Business landscapes have evolved, and in a dynamic setting where efficiency is paramount, procurement planning has become key to organizational success. Imagine a situation where all your company resources are optimized, and costs are significantly minimized. This is the power of implementing a foolproof procurement process when orchestrated correctly. Whether you are a huge business making millions or a budding startup, you can harness the power of procurement planning.
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What is Procurement Management Plan?
Before beginning to understand the various aspects of procurement planning, it is crucial to understand the definition first. In the simplest terms, procurement planning in project management refers to the complete process that involves scheduling the requirements for a particular project and laying down all the steps needed to complete the project.
The preliminary plan begins with how the company will get its hands on the items necessary to complete the project. It also includes:
Procuring the specific needs
Creating an outline for the funding required for the project
Establishing clear timelines for the reorders
Analyzing the risks that might arise regarding the delivery of the orders.
This is how a procurement plan ensures that it stays on track and is completed within the expected budget. In addition, it makes all the stakeholders well-versed with the procurement organization's expectations and opens them to providing inputs (if any) at different levels of the process.
What is the Role of Procurement Management Plan?
A procurement plan's primary and fundamental role is to define how items will be managed and procured within a company during various projects. Some of the roles of procurement planning include:
All the stakeholders know the process and are up to date with the whereabouts.
The company is getting the right products and services at the best price.
The resources are optimized the right way by the company during the procurement process.
In a nutshell, procurement management is a holistic process that addresses supplier management, takes care of supplier relationships, and takes care of all the legal contracts and documentation. The PMP certification training course will further help you ace your PMP exam and understand the terminology.
Why Procurement Management Plan is Important in Project Management?
It is apparent why the procurement management plan holds such significance. Well, here's a list of the reasons behind it:
A systematic and structured approach: Due to the defined approach used in procurement planning establishes a clear road map. It ensures the paths are well-defined, consistent, and aligned with the project activities.
Mitigating the risk: When as an organization, one can identify the possible risks associated with procuring the items, proactive risk management can be established. This exercise allows the project heads to assess and address the risks in advance, which reduces the chances of delay, budget overruns, quality issues, etc, significantly.
Controlling the cost: As a project manager, one can manage the project costs with the help of the procurement planning process. This step includes strategies to optimize procurement expenditure, such as conducting thorough market analysis, leveraging the economics of scale, etc.
Selecting the right supplier: Once there is an outline, one of the significant procurement planning steps is choosing the supplier. The outline contains all the requirements to qualify as a supplier so that the materials and orders procured from them do not suffer from any quality issues.
Compliance and legal considerations: As a part of strategic procurement planning, the plan helps the project managers adhere to legal and regulatory requirements related to procurement. This step involves compliance with relevant laws, regulations, and ethical standards.
Components of Procurement Management Plan
The Procurement Management Plan can be divided into nine small yet essential components.
1. Estimating the funds: This step is crucial no matter what type of procurement planning one is choosing. Because money is needed at every step of the process, an estimate of the amount of funds that would be needed per step helps create not only a more achievable but also an economic outline.
2. Scheduling the project: A defined outline that mentions the start and finish date and the various timelines for smaller goals helps achieve the target much more efficiently.
3. Controlling the vendor: It is a vital part of the process because it ultimately decides the quality of the items the company procures, the money it spends, etc.
4. Have criteria for the vendor: It helps select the right vendor faster and disqualifies those who do not qualify for specific parameters and meet the company standards. Again, you can refer to previous procurement management plan examples for a better understanding.
5. Define the roles: Once every member of the Procurement Management team is given a specification role, the entire process runs much more smoothly. Again, it is because everyone is managing their tasks without fiddling with the rest of the group.
6. Managing the risks: This component is pivotal as it helps proactively manage risks, significantly reducing delays and defects.
7. Handling the legal jurisdiction: Since every procurement plan comes with legal contracts, it should be handled in a way that abides by all the legal jurisdictional.
8. Mode of payment: Every project procurement plan should have a defined contract that discusses payment aspects like mode, terms, etc.
9. A window for constraints and assumptions: Since a plan constantly evolves, it is essential to have a window that allows the different constraints and assumptions. This component may include geographical setting, quality, security, etc.
What is the Process of the Procurement Management Plan?
The process of the procurement management plan can be broken down into the following steps:
Having a clear outline: This step helps set a clear goal and ways to achieve it using the various predefined strategies and steps.
Identifying the potential vendors: The purpose is to have a set of eligibility criteria and a list of suppliers that qualify each or most of them.
Evaluation of the vendors: Once the finalized vendor list is received, it is time to evaluate each.
Selecting the vendor: Once all the criteria are met, select the right vendor.
Managing the vendor performance: Once the contract is finalized with the right vendor, managing and keeping track of their performance is vital to ensure quality is perfectly delivered.
How to Create a Procurement Management Plan (A step-by-step explanation)
One must follow the following seven steps to create a perfect procurement management plan:
1. Create an outline of the Procurement objectives and strategy
The very first step before developing any procurement plan is to have a defined objective. Simple questions like the primary goals and steps to be taken once the Procurement is done must be answered. Once the goals are clear, developing strategies becomes the next crucial level.
2. Develop the strategies
Every plan requires a defined strategy for successful execution and completion. Finding answers to questions like the most effective ways to procure the items, what could be the risks, and how to mitigate them, etc., helps set a clear outline to achieve the target.
3. Create a Fixed Budget For Procurement
Even if you have a detailed outline of the project and a definite goal, without having a fixed budget, things will start going haywire. This step covers all the expenses that would be happening during the Procurement, like costs of goods, transportation or logistics costs (if any), etc. However, as a project leader, you must set a realistic budget rather than something that makes it extremely difficult to procure all the items. Referring to previous procurement plan samples can be a great way to have a realistic yet economic-financial plan.
4. Get the best bids from suppliers
In most cases, companies have a set of vendors from whom they procure the items. But even then, as a part of an efficient procurement plan, one must solicit bids from more vendors to ensure they can get their hands on the highest-grade product at the best prices.
5. Evaluate all the bids before finalizing the supplier
Once all the bids for a particular tender have been received, one must evaluate it on various parameters. It is essential to look for other criteria apart from monetary expenses. As a project manager, one must use previous procurement plan examples for similar cases to identify the criteria that have been used for selecting the right candidate.
6. Manage the actual process
Procurement Management starts once the supplier is finalized. As a part of the process, the organization must ensure the procured items are delivered on time, follow quality standards, and are within the budget.
7. Close the process
The last step of this process is to close the plan successfully. This exercise includes ensuring all the payments are cleared; documents are signed and appropriately filled so there are no future legal issues.
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Procurement Management Plan Template
There are templates for different types of procurement planning. Generally, a Procurement Planning Template may include the following:
Major headings:
You can further add some other factors to consider in procurement planning like:
A detailed or brief description of the products/services
Name of the requested person
Department concerned
The type of Procurement method chosen
Date of action
Date of delivery
Final Status
Analysis (if any)
Here are some Procurement Management Plan Templates:
Conclusion
As highlighted in the blog, the importance of procurement planning is on the rise. Because it plays a pivotal role in project management, procurement planning can push your project toward guaranteed success by acting as a guiding compass, improving efficiency while optimizing costs, mitigating risks, and aligning the stakeholders.
All you need is clear objectives, in-depth market analysis, strategies, and a proficient project manager. With these resources in hand, any company can navigate the Procurement landscape with confidence. If you are convinced to delve deeper into this domain, KnowledgeHut Project Management certification path can help you deliver productivity and profitability as a successful project manager.
