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Project Supply Chain Management

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1 Project Supply Chain Management
Chapter 12 Contemporary Project Management Kloppenborg © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

2 Commercialization of SAPTURF
Chapter Vignette Commercialization of SAPTURF Super Absorbent Polymer Turf (SAPTURF), a synthetic turf system Synthetic turf system surfaces generate extreme heat Continued testing in order to calibrate the value of the product A license agreement will be executed at the end of the trial period Successful commercialization of intellectual property is a long shot

3 Commercialization of SAPTURF Needs
Chapter Vignette Commercialization of SAPTURF Needs Significant and skilled legal resources compensated on a percentage of yield basis Technical validation obtained on a percentage of yield basis Small enterprises have difficulty funding technical capability and physical plant Critical 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 management A supply chain consists of all parties involved in fulfilling a customer request Integrating SCM into PM can significantly enhance the effectiveness of project management

6 Introduction to Project Supply Chain Management
Used interchangeably Integration of related functions to acquire needed products and services Supply management Purchasing Procurement

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

8 SCM Components Make-or-buy decision Contract management
Collaboration and cooperation System integration

9 SCM Factors The importance of SCM to general project management depends on a number of factors: Value of outsourced products/services relative to value of the project The timing of the work being purchased Capability of the project team Role of the outsourced work in the entire project Number of suppliers required Structure of the procurement supply chain

10 SCM Decisions Distribution network configuration Logistics
Inventory control in a supply chain Supply contracts Distribution strategies Outsourcing & procurement strategies IT & Decision Support Systems SC integration & strategic partnering Product design

11 Project Procurement Management Processes
Plan procurements Conduct procurements Administer procurements Close procurements

12 Plan Procurements Plan for purchasing and acquisition whether for part or all of a project Complete most of project planning first in order to understand what the true project needs are A minimum requirement is the project scope statement Plan procurement – “the process of documenting project purchasing decisions, specifying the approach, and identifying potential sellers” PMBOK® Guide Project 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 Planning Procurement management plan– “the document that describes how procurement processes from developing procurement documentation through contract closure will be managed.” PMBOK® Guide The procurement management plan guides client company efforts through all activities dealing with the acquisition of materials and services to complete the project The procurement statements of work ensures that the contractor and client companies understand the work that is being requested Procurement 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 Decisions The seller may be called a supplier, supplier’s supplier, or contractor The buyer may be called a customer, service requestor, or purchaser Reasons to make or buy begin with a strategic outsourcing analysis identifying strengths A firm’s competitive advantage may be defined as lower cost, better quality, and/or fast delivery

15 Reasons to Make or Buy

16 The Downside of Outsourcing
Loss of time control for completing project activities Lack of cost control for outsourced activities Gradual loss of special skills Loss of project focus and a potential conflict of interest Ineffective management as a result of complicated business interactions Loss of confidentiality and double outsourcing where a third party is used

17 Plan Contracting The client company creates a situation in which prospective contractor companies have capability and motivation to provide useful and complete proposals Outputs of plan contracting include procurement documents and evaluation criteria Procurement 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 Procurements Includes identification, evaluation, and advertising to attract contractors’ interest. A formal request is sent seeking competent firms to compete for the right to perform the project Conduct procurements – “the process of obtaining seller responses, selecting a seller, and awarding a contract.” PMBOK® Guide

19 Sources for Potential Suppliers
Supplier Web sites Supplier information files Supplier catalogs Trade journals Phone directories Sales personnel Trade shows Professional organizations and conferences

20 Information for Potential Suppliers

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 supplier Financial 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 vendors The most common procurement document is the request for proposal (RFP) which includes: 1. Purchasing overview 2. Basic supplier requirements 3. Technical requirements 4. Managerial requirements 5. Pricing information 6. Appendices

25 Supplier Selection Supplier selection decision is a classical decision tree problem A choice between alternatives under uncertainty Evaluation criteria are used to rate proposals and other supplier characteristics The most important evaluation criterion is typically price The goal is to award a contract to each selected seller

26 Factors Used in Assessing Potential Suppliers

27 Tools and Techniques Used in the Seller Selection Decision Process
Weighting system Independent estimates Screening system Seller rating system Expert judgment Proposal evaluation techniques

28 The Contract A legal relationship between parties subject to remedy in the court system The seller must deliver what is promised, and the buyer must pay The buyer is internal to the organization The seller is external to the team Contract – “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 deliverables Schedule baseline Period of performance Roles and responsibility Pricing Payment terms Place of delivery Limitation of liability Incentives Penalties

30 Types of Contracts

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® Guide Provide low risk for the buyer Seller must develop accurate and complete cost estimates Firm-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® Guide Firm-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® Guide Cost-Plus-Fixed-Fee (CPFF) Contract Cost-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) Contract Performance criteria may be schedule, cost, and/or performance Cost-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 contract The 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 contract Time 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 role Consider requirements that a buyer imposes on a seller The degree of market competition plays a role Consider the degree of risk for the buyer and the seller Consider using a wrap-up to insure large projects A 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 competition Type and complexity of requirements Cost and price analysis Overall degree of cost and schedule risk Contractor’s responsibility Urgency of the requirements Performance period Contractor’s accounting system Extent 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 liability Sellers create performance reports Buyer reviews performance reports to ensure contract obligations are satisfied Administer 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

39 Improving Project Supply Chains
Partnering Third-party involvement Lean purchasing Sourcing Logistics Information

40 Project Partnering and Collaboration
Trend towards more projects involving people from different organizations Partnering is a method for transforming contractual arrangements into a cohesive, collaborative project team A 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

45 Mutual Goals in Project Partnerships

46 Effective Project Partnering Approaches

47 Securing Commitment to Partnering
Consider contractors with a mutual interest and expertise in partnership Get the commitment of top management of all involved firms Describe 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 firms Use to establish a “we” attitude Establish a mechanism to ensure collaborative spirit when problems and setbacks occur Problem 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 aggregation Inventory aggregation Transportation aggregation by transportation intermediaries and storage intermediaries Warehousing aggregation Information aggregation Receivables aggregation Relationship aggregation Lower costs and higher quality

50 Lean Purchasing Implementation of just-in-time (JIT) tools/techniques in a manufacturing environment Ensure steps in the supply process add value Minimize costs

51 Sourcing Sourcing encompasses all processes required for a firm to purchase goods from suppliers. Advantages of good project sourcing decisions Aggregating orders Making procurement transactions more efficient Achieving design collaboration with suppliers Facilitating coordinated forecasting and planning with suppliers Improving customer satisfaction

52 Logistics Work required to move and position inventory throughout a supply chain Modes of transportation used in supply chains Air Package carrier Truck Rail Water Pipeline Intermodal (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 Information Information 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 decisions Accurate information. Accessible information. Information of the right kind. IT-based information management is crucial to the performance of project supply chains

54 Summary Cooperative relationships improve the ability to compete in today’s marketplace Project 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 projects Organizations must assess the need to outsource part of the project work.

55 Summary Contracting is commonly used to specify and manage supplier-buyer relationships Purchasing 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 advantage Build alliances with best-in-class companies An “open” organizational model Business model drives speed and greater value of leveraging resources outside your company PM 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 for Running global buildings and real estate Contract Manufacturing Running and supporting data centers PC desktop support PM in Action Example

58 Key Learning from P&G’s Networked Organization PM
Adopt an industry standard project management methodology For 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 controlling Communication Risk human resources Procurement PM in Action Example

60 Key Learning from P&G’s Networked Organization PM
PM in Action Example

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