Project Procurement Process: Sample Project - Warehouse Digitization Project

Procurement involves acquiring products and services externally to meet the project's goals and objectives. In project management, procurement involves outsourcing the goods and services necessary for a project. For a project's procurement efforts to be successful, three main processes should be adhered to – plan procurement management, conduct procurements, and control procurements. A procurement manager is often in charge of all procurement activities in a project setting. However, a project manager is considered a significant stakeholder in initiating and managing procurements. This paper explores how these processes were adopted and integrated into a project and showcases the pivotal role played by the project manager and procurement manager.

The project involved installing, integrating, and configuring computing infrastructure in a furniture store's core distribution warehouse. The state-of-the-art computing technology ensured that the business increased its storage and distribution efficiency in anticipation of expanding its business operations. Further, the business was venturing into e-commerce alongside its brick-and-mortar business. The high-level project requirement was to deliver technologies to enhance the fundamental processes involved in the business's warehousing and logistics operations. Specifically, the requirements, as set forth by the project sponsor, included installing and configuring network infrastructure, installing and configuring wireless sensors to replace the current sensors network, provision and configuration of hand-held tablets to aid in the workers' data management efforts, and provision and configuration of an intelligent scanning technology to aid in inventory management for efficient storage and retrieval. The project sponsor also required the new systems to be added as features in its custom warehouse management system.

Plan procurement management details the project procurement decisions, specifies the approach used in procurement, and identifies potential users. The project manager, alongside other project executives, identified the products and services that were to be provided by external sources. The products included the supply of networking equipment, workstation computers, hand-held devices for mobile computing, scanning technology including fixed wireless sensors and scanners, hand-held scanners, and tracking camera systems. Further, construction changes to the storage racks and warehouse conveyor system were also to be outsourced, where the seller would provide the materials and construction services. The development of the add-on features to the custom information systems was also to be outsourced. These systems' installation and configuration activities were left to the project team.

The procurement statement of work (SOW) was developed once the products and services to outsource were identified. The SOW contained detailed scope of work involved for a vendor, including the deliverables and timeline. A high-level cost estimate was prepared to aid in determining the budget for the procured goods and services and added to the statement of work. The project stakeholders consulted and settled on the Time and Materials (T&M) contract approach. The contract included a ‘Not to exceed' clause to limit the contractual cost. With these details documented, the opportunities were advertised. Formal communication was done to sellers the project company had worked with before and those with whom the project sponsor had previously worked.

The advertisements sent out to potential sellers included the statement of works (SOW), a guide on how to submit bids, timelines for shortlisting bidders, analyzing and evaluating sellers' responses, and selecting the successful bids. The critical deliverable of conducting procurement was to award contracts to the successful bidders. One of the critical documents used in the evaluation process was the sellers' responses to the SOW. In consultation with the project manager, the project procurement manager developed rigorous criteria that were used to evaluate the response received from each of the shortlisted sellers. Once the evaluation process was completed, procurement agreements were given to each seller. In procurement, a contract is a legally binding agreement that compels the sellers to provide the agreed-upon products and services and obligates the buyer to compensate for the goods and services provided.

The procurement agreements provided to the sellers included the significant deliverables of each seller, the schedule and milestones for each delivery, and the pricing and payment terms. Further, the agreement contained quality and acceptance criteria tailored for each product or service to be delivered. The sellers tasked with supplying computer infrastructure agreed to offer a maintenance schedule and periodical updates to their respective systems. In addition, the seller tasked with developing the add-ons to integrate the information technology (IT) systems agreed to two years of frequent updates and patches to the system, with an extra clause to integrate future products into the information system. Furthermore, the agreements contained the general terms and conditions concerning the procurement process, the penalties, and the contract termination clause. Finally, a special four-team conflict resolution panel was formed comprising two project stakeholders, an external legal advisor, and a representative selected by the sellers. This information was then added to the agreement and communicated to all stakeholders involved in the procurement process.

Similarly, the sellers were required to indicate if the goods and services to be delivered were to be provided directly by them, in association with a sub-contractor, or wholly by a subcontractor. This information was pivotal in assessing the extent of the risks borne by the project management organization, the sellers, and the subcontractors if any. Due to the project's complexity, it was anticipated that details included in the agreement might change in the course of the procurement process. This anticipation prompted the project procurement manager to develop a plan that detailed how changes in the agreement would be initiated and implemented. However, matters on procurement pricing were indicated as non-negotiable in the agreement hence were excluded in the change plan.

The control procurements process of project management involves managing procurement relationships, monitoring contracts performance, handling changes, and closing contracts. Controlling procurement ensures that the buyer's and seller's performance aligns with the procurement agreement provided earlier in the procurement process. This phase is significant in procurement as it ensures that the budget and schedule are within the procurement's control limits. The sellers were required to provide frequent procurements progress reports and initiate change requests to ensure that all project constraints and variables progressed as planned.

The project manager emphasized the need for all sellers to adhere to the provided schedules and communicate anticipated delays in deliveries early enough. Once communication on anticipated delays was received, the information was passed to other sellers providing products and services dependent on the delayed good or service. A strict communication plan ensured all the different departments received any information on their department either from the sellers or internally. Further, a bi-weekly performance review was mandated for all sellers, and at times on request from the project executives or the project sponsor. During the review, the sellers were required to provide information on their delivery progress, any changes requested, risks associated with the deliverables, and anticipated delays.

An internal quality inspection and assessment team created during procurements initiation was tasked with conducting quality audits associated with the procurements. The inspections, conducted on both physical deliverables and services, were randomized to ensure the credibility of the inspection reports. The quality inspection team included members with varying skills and expertise in procurement inspection of the goods and services. The quality reports were passed to the procurement and project managers for verification and validation. Further, the reports were documented in the overall project management plan and the procurement management plan for final audit and post-mortem analysis. Once a simple review of products and services delivered was conducted and passed, the sellers were tasked with providing invoices of the deliverables, on which the payments were made. The procurement manager routinely inspected the payments made to the sellers to ensure that the pricing and payment terms defined in the contractual agreement were met.

As stated herein, procurement is an essential process in project management. The procurement management planning process involves identifying what can be outsourced, how it can be acquired, and who can provide it. Further, the conduct procurements process identifies the procurement needs and procedures. Specific deliverables are determined in the statement of works (SOW) and communicated to the sellers during this process. In addition, agreement and contract signing are done at this stage between the sellers and the buyer. The control procurements phase ensures that the procurement activities do not fall outside the control limits by ensuring that all procurement stakeholders act in line with the agreements signed. The warehouse digitization project's procurement process followed, to the letter, the three recommended procurement processes. In addition, the conflict resolution panel played a significant role in ensuring that disputes were handled early and fairly, not to strain the fundamental buyer-seller relationships. The procurement process for the project was documented as a success.