price Contracts Firm-Fixed-price (FFP) contracts– a contract in which the seller has to complete the job for the agreed-upon amount of money regardless of the actual cost incurred Firm-Fixed-Incentive-Fee (FPIF) contracts– a contract in which the price is fixed as defined by the contract, but the seller can earn an additional amount as incentive if the seller meets defined project metrics Firm-fixed-economic-price-adjustment (FP-EPA) contracts – a fixed-rice contract with a clause to protect the seller from conditions such as inflation or commodity cost increases Cost-Reimbursable Contracts Cost-plus-fixed-fee (CPFF) contract – a type of contract in which the buyer reimburses the seller for all of the seller’s allowable costs plus a fixed amount of profit (fee) Cost-plus-award-fee (CPAF) contract – a cost-reimbursable contract that involves payments to the seller for all allowed costs incurred for completed work, plus an award fee based on satisfying certain subjective performance objectives Cost-plus-incentive-fee (CPIF) contract – a type of contract in which the buyer reimburses the seller for the seller’s allowable costs and pays the seller a fee if it meets defined performance criteria such as schedule, cost, and/or performance Time and Material (T&M) Contracts • Unit rate for each hour of labor or pound of material is set in the contract • Amount of work is not set the value of the contract can grow • Seller charges for what is done to produce the product/service in contract Time and material (T&M) contracts – hybrid contracts containing aspects of both costreimbursement and fixed-price contracts, generally used when the deliverable is labor hours and/or amounts of materials Choosing the Right Type of Contract • • • • Consider requirements that a buyer imposes on a seller The degree of market competition plays a role Consider risk for the buyer and the seller Consider using a wrap-up A wrap-up, or owner-controlled insurance program (OCIP), is a single insurance policy providing coverage for all project participants, including the owner and all contractors and subcontractors. Choosing the Right Type of Contract Things to consider: Cost & schedule risk Clarity about scope of work Type & complexity of requirements Cost & price analysis Urgency of requirements Performance period Contractor’s responsibility Contractor’s accounting system Extent of subcontracting Control Procurements • Buyers and sellers administer contracts • Sellers create performance reports • Buyer reviews performance reports Control procurements – includes managing relationships between sellers and customers, monitoring contract performance, and making changes and corrections if needed. Improving Project Supply Chains • • • • • • Project Partnering and Collaboration Third Parties Lean Purchasing Sourcing Logistics Information Project Partnering and Collaboration • Partnering is a method for transforming contractual arrangements into a cohesive, collaborative team endeavor with a single set of goals and established procedures for resolving disputes in a timely and cost-efficient manner • Through strategic partnering companies are more likely to access advanced technology, share risks, & improve relative competitiveness Project Partnering and Collaboration Sources of Conflict During Project Purchasing • Lower price means cost reduction for buyer, but revenue loss to seller • Conflicts of interest predispose owners and contractors to be suspicious of one another’s motives and actions. • Conflicts create costly delays and questionable responses Resolving Project Purchasing Conflicts • Use project partnering to engage the project owner and contractors • Try to increase the baseline of trust and collaboration Sharing Requirements for Effective Project Partnerships Mutual Goals in Project Partnerships Securing Commitment to Partnering • Consider contractors with a mutual interest and expertise in partnership • Get the commitment of top management of all involved firms • Describe in detail all benefits and how the partnership will work “We” “Us and them” Securing Commitment to Partnering Problem resolution—Solving problems at the lowest level of organizations and having an agreed-upon escalation procedure. Continuous improvement—Endless waste elimination and cost reduction. Joint assessment—Reviewing the partnering process jointly. Persistent leadership—Displaying a collaborative response consistently. Third Parties Mechanisms to grow supply chain performance…Aggregate: Capacity Inventory Transportation Warehousing Receivables Information Relationships Lean Purchasing • Implementation of just-in-time (JIT) tools/techniques in a manufacturing environment • Minimize costs Sourcing • All processes required for a firm to purchase goods from suppliers. • Advantages of good project sourcing decisions: Order aggregation Procurement transactions more efficient Design collaboration Coordinated forecasting and planning Improved customer satisfaction Logistics • Work required to move inventory throughout a supply chain • Modes of transportation used in supply chains • Transportation cost linked to responsiveness of supply chain aims • Tradeoff between responsiveness & costs—PM needs to remember which project objectives are most important! Information • Information enables management to make decisions over a broad scope that crosses both functions and firms • IT-based information management is crucial to the performance of project supply chains Accessible Accurate Right kind Summary • Cooperative relationships improve ability to compete in today’s marketplace • Project supply chain management represents a set of proactive responses • Organizations must assess need to outsource part of the project work • Contracting is used to specify and manage supplier-buyer relationships • Purchasing details are legally enforced in the contract • Partnering and coordination of purchasing allow a firm to maximize economies of scale in purchasing and reduce transaction costs. Implications for PM in a Networked Organization Model PM IN ACTION • What is a Networked Organization? • Identify core competencies unique to your company and focus on building competitive advantage • Build alliances with best-in-class companies • An “open” organizational model • Business model drives speed and greater value of leveraging resources outside your company Implications for PM in a Networked Organization Model PM IN ACTION Our Approach: 1. Establish a common PM Methodology 2. Have a central point of contact—Communications is key! 3. Establish a Quality Management System (i.e., ISO 9001) 4. Invite strategic partners into business PMBOK Exams • Some of the questions you will see on the material covered in this chapter will be at least partly based on vocabulary…understand completely the difference between terms such as “cost-plus-award-fee” and “cost-plus-incentive-fee,” as well as when each type of contract may be used and how each type of contract divides risk between buyer and seller. • Similar terms are also used in the seller selection process, so know the difference between a Request for Information (RFI); Request for Quotation (RFQ); and Request for Proposals (RFP), and be ready to apply that knowledge to a variety of questions/problems. Casa de Paz Development Project • The most fundamental supply chain question is “will Casa de Paz buy or rent and which building”? • Determine the types of professional service organizations to seek as partners. • How should partnerships be established with religious communities?
