Procurement

Management
Module 3: Classify Procurements
Procurement Framework

PLAN PROCUREMENT CONDUCT MANAGE PROCUREMENT

PROCUREMENT
 Make

Project
Buy

Procurement Procurements
1. Classify procurement: Make
or Buy
• One could easily separate a project into two distinct parts:
• Make: portion which will be done with your own company
employees
• Authorized by the project manager with use of non-legal
documents typically called work authorizations or budgets
• Directly controlled by company
• Buy: portion which will be sent outside of your company for
performance
• Governed strictly by the legal document the buyer has
issued called the contract, or subcontract, or purchase
order
• No direct control by company
2. Classify Buy Items by Complexity

Project

Make Buy

Generic Special
Major Complexity Minor Complexity COTS Teaming Interdepartmental
 1. Major (high risk) complexity procurements,
the purchase of something which does not
exist, tailored to the project's unique
specification. These would be considered
critical sub-projects.
2. Minor (low risk) complexity procurements,
will often represent large monetary values,
Definition: but the commodities exist and will conform
to the sellers existing product specification.
Procurement 3. Routine buys of COTS (Commercial Off-The
Categories 4.
Shelf) commodities or purchased services.
Special procurements: done under corporate
teaming arrangements.
5. Special procurements: to other segments of
the project's company, typically called
interdivisional work.
 • They often require the creation of something new by a
seller, something that doesn't already exist.
(1) Major • Require that the project specify precisely what it needs,
typically taking the form of specifications, drawings, and
(high-risk) often includes a comprehensive statement of work.
• Typical characteristics for purchased items in this category
Complexity might be:
• a new product or a system,
Procurements • a major new component,
• a major structural element,
to the Buyer's • a design to a performance requirement

Specification • Will experience a phenomena typically called "scope creep"

• High risks to the overall project, and often, significant senior
management and even customer oversight.
 (1) Major • The architectural design of a new commercial
center.
(high-risk) • The construction of a new production factory.
Complexity • The outsourcing of information technology
services.
Procurements • The creation of a new software package.
to the Buyer's • The development of a new computer.
• The development of a new airplane.
Specification - • The development of a new radar system, or any
Examples critical project component.
 • These procurements are for items which exist in
(2) Minor some form with a given seller, and are defined by
the seller's own product specification. They are
(low-risk) commercially available from the seller, either in the
seller's inventory or sometimes assembled after an
Complexity order is received.

Procurements • May have a long lead-time delivery requirement due

to scarce critical components.
to the Sellers • These items will often carry a high monetary value,
sometimes exceeding the major complexity buys.
Product • These items will normally carry a lower risk, as long
Specification as they arrive in time to support the project master
schedule
 (2) Minor
(low-risk) • The purchase of existing automobiles, buses,
Complexity transportation vehicles or perhaps aircraft.
• The purchase of an existing radar system, or
Procurements large electrical generators.
to the Sellers • The purchase of existing, but high value
software.
Product • The purchase of existing computers, and other
developed, but high value components.
Specification -
Examples
 • Commercially available as "off-the-shelf" articles, or
routine services
(3) Routine • These commodities will often have interchangeable
(substitute) components.
buys of • Examples
• Purchased labor, which will brought in plant and
Commercial- supervised by the project's staff.
• Purchased services, or testing, of a routine nature.
Off-The-Shelf • Raw materials: nuts, bolts, fasteners, sheet metal,
paints, solvents, etc.
(COTS) items • Pencils, paper, office supplies.

or purchased • Existing computers, printers, scanners, etc.

• Packaged commercial software.
services • Outsourced complete but routine services, for
example, cafeteria, accounting, security, etc.
 (4) Special • These are project procurements which are executed
strictly in accordance with an overriding corporate legal
Procurements: contract typically called a teaming agreement or alliance
or arrangement, etc. Here, the executives of one
company and another company (or companies) agree to
performed combine their assets, facilities, people, shared risks, etc.,
and go after a new segment of work, typically in the form
under of some new project.
• Procurements under Teaming Agreements will typically
strategic cover Category (1) or (2) buys as defined above, but could
also include Category (3) items bought under a long-term
company relationship.
• Such arrangements can divide the new project by
teaming creating a "prime contractor-subcontractor" relationship,
whereby the designated prime company will receive the
agreements contract.
 (5) Special • The significance of interdivisional work, sometimes also
Procurements: called intracompany work, is that such procurements
should be the easiest arrangement to manage
to other • Interdivisional work are the procurements made within a
single company by one operating unit (the project) with
components of another operating unit (the performing organization).
• Sometimes, the most compelling justification for
the project's interdivisional work is simply the "availability" of a
company workforce, or facilities, Project manager may
company, have little say in the matter and senior executives insist
on the project work being kept within the company, even
interdivisional when a better price or better product might be available
from an outside supplier.
work
 (5) Special
Procurements: to • The development of some new component or
other product.
components of • The manufacture of parts.
the project's • The procurement of parts for the project.
• Design and testing services.
company,
• Purchased labor.
interdivisional
work - Examples
Questions:
1. Identify and explain the elements of major complexity in this procurement process.
2. What are the potential risks associated with sourcing specialized hardware components for this project? How would you
mitigate these risks?
3. Discuss the advantages of using Commercial Off-the-Shelf (COTS) components in this scenario. Are there any areas where
COTS procurement may not be suitable?
4. How would you approach the procurement of standard office supplies and furniture for the project team? What
considerations should be taken into account?
5. What steps would you take to ensure that the selected hardware components meet the technical specifications required for
integration with the client's existing infrastructure?
6. Outline the key stakeholders involved in the procurement process and describe their roles and responsibilities.
7. Given the tight project timeline, how would you expedite the procurement process without compromising quality or
compliance?
8. What documentation and contracts would you put in place to govern the procurement of both the specialized hardware
components and the standard office supplies?
9. How would you track and manage the procurement process to ensure timely delivery and adherence to budget constraints?
10. Evaluate the potential impact of any delays or complications in the procurement process on the overall project timeline and
budget. What contingency plans would you have in place?
Q&A