2 Commercialization of SAPTURF ChapterVignetteCommercialization of SAPTURFSuper Absorbent Polymer Turf (SAPTURF), a synthetic turf systemSynthetic turf system surfaces generate extreme heatContinued testing in order to calibrate the value of the productA license agreement will be executed at the end of the trial periodSuccessful commercialization of intellectual property is a long shot
3 Commercialization of SAPTURF Needs ChapterVignetteCommercialization of SAPTURF NeedsSignificant and skilled legal resources compensated on a percentage of yield basisTechnical validation obtained on a percentage of yield basisSmall enterprises have difficulty funding technical capability and physical plantCritical need for an organized system of communication and documentation with a team of independent players
4 At the end of this chapter… Identify the role of supply chain management in project management and its importance for ensuring success.Describe how to plan, conduct, administer, and close project procurements.Describe the various formats for supply contracts and when each type is appropriate.Explain how to utilize the contemporary approach to project partnering and collaboration.
5 Introduction to Project Supply Chain Management Interorganizational purchasing-related issues supply chain managementA supply chain consists of all parties involved in fulfilling a customer requestIntegrating SCM into PM can significantly enhance the effectiveness of project management
6 Introduction to Project Supply Chain Management Used interchangeablyIntegration of related functions to acquire needed products and servicesSupply managementPurchasingProcurement
7 Project Supply Chain Management Project supply chain management is a system approach to managing flows of physical products, information, and funds from suppliers and producers, through resellers the project organization for creating customer satisfaction
9 SCM FactorsThe importance of SCM to general project management depends on a number of factors:Value of outsourced products/services relative to value of the projectThe timing of the work being purchasedCapability of the project teamRole of the outsourced work in the entire projectNumber of suppliers requiredStructure of the procurement supply chain
10 SCM Decisions Distribution network configuration Logistics Inventory control in a supply chainSupply contractsDistribution strategiesOutsourcing & procurement strategiesIT & Decision Support SystemsSC integration & strategic partneringProduct design
11 Project Procurement Management Processes Plan procurementsConduct procurementsAdminister procurementsClose procurements
12 Plan ProcurementsPlan for purchasing and acquisition whether for part or all of a projectComplete most of project planning first in order to understand what the true project needs areA minimum requirement is the project scope statementPlan procurement – “the process of documenting project purchasing decisions, specifying the approach, and identifying potential sellers” PMBOK® GuideProject scope statement – “the narrative description of project scope, including major deliverables, project assumptions, project constraints, and a description of work that provides a documented basis for making project decisions and for confirming or developing a common understanding of scope among the stakeholders.” PMBOK® Guide
13 Outputs of PlanningProcurement management plan– “the document that describes how procurement processes from developing procurement documentation through contract closure will be managed.” PMBOK® GuideThe procurement management plan guides client company efforts through all activities dealing with the acquisition of materials and services to complete the projectThe procurement statements of work ensures that the contractor and client companies understand the work that is being requestedProcurement statements of work – “describes the procurement item in sufficient detail to allow prospective sellers to determine if they are capable of providing the products, services, or results.”PMBOK® Guide
14 Make or Buy DecisionsThe seller may be called a supplier, supplier’s supplier, or contractorThe buyer may be called a customer, service requestor, or purchaserReasons to make or buy begin with a strategic outsourcing analysis identifying strengthsA firm’s competitive advantage may be defined as lower cost, better quality, and/or fast delivery
16 The Downside of Outsourcing Loss of time control for completing project activitiesLack of cost control for outsourced activitiesGradual loss of special skillsLoss of project focus and a potential conflict of interestIneffective management as a result of complicated business interactionsLoss of confidentiality and double outsourcing where a third party is used
17 Plan ContractingThe client company creates a situation in which prospective contractor companies have capability and motivation to provide useful and complete proposalsOutputs of plan contracting include procurement documents and evaluation criteriaProcurement documents – “those documents utilized in bid and proposal activities to solicit proposals from prospective sellers, which include buyer’s invitation for bid (IFB), request for information(RFI), request for quotation (RFQ), request for proposal (RFP).” PMBOK® Guide
18 Conduct ProcurementsIncludes identification, evaluation, and advertising to attract contractors’ interest.A formal request is sent seeking competent firms to compete for the right to perform the projectConduct procurements – “the process of obtaining seller responses, selecting a seller, and awarding a contract.” PMBOK® Guide
19 Sources for Potential Suppliers Supplier Web sitesSupplier information filesSupplier catalogsTrade journalsPhone directoriesSales personnelTrade showsProfessional organizations and conferences
21 Selecting a Design-Build Contractor Decide which contractor(s) will be awarded the work
22 Approaches Used When Evaluating Prospective Suppliers Supplier surveys provide sufficient knowledge of the supplierFinancial condition analysis reveals whether a supplier is incapable of performing satisfactorily.Third-party evaluators can be hired for obtaining relevant information.
23 Approaches Used When Evaluating Prospective Suppliers Facility visits allow first-hand information of the firm’s technological capabilities, manufacturing or distribution capabilities, and its managerial orientation.Quality ability analysis examines the potential supplier’s quality capability.Delivery ability analysis estimates the supplier’s capability to deliver the required product or services on time.
24 Supplier Selection Invite potential suppliers to submit bids Use procurement documents to solicit proposals from various vendorsThe most common procurement document is the request for proposal (RFP) which includes:1. Purchasing overview2. Basic supplier requirements3. Technical requirements4. Managerial requirements5. Pricing information6. Appendices
25 Supplier SelectionSupplier selection decision is a classical decision tree problemA choice between alternatives under uncertaintyEvaluation criteria are used to rate proposals and other supplier characteristicsThe most important evaluation criterion is typically priceThe goal is to award a contract to each selected seller
27 Tools and Techniques Used in the Seller Selection Decision Process Weighting systemIndependent estimatesScreening systemSeller rating systemExpert judgmentProposal evaluation techniques
28 The ContractA legal relationship between parties subject to remedy in the court systemThe seller must deliver what is promised, and the buyer must payThe buyer is internal to the organizationThe seller is external to the teamContract – “a mutually binding agreement that obligates the seller to provide the specified product/service and obligates the buyer to pay for it.” PMBOK® Guide
29 Major Contract Components Statement of work of deliverablesSchedule baselinePeriod of performanceRoles and responsibilityPricingPayment termsPlace of deliveryLimitation of liabilityIncentivesPenalties
31 Fixed-Price Contracts Fixed-price contracts – “a category of contracts with a fixed total price for a defined product or service to be provided … may also incorporate financial incentives” PMBOK® GuideProvide low risk for the buyerSeller must develop accurate and complete cost estimatesFirm-fixed-price contracts - “a type of fixed-price contract where the buyer pays the seller a set amount as defined in the contract, regardless of the seller’s cost.” PMBOK® GuideFirm-Fixed-Incentive-Fee contracts– “a type of contract where the buyer pays the seller a set amount as defined by the contract, and the seller can earn an additional amount if the seller meets defined performance criteria.” PMBOK® Guide
32 Cost-Reimbursable Contracts Cost-reimbursable contracts – “a category of contracts involving payment to the seller for all legitimate costs incurred for completed work, plus a fee typically representing the seller’s profit.” PMBOK® GuideCost-Plus-Fixed-Fee (CPFF) ContractCost-plus-fixed-fee contract – “a type of cost-reimbursable contract where the buyer reimburses the seller for the seller’s allowable costs (allowable costs are defined by the contract) plus a fixed amount of profit (fee).” PMBOK® Guide
33 Cost-Reimbursable Contracts Cost-Plus-Incentive-Fee (CPIF) ContractPerformance criteria may be schedule, cost, and/or performanceCost-plus-incentive-fee contract – “a type of cost-reimbursable contract where the buyer reimburses the seller for the seller’s allowable costs (allowable costs are defined by the contract) and the seller earns a profit if it meets defined performance criteria.” PMBOK® Guide
34 Time and Material (T&M) Contracts The unit rate for each hour of labor or pound of material is set in the contract as in a fixed-price contractThe amount of work is not set, so the value of the contract can grow like a cost-reimbursement contract.The seller charges for what is done to produce the product/service in the contractTime and material contracts – “a type of contract that is a hybrid … containing aspects of both cost-reimbursement and fixed-price contracts.” PMBOK® Guide
35 Choosing the Right Type of Contract The nature of the outsourced project activity plays an important roleConsider requirements that a buyer imposes on a sellerThe degree of market competition plays a roleConsider the degree of risk for the buyer and the sellerConsider using a wrap-up to insure large projectsA 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.
36 Choosing the Right Type of Contract Extent of price competitionType and complexity of requirementsCost and price analysisOverall degree of cost and schedule riskContractor’s responsibilityUrgency of the requirementsPerformance periodContractor’s accounting systemExtent of subcontracting
37 Administer Procurements Buyers and sellers administer contracts to make sure that the obligations set forth in the contract are met and to make sure neither has any legal liabilitySellers create performance reportsBuyer reviews performance reports to ensure contract obligations are satisfiedAdminister procurements – “process of managing procurement relationships, monitoring contract performance, and making changes and corrections as needed.” PMBOK® Guide
38 Project Partnering and Collaboration Partnering is a method for transforming contractual arrangements into a cohesive, collaborative project team with a single set of goals and established procedures for resolving disputes in a timely and cost-efficient manner
40 Project Partnering and Collaboration Trend towards more projects involving people from different organizationsPartnering is a method for transforming contractual arrangements into a cohesive, collaborative project teamA single set of goals and procedures for resolving disputes
42 Sources of Conflict During Project Purchasing Lower price means cost reduction for the buyer, but it also means revenue loss to the 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
43 Resolving Project Purchasing Conflicts Use project partnering as an effective way to engage the project owner and contractors.The systematic project supply chain management view seeks to increase the baseline of trust and collaboration.
44 Sharing Requirements for Effective Project Partnerships
47 Securing Commitment to Partnering Consider contractors with a mutual interest and expertise in partnershipGet the commitment of top management of all involved firmsDescribe in detail all benefits and how the partnership will work
48 Securing Commitment to Partnering Use a team building approach to involve all key players from different firmsUse to establish a “we” attitudeEstablish a mechanism to ensure collaborative spirit when problems and setbacks occurProblem 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.
49 Third Parties Mechanisms to grow supply chain performance: Capacity aggregationInventory aggregationTransportation aggregation by transportation intermediaries and storage intermediariesWarehousing aggregationInformation aggregationReceivables aggregationRelationship aggregationLower costs and higher quality
50 Lean PurchasingImplementation of just-in-time (JIT) tools/techniques in a manufacturing environmentEnsure steps in the supply process add valueMinimize costs
51 SourcingSourcing encompasses all processes required for a firm to purchase goods from suppliers.Advantages of good project sourcing decisionsAggregating ordersMaking procurement transactions more efficientAchieving design collaboration with suppliersFacilitating coordinated forecasting and planning with suppliersImproving customer satisfaction
52 LogisticsWork required to move and position inventory throughout a supply chainModes of transportation used in supply chainsAirPackage carrierTruckRailWaterPipelineIntermodal (the use of more than one mode of transport)Transportation cost is linked to the degree of responsiveness the supply chain aims to provide.
53 InformationInformation is key to the success of project supply chain management because it enables management to make decisions over a broad scope that crosses both functions and firms.Information characteristics that are useful to supply chain decisionsAccurate information.Accessible information.Information of the right kind.IT-based information management is crucial to the performance of project supply chains
54 SummaryCooperative relationships improve the ability to compete in today’s marketplaceProject supply chain management represents a set of proactive responses in response to many challenges created by people from different organizations working together on one-time projectsOrganizations must assess the need to outsource part of the project work.
55 SummaryContracting is commonly used to specify and manage supplier-buyer relationshipsPurchasing details such as scope, deliverables, and quality expectations are legally enforced in the contract.Partnering and coordination of purchasing across all supplier stages allow a firm to maximize economies of scale in purchasing and also to reduce transaction costs.
56 Implications for Project Management in a Networked Organization Model What is a Networked Organization?Identify the core competencies unique to your company and focus on building competitive advantageBuild alliances with best-in-class companiesAn “open” organizational modelBusiness model drives speed and greater value of leveraging resources outside your companyPM in Action Example
57 Procter & Gamble’s Connect and Develop Strategy 50% of P&G products “from our own labs and the other half would come through them”Establishing strategic alliances forRunning global buildings and real estateContract ManufacturingRunning and supporting data centersPC desktop supportPM in Action Example
58 Key Learning from P&G’s Networked Organization PM Adopt an industry standard project management methodologyFor projects that involve one or more alliance partner organizations, project management approach needs to become more formal, documented, and rigorous.Adopt an industry-standard certification process for qualifying your people.PM in Action Example
59 Key Learning from P&G’s Networked Organization PM New and different approaches are required in five major areas:Monitoring and controllingCommunicationRiskhuman resourcesProcurementPM in Action Example
60 Key Learning from P&G’s Networked Organization PM PM in Action Example