Project Management

5 Considerations for Your Project Procurement Strategy

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Categories: procurement

A project procurement strategy is drawn up at the very beginning of a project at a high level because it’s useful for the business case.

Then you’ll put together a more detailed level procurement plan during Definition, when you are specifying exactly what is going to happen on the project. The procurement plan is part of your overall project management plan (remember: your plan is more than the schedule alone).

Here are 5 things to take into account when you are putting your procurement approach together.

1. Make or Buy

Make or buy decisions happen all the time on projects because you need to get your hands on stuff to make your project happen.

A make or buy decision is where you decide whether the deliverables will be made in-house or bought in. For example, you might do some IT developments in-house as you have developers with  those skills, and then buy in Software-as-a-Service products for other software items where you don’t have the skills (or the inclination) to build them yourself.

‘Make’ is a good choice where you have internal capacity, resources, time and funding and a as way of building expertise in the team for long term support.

‘Buy’ can be more expensive but is also normally faster and does not require the project manager to recruit or backfill specialist permanent roles.

Do you want more tips for make or buy decisions? This video sets out 5 steps to consider.

2. Single or Multiple Suppliers

You also have to decide if you want a main contractor or are prepared to manage multiple suppliers.

Using a single supplier streamlines communication and devolves the project management requirement to the lead contractor. But it can cost more as it introduces another layer or management and there may be disputes.

Also: watch out for communication problems as your message might be lost or diluted as it is passed down.

Multiple suppliers are common on projects because there are often a variety of deliverables. It might make sense to group these together under a lead contractor – it often does on construction projects, for example – but it is going to really depend on your project and the type of suppliers you have.

3. Method of Reimbursement

You should think about what method of reimbursement you are going to use on your project and this might be mandated by your finance team or company policy. It’s really about the types of contract you are prepared to enter into: cost plus, cost, fixed price, firm price and so on.

Think about how much of your costs should be fixed and how much you are prepared to have as variable. The legal team are likely to get involved here to offer advice as you write your strategy. It’s not something that you can decide alone, although you might be in a position to make a recommendation. However, it’s important that you know what you are authorised to offer to a vendor, so it’s best to be clear at the beginning.

4. Supplier Selection

This involves:

  • Looking at where you are going to find qualified suppliers
  • What your minimum criteria are (useful for the pre-qualification questionnaire)
  • How you will rank suppliers
  • The process for tendering
  • Relevant internal policies

Think it through, take advice and then document your approach in your procurement strategy. You may already have this process for supplier selection formalised as part of your company policies, so there might not be much to do here except reference the existing procurement process. Check before you invent a supplier selection approach from scratch!

5. Contract conditions

Finally, contract conditions are worth covering in your strategy. You’ll need to ensure that your contract meets company standards and has a signatory at the appropriate level of authority. Your Finance team can advise on this.

Review any specifications that must be included like a break clause, intellectual property clause or force majeure.

What else would you consider in your procurement strategy? Let us know in the comments below.

Posted on: October 04, 2016 03:20 PM | Permalink

Comments (4)

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Excellent read. Thank you for the information.

Good read. Thanks

Dear Elizabeth: When some goods take long to be fabricated, like process compressors, the final price is never firm but depends on a scalation formula given by bidders and this formula has to be evaluated along with delivery time as well.

I would say that the “Single or Multiple Suppliers” decision dictates your overall Procurement Strategy as in my world of ERP implementation, single suppliers often dictate the contract decisions and the make or buy decisions.

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