PROCUREMENT DEFINITION

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2 PROCUREMENT DEFINITION

3 PROCUREMENT DEFINITION as well as the end receipt and approval of payment. It often involves (1) purchase planning, (2) standards determination, (3) specifications development, (4) supplier research and selection, (5) value analysis, (6) financing, (7) price negotiation, (8) making the purchase, (9) supply contract administration, (10) inventory control and stores, and (11) disposals and other related functions.

4 PROCUREMENT DEFINITION The process of procurement is often part of a company's strategy, because the ability to purchase certain materials will determine if operations will continue.

5 PROCUREMENT DEFINITION Major procurement for a project may be handled almost: Entirely by one organization, as happen in a design-construct project. Or it may be split between the owner, designer, general contractor and subcontractor.

6 PROCUREMENT DEFINITION The professional construction manager often handles procurement of long-lead items in order to advance overall completion dates.

7 PROCUREMENT DEFINITION Methods and practices differ with individual firms and projects: On a traditional project, contractor will have procurement practices that significantly differ from those of a design-construct which engaged in a phased construction program.

8 CONCEPTS OF PROCUREMENT On a professional construction management project, certain long-lead items may be procured by owner, others by the manager, and less critical items by each of contractors involved in the program.

9 CONCEPTS OF PROCUREMENT On a professional construction manager, general contractor and subcontractor must have sufficient overall industry knowledge, as well as knowledge of area practices to maintain a reasonable approach.

10 THE PROCUREMENT CYCLE 1) Identification of the need during design or estimating.

11 THE PROCUREMENT CYCLE 2) Determination of the design characteristics required to perform the desired function.

12 THE PROCUREMENT CYCLE 3) Quantification of the elements needed and preparation of procurement specifications.

13 THE PROCUREMENT CYCLE 4) Issuance and processing of internal requisition.

14 THE PROCUREMENT CYCLE 5) Solicitation of bids or price quotations.

15 THE PROCUREMENT CYCLE 6) Receipt and evaluation of proposals.

16 THE PROCUREMENT CYCLE 7) Issuance of purchase order, subcontract or lease.

17 THE PROCUREMENT CYCLE 8) vendor or subcontractor preparation and submission of shop drawings or samples.

18 THE PROCUREMENT CYCLE 9) Approval of shop drawings by contractor and A/E.

19 THE PROCUREMENT CYCLE 10)Fabrication by vendor or subcontractor.

20 THE PROCUREMENT CYCLE 11)Tracking and expediting.

21 THE PROCUREMENT CYCLE 12)Shipping and traffic.

22 THE PROCUREMENT CYCLE 13)Delivery and inspection.

23 THE PROCUREMENT CYCLE 14)Storage and handling on site prior to use. Long-lead items

24 THE PROCUREMENT CYCLE 15)On-site fabrication and installation operation.

25 THE PROCUREMENT CYCLE 16)Testing in constructed facility.

26 THE PROCUREMENT CYCLE 17)Owner acceptance/rejection, corrections, warranties, and other follow-up.

27 Acceptance /rejection Needs Design characteristics Testing Quantification On-site fabrication Requisition Storage Delivery The Procurement cycle Quotations Proposal evaluation Shipping Purchase order Tracking Fabrication Approval Samples

28 THE PROCUREMENT CYCLE Not all these steps are required for all types of materials. Some materials needs less steps and can be delivered in one day only.

29 THE PROCUREMENT CYCLE On the other hand, for some procurement operations the above list is grossly oversimplified.

30 PURCHASING & CONTRACTING PRACTICE Requisition Construction managers and supervisors initiate purchasing and subcontracting by issuing standard form requisitions asking the purchasing department to obtain bids for equipment, materials, work or services.

31 PURCHASING & CONTRACTING PRACTICE Prequalification and bid list preparation Develop list of: Material suppliers Specialty contractors Equipment suppliers Prequalification is often appropriate on certain work, but may be less desirable in other situations.

32 PURCHASING & CONTRACTING PRACTICE On government work, use of minority contractors or sub contractors may be specified, and prequalification takes on a different aspect from the usual performance and financial requirements.

33 PURCHASING & CONTRACTING PRACTICE Prequalification is done: To ensure that only qualified firms are invited to bid. As a restriction of the bid list to a reasonable number of firms so that all will be seriously interested.

34 PURCHASING & CONTRACTING PRACTICE Prequalification of bid lists varies with the different contractual method: In competitively bid projects, general contractors often advertise in trade papers that they accept subbids up to a stated deadline. Others, will make calls or send out postcards to a predetermined list.

35 PURCHASING & CONTRACTING PRACTICE Design-constructors often keep card files and qualification data on a large number of potential vendors and subcontractors. Large projects may include procurement from a prequalified list of firms from several countries.

36 PURCHASING & CONTRACTING PRACTICE Requests for quotation Requests for quotation can range from: A simple advertisement in a local trade journal To elaborate bid package with plans, specifications and other contract documents..

37 PURCHASING & CONTRACTING PRACTICE Requests for quotation documents: specifications Contract form Drawings Terms and conditions Scope of work Shipping instruction Bills of materials Schedules Commercial documents Insurance requirements Notice to bidders Special requirements Proposal form Payment & performance bond form

38 PURCHASING & CONTRACTING PRACTICE Bid receipt and evaluation Government agencies generally hold public bid openings. Whereas many private owners open all bids privately, although some of them may inform all responsive bidders with a tabulation of actual evaluated results compared with estimates.

39 PURCHASING & CONTRACTING PRACTICE In traditional contract, acceptance of lastminute telephone quotations is common practice for contractors.

40 PURCHASING & CONTRACTING PRACTICE In design-built contract, contractor has a sufficient time to accept written quotations on prepared forms. In the professional construction management method, bids are often opened in a semiprivate bid opening to which all persons submitting a bid are invited.

41 PURCHASING & CONTRACTING PRACTICE If negotiations are required, they should normally be conducted with the low bidder or others equally in contention. The professional construction manager should endeavor to conduct himself like Caesar's wife.

42 PURCHASING & CONTRACTING PRACTICE Recommendation for purchase The level of approval required normally depends on the dollar value or potential risk associated with the transaction. An engineering review is usually also required as a part of recommendation for purchase preparation.

43 PURCHASING & CONTRACTING PRACTICE Award and preparation of documents It is a notice of award advising the successful bidder that his quotation has been accepted. Purchase orders may not always require the vendor s signature, although contracts and subcontracts are almost formally signed by both parties.

44 PURCHASING & CONTRACTING PRACTICE Changes in contract documents Changes should conform where possible to general principles outlined in the original procurement action. Above all, one should avoid verbal instruction or agreements.

45 RELATION TO OTHER CONTROL SYSTEMS Procurement is one of many interdependent planning and control system on a project, and relate especially closely to the project schedule for operation and resources. control planning procurement

46 RELATION TO OTHER CONTROL SYSTEMS Relation between Procurement and operation: 1. Simply merge (on CPM diagram). The detailed Procurement dominate the overall schedule. The operation preceded by a dozen or more steps.

47 RELATION TO OTHER CONTROL SYSTEMS 2. Develop modular interrelated subsystem (manually or computer). The detailed procurement filled in a schedule, network, bar chart or two dimensional matrix. The operation proceeded by the total time needed cumulative times for all steps procuring.

48 RELATION TO OTHER CONTROL SYSTEMS

49 RELATION TO OTHER CONTROL SYSTEMS

50 RELATION TO OTHER CONTROL SYSTEMS Reporting Procurement Procurement schedule serves as a reference to assure the project is tracking through required steps in time. Exception report alert management with: 1-delayed from scheduled 2- Procurement expediting

51 RELATION TO OTHER CONTROL SYSTEMS Expediting Procurement frantic. Last ditch effort to speed up the movement of materials that were not delivered. Essence of professional expediting is in anticipating problems before they arise and in offering solution before delays are encountered.

52 RELATION TO OTHER CONTROL SYSTEMS The good project control include: 1-Monitoring all steps in the procurement cycle. 2-Special focus on subcontractor. 3-Special focus on assure reliable. 4-Special focus on economical. 5-Special focus on schedule delivery.

53 RELATION TO OTHER CONTROL SYSTEMS Expediting for major or critical items often requires: 1- visits to vendors shops and factories routine, not emergency, basis 2- frequent telephone follow up check vendor progress, raw material supplied, workload, completed product inventory, shop drawings, manuals, fabrication procedure, quality control, code certification. 3- Delivery status.

54 RELATION TO OTHER CONTROL SYSTEMS Other delays of materials procurement: 1- Delays not from contractors; delays from design, purchasing, vendor fabrication, shipping, etc. 2- Delays result simply because a procurement document lost in some clerk.

55 CONTROL OF MATERIALS PROCUREMENT COSTS Different from the control of field Labor and equipment costs. The Sources of the information: Requisitions Bid and Quotations Purchase orders and subcontracts Shipping documents Receiving documents and invoices

56 CONTROL OF MATERIALS PROCUREMENT COSTS Other opportunities for control of material costs: Requisitions procedures Minimization of rehandling and shortages Inventory procedures and polices

57 CONTROL OF MATERIALS PROCUREMENT COSTS Objective of Control of material procurement: 1- Reduce the problem. 2- Runs smoothly and materials arrive on time and in good condition. 3- Comparison of actual receipts with invoiced quantities materials receiving report.

58 INVENTORY THEORY The Manufacturing and Marketing industries operations research techniques Provide a good understanding of the basic economics of materials procurement

59 INVENTORY THEORY Components of Costs: 1- Purchase Costs 2- Shipping Costs 3- Holding Costs 4- Shortage Costs

60 INVENTORY THEORY 1- Purchase Costs The actual overhead incurred in requisition, soliciting, and evaluating quotations. The actual materials prices obtained effective negotiation, variations is unit costs with quantities. Costs associated with shipping materials to the sites.

61 INVENTORY THEORY 2- Shipping Costs Shipping costs can reduced on quantities become larger. Variation in price with mode, water, rail, truck, and air shipping generally increase in price in that order.

62 INVENTORY THEORY 3- Holding Costs Holding costs include storage space and warehouse overhead, deterioration and obsolescence, theft, misplacement, insurance and taxes, rehandling, and interest on funds inventory.

63 INVENTORY THEORY 4- Shortage Costs loss of sales Holding costs impact of shortage. Result from interrupted production from interrupted production for lake of input materials. The impact of Shortage cost motivate other types of costs these of expediting and special handling.

64 JUST IN TIME Just in Time Inventory Management 1-Ready-Mix concrete 2-Project in Metropolitan Area 3-Operations of Heavy construction 4-Cement on major Dams and tunnel Project 5-Minimize the Holding Costs

65 INVENTORY THEORY Trade offs The purchase costs, holding costs and shortage costs are highly interrelated. Risk and uncertainty are concerned. Interrelationship can be modeled. Expected sum of costs can be optimized.