1

BELOW IS THE ASSIGNMENT OF THE WEEK.PLEASE MAKE SURE THAT ALL THE ASKED QUESTIONS ARE COVERED IN YOUR RESPONSE.MAKE SURE THAT THERE IS NO PLAGIARISM AND HIGH ORIGINALITY.

Week 7 Hand !n A""!#n$en%

The procurement function may be placed at several different levels in an organisation: in each project, at the business unit level, or at the corporate level. Discuss the organisational fit of the procurement function within three different cases:

A project based organisation with project-based procurement A large multinational organisation with centralised corporate procurement A large multinational organisation with centralised business unit procurement

Your discussion should demonstrate your understanding of how project and procurement management would collaborate in each case and should include the advantages, disadvantages, benefits, and challenges of each organisational design. Please make sure that you cite and reference all your outside sources properly, as per the Harvard Referencing System. BELO !RE "HE RE#O$$E%&E& RE!&'%(S PER "OP'# )RO$ "HE '%S"R*#"OR HELP +O*. Contracts and Procurement H'#H $!+

Read!n# Te&%'((k"
ollish, !., emani", #., $orris, %.&.'. (ed.) * %into, #.+. (ed.) (,-..). Planning and administering pro,ect contracts and procurement. /aureate 0ducation, 1nc., custom ed. 2obo"en: #ohn &iley * ons. 3ud4"i, 3.A., moc", D.A., +at4or"e, $. * tewart, ., #r. (,--5) Straight to the -ottom line. an e/ecutive0s roadmap to 1orld class supply management. !ort /auderdale, !/: #. 3oss %ublishing 67nline8. Available from: http:99site.ebrary.com.e4pro:y.liv.ac.u"9lib9liverpool9docDetail.action; doc1D<.-.,=>?@ (Accessed: .A !ebruary ,-.-). (%lease note that the references to these readings can be found in the &ee"ly Botes te:t under the headings of the topics to which they relate.)

P)(*+)e$en% *(n"()%!a

#hapter 23 of the Rud4ki online te/t e/plains ho1 procurement in a consortium is different from that in a single organisation. "he chapter e/amines challenges and -enefits of consortium -uying and provides an e/ample of effective consortia.

P)(*+)e$en% ()#an!"a%!(n ,!%-!n -("%!n# ()#an!"a%!(n and %-e .)(/e*%

Sections 56.57-8 and 7c8 of the Sollish, Semanik, $orris, 9 Pinto te/t descri-e ho1 organisational structure can have an impact on the structure of procurement units in an organisation. "hese sections e/plain common principles of organisational management and some general patterns of managerial direction and control.

Va0+e $ana#e$en%

Section 5:.2 of the Sollish, Semanik, $orris, 9 Pinto te/t e/plains ho1 procurement goals are formulated to provide the -est value to stakeholders. "he section also provides an e/ample to sho1 ho1 a mission statement evolves from an organisation;s vision. "he section elucidates important points that must -e considered 1hen developing goals for procurement management, 1hich is a key focus of value management.

P)(/e*%"1 .)(#)a$$e"1 .()%2(0!("1 and .)(*+)e$en% "%)a%e#3

Sections 52.5 and 5:.:<5:.= of the Sollish, Semanik, $orris, 9 Pinto te/t e/amine key responsi-ilities of procurement professional. "hese sections also e/amine the impact of diversity or similarity among pro,ects 1ithin a programme and among pro,ects and programmes in pro,ect portfolios and the procurement strategy on the structure of a procurement unit in an organisation. "hese sections e/plain key elements of formulating operational policies and procedures and of evaluating procurement department performance. S+..0e$en%a0 )ead!n#" Crawford, #.+. (,--5) Pro,ect management maturity model. ,nd ed.Doca 3aton, !/: Auerbach %ublications, Ch. ... 2eldman, +. * $angano, E. (,--A) P$P pro,ect management professional e/am revie1 guide. 1ndianapolis: &iley %ublishing, 2oover, &.0., #r., 0loranta, 0., 2olmstrFm, #. * 2uttunen, +. (,--.) $anaging the demand>supply chain. value innovations for customer satisfaction. Bew Yor": #ohn &iley * ons, pp. .=,G.== 67nline8. Available from: http:99site.ebrary.com.e4pro:y.liv.ac.u"9lib9liverpool9docDetail.action;doc1D<.---.5A5 (Accessed: .A !ebruary ,-.-). #ohnson, %.!. (.AAA) HThe pattern of evolution in public sector purchasing consortiaI, 'nternational ?ournal of Logistics. Research and !pplications, , (.), pp. ?>G>J. /oc", D. (,-->) Pro,ect management. Ath ed. /ondon: 'ower %ublishing /td. $orris, %. * %into, #.+. (,-->) "he B#. #ohn &iley * ons, pp. .GJ=. iley guide to pro,ect, program, and portfolio management. 2obo"en,

%earman, 3. (,--5) HConsortia formation is not best practiceI, #ontract ?ournal, =J? (5?A.). 3itchie, #. * Chadwic", T. (,--.) HA Kuart from a pint pot; Developing the effective use of purchasing consortiaI.1n: 0rridge., A., !ee, 3. * $cllroy, #. (eds.). Best practice. procurement, pu-lic and private sector perspectives. /ondon: 'ower %ublishing /td., pp. .J5G.=J. 3ud4"i, 3.A., moc", D.A., +at4or"e, $. * tewart, ., #r. (,--5) Straight to the -ottom line. an e/ecutive0s roadmap to 1orld class supply management. !ort /auderdale, !/: #. 3oss %ublishing

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67nline8. Available from: http:99site.ebrary.com.e4pro:y.liv.ac.u"9lib9liverpool9docDetail.action; doc1D<.-.,=>?@ (Accessed: .A !ebruary ,-.-). 3ue, /. * Dyars, /. (,--A) $anagement skills and applications. .Jth ed.91nternational ed. Bew Yor": $c'raw-2ill, pp. .>@G.A-. &al"er, D., tar", #., Arlt, $. * 3owlinson, . (,--@) 1ntroduction and procurement fundamentals.1n: &al"er, D. * 3owlinson, . (eds.). Procurement systems. a cross>industry management perspective . /ondon: Taylor * !rancis, pp. .GJ,. &ysoc"i, 3.+. (,--=) Pro,ect management process improvement. Doston: Artech 2ouse 1nc., Ch. , and J.

BELOW IS THE WEEKLY LECTURE NOTES WHICH MAY HELP YOU ASWELL.

Contracts and Procurement Week 74 P)(*+)e$en% 2() *($.e%!%!5e .e)2()$an*e

Week 7 !n%)(d+*%!(n %roject managers wor" with procurement management professionals to meet procurement reKuirements of their projects. This wee", you will gain an understanding of how the role of a procurement manager changes depending on the organisational structure and how procurement units should be structured for organisations involved in consortium-based procurement. You will analyse the concept of value management and its application in supply chain management. 1n addition, you will e:amine how projects, programmes, and portfolios affect a procurement organisation. T-e )(0e (2 %-e .)(*+)e$en% $ana#e) A large share of the total project costs, usually between ?- percent and A- percent, is attributed to products or services procured. ConseKuently, managing the procurement process effectively is vital to the success of any project (/oc", ,-->). As discussed earlier in this module (&ee" , &ee"ly Botes) the procurement management process can be defined as the set of actions underta"en by the project manager and project team to acKuire goods and services in support of the project. These actions are carried out in accordance with the rules, opportunities, and limitations set by the organisational structure and policies of the purchasing organisation (Crawford, ,-->). To understand the role of procurement in general, and of the procurement manager more specifically, we need to understand where and how procurement fits within the organisation and within the project itself. The various components of procurementLi.e., the activities which the procurement manager carries outLalso need to be analysed. !rom the original view of procurement as the simple activity of purchasing specified items, the scope of wor" and responsibility of procurement has evolved to include the establishment and management of strategic partnerships. Mndoubtedly, procurement has become much more than just HbuyingI, as it involves all those activities leading to

4 the decision of whether to ma"e or buy in the first place, as well as the efforts necessary to establish supplier selection procedures and policies. The %roject $anagement 1nstitute (%$1) classifies NprocurementI as both an e:ecuting and closing activity (%$D7+, ,--@). As discussed in the previous wee"s (particularly &ee"s ,, J, and 5), a modern view of project procurement management includes the following components (&ysoc"i, ,--=O Crawford, ,-->): P)(*+)e$en% .0ann!n#: 1nvolves deciding whether to ma"e-or-buy first and then 1hat, ho1, ho1 much, and 1hen to procure. The outcome of this component is the procurement management plan. S(0!*!%a%!(n .0ann!n#: 1nvolves identifying potential vendors, deciding optimal forms of contract and solicitation, and preparing all the relevant contracts. The outcome of this component is often referred to as the Hsolicitation pac"ageI. S(0!*!%a%!(n and "(+)*e6"+..0!e) "e0e*%!(n : 1nvolves collecting and reviewing proposals, interviewing potential suppliers, selecting suppliers, negotiating contracts, and finalising the contract award. This componentIs outcome is the award of the contract C(n%)a*% $ana#e$en% and *0("e (+%: 1nvolves all activities concerned with supplier relationship management, payment for services, and close-out activities. 1n line with the early view of management of business as a set of functions or departments, procurement has historically been referred to either in functional terms (i.e., depicting a division of labour, specific job tas"s, etc.) or in organisational terms (i.e., as a department in its own right, with a managerial hierarchy and management responsibilities). 1n order to understand the comple:ity and importance of procurement in todayIs business environment, and the role of the procurement manager, it might help loo"ing at procurement as the inter-organisational process lin"ing a HcustomerIs buying processI with a HvendorIs selling processI. The 'eneral Commerce $odel (Bissen, ,--.) suggests the following (as seen in &ee" ,): procurement is concerned with all those e:change activities that tie together the various participants and activities in a supply chain. The procurement manager can then use such integration points to influence the performance of the procurement process. A slightly different view of procurement views it as an organisational support function or role whose internal clients are the projectIs and the organisationIs administrative and support operations, including production, sales and mar"eting, and engineering and design functions. 1n a fully project-based organisation, procurement management is a supporting function for the processes, systems, and infrastructure reKuired for procurement related to projects. A procurement manager may be assigned to projects and may report directly to the project manager. 1n a functional organisation, a separate, well-defined, and independent procurement function caters to the needs of all projects on a transactional basis. 1n practise, a project manager provides a list of procurable items to the procurement department, which in turn coordinates and manages the purchasing, involving the project manager on an asneeded basis. As organisations are structured anywhere between these two e:tremes, the role of the procurement manager metamorphoses accordingly. 3egardless of the organisational structure of the business, the role of the procurement manager includes developing and maintaining strategic and operational relationships with the project team and other

5 relevant sta"eholders throughout the project procurement life cycle. The "ey focus of a procurement manager is to develop and actively manage relationships with suppliers. As the procurement function is capable of maintaining a competitive edge, the role of the procurement manager becomes important in ensuring that the supply chains and supplier networ"s are cost effective and efficient. The procurement manager and the project manager wor" together to define and implement a project procurement strategy for effective procurement operations. A "ey responsibility of the procurement manager is to ensure the legal compliance of the procurement process, while managing contracts and comple: bidding documentation in line with the corporate policies of the organisation. P)(*+)e$en% *(n"()%!a 7nline reading (3ud4"i, moc", +at4or"e, * tewart: Chapter ,-) A purchasing consortium consists of Htwo or more independent organisations that join together, either formally, informally, or through an independent third party, for the purpose of combining their individual reKuirements for purchased material, services, and capital goods to leverage more value-add pricing, service, and technology from their e:ternal suppliers than could be obtained if each organisation purchased goods and services aloneI (2endric", .AA@O cited in 3itchie * Chadwic", ,--.). Compared to individual organisational procurement, consortium buying has the potential to generate a number of benefits to the consortium members. Although price and cost reductions are the primary reasons for organisations to adopt the consortium buying model, research confirms that this model is capable of delivering numerous other benefits. These benefits include reduced headcount, specialisation of staff, standardisation of product and service, improved industry profile for consortium members, improved supplier management capabilities, and improved customer service (#ohnson, .AAA). 3ichie * Chadwic" (,--.) report that consortia usually develop and deliver a number of additional value-added services, including: %rovision of professional procurement advise, including the legal aspects of procurement haring of best practices for supplier selection %rovision of training and accreditation 1t is important to note, however, there is a significant amount of research and empirical evidence highlighting the several challenges inherent in, and the limitations of, the consortium buying model (3ud4"i et al., ,--?) point out that different companies have different procurement procedures and policies, different Kuality of data availability, and different levels of spending. Mnless the consortium consists of organisations that are reasonably similar in these areas, the rationale for setting up consortium buying would be wea". Consortia can actually hinder, rather than facilitate, the rapport between clients and suppliers (%earman, ,--5). %earman claims that the si4e and comple:ity of projects influences the way firms collaborate in the following ways: .. ome members are more powerful than others and ta"e advantage of other members (referred to as 2aw"e-Doves). ,. 1f firms cooperate they win, but if they fight, they lose (referred to as co>ordination).

6 J. $embers of the consortia act in their own interests (referred to as the Prisoner;s &ilemma). According to 3ud4"i (,--?), for consortium buying to succeed, the participating organisations should first have tried consortium buying internally. They should have centralised procurement within the organisation. Centralised procurement within a projectised organisation translates to a procurement unit pooling the reKuirements of the overall portfolio of projects and programmes in the organisation and planning procurement accordingly. trong matri: and fully projectised organisations need to stri"e a balance between agility and price effectiveness when structuring their procurement units. The choice also depends on the industry and projects. !or instance, in a building construction organisation, where purchased goods are mostly standardised, a central procurement unit (and by e:tension consortium buying) may improve cost effectivenessO conversely, for a research-based organisation, a centralised unit may not be effective because different projects will have e:tensively different procurement needs. ollish * emani" report that procurement consortia have been more successful in the public sector due to the legal reKuirements regarding competition and trade restraint limiting how consortia buying can be implemented in industry. P)(*+)e$en% ()#an!"a%!(n ,!%-!n -("%!n# ()#an!"a%!(n and %-e .)(/e*% Te:tboo" reading 6 ollish, emani", $orris * %into: ections .=..(b) and (c)8 An organisational structure defines the boundaries of the formal organisation, and it reflects how groups within that organisation compete for resources, where responsibilities lie, how information flows, and how decisions are made (3ue * Dyars, ,--A). Designing an organisational structure is about defining the coordination of activities vertically, throughout the different hierarchical levels of the business, and hori4ontally, across different functions and departments. The choice of the most appropriate type of design for an organisational structure depends on a variety of factors, among which are strategy, si4e, environment, and technology (3ue * Dyars, ,--A). %rojects usually involve a variety of people from different departments and even different organisations, and the project manager coordinates the involvement of and communication among these various departments. The way the procurement function or role is designed within the organisation and within projects varies depending on the departmentalisation approach adopted by that organisation and its organisational structure. Departmentalisation is concerned with the grouping of jobs into related wor" units, which may be related on the basis of wor" functions, product, geography, customer, techniKue, or time (3ue * Dyars, ,--A). According to 3ue * Dyars (,--A), there are five basic approaches to departmentalisation: .. F+n*%!(na0 de.a)%$en%a0!"a%!(n defines organisational units in terms of the nature of the wor". ,. P)(d+*% de.a)%$en%a0!"a%!(n groups all activities necessary to produce and mar"et a product or service under one manager. J. Ge(#)a.-!* de.a)%$en%a0!"a%!(n defines organisational units by territories. =. C+"%($e) de.a)%$en%a0!"a%!(n defines organisational units in terms of customers served.

7 ?. H3')!d de.a)%$en%a0!"a%!(n occurs when an organisation simultaneously uses more than one type of departmentalisation. The modern view of an organisation is that value is created hori4ontally through a series of transformation and support processes that run across multiple departments and functions. 2amilton (,--5) underlines an emerging trend towards viewing an organisation as wholly integrated to deliver projects for both internal and e:ternal customers. To design and manage project teams, a matri: form of organisation is often adopted, where those wor"ing on a project are officially assigned to both the project and to their original department. 1n the matri: structure, the project manager is responsible for completing the project successfully on budget and on time. To do so, the project manager puts together a project team involving members from the organisationIs functional departments. A hori4ontal-line organisation hence develops for the project within the vertical-line structure of the performing organisation (3ue * Dyars, ,--A). The procurement unit in a fully projectised organisation consists of infrastructure and process support. The project managers are responsible for their individual procurement needs and interact directly with the suppliers. This is in contrast to a functional organisation, where projects submit their procurement reKuirements to the procurement function, which is responsible for ensuring that the needs of the projects are met. 1n this configuration, projects do not deal with suppliers directly. The configuration of the organisation may be between these two e:tremes. Bormally, project managers do not have any control over the configuration. The project managerIs procurement roles and responsibilities vary with and depend upon the organisation structure. Va0+e $ana#e$en% Te:tboo" reading ( ollish, emani", $orris * %into: ection .J., and pp. J?5GJ?@) %roject managementIs main purpose is to deliver value to the project sta"eholders, including customers and the organisations involved in the process (&al"er et al., ,--@). The concept of HvalueI in procurement can be seen from two different perspectives: value management and value chain management. Ealue management when applied to projects has been defined as a methodology which ma:imises the functional value of a project by optimising its development from concept to deployment. This is accomplished through team-oriented wor" structured in order to meet the value reKuirements of the customer and the strategic goals of the organisation. $eeting customer value reKuirements and organisational goals is accomplished through value engineering. Ealue management focuses on the HwhyI of creating value, while value engineering is concerned with the implementation, or the HhowI. Ealue engineering involves optimisation of organisational structures and hierarchies, roles and responsibilities, functional definitions, and infrastructures to obtain the best value for all relevant sta"eholders. uccessful value engineering reKuires that all sta"eholders agree on objective criteria for defining value by reconciling their potentially different priorities and interests. A "ey benefit of value engineering is the reduction or elimination of all those forms and activities which do not align with organisational goals. %rocurement management is a "ey focus area of value management and value engineering for those projects which are characterised by a substantial procurement component. Although the use and implementation of value management is at enterprise

8 level, project managers need to understand how these strategic processes affect the operations of their projects. This will not only ensure compliance with organisational policies but also provide a better realisation of the value development to the project manager and project team. Ealue chain management refers to the management of all those activities in a supply chain, carried out by the different partners along the chain, which add value to the product from the perspective of the client. P)(/e*%"1 .)(#)a$$e"1 .()%2(0!("1 and .)(*+)e$en% "%)a%e#3 Te:tboo" reading ( ollish, emani", $orris * %into: ections .,.. and .J.JG.J.A) According to ollish, emani", $orris * %into (,-..) the managerial trend in business has shifted from being single project focussed to multi-project simultaneous management. &ithin this modern multi-project management concepts of project portfolios and programmes have emerged. The %$1 defines a project as Ha temporary endeavour underta"en to create a uniKue product, service or resultsI. %rogrammes, on the other hand, are defined by the %$1 as Hgroups of related projects that are managed in a coordinated way to obtain benefits and control not available from managing them individuallyI (see also 2eldman * $angano, ,--A). 0ach project in the programme has its own project manager. %ortfolios are collections of projects and other wor" that are grouped together to facilitate effective management of that wor" to meet strategic objectives. The projects or programmes in a portfolio may not necessarily be interdependent or directly related. They are, however, conducted under the management of a particular organisation and compete for allocation of limited resources (2eldman * $angano, ,--A). Depending on the organisational approach to managing its projects, a procurement strategy is formulated addressing the needs of projects, programmes, and9or portfolios. Week 7 "+$$a)3 This wee" introduced the role of the procurement manager and the differences between procurement units within a single organisation and in a consortium. The wee" also e:amined the concept of value management and how procurement is organised within an organisation. 1n a project-based organisation, the role of the procurement manager and the level of direct involvement for the project manager are highly dependent on the structure of the organisation. 1n a fully projectised organisation, this role is decentralised and lin"ed closely to specific project needs, as most of the procurement activities are underta"en as part of a project. 1n a functionally structured organisation, a central procurement function normally e:ists and is led by a procurement manager who oversees procurement for multiple projects. !or consortium-based procurement, it is essential that participating organisations have eKually mature centralised procurement units. Ealue management when applied to projects ma:imises the functional value of a project by optimising its development in order to meet the value reKuirements of the customer and the strategic goals of the organisation. Ealue management is implemented through value engineering. Ealue management and value engineering are applied effectively where multiple procurement levels e:ist in the supply chain. $anaging a project portfolio involves a set of processes and tools for analysing the progress, efficiency, resource usage, costs, and 371 of programmes and projects. Dased on the diversity or similarity within programme and project portfolios, and the

9 associated procurement strategy, the performing organisation creates procurement units to leverage the best 371 for the project portfolio. Re2e)en*e" Crawford, #.+. (,--5) Pro,ect management maturity model. ,nd ed. Doca 3aton, !/: Auerbach %ublications, Ch. ... 2eldman, +. * $angano, E. (,--A) P$P pro,ect management professional e/am revie1 guide. 1ndianapolis: &iley %ublishing, 2oover, &.0., #r., 0loranta, 0., 2olmstrFm, #., * 2uttunen, +. (,--.) $anaging the demand>supply chain. value innovations for customer satisfaction . Bew Yor": #ohn &iley * ons, pp. .=,G.== 67nline8. Available from: http:99site.ebrary.com.e4pro:y.liv.ac.u"9lib9liverpool9docDetail.action;doc1D<.---.5A5 (Accessed: .A !ebruary ,-.-). #ohnson, %.!. (.AAA) HThe pattern of evolution in public sector purchasing consortiaI, 'nternational ?ournal of Logistics. Research and !pplications , , (.), pp. ?>G>J. /oc", D. (,-->) Pro,ect management. Ath ed. /ondon: 'ower %ublishing /td. $orris, %. * %into, #.+. (,-->) "he iley guide to pro,ect, program, and portfolio management. 2obo"en, B#. #ohn &iley * ons, pp. .GJ=. %earman, 3. (,--5) HConsortia formation is not best practiceI, #ontract ?ournal, =J? (5?A.). 3itchie, #. * Chadwic", T. (,--.) HA Kuart from a pint pot; Developing the effective use of purchasing consortiaI. 1n: 0rridge., A., !ee, 3. * $cllroy, #. (eds.). Best practice. procurement, pu-lic and private sector perspectives. /ondon: 'ower %ublishing /td., pp. .J5G.=J. 3ud4"i, 3.A., moc", D.A., +at4or"e, $. * tewart, ., #r. (,--5) Straight to the -ottom line. an e/ecutive0s roadmap to 1orld class supply management. !ort /auderdale, !/: #. 3oss %ublishing 67nline8. Available from: http:99site.ebrary.com.e4pro:y.liv.ac.u"9lib9liverpool9docDetail.action;doc1D<.-.,=>?@ (Accessed: .A !ebruary ,-.-). 3ue, /. * Dyars, /. (,--A) $anagement skills and applications. .Jth ed.91nternational ed. Bew Yor": $c'raw-2ill, pp. .>@G.A-. &al"er, D., tar", #., Arlt, $. * 3owlinson, . (,--@) 1ntroduction and procurement fundamentals. 1n: &al"er, D. * 3owlinson, . (eds.). Procurement systems. a cross> industry management perspective. /ondon: Taylor * !rancis, pp. .GJ,. &ysoc"i, 3.+. (,--=) Pro,ect management process improvement. Doston: Artech 2ouse 1nc., Ch. , and J.