March 29th, 2022 
CONTEMPORARY PROJECT MANAGEMENT, 4E
Timothy J. Kloppenborg
Vittal Anantatmula
Kathryn N. Wells
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Project Supply Chain Management
Chapter 13
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Chapter 13 Core Objectives:
Identify the role of supply chain management in project management and its importance for ensuring project success.
Describe how to plan, conduct, & control project procurements.
Chapter 13 Technical Objectives:
Describe the various formats for supply contracts and when each is appropriate.
Given a project situation, determine which activities, supplies, or services should be purchased; create bid documents; determine criteria you would use to select a seller; & determine which type of contract you would use.
Chapter 13 Behavioral Objectives:
Explain how to use the contemporary approach to project partnering and collaboration.
Super Absorbent Polymer Turf (SAPTURF)
“The SAPTURF project required a strong team. Successful commercialization of IP is a long shot, so room for project management error is slim. I realized I would need to compensate for lack of in-house resources. Lack of in-house resources is an advantage! I was free to look for the best resources…”
Chris Tetrault, owner and founder, SAPTURF
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Introduction to Project Supply Chain Management
Inter-organizational 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
Introduction to Project Supply Chain Management
Integration of related functions to acquire needed products and services
Purchasing
Supply management
Procurement
Project Supply Chain Management
A system approach to managing flows of physical products, information, & funds from suppliers and producers, through resellers the project organization for creating customer satisfaction
SCM Components
Make-or-buy decision
Contract types
Collaboration and cooperation
System integration
Make-or-buy decisions – deciding whether to make something in-house or purchase it from a vendor
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
SCM Decisions
Distribution network configuration
Inventory control in supply chain
Logistics
Supply contracts
Distribution strategies
Supply chain integration & strategic partnering
Outsourcing & procurement strategies
Product design
Information technology & decision-support systems
Matching internal inadequacies with external experience
Project Procurement Management Processes
Plan Procurement Management
Conduct Procurements
Control Procurements
Plan Procurement Management
Plan for purchasing and acquisition
Complete most of project planning first
A minimum requirement is the project scope statement
Plan procurement management – determining how project procurement decisions, approach, and dealing with sellers will be accomplished and documented
Outputs of Planning
Procurement management plan provides guidance for:
The procurement statement of work ensures that the contractor and client companies understand the work that is being requested.
Procurement management plan– portion of the project management plan that describes how a project team will acquire goods and services they choose to purchase
Procurement statement of work – documents the portion of work to be purchased, described in enough detail so potential suppliers can decide if they are capable of and interested in providing it.
Acquisition of materials and services
Selection of suppliers
Types of contracts
Risk management issues
Make or Buy Decisions
Seller may be called a supplier, supplier’s supplier, or contractor
Buyer may be called a customer, service requestor, or purchaser
A firm’s competitive advantage may be defined as lower cost, better quality, and/or fast delivery
Reasons to Make or Buy
Outsourcing Issues
Loss of time control
Lack of cost control
Gradual loss of special skills
Loss of project focus
Sharing of proprietary knowledge that impacts competitive advantage
Potential conflict of interest
Ineffective management
Loss of confidentiality
Double outsourcing
Procurement Documents
Prospective contractor companies have capability and motivation to provide proposals
Procurement documents – documents that define the requirements and contractual relationship between suppliers and customers of services and products used on a project.
Project procurement requests
Request for Information (RFI) — “a proposal requested from a potential seller or service provider to determine what products and services are potentially available in the marketplace to meet a buyer’s needs and to know the capability of a seller in terms of offerings and strengths of the seller.”
Request for Quotation (RFQ) – a type of procurement document “used when discussions with bidders are not required (mainly when the specifications of a product or service are already known) and when price is the main or only factor in selecting the successful bidder.”
Request for Proposal (RFP) – a type of procurement document used at “an early stage in a procurement process issuing an invitation for suppliers, often through a bidding process, to submit a proposal on a specific commodity or service.”
Quotes taken from https://www.tutorialspoint.com/management_concepts/procurement_documents.htm
Conduct Procurements
Sources for Potential Suppliers
Approaches Used When Evaluating Prospective Suppliers
Supplier Selection Process
Conduct procurements – the process which includes receiving seller responses, selecting a seller, and awarding a contract
Sources for Potential Suppliers
Supplier websites
Supplier information files
Supplier catalogs
Trade journals
Phone directories
Sales personnel
Trade shows
Professional organizations and conferences
Electronic search engines
Published info by local, state, & federal governments
Selecting a Design-Build Contractor
Selecting a Design-Build Contractor
Exhibit 13.4 continued
Approaches Used When Evaluating Prospective Suppliers
Supplier surveys
Financial condition analysis
Third-party evaluations
Facility visits
Quality ability analysis
Delivery ability analysis
Supplier Selection
Invite suppliers to submit bids
Most common procurement document, the RFP, includes:
Purchasing overview
Basic supplier requirements
Technical requirements
Managerial requirements
Pricing information
Appendices
Supplier Selection
Supplier selection a decision tree
A choice between alternatives under uncertainty
Outcome concerned with price and performance
Rate proposals and other supplier characteristics
Most important evaluation criterion is typically price
Goal is to award a contract to each selected seller
Tools and Techniques Used in the Seller Selection Decision Process
Weighting system
Independent estimates
Screening system
Seller rating system
Expert judgment
Proposal evaluation techniques
*See Exhibit 13.5 on p.438 in textbook
The Contract
A legal relationship between parties
Seller must deliver what is promised, and buyer must pay
Buyer is internal to the organization
Seller is external to the team
Contract – a mutually binding legal agreement created between buyer and seller
Major Contract Components
Statement of work
Schedule baseline
Period of performance
Roles and responsibilities
Pricing
Payment terms
Place of delivery
Limitation of liability
Incentives
Penalties
Contract Types
Fixed-Price Contracts
Firm-Fixed-price (FFP) contracts– a contract in which the seller has to complete the job for the agreed-upon amount of money regardless of the actual cost incurred
Firm-fixed-economic-price-adjustment (FP-EPA) contracts – a fixed-rice contract with a clause to protect the seller from conditions such as inflation or commodity cost increases
Firm-Fixed-Incentive-Fee (FPIF) contracts– a contract in which the price is fixed as defined by the contract, but the seller can earn an additional amount as incentive if the seller meets defined project metrics
Cost-Reimbursable Contracts
Cost-plus-award-fee (CPAF) contract – a cost-reimbursable contract that involves payments to the seller for all allowed costs incurred for completed work, plus an award fee based on satisfying certain subjective performance objectives
Cost-plus-fixed-fee (CPFF) contract – a type of contract in which the buyer reimburses the seller for all of the seller’s allowable costs plus a fixed amount of profit (fee)
Cost-plus-incentive-fee (CPIF) contract – a type of contract in which the buyer reimburses the seller for the seller’s allowable costs and pays the seller a fee if it meets defined performance criteria such as schedule, cost, and/or performance
Time and Material (T&M) Contracts
Unit rate for each hour of labor or pound of material is set in the contract
Amount of work is not set the value of the contract can grow
Seller charges for what is done to produce the product/service in contract
Time and material (T&M) contracts – hybrid contracts containing aspects of both cost-reimbursement and fixed-price contracts, generally used when the deliverable is labor hours and/or amounts of materials
Choosing the Right Type of Contract
Consider requirements that a buyer imposes on a seller
The degree of market competition plays a role
Consider risk for the buyer and the seller
Consider using a wrap-up
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.
Choosing the Right Type of Contract
Things to consider:
Cost & schedule risk
Clarity about scope of work
Type & complexity of requirements
Cost & price analysis
Urgency of requirements
Performance period
Contractor’s responsibility
Contractor’s accounting system
Extent of subcontracting
Control Procurements
Buyers and sellers administer contracts
Sellers create performance reports
Buyer reviews performance reports
Control procurements – includes managing relationships between sellers and customers, monitoring contract performance, and making changes and corrections if needed.
Improving Project Supply Chains
Project Partnering and Collaboration
Third Parties
Lean Purchasing
Sourcing
Logistics
Information
Project Partnering and Collaboration
Partnering is a method for transforming contractual arrangements into a cohesive, collaborative team endeavor with a single set of goals and established procedures for resolving disputes in a timely and cost-efficient manner
Through strategic partnering companies are more likely to access advanced technology, share risks, & improve relative competitiveness
Project Partnering and Collaboration
Sources of Conflict During Project Purchasing
Lower price means cost reduction for buyer, but revenue loss to 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
Resolving Project Purchasing Conflicts
Use project partnering to engage the project owner and contractors
Try to increase the baseline of trust and collaboration
Sharing Requirements for Effective Project Partnerships
Mutual Goals in Project Partnerships
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
“We”
“Us and them”
Securing Commitment to Partnering
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.
Third Parties
Mechanisms to grow supply chain performance…Aggregate:
Capacity
Inventory
Transportation
Warehousing
Information
Receivables
Relationships
Lean Purchasing
Implementation of just-in-time (JIT) tools/techniques in a manufacturing environment
Minimize costs
Sourcing
All processes required for a firm to purchase goods from suppliers.
Advantages of good project sourcing decisions:
Order aggregation
Procurement transactions more efficient
Design collaboration
Coordinated forecasting and planning
Improved customer satisfaction
Logistics
Work required to move inventory throughout a supply chain
Modes of transportation used in supply chains
Transportation cost linked to responsiveness of supply chain aims
Tradeoff between responsiveness & costs—PM needs to remember which project objectives are most important!
Information
Information enables management to make decisions over a broad scope that crosses both functions and firms
IT-based information management is crucial to the performance of project supply chains
Accurate
Accessible
Right kind
Summary
Cooperative relationships improve ability to compete in today’s marketplace
Project supply chain management represents a set of proactive responses
Organizations must assess need to outsource part of the project work
Contracting is used to specify and manage supplier-buyer relationships
Purchasing details are legally enforced in the contract
Partnering and coordination of purchasing allow a firm to maximize economies of scale in purchasing and reduce transaction costs.
Implications for PM in a Networked Organization Model
What is a Networked Organization?
Identify 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
Implications for PM in a Networked Organization Model
Our Approach:
Establish a common PM Methodology
Have a central point of contact—Communications is key!
Establish a Quality Management System (i.e., ISO 9001)
Invite strategic partners into business
PM IN ACTION
PMBOK Exams
Some of the questions you will see on the material covered in this chapter will be at least partly based on vocabulary…understand completely the difference between terms such as “cost-plus-award-fee” and “cost-plus-incentive-fee,” as well as when each type of contract may be used and how each type of contract divides risk between buyer and seller.
Similar terms are also used in the seller selection process, so know the difference between a Request for Information (RFI); Request for Quotation (RFQ); and Request for Proposals (RFP), and be ready to apply that knowledge to a variety of questions/problems.
Casa de Paz Development Project
The most fundamental supply chain question is “will Casa de Paz buy or rent and which building”?
Determine the types of professional service organizations to seek as partners.
How should partnerships be established with religious communities?
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