The Added Value of Procurement

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Heriot-Watt University

School of Management and Languages

Degree:MSc Strategic Project Management

Course:Project Procurement and Contract Management C11CM

Assignment:The Added Value of Procurement

Lecturer: Prof. Tom Chadwick

Student Reg. #: H00103391

Date:13 Feb 2011

Word Count:2732 (2535 excluding the reference list)

Table of Contents

1. Introduction3
2. Impact on Projects4
2.1 Impact on IT Projects – Personal Experience4
2.1.1 Old Situation4
2.1.2 Negative Consequences4
2.1.3 Improvement5
2.1.4 Positive Results6
2.2 Impact on Construction Projects7
2.2.1 Cooperative Procurement Procedures7
2.2.2 Effects of Cooperative Procedures8
3. Impact of Effective Global Sourcing9
3.1 Quantitative Improvements9
3.2 Critical Success Factors10
3.3 Anticipated Benefits11
4. Impact of the Effective Management of Indirect Spend12
4.1 Importance12
4.2 Strategies & Benefits13
5. Conclusion14
6. References15

1. Introduction

Getting the best services and products at the desired time for the least possible cost has been always a key success criterion of every business since the beginning of human history.

Companies and organizations spend the greatest proportion of expenditure on acquiring resources provided by external suppliers. Procurement, which is the function of managing and administering this acquisition, is a fundamental business aspect that requires deep focus, constant monitoring, and continuous improvement.

A recent report (CAPS Research Benchmarking Team 2010) covering more than 18 different industries states that companies spend on average around 82% of their expenditure through Supply Management. This significant percentage indicates the importance of the role played by Procurement in business firms and hence necessitates the effective management and control of that critical function.

Employing effective procurement activities is crucial to the success in doing business. Therefore, each company should give appropriate attention to setting its procurement strategy, portraying its procurement processes, defining underlying policies and procedures, and establishing a mechanism by which the effectiveness of these enablers can be measured against desired outcomes.

The purpose of this topical essay is to present some examples that highlight benefits and gains firms can realize through adopting effective procurement activities and practices.

2. Impact on Projects

In this section, the impact of having effective procurement activities on projects is discussed. Two types of projects are considered herein: Information Technology (IT) and Construction. 2.1 Impact on IT Projects – Personal Experience

Following sub-sections share my experience as an IT project manager with my current employer (a local semi-governmental organization) showing how the performance of software implementation projects can be enhanced by increasing the effectiveness of project procurement activities. 2.1.1 Old Situation

When I joined my current firm four years ago, the procurement function at the IT division was not organized, and the then situation – as far as IT project procurement is concerned – could be summarized in following points: -No unified procurement process in place.

-Purchasing being conducted on a case-by-case basis.
-Procurement procedures not documented.
-Steps for vendor selection and contract preparation differ from a project to another. -No systematic approach for proposal evaluation.
-No standard baseline for contractual vendor responsibilities. -No templates for RFI, RFP, contracts …etc.
2.1.2 Negative Consequences
The above-mentioned untidy state had its negative consequences on IT projects; that comprised: -Project contracts taking long time to be finalized; that led to significant delays to projects’ kickoff. -Selected vendors were not always the best.

-Frequent disputes with vendors due to unclear...
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