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Project Supply Chain
Management
Chapter 12
Contemporary Project Management
Kloppenborg
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to a publicly accessible website, in whole or in part.
Chapter
Vignette
Commercialization of SAPTURF
• Super Absorbent Polymer Turf (SAPTURF), a
synthetic turf system
• Synthetic turf system surfaces generate extreme
heat
• Continued testing in order to calibrate the value
of the product
• A license agreement will be executed at the end
of the trial period
• Successful commercialization of intellectual
property is a long shot
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Chapter
Vignette
Commercialization of SAPTURF
Needs
• Significant and skilled legal resources
compensated on a percentage of yield basis
• Technical validation obtained on a percentage of
yield basis
• Small enterprises have difficulty funding
technical capability and physical plant
• Critical need for an organized system of
communication and documentation with a team
of independent players
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
At the end of this chapter…
• Identify the role of supply chain management in
project management and its importance for
ensuring success.
• Describe how to plan, conduct, administer, and
close project procurements.
• Describe the various formats for supply
contracts and when each type is appropriate.
• Explain how to utilize the contemporary
approach to project partnering and collaboration.
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to a publicly accessible website, in whole or in part.
Introduction to Project Supply
Chain Management
• Interorganizational 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
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to a publicly accessible website, in whole or in part.
Introduction to Project Supply
Chain Management
Supply
management
Purchasing
• Used interchangeably
• Integration of related functions to acquire
needed products and services
Procurement
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to a publicly accessible website, in whole or in part.
Project Supply Chain Management
• Project supply chain management is a system
approach to managing flows of physical
products, information, and funds from suppliers
and producers, through resellers  the project
organization for creating customer satisfaction
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to a publicly accessible website, in whole or in part.
SCM Components
•
•
•
•
Make-or-buy decision
Contract management
Collaboration and cooperation
System integration
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to a publicly accessible website, in whole or in part.
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
Role of the
outsourced
work in the
entire project
The timing of
the work being
purchased
Number of
suppliers
required
Capability of
the project
team
Structure of the
procurement
supply chain
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to a publicly accessible website, in whole or in part.
SCM Decisions
Distribution
network
configuration
Logistics
Inventory
control in a
supply chain
Distribution
strategies
SC integration
& strategic
partnering
Supply
contracts
Outsourcing &
procurement
strategies
IT & Decision
Support
Systems
Product
design
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to a publicly accessible website, in whole or in part.
Project Procurement Management
Processes
1.
2.
3.
4.
Plan procurements
Conduct procurements
Administer procurements
Close procurements
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to a publicly accessible website, in whole or in part.
Plan Procurements
• Plan for purchasing and acquisition whether for part or
all of a project
• Complete most of project planning first in order to
understand what the true project needs are
– A minimum requirement is the project scope
statement
Plan procurement – “the process of documenting project
purchasing decisions, specifying the approach, and
identifying potential sellers” PMBOK® Guide
Project scope statement – “the narrative description of project
scope, including major deliverables, project assumptions,
project constraints, and a description of work that provides a
documented basis for making project decisions and for
confirming or developing a common understanding of scope
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among
the website,
stakeholders.”
PMBOK® Guide
to a publicly
accessible
in whole or in part.
Outputs of Planning
Procurement management plan– “the document that
describes how procurement processes from developing
procurement documentation through contract closure will be
managed.” PMBOK® Guide
• The procurement management plan guides client
company efforts through all activities dealing with the
acquisition of materials and services to complete the
project
• The procurement statements of work ensures that the
contractor and client companies understand the work
that is being requested
Procurement statements of work – “describes the
procurement item in sufficient detail to allow prospective
sellers to determine if they are capable of providing the
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products,
services,
ororresults.”PMBOK®
Guide
to a publicly
accessible website,
in whole
in part.
Make or Buy Decisions
• The seller may be called a supplier, supplier’s
supplier, or contractor
• The buyer may be called a customer, service
requestor, or purchaser
• Reasons to make or buy begin with a strategic
outsourcing analysis identifying strengths
• A firm’s competitive advantage may be defined
as lower cost, better quality, and/or fast delivery
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to a publicly accessible website, in whole or in part.
Reasons to Make or Buy
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to a publicly accessible website, in whole or in part.
The Downside of Outsourcing
• Loss of time control for completing project
activities
• Lack of cost control for outsourced activities
• Gradual loss of special skills
• Loss of project focus and a potential conflict of
interest
• Ineffective management as a result of
complicated business interactions
• Loss of confidentiality and double outsourcing
where a third party is used
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to a publicly accessible website, in whole or in part.
Plan Contracting
• The client company creates a situation in which
prospective contractor companies have capability
and motivation to provide useful and complete
proposals
• Outputs of plan contracting include procurement
documents and evaluation criteria
Procurement documents – “those documents utilized in bid
and proposal activities to solicit proposals from prospective
sellers, which include buyer’s invitation for bid (IFB), request for
information(RFI), request for quotation (RFQ), request for
proposal (RFP).” PMBOK® Guide
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Conduct Procurements
• Includes identification, evaluation, and
advertising to attract contractors’ interest.
• A formal request is sent seeking competent firms
to compete for the right to perform the project
Conduct procurements – “the process of
obtaining seller responses, selecting a seller,
and awarding a contract.” PMBOK® Guide
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to a publicly accessible website, in whole or in part.
Sources for Potential Suppliers
•
•
•
•
•
•
•
•
Supplier Web sites
Supplier information files
Supplier catalogs
Trade journals
Phone directories
Sales personnel
Trade shows
Professional organizations and conferences
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to a publicly accessible website, in whole or in part.
Information for Potential Suppliers
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to a publicly accessible website, in whole or in part.
Selecting a Design-Build
Contractor
• Decide which contractor(s) will be awarded the
work
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to a publicly accessible website, in whole or in part.
Approaches Used When Evaluating
Prospective Suppliers
• Supplier surveys provide sufficient knowledge
of the supplier
• Financial condition analysis reveals whether a
supplier is incapable of performing satisfactorily.
• Third-party evaluators can be hired for
obtaining relevant information.
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to a publicly accessible website, in whole or in part.
Approaches Used When Evaluating
Prospective Suppliers
• Facility visits allow first-hand information of the
firm’s technological capabilities, manufacturing
or distribution capabilities, and its managerial
orientation.
• Quality ability analysis examines the potential
supplier’s quality capability.
• Delivery ability analysis estimates the
supplier’s capability to deliver the required
product or services on time.
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to a publicly accessible website, in whole or in part.
Supplier Selection
• Invite potential suppliers to submit bids
• Use procurement documents to solicit proposals from
various vendors
• The most common procurement document is the request
for proposal (RFP) which includes:
1. Purchasing overview
2. Basic supplier requirements
3. Technical requirements
4. Managerial requirements
5. Pricing information
6. Appendices
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Supplier Selection
• Supplier selection decision is a classical
decision tree problem
– A choice between alternatives under uncertainty
• Evaluation criteria are used to rate proposals
and other supplier characteristics
• The most important evaluation criterion is
typically price
• The goal is to award a contract to each selected
seller
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Factors Used in Assessing Potential
Suppliers
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to a publicly accessible website, in whole or in part.
Tools and Techniques Used in the
Seller Selection Decision Process
•
•
•
•
•
•
Weighting system
Independent estimates
Screening system
Seller rating system
Expert judgment
Proposal evaluation techniques
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to a publicly accessible website, in whole or in part.
The Contract
• A legal relationship between parties subject to
remedy in the court system
• The seller must deliver what is promised, and
the buyer must pay
• The buyer is internal to the organization
• The seller is external to the team
Contract – “a mutually binding agreement that obligates
the seller to provide the specified product/service and
obligates the buyer to pay for it.” PMBOK® Guide
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Major Contract Components
• Statement of work of
deliverables
• Payment terms
• Place of delivery
• Schedule baseline
• Limitation of liability
• Period of performance
• Incentives
• Roles and responsibility
• Penalties
• Pricing
Types of Contracts
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to a publicly accessible website, in whole or in part.
Fixed-Price Contracts
Fixed-price contracts – “a category of contracts with a fixed
total price for a defined product or service to be provided … may
also incorporate financial incentives” PMBOK® Guide
• Provide low risk for the buyer
• Seller must develop accurate and complete cost
estimates
Firm-fixed-price contracts - “a type of fixed-price contract
where the buyer pays the seller a set amount as defined in the
contract, regardless of the seller’s cost.” PMBOK® Guide
Firm-Fixed-Incentive-Fee contracts– “a type of contract where
the buyer pays the seller a set amount as defined by the contract,
and the seller can earn an additional amount if the seller meets
© 2012
Cengage
Learning. All Rightscriteria.”
Reserved. May
not be scanned,
copied or duplicated, or posted
defined
performance
PMBOK®
Guide
to a publicly accessible website, in whole or in part.
Cost-Reimbursable Contracts
Cost-reimbursable contracts – “a category of contracts
involving payment to the seller for all legitimate costs incurred
for completed work, plus a fee typically representing the seller’s
profit.” PMBOK® Guide
• Cost-Plus-Fixed-Fee (CPFF) Contract
Cost-plus-fixed-fee contract – “a type of costreimbursable contract where the buyer reimburses
the seller for the seller’s allowable costs (allowable
costs are defined by the contract) plus a fixed
amount of profit (fee).” PMBOK® Guide
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Cost-Reimbursable Contracts
• Cost-Plus-Incentive-Fee (CPIF) Contract
– Performance criteria may be schedule, cost, and/or
performance
Cost-plus-incentive-fee contract – “a type of costreimbursable contract where the buyer reimburses the seller for
the seller’s allowable costs (allowable costs are defined by the
contract) and the seller earns a profit if it meets defined
performance criteria.” PMBOK® Guide
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to a publicly accessible website, in whole or in part.
Time and Material (T&M) Contracts
• The unit rate for each hour of labor or pound of
material is set in the contract as in a fixed-price
contract
• The amount of work is not set, so the value of
the contract can grow like a cost-reimbursement
contract.
• The seller charges for what is done to produce
the product/service in the contract
Time and material contracts – “a type of contract that is a
hybrid … containing aspects of both cost-reimbursement and
fixed-price
contracts.”
PMBOK®
© 2012
Cengage Learning.
All Rights Reserved.
May notGuide
be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Choosing the Right Type of Contract
• The nature of the outsourced project activity
plays an important role
• Consider requirements that a buyer imposes on
a seller
• The degree of market competition plays a role
• Consider the degree of risk for the buyer and the
seller
• Consider using a wrap-up to insure large
projects A wrap-up, or owner-controlled insurance program
(OCIP), is a single insurance policy providing
coverage for all project participants, including the
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted
owner
allor incontractors
and subcontractors.
to a publicly accessible
website,and
in whole
part.
Choosing the Right Type of Contract
Type and
complexity of
requirements
Extent of price
competition
Overall
degree of cost
and schedule
risk
Contractor’s
responsibility
Urgency of the
requirements
Extent of
subcontracting
Cost and price
analysis
Contractor’s
accounting
system
Performance
period
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to a publicly accessible website, in whole or in part.
Administer Procurements
• Buyers and sellers administer contracts to make sure that
the obligations set forth in the contract are met and to make
sure neither has any legal liability
• Sellers create performance reports
• Buyer reviews performance reports to ensure contract
obligations are satisfied
Administer procurements – “process of managing
procurement relationships, monitoring contract
performance, and making changes and corrections
as needed.” PMBOK® Guide
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to a publicly accessible website, in whole or in part.
Project Partnering and Collaboration
• Partnering is a method for transforming
contractual arrangements into a cohesive,
collaborative project team with a single set of
goals and established procedures for resolving
disputes in a timely and cost-efficient manner
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to a publicly accessible website, in whole or in part.
Improving Project Supply Chains
•
•
•
•
•
•
Partnering
Third-party involvement
Lean purchasing
Sourcing
Logistics
Information
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to a publicly accessible website, in whole or in part.
Project Partnering and
Collaboration
• Trend towards more projects involving people
from different organizations
• Partnering is a method for transforming
contractual arrangements into a cohesive,
collaborative project team
• A single set of goals and procedures for
resolving disputes
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to a publicly accessible website, in whole or in part.
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to a publicly accessible website, in whole or in part.
Sources of Conflict During Project
Purchasing
• Lower price means cost reduction for the buyer,
but it also means revenue loss to the 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
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to a publicly accessible website, in whole or in part.
Resolving Project Purchasing Conflicts
• Use project partnering as an effective way to
engage the project owner and contractors.
• The systematic project supply chain
management view seeks to increase the
baseline of trust and collaboration.
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to a publicly accessible website, in whole or in part.
Sharing Requirements for Effective
Project Partnerships
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to a publicly accessible website, in whole or in part.
Mutual Goals in Project Partnerships
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to a publicly accessible website, in whole or in part.
Effective Project Partnering
Approaches
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to a publicly accessible website, in whole or in part.
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
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to a publicly accessible website, in whole or in part.
Securing Commitment to Partnering
• Use a team building approach to involve all key
players from different firms
– Use to establish a “we” attitude
– Establish a mechanism to ensure collaborative spirit
when problems and setbacks occur
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.
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to a publicly accessible website, in whole or in part.
Third Parties
Mechanisms to grow supply chain performance:
• Capacity aggregation
• Inventory aggregation
• Transportation
aggregation by
transportation
intermediaries and
storage intermediaries
• Warehousing
aggregation
•
•
•
•
Information aggregation
Receivables aggregation
Relationship aggregation
Lower costs and higher
quality
Lean Purchasing
• Implementation of just-in-time (JIT)
tools/techniques in a manufacturing environment
• Ensure steps in the supply process add value
• Minimize costs
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to a publicly accessible website, in whole or in part.
Sourcing
• Sourcing encompasses all processes required
for a firm to purchase goods from suppliers.
• Advantages of good project sourcing decisions
–
–
–
–
Aggregating orders
Making procurement transactions more efficient
Achieving design collaboration with suppliers
Facilitating coordinated forecasting and planning with
suppliers
– Improving customer satisfaction
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to a publicly accessible website, in whole or in part.
Logistics
• Work required to move and position inventory
throughout a supply chain
• Modes of transportation used in supply chains
–
–
–
–
–
–
–
Air
Package carrier
Truck
Rail
Water
Pipeline
Intermodal (the use of more than one mode of
transport)
• Transportation cost is linked to the degree of
responsiveness the supply chain aims to
provide.
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to a publicly accessible website, in whole or in part.
Information
• Information is key to the success of project
supply chain management because it enables
management to make decisions over a broad
scope that crosses both functions and firms.
• Information characteristics that are useful to
supply chain decisions
– Accurate information.
– Accessible information.
– Information of the right kind.
• IT-based information management is crucial to
the performance of project supply chains
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to a publicly accessible website, in whole or in part.
Summary
• Cooperative relationships improve the ability to
compete in today’s marketplace
• Project supply chain management represents a
set of proactive responses in response to many
challenges created by people from different
organizations working together on one-time
projects
• Organizations must assess the need to
outsource part of the project work.
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to a publicly accessible website, in whole or in part.
Summary
• Contracting is commonly used to specify and
manage supplier-buyer relationships
• Purchasing details such as scope, deliverables,
and quality expectations are legally enforced in
the contract.
• Partnering and coordination of purchasing
across all supplier stages allow a firm to
maximize economies of scale in purchasing and
also to reduce transaction costs.
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to a publicly accessible website, in whole or in part.
Implications for Project Management
in a Networked Organization Model
• What is a Networked Organization?
– Identify the 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 Example
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to a publicly accessible website, in whole or in part.
Procter & Gamble’s Connect and
Develop Strategy
• 50% of P&G products “from our own labs and
the other half would come through them”
• Establishing strategic alliances for
Contract
Manufacturing
PC desktop
support
Running
global
buildings and
real estate
Running and
supporting
data centers
PM in Action Example
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to a publicly accessible website, in whole or in part.
Key Learning from P&G’s
Networked Organization PM
• Adopt an industry standard project management
methodology
– For projects that involve one or more alliance partner
organizations, project management approach needs
to become more formal, documented, and rigorous.
• Adopt an industry-standard certification process
for qualifying your people.
PM in Action Example
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to a publicly accessible website, in whole or in part.
Key Learning from P&G’s
Networked Organization PM
• New and different approaches are required in
five major areas:
–
–
–
–
–
Monitoring and controlling
Communication
Risk
human resources
Procurement
PM in Action Example
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to a publicly accessible website, in whole or in part.
Key Learning from P&G’s
Networked Organization PM
PM in Action Example
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to a publicly accessible website, in whole or in part.