How to Manage Project Procurement Challenges?
‘Project procurement is like any other procurement’,would say someone who has never been in the project business. This quote has its truth, but on the other hand it is misleading. Yes, you do all the same procurement activities but in reality project work is much more complex.
Differences and Challenges
In serial production you have a bill of materials(BOM) and you know exactly what you need to buy. In addition, you have a production plan where you get information about delivery times. Systems, like the enterprise resources planner (ERP) and the materials requirements planner (MRP), keep your procurement activities well organised.
I would not say that production procurement is a ‘walk in the park’, but when comparing it with project procurement it could be so.
Project management is like a battle, where the project manager is like a platoon commander, who has limited resources(time, budget and team) and still they need to execute the scope of the project.If you want to argue, you could ask, if a project is a battle then is the client our enemy? No, the client is not our enemy. The enemy for project management is uncertainty and unexpectedness. Some of this can come from the client, but some can come from external factors and even from the project team.
Project management’s main goal is, without any excuses, to execute a project on time, on scope, on quality and on budget.
Lack of Planning
The importance of planning is often underestimated. Bad, or no planning, is a mother of the epic failure.
However well you do planning there is always a higher rate of unexpectedness in projects than in production procurement.Why can’t we eliminate uncertainty?
There are three planning steps: scope, time schedule & budget planning
At the scope planning stage, an important role is that of project engineering and project management. The project engineer, together with the client and the project manager, defines the scope of the project. Quite often the customer knows only a higher level, what they expect from the project, but they do not know in detail and how it will be realised. The project engineering period might stretch for a long time creating a lot of discussion between engineer, customer and project manager. The engineer proposes a solution and based on that, the project manager will agree the project’s final scope and time schedule. The project offer and cost budget is still open and this is the time when procurement should step in.
Budgeting from the Hip
Ideally, procurement should be involved in all projects from the very beginning providing input from suppliers from the get-go.Blog: Procurement and sales collaboration brings out business benefits and explains why it is important to involve procurement right from the start. However, this ideal is not always met, and some projects may be well underway before deciding to bring a procurement officer on board. In this case, procurement may find that they have been called in to fix budget problems rather than to prevent them from happening in the first place. Already in the budgeting phase, procurement starts to communicate with potential suppliers and initiates the RFI process, gathering product and cost information from suppliers and feeding cost information into the project BOM. Without a proper tool that combines supplier communication and BOM-based procurement tasks, it is hard to control procurement flow. Now the final project offer with scope, time schedule and sales price will be offered to the customer for approval.
Scope Changes During Execution
Changes in the execution phase are costly; the only question is who will pay for them. In some cases, a customer changes their earlier decisions and wants to make project changes. The further a project has developed, the higher the failure risk will be. Changes will create a domino effect: scope changes will cause time schedule changes, which will, in turn, cause budget changes. Changes made during the implementation phase will put pressure on the client relationship and on the whole project team. Usually, in the first place, a customer is not willing to accept changes to the time schedule and budget. All recorded communication threads and agreements made with the customer in the project’s early phase might be very valuable during the project execution phase. If you have recorded earlier discussions and common decisions, you have evidence and it is much easier to negotiate with the customer.
Team Collaboration (Emails and Excel)
Depending on the project complexity, execution teams can be several. Sometimes team members could be located indifferent countries and in different time zones. Managing such a project only by using email and Excel is doomed. In large project teams, there must be a sub-team with special competences and tasks. The project manager regularly checks the sub-team’s performance. The procurement officer is one of the sub-team’s leaders who should have, at all times, an overview of the procurement status. In large projects, the bill of material(BOM) can be extensive with many items. The procurement manager should assign items to different procurement specialists and follow up everyone’s performance. We, here at ProcurementFlow, have cured the pain in procurement and created a tool that gives them a good overview of their team’s tasks performance.
Lack of Proper Management Tools
Earlier, I compared a project manager with a platoon commander. Some say they are a firefighter but comparing them with a juggler from the circus is also not wrong. They have many parallel tasks they need to follow. Procurement is one of the balls they must keep control of. In production procurement, ERP and MRP will do half of the procurement work by creating requirements, turning them into purchase orders and following order statuses.But, like I described earlier, in project procurement there are a lot of activities before transactions get to ERP. Pre-ERP procurement-related activities are mostly communication with internal and external stakeholders. Not even a superhero-like project manager can handle complicated projects with just email and Excel.
Let us help you to manage your procurement flow!
We, here at ProcurementFlow, have been in this procurement officer position and are familiar with that sort of stress. Some time ago, we analysed our mailbox and grouped mail into activity classes.Surprisingly, we discovered that half of the emails in the mailbox are simple information bouncing between us and the supplier or between us and internal stakeholders. The majority of ERPs do not have communication modules with external stakeholders. Also, considering that the majority of communication hassle, BOM extraction, task management and tendering functionality happens before ERP involvement, we saw that there was a huge part of procurement activities that was unorganised and without a handy tool.