Advanced Project Procurement
Purchasing and Supply in Project Management
To ensure the quality of purchased capital equipment and services, rigorous standards and processes must be followed. There are important components and elements of purchasing that play a role in corporate and organizational strategy. A well-implemented supply management and purchasing strategy will result in greater profitability for a firm. Legal aspects of purchasing involve terms of contracts, purchase orders, and other legal implications. Purchasing professionals must be aware of pricing decisions, possess effective interpersonal communication, and evaluate and manage strategic alliances with suppliers. Technology also plays an important role in modern project procurement. This paper will provide an overview of the various concepts of procurement, contract management, components of purchasing and supply management, and how purchasing managers can effectively enable project success via sound purchasing decisions (Benton, 2010).
One important aspect of project management is the acquisition of materials and supplies. Project managers along with purchasing managers must work in conjunction to acquire goods and services for the project. According to Investopedia (2012), procurement is defined as attaining possession of something or purchasing something usually for a company, government, or other organization. The energy industry is an example of an industry that has retailers that commonly undergoes the procurement of gas, electricity, coal, and other energy sources. The procurement process has gained critical importance in various projects such as those in public sector organizations and it has become important for organizations to assess, measure, and improve each organization’s procurement process (Rendon, 2008).
Purchasers and buyers are in charge of determining top values, choosing the appropriate suppliers, negotiating the best prices, and awarding contracts that ensure that the correct quantities of the product or service are received at the appropriate time. Maintaining healthy supply chain relationships are crucial to maintaining a competitive advantage. A healthy supply chain strategy will help companies meet customer demands to produce better products with faster delivery times, increased service, and decreased costs. Having short lead times helps a company be more flexible and able to respond to changing situations quickly. According to Benton (2010), “suppliers with short lead times and who are reliable in meeting their due dates minimize the problem of material shortages for the manufacturer” which leads to a company’s ability to better meet customer due dates (p. 25).
Contracts are awarded to the suppliers who meet certain criteria such as price, quality, service, support, availability, reliability, privacy, responsiveness, proximity, security, and selection. Contracts are agreements between a buyer and seller that allow for the title of a good to be passed from seller to buyer when the contract is reached (Benton, 2010).
There are four components that are typical of an enforceable contract agreement. The first component states that both parties must be capable. Neither party must be mentally impaired or unable to interpret and acknowledge the terms of a contract. The second component is that the subject of the matter must be legal. The product or service that is being contracted must be legal and not against public policy since a court cannot enforce a contract that involves illegal products or services. Mutual consideration is the third component of a contract and makes a contract legally binding and enforceable. Benton (2010) describes mutual consideration as when “something of value passes from one party to a second party in exchange for a promise of the second party” (p. 60). Some considerations of importance made by...