Procurement Management- II and Project Termination

Procurement Management- II and Project Termination


Hello friends. I welcome you all in the session. As you are aware in previous session we were
discussing about procurement. And, procurement should be treated as a profit
centre function; it should not be treated as cost centre. So, you can convert this function as a profit
centre through skillful negotiations with the vendors. And if you are updated with information related
to new raw materials, new vendors, different prices, exchange rates, and so on- when you
can really make lots of money in this particular activity. So, as I said it is good to go for life cycle
costing. Purchasing should be such that the life cycle
of the raw material should be seen. It is possible that the vendor may give you
raw material at cheaper price, but the raw material would not have sufficient life cycle. So, you should look at life cycle cost of
the material or the equipment or machine whatever you are going to purchase. Purchasing and transporting cost: you can
save a lot here. Let us see if your organization is in hilly
areas. Then you should select vendor in such a way
that he should be able to supply material in your plant. And the fellow should use an efficient transportation
mode. So, choose transportation mode very carefully. Rather than going for let us say- you have
you can have different modes right you have got rail, you have got road, you have got
sea, you have got air, then you have got pipelines. you have got ropeways, you have got conveyor
belt kind of transportation system and generally used in you know mining industry and so on. So, use of transportation mode plays an important
role in purchasing, because it will affect the lead time: the time between placing the
order and receiving the order. It will also affect the freight charges. It will also affect, at the end of the day
total efficiency of the purchase department. So, go for purchasing very carefully. Now whenever you are buying something you
need to have certain policies right, you should have some set of principles. And these policies are generally framed by
top management. So, you need to look at issues like should
the product be made in house or should be outsourced are it should be in bought a new
from some other party, right. So, you need to take decisions like centralization
and decentralization purchasing. What product should be centralized and what
to be decentralized. And then you need to look at some other issues
like financial limits to be placed on an authority who is going to purchase. So, let us say purchase department is authorized
to purchase only those products having and cost less than let us say 10 lakh rupees. For more than that you need to go to higher
level right in the organization. So, you can have different buying policies. So, again you need to look at sourcing policies
also. For example, you are going for indigenous
product or some foreign source or some local source or some other supplier. Are you going to by a from sister concern
right. So, you need to come up with issues for all
these sources. Then you can have internal policies: what
about petty cash purchases. What about cash discounts, would you be giving
payments for the samples which you received from vendor before actually selecting vendor? So, this is very important topic and important
point you should look it carefully payment what the samples. We see what happens whenever you buy a something
from a vendor then he will give you samples first. And at the time of coming up with an agreement
with the vendor you should be very clear whether you be making payment for those samples or
not. Isn’t it? Because sometimes samples are very expensive,
isn’t it. So, it all depends on terms and conditions
between buyer and supply. Supplier’s relationship policies of course
should help in fair trading and professionalism on part of purchase staff e.g. gifts, this
is something. In fact, we will discuss in next slide something
about ethics right, ethical issues in buying. So, again policies and general principles
firm bidding versus loose building. What kind of bidding you are going for? So, when you say firm bidding refers to the
submission of final offer by the prospective source, so no chances given to revise initial
offers. So, let us say if I am a vendor I have quoted
some price for a material, then I should not be given any chance to revise my prices. So, it is firm bidding. In loose meaning it is possible. Many times you need to have reciprocity in
buying. You may go for given take policy right. In fact, there are some situations where you
are buying a raw material from let us say different firms and you are finished product
may be bought by those firms; it is possible. Let us say if you are in a business of furniture
right. So, let us say you have obtain material from
different 2-3 vendors and your final product is furniture. So, those people will also buy your product. So, I have given take kind of policy. Many times you can go for co operative buying,
right. So, you can have a group of 2-3 organizations
coming together and all of you are buying from one particular vendor. You are just clubbing your requirements and
buying products from different seller’s. So, these are couple of policies and general
principles; speculative buying, purchase of goods from own employees. In fact, there are several businesses in which
the raw materials and components come from their employees. So, employees would have there businesses
set their houses are at some other sides. So, those employees will be sending you raw
materials and components, it is possible. You can have employees purchase. Cooperative society of the company, now it
is; many times what is happening let us say in your organization you have got thousand
employees and you are making let us say your product is a textile product right are let
us say shirt is there. So, your final product is a shirt right. Now you can have a cooperative type of system
in which the shirts would be sold to your employees at somewhat cheaper rate. So, that is known as a cooperative type of
purchasing. Sale of goods to employees: in fact many times
you have got surplus and obsolete items. Surplus I have those items which are there
in your organization even after end up there useful life. You have not used those raw materials and
components, because of improper planning are some other reason or let us say because of
low demand. So, those are surpluses. And obsolete items are those items which you
are not using because of changing technology. Since new technology has come those materials
are of no longer any use. So, you can have obsolete items. You can have cartons, wooden box, gunny bags,
and so on. So, all these things can be sold to your employees. So, these are couple of further things which
you should keep in mind. In fact, let me move on to ethics in buying,
very important topic. It deals with the character or conduct of
the person. You need to decide what is right and what
is wrong, because there is a very thin line between these two. Purchase manager has to be very honest. He can make changes in your organization by
following right practices, by following latest purchase management practices. So, ethics maybe in fact as I said may be
defined as little finest complications of do’s and don’t resulting from conflict
of minds as to what a person is tempted to do and what he ought to do. Ethics is quite an important topic. And there are several unethical acts which
should not be there. For example, let us say miss presentation
effects. It is possible that the vendor may give wrong
estimate of the requirement to buyer. He may quote low prices to get order; this
is quite common unethical practice. Many times you will find vendors quoting very
low price, because their objective is to get that particular order. So, that should not be done. Buyer may give vendor or rosy picture of future
prospects and press him to go for small volumes or price. Now this is again quite an unethical practice. Buyer we will give an assurance to the seller
that I will buy this much quantity in near future. So, you just reduce your prices. So, if he does that then that is also not
acceptable. Buyer rejects material on flimsy grounds false
competitive information to the sellers; so again not a good thing. So, improprieties of bids; so whenever you
are buying a material and let us say there are you invited tenders then you should be
very careful. You should not allow any vendor to re change
his quotes. Once the last date of bidding is over that
is over, do not allow any vendor to submit bid after closing date. Buyer should not disclose prices of different
vendors to one particular vendor: quite an unethical practice. Many times what happens the buyer tries to
on an discounts because buyer makes payment to supplier even after you know agreed upon
a one particular date of payment. So, he will make payment after that particular
date. So, this is quite an unethical practice. Many times buyer cancel orders without giving
many valid reasons. Then thrusting decisions upon suppliers they
will no pressurize sellers to cut down on price to deliver product at particular location
about which not informed a priori to be supplier. Then they may ask for some personal requirements. So, there you can have different examples
like likes getting material for home or for getting some material let us say getting some
part of the vehicle for his own vehicle. So, all these things should be stopped. Unjustified river charges very important. Unnecessary transportation charges; discrepancies
in consignments this is quite important. Whenever you receive material from vendor
you always report shortages to the vendor, but you should also report surpluses if received
from vendor. So, there should not be any discrepancies
in consignment. I have already talked about samples and estimates,
this is good one. Development work at the cost of vendor: many
times what happens you are a buyer and let us say there are three four vendors. So, you are getting some designs, some drawings
made from one particular vendor, so that vendor has done all those things for you, but you
are not giving order to that fellow; isn’t it. So, that is quite an unethical practice. So, there are certain codes of conduct by
Indian Association of Materials Management. If you look at this process then there are
certain expectations of buyers and sellers. Being a buyer, a buyer wants what; defect
free supply, ability to hold price, correctness of paperwork, adequate after sales service
in terms of let us say how vendor is collecting and defective parts from buyers site. Transparciate vendors samples. So, these are couple of things which a buyer
looks for. On the other hand water supplier looks for,
right. Supplier, he wants long term business relationship
with you, he wants timely payment, and he also wants sharing of information for future
plans. In fact, if you give your vendor right information
he can also plan his budget, his materials, his manpower and so on. So, these are couple of things which supplier
wants; non-cancellation of order. Of course, cancellation he would accept, but
there should be a valid reason for that, right. Then avoidance of force price reductions should
not be there, it should be very much clear at the time of agreement between two parties;
avoidance of unnecessary rejections avoidance of harassment and so on. So, as I said in a project procurement process
you have to look at five R’s, right; so right quantity. So, you can determine using several techniques
like what is economic order quantity, replenishment system and buying methods. Right quality: we have already talked lot
about quality. Right price: what is right price: Right price
is not the minimum price. Right price is that price which minimizes
the overall cost without compromising on quality time of delivery, isn’t it. Then right time: what is right time? What is the right time to purchase a product? Isn’t it, so you need to plan your; it is
starts from marketing research to let us say from forecasting to aggregate production planning
to master production schedule and so on. So, you should do right, you should get material
in right time. And then right source: What is right source? Right source is a source which gives you a
right quantity, right quality, right price, and right time. So, if you have got all other four R’s correct
in a vendor then that is a right source. With this let me stop here, and let me teach
you how to close down a particular project. In fact, there are couple of points which
you should keep in mind before you hand over project to your client. So, let us look at project close and termination. Quite an important step, because as I said
project life cycle has got different phases. And the final phases finishing phase, our
termination phase. So, project termination. So the all activities consistent with closing
out of the project; for acceptance of project by sponsor completion of records, final revision
and issue of documentation to reflect its final condition. So, you can have project termination in different
ways. Termination means you are actually completing
the project. It is not necessary that its successful project
is un-successful project. So, there are different types of project terminations. First is extinction: so project is stopped
either due to successful or unsuccessful conclusion. So, that is known as extinction. Now when I say un-unsuccessful conclusion
it can be due several reasons; that is extinction. Then project can be terminated through the
process of addition. So, what happens in addition? The successful project is added to the organization
structure. So, let us say if IIT goes for start of let
say PhD program in let us say nanotechnology, so that is a project. And if everything goes right then it will
always be there in IIT. So, you can have a situation where your organization
has gone for a project and if everything goes right then that becomes a process for your
organization. So, that is kind of addition. Then you can have integration: integration
what happens in integration let us say in your organization you are doing a project
and in project there are different team members from different functional areas. So, once project is completed successfully
those people we will go back to their respective areas. As I said the project is a temporary organization,
so the team members we will go back to their parent departments right are the respective
organizations. A starvation is the fourth a type of termination,
you are not completing project due to budget or some other reason. And you can have a number of reasons for this. So, there are couples of project termination
methods. Now the there is a process is called elements
of project close out management. Whenever you approach towards finishing phase
you need to look at some of the things very carefully. Finishing the work- you see what happens in
a project towards and the team members would try to think about new project. So, they will lose focus on a particular project
towards end. So, it is the responsibility of manager to
ensure that the team members do not lose focus. So, that is quite challenging task for a manager;
so this finishing the work. Handing over the product to the client: it
is not only you are handing our, in fact we will look at some other things also. So, handing over the product, any acceptance
of the product, harvesting the benefits, reviewing how it all went, putting it to all bed and
disbanding the team. So, these are seven points we should be looked
carefully in project close out management process right. So, as I said finishing the work it is a kind
of polishing your work towards end the members lose focus. So, manager should keep those members intact,
they should remain focused on completion of the project. Handing over the project: so you are not handing
our project to the client, but you are also ending our several other things. So, you know drawings designs and you are
going for them, you are going technical support and training on the employees of the client
and so on. Gaining acceptance: so, once you have handed
over the project to the client now the client should accept it. Over a period of time projects get acceptance
from client. So, this is your responsibility also that
the client should get benefit out of that particular project. Harvesting benefits: projects are of course
are initiated to find out solved some problems and find opportunities. So, whether the project is actually giving
benefits to the organization or not. So, this the fourth point in close out management. And then you have got putting it to bed. Now this is a process in which you are handing
over the closing the several documents to your clients, you are giving different kind
of information to the client whether on the information related to cost, are the man power,
are the legal issues like penalties cases and so on. So, all these things should be handed over
to client. So, it is called putting it to bed. Then finally, you have got disbanding the
team. Of course, the last step in close out process
it is the process wherein your disbanding your project team; can be formal or can be
informal. So, these are couple of things which you should
keep in mind while closing down project. Now let me summarize what we have done in
this particular course. This course is a course in which we have focused
on ten knowledge areas of project management. Due to limitation of time we could not focus
much on project integration management, communication management and scope management. But, other areas we have discussed in quite
a detailed manner; whether it is a risk management, whether it is human resource management, whether
it is procurement management, quality management and other areas. We have discussed so many things in details. And once again I would like to tell you that
if you ask me which are three important; top three knowledge areas of project then again
I would say that it is the time management, it is cost management, and risk management. I am not saying that other areas are not important,
but according to me these are quite important areas. And one should look at all the processes of
these knowledge areas. And I have told you in the in the beginning
that and there are approximately 57 processes. So, this is subject which should be taught
according to those knowledge areas. There are people who think that it is the
PERT, CPM, crashing, is project management. There are some people who think that it is
the management of finance; it is the controlling of cost that is project management. No, it is not like that. Project management is basically a full package. In fact, in several institutions each of these
areas of project management are taught as a different course. So, you can have full course on let us say
human resource management, you can have number of courses on human resource management. You can have different courses on quality
management. For example, you can have a design of experiment
as a full course, you can have control charts second full course, you can have TQM third
full course. So, project management is something which
requires knowledge of all these disciplines. Then only you can successfully complete this
particular subject. And with this let me come to end of this particular
session as well as this particular course, thank you very much. Thanks a lot.

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