Procurement Management Plan in project management practices

This article is a true example of the Procurement Management Plan, which is used extensively in project management practices.

This Procurement Management Plan was created by a real student in a project management course and presents the most real information possible.

Use this document for your academic or professional needs at your responsibility. The publication is approved by an assigned supervisor from PM.MBA

Procurement Management Plan

Purpose

The purpose of this document is to define the procurement parameters for the new project in order to ensure its successful completion. It has been created to provide a framework in which all procurement actions will be managed across all of the organizations involved.

Procurement Roles and Responsibilities

To facilitate effective procurement management, the following roles and responsibilities have been established for all the procurement actions:

Roles Responsibilities
Project Sponsor
  • Approve the procurement management plan
  • Approve suppliers selection
  • Approve all contracts prior to award
  • Approve any procurement action above €50,000
Project Manager
  • Provide oversight for all the procurement actions
  • Approve procurement actions under €50,000
  • Develop procurement requirements
  • Manage the supplier selection process
  • Measure supplier performance
  • Closing out supplier contracts
Resource Manager
  • Managing and controlling of the resources
  • Coordinates with the PM in the process of procurement, quality check, accounting, customer billing, and invoice approval processes.
  • Identifies funding needs and ensures all transactions have appropriate supporting documentation to assist in the tracking of expenditures, including tracking of staff efforts and costs.
Development manager

Design Engineer

  • Assist in supplier identification and selection
  • Assist in the development of procurement requirements
  • Ensure the quality of the procurement is up to the standard.
Contracting manager
  • Writing, evaluating, negotiating and executing various contracts 
  • Maintaining correspondence and documentation related to contracts
  • Communicating and presenting information to stakeholders regarding contracts
  • Monitoring contracts and moving forward with close-out, extension or renewal of contracts
  • Problem-solving contract-related issues
Supplier
  • Signing the procurement contract and SLA
  • providing the needed materials and parts for the washing machine manufacturing
  • Quality assurance of the goods
  • Complying with all the contract terms
Project Director (Client)
  • Approving the procurement plan and contract
  • Provide financial supervision
  • Quality check of the final delivery
Project manager (Client)
  • Coordinate between two parties’ communication
  • Deliver the procurement requirements
  • Assist in evaluating the process and quality control
  • Sign off at the end of the project

Delivery  Plan

The delivery plan based on the type of procurement from suppliers and client’s procurement from us has been divided into the following two parts:

Products delivery plan (Supplier) – The delivery plan for the procurement from suppliers indicates the necessary items which must be procured for the in-house manufacturing and assembling process and the date of the item is required to meet the deliverable in accordance with the project schedule, the supplier, the delivery approach, the designated QA for the process and the final acceptor as shown in the table 3.1.

Project Delivery plan (Client) – The delivery plan for client’s procurement from us includes each key deliverable that all together leads to the final product delivery of the innovative washing machine project, the required delivery date, the designated QA for the process and the final acceptor as shown in the table 3.2.

Table 3.1 Products Delivery Plan:
Delivery Quantity

(units)

Required Delivery Date Prospective Supplier and Reserve Supplier Approach QA Acceptor
Washing Machine Motor,

Printed circuit board,

Sensors

500 31/May/2020 TSD

(Motor co.)

Contact

Negotiation

RFP

Contract Signing

Production

Quality check

Payment

Sign off the contract

PM, Resource Manager,

Product Development Managers, and the Head of Design.

The PM will accept the final delivery after the project sponsors’ approval.
Touch screen 500 1/June/2020 Smart Tech (Screen ltd. )
Glass door 500 31/Apr/2020 Glass ltd. (Bright Glass)
Drum

Agitator

Water pump

Valves

Drainpipe

Heating-

Element

500 31/Apr/2020 MeChanical (Thunder ltd.)
Raw materials for self-production: plastic, steel, stainless steel, cast aluminium, painting products etc. To be defined  31/Mar/2020 Metal Hub (RMK)
Table 3.2 Project Delivery Plan (Client):
Deliverables Required Delivery Date QA Acceptor
New operating system 1/May/2020 Dev managers and PM Project Director (Client)

and

Project Manager (Client)

Graphical interface 1/June/2020 Head of Design and PM
Touch Screen 1/July/2020 Dev managers and PM
Mobile Application 30/Sep/2020 Head of Design and PM
Remote control 30/Aug/2020 Dev manager and PM
500 pcs Innovative Washing Machines 01/Dec/2020 Dev managers, Head of Design and PM

Identification and Selection of the Suppliers

This section outlines the process through which suppliers will be identified and selected to fulfil the procurement requirements for the Project. The project team will identify suppliers based on which existing and new suppliers are able to meet the procurement requirements outlined above. Once potential suppliers are identified (as shown in the table 3.1), the project manager will work with the Contracting Manager to develop RFPs to distribute the suppliers to bid on.

Once the contracting group receives all supplier proposals, the Resource Manager, Project Manager, Project Sponsor, Contracting Manager will meet to evaluate proposals. 

The criteria for the selection and award of procurement contracts under this project will be based on the following decision criteria:

  • The ability of the supplier to provide all items by the required delivery date
  • The supplier must capable of meeting required delivery dates for procurement requirements
  •  Past performance of the supplier (if applicable)
  •  Cost of procurement items
  •  Quality assurance measures

After the suppliers have been selected and approved by the Project Sponsor, the Project Manager Resource Manager will work with the contracting Manager, to draft and finalize the necessary contract(s) with the supplier(s). Once all the contracts are complete, the Project Manager will begin the supplier management phase of the procurement process.

Cost Determination

A Request for Proposal (RFP) will be issued in order to solicit proposals from various suppliers which describe how they will meet our requirements and the cost of doing so. All proposals will include supplier support for procurement items as well as the costs. The suppliers will outline how the work will be accomplished, who will perform the work, suppliers’ experience in providing these goods, customer testimonials, backgrounds and resumes of employees performing the work, and a line-item breakdown of all costs involved.  

Payment

Payment methods and currencies should be specified upon signing the contract, and the method of payment, if it shall be paid at once on a specific date or on a progress basis whereby payment up to a certain point is made periodically (monthly, etc.).  

In terms of payment method, two options will be considered depending on the procurement packages and the supplier, which are consist of:

  • A fixed price with a detailed specification;
  • A periodical payment for the indeterminate quantity of the raw materials.

Contract Requirements

The Contracting Manager is responsible for ensuring that each contract for procurement complies with internal corporate guidelines and policies. The Project Manager is responsible for ensuring all SLAs, performance criteria, and expectations are clearly listed in the contract(s) prior to award. The Project Sponsor will review and approve all contracts prior to award, including:

  • Delivery contract
  • Contract for service
  • Monitoring contract
  • Audit contract
  • A contract for whatever it takes
  • Non-Disclosure Agreement

Supplier Management

The Project Manager is responsible for supplier management and will work with the Contracting Manager to oversee supplier performance for the Project. The Project Manager will measure the ongoing performance of each selected supplier as it applies to the requirements stated in their respective contracts. In order to ensure acceptable supplier performance, service level agreements (SLAs) will be included in the contracts which must be met by the suppliers. SLAs for supplier performance include:

  • Delivery of item(s) on or before date as agreed upon in the contract
  • Delivery of item(s) at or below cost as agreed upon in the contract
  • Acceptable performance/quality of item as agreed upon in the contract

Failure of a supplier to adhere to these SLAs will result in the Contracting Manager submitting a formal dispute as appropriate.

Risk analysis and management

All procurement activities carry some potential risks which must be managed to ensure project success. While all risks will be managed by the project manager and the project director in accordance with the project’s risk management plan, here are some potential risks and solutions which must be taking into consideration:

  • Unrealistic schedule and cost expectations from suppliers

   Possible action: further analysis and negotiation needed to re-confirm the time and cost, compare the pricing between different vendors and their company background, wisely select the most practical party.

  • Manufacturing capacity and capabilities of suppliers

     Possible action: Ask the supplier for a formal factory visit to check their production situation and efficiency, then further talk about more realistic goals and timelines.

  • Conflicts with current contracts and supplier relationships

    Possible action: Analyze the severity of the situation, find possible solutions to ease the conflict or choose another supplier if needed.

  • Potential delays in shipping and impacts on cost and schedule

    Possible action: Investigate the reason, contact the relevant department, take the appropriate measures based on the situation.

  • Questionable past performance for the suppliers 

   Possible action: Conduct a formal meeting to discuss the past performance, what was the cause, how they will change and improve, what they can do for the quality assurance for this project in a written document.

These risks are not all-inclusive and the standard risk management process will be applied to identify, document, analyze, mitigate, and manage the risks.

Failed or damaged delivery 

A well-elaborated contract will be required to protect the success of delivery, the contract manager shall list all the potential circumstances for failed or damaged delivery and set the legal terms for compensation or any corresponding penalty.

To determine the costs of failure, the project manager shall routinely track supplier performance, at least to the level of on-time delivery and quality, followed by the calculation of the cost of the incident. In case of having difficulty to quantify actual damage suffered by supplier failure, a negotiated approximation may be substituted. However, large amounts and significant damage are deemed penalties.

Procurement Plan Approval 

The signatures of the people below indicate an understanding of the purpose and content of this document by those signing it. By signing this document you agree to this as the formal Procurement Management Plan for the Project.

    Approver Name            Title       Signature       Date
    Executive sponsor    
    Project Director    
    Project Manager    

 

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