CSCM Chapter 2 procurement

Procurement
CONSTRUCTION SUPPLY CHAIN
MANAGEMENT (MGT60803/QSB 2433)

Introduction
• Supply chain (SC) is long and has many links, such
as logistics, distribution, materials management,
inventory control and freight (goods) to the
procurement function.
• SCM is a process from conception to
consumption.
• Procurement will help to ensure the relevant
resources needed are continuously provided.
2

Definition of Procurement
• Procurement is the business management
function (process) that ensures identification,
sourcing, access and management of the
external resources (supplies / services –
equipment / materials) that an organization
needs or may need to fulfill its strategic
objectives.
3

• Procurement deals with the sourcing
activities, negotiation and strategic selection
of goods and services.
• Procurement and supply management
involves buying the goods and services that
enable an organization to operate.
4

• Procurement
- The entire process by which goods and
services are selected, based on:-
1.What goods and services are needed?
2.When the items will be needed?
3.From which vendors you will purchase?
5

Objectives of Procurement
• “Securing supplies, materials and services of
the right quality in the right quantity at the
right time from the right place (source) at the
right cost.” (Emmett and Crocker, 2008)
6

Objectives of Procurement
• From the client perspective, the COST,
QUALITY and TIME paradigm might be
considered as being the highest quality, at
lowest cost, in the shortest time.
• Unfortunately, this is not always possible.
(Hackett et al, 2007)
7

Strategic Procurement
• Long-range plans for ensuring timely supply of
goods and/or services that is critical to a firm's
ability to meet its core business objectives.
9

• To begin thinking about strategic procurement
and how it can be put to use in the most
effective way within your specific company or
organization, we must first define exactly
what strategic procurement is, how it works
and why it can be such a great benefit to your
business.
10

Strategic Procurement Plan
• A strategic procurement plan is a
comprehensive plan that takes into account
the stated goals and needs of the
procurement department and of the company
as a whole and then works in a targeted
manner to achieve them, over time.
11

Traditional Procurement
• A traditional approach to procurement is to
view it as an administrative function for
buying goods and services.
• Traditional procurement skills, such as
financial management, contract management,
cost reduction and basic negotiation will
always be fundamental to the procurement
process.
12

Today’s
• Combine traditional purchasing skills with
good relationship management skills -
listening, understanding, communicating and
empathy.
13

• The buyer and supplier work together right
from the start of the relationship to share
information, training, support, technical input
and ideas in order to reduce the total overall
cost.
• At the same time the buyer also needs to
work closely with internal customers to
ensure their needs are met.
14

Total Cost of Ownership (TCO)
• Buying price is probably the factor most often
associated with procurement.
• However, price does not equal to cost. The
procurement should consider the TCO.
15

Skills and Competencies
• Each institution as ‘the client (or employer)’ needs to define
procurement in terms of scope, standards and outcomes and
to manage the contractual relationships to ensure successful
outcomes.
• The skills and expertise that are applied to procurement
planning, design and documentation, tendering, and project
and contract management have a significant and lasting
impact on final costs and project outcomes.
• Effective risk management and the required skills for any
project must take into account its complexity, size, risk and
value.
16

Skills and Competencies
• For successful outcomes, this requires the institution
(client) to have the capability, skills and expertise to:
• identify needs
• negotiate the procurement
• manage the contractual relationships
• monitor the delivery
• measure contractor’s performance
17

Tutorial (Discussion)
1. What are the differences between purchasing and
procurement?
2. Discuss the importance of procurement in
construction industry.
3. Define Strategic plan.
4. What are the procurement approaches in the
Malaysian construction industry?
18

CSCM Chapter 2 procurement

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CSCM Chapter 2 procurement