As organizations set their agendas high for 2018, these concerns and its project management applications with supply chain management will help them steer through!
Various facets of the supply chain, i.e., initiation, planning, execution, monitoring & control, and closure are elaborately addressed by Project Management Institute (PMI) and its lighthouse, Project Management Professional(PMP) Certifications and Training. Supply chain or Procurement Management is an area where most of the professionals fail, which can lead to failure of the project. One of the knowledge areas, i.e. "Procurement Management" in Project Management Body of Knowledge (PMBOK) by PMI, USA, guides and shows the way forward for a successful Supply Chain Management.
Taking cues from various failures in the past, organizations across the world have now started giving importance to Supply Chain and its management. Let’s look at the different aspects of Supply Chain or Procurement where PMPs are going to contribute.
First is defining Procurement, such as specifications, Scope of Work (SOW), contract, knowledge of real requirements to assumed requirements, and finally the evaluation criteria.
Second is the selection of Vendors, such as evaluation of Request for Proposals (RFPs), source selection, management approval, negotiations and legal assessment.
The third is the review of vendor performance, such as monitoring & managing, reporting, changes, delivery, assessment & closure (administrative and commercial closure) and archiving.
Imagine having a co-traveler on holiday, who is dull, unadventurous and lazy, and can ruin your entire holiday. Similarly, having an improper Supply Chain mechanism can lead to unprofessional vendors who can ruin the complete project. Vendor Selection and Management is not an art but a process-oriented system. Project Management Institute (PMI) & PMPs play a crucial role in making Supply Chain and Vendors a thriving part of the project and not scapegoats.
PMI and PMPs can fill this gap to make Supply Chain Group a holistic process, which can aid in successful completion of the project. Organizations across the globe have understood the importance of Supply Chain Management and have started designating vendors as ‘Partners,’ filling the organization’s void in expertise, staffing, and skills.
We are all dependent on vendors for the simple reason that everything cannot be done on our own for whatever reason, be it technical, financial or resource availability. This is where Supply Chain Group comes into play, and efficiently managing the same is more critical to fulfilling project needs and expectations. Improper management of vendors can cost more than the cost of the project.
The broader question, however, is why to engage a Vendor or Supply Chain Group? This is where one of the knowledge areas of PMP, “Procurement Management,” as detailed in PMPBOK, comes handy. Typical considerations for seeking the support of external vendor include:
As one of the risk mitigation or transfer mechanisms.
The organization lacks the experience of subjected work and wants to bring vendors on-board who have that experience.
Resource availability.
Vendor has adequate experience to handle project complexities.
The last one may be, an organizational culture where outsourcing may be one of the Enterprise Environmental Factors (EEF).
One of the critical facets of Supply Chain as per PMI & PMP is Make or Buy analysis before bringing a vendor/ partner on board, i.e. understating what and why are we purchasing. The organizations need to carry out an in-depth study of the needs and conduct a detailed commercial survey on whether bringing an external vendor is beneficial for the organization to complete the designated work or in-house creation holds more worth and can add to future needs of the organization.
Another necessary component of the Supply Chain Process is Vendor Evaluation. Proper evaluation of the vendor is an essential aspect of successful completion of outsourced work. PMBOK by PMI can guide and serve the purpose for the same. Supply Chain professionals can refer to PMBOK and seek the guidance of PMPs on how to rank, categorize and evaluate vendors or partners.
What is best for the buying organization or buyer- Vendor (or) Partner Pricing?
After the selection of the vendor, the next most crucial task is pricing. PMBOK by PMI and PMPs have very categorically detailed out the nuances of the same. Vendor Pricing is broadly categorized into two categories – Fixed Cost and Cost-Plus Cost.
In “Fixed” type of pricing or contract, cost risks are mostly with the vendor, obligation to finish the job in the contracted price, minimum buyer oversight, and payments are usually staged or based on milestones or as per contract. It can include incentives or economic price adjustments.
In “Cost Plus” type of pricing or contract, cost risks are usually with the buyer and requires more buyer oversight, payments as per agreement.
Many Supply Chain Managers do not understand the drivers when seeking external vendor support and therefore cannot understand the pricing options. When these drivers are recognized, however, the vendor selection and negotiation can be further streamlined.
Many organizations across the world have understood the importance of Supply Chain Management Group or Procurement Process and thus, have formalized the approach and leveraged vendor relationships by establishing formal Supply Chain or Procurement Groups. There are mainly four steps involved in bringing a vendor on board -
- Project Start
- RFQ
- Contract Award
- Closure of Contract - Administrative closure and Commercial closure
Many fail to focus on contract and finalization of the Scope of Work (SOW) which is the cause of all disputes between performing vendor or partner and contracting organization. The agreement should contain all information in detail such as SOW, deliverable information, change management, communication channels, reporting mechanism, and commercial information.
A lot of energy and enthusiasm is shown in selection and engagement of vendors, but unfortunately, Vendor Management is forgotten. Some of the critical points to manage vendors are progress reviews, invoice verification, closure of issues and using Earned Value Management (EVM).
Vendors or partners are risky business, and improper management of Supply Chain can make or break the project. This is where Project Management Professionals (PMPs) and Project Management Institute (PMI) can make a drastic change. Improving the Project Management in Supply Chain undertakings can help improve and optimize production with considerable margins.
