How can procurement influence suppliers to deliver projects on time, on budget?
One of procurement’s generic objectives is to achieve the best fit through the procurement of materials of the right quality, in the right quantity, at the right time, at the right price, from the right source. Consequently project managers and procurement professionals are on the forefront to achieve project objectives, Ronald Mlalazi (MCIPS), Eduction Manager at Commerce Edge Academy, tells SmartProcurement.
In his 11th article for SmartProcurement’s World-Class Procurement Practice series, Mlalazi discusses how procurement can influence suppliers and other stakeholders to deliver project objectives on time and on budget.
The series is based on Chartered Institute of Purchasing & Supply (CIPS) unit content and on recent research done by Commerce Edge Academy. This month’s article is based on Level 6, Unit 11, ‘Advanced Project Management’.
At the outset, Mlalazi states that a well developed project initiation document (PID) will not be enough if the following factors have not been clarified:
• There should be objectivity regarding scope, budget, deadlines, and solution design. Due diligence needs to be conducted in coming up with a business case, lack of it might lead to project cost overruns.
• Experienced people should be at all levels in the project. This will help maintain constant project discipline, and enforce milestones and deliverables.
• Authority should be matched with responsibility. Most projects are run on shoe-string budgets and if the project manager has no authority to make trade-offs between certain objectives, opportunities may be lost.
• There should be accountability sufficient to ensure that all parties perform as promised or are definitely held responsible. To avoid cost overruns, the projects should be kept short.
Furthermore, the business-as-usual mentality in a project oriented entity is not tolerated.
Shifting from a non-project environment to one in which projects are organised and used to accomplish special tasks or to a fully-fledged project-oriented organisation presents senior management of a company with an extraordinarily difficult transition. They are likely to experience difficulties such as cost reductions and quality enhancement at reduced timeframes.
A head of procurement can influence positive outcomes through a collaborative cost reduction exercise:
• Make sure corporate goals are aligned across functions before embarking on the project.
• Drive the process with a sense of urgency. Time is of the essence.
• Require senior executives to participate in the supplier conference and provide visible leadership and sponsorship.
• Identify the right supplier executives to participate in the conference.
• Involve cross-functional teams in validating and in implementing ideas.
If your company is among the large entrenched supplier group, how do you become a leader in the doing-more-with-less crowd? How can you improve market share and protect profit margins in a time of cutbacks and general belt-tightening?
Once your company’s corporate mindset is recalibrated, you can answer the following
1. Where’s the fat? Conduct a rigorous self-examination of your cost-to-value equation, even for the programmes in which you are the entrenched incumbent. The goal is to locate where waste or low-value activity occurs across the value chain:
• Look at every cost element, including direct labour, sub-tier suppliers, cycle times and overheads.
• Address prospective (potential new initiatives) and existing programmes.
• Examine programme-by-programme and cost center-by-cost center.
• Establish lean Six Sigma teams to improve processes and performance in a long-term and sustainable way.
2. What’s feasible to execute? Redefine cost-reduction priorities in terms of value to the organisation versus ease of capture. Define ease of capture along multiple dimensions: actions you can directly implement with no investment versus those that require investment; those that require your customer to change behaviors or requirements; or those that require changes beyond your customer’s immediate control (e.g. new regulations).
3. How do we benefit? Determine how your company can share in cost reductions. Much will depend on where you are in the acquisition life cycle, your existing contract structures, procurement regulations, and organisation-imposed programme management requirements.
4. How do we make it happen? Work the relationships and get commitments of support and action. You might need to start with a pilot or series of pilots to demonstrate value and work out the wrinkles before rolling out an initiative on a wider scale. You’ll want to be armed with detailed implementation plans that include resource commitments on sides, success measures and organisation structures. These plans are essential to keep actions on track, break up logjams and recognize successes.
Finally, project managers and procurement professionals can manage and deliver successful projects by employing some of the following tools and techniques and customising them to their operations:
• Organising the project for successful implementation.
• Planning the project.
• Understand the project resources and costs.
• Understanding and applying PRINCE2 project management methodology.
• Understanding and applying project risk management tools.
• Understand the hard and soft factors in avoiding project failure and enhancing successful delivery.