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ASSIGNMENT NO -3

ON

“PROJECT PROCUREMENTS AND MATERIALS”

(PGPM – 13)

SUBMITTED TO:

NATIONAL INSTITUTE OF CONTRUCTION MANAGEMENT

& RESEARCH (NICMAR) PUNE.

SCHOOL OF DISTANCE EDUCATION (SODE)

By Mr. abc

(PGDPM) Reg.no.-abc

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PROJECT PROCUREMENTS

& MATERIAL

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CONTENTS

SR.NO. DESCRIPTION PAGE NO.

1 ASSIGNMENT. 4

2 MATERIAL MANAGEMENT 4

3 FACTORS TO BE CONSIDERED FOR

PURCHASING

5

4 SELECTION OF SUPPLIER 6

5 BIDDING OF DOCUMENTS 7

6 SCRUTINY OF OFFER AND FINALIZE 8

7 DEVELOP PURCHASE POLICIES AND

PROCEDURES

8

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ASSIGNMENT: You have been appointed as manager of materials management department of a Construction firm. The company is asking you to prepare a manual on procurement of Materials. Prepare a manual on procurement of materials by covering the following. 1. Factors to be considered for purchasing 2. Source Selection 3. Selection of Suppliers 4. Scrutiny of offers 5. Final purchase 6. How to develop purchasing policies and procedures 7. Formulate strategies for improving efficiency of procurement of materials Department.

MATERIAL MANAGEMENT A material management is one of the important activities of business. There is no general agreement about precisely what activities are embraced by materials management. Some managers would associate materials management with their material or production Control departments, which schedule materials requirements and may also control inventories of both raw materials and in-process materials. Others would associate it with the activities of their purchasing departments in dealing with outside suppliers. If we analyze the total cost of any product nearly 60 to 70% is because of materials. Only the rest is for labour, overhead and profit. So any reduction in the material cost, even by a very less percentage will give rise to a greater profit. Moreover the materials management being a staff function, the introduction of new techniques to reduce the cost of the product is much easier than in any other field. Hence, the rate of return on capital employed is of prime concern and is given by the ratio: Profit Rate of Return (ROR) = --------------------------------- Capital employed Profit Sales = -------------- X -------------------------------------------------- Sales Fixed Assets + Current Assets = Profitability X Capital turnover ratio So as to increase the rate of return on investment, one way is to increase the capital turnover ratio. For this if capital employed is reduced, naturally capital turnover ratio will

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go high. Fixed assets constitute capital already sunk and only scope for improving the Return on Investment (ROI) lies in the efficient management materials which constitute the bulk of current assets. As materials constitute the major cost component, large amount of capital is locked up in materials with the associated burden interest Which further increases the cost of the product. So, because of the greatest percentage of cost associated with materials and also any possible reduction in material cost will result in the increase of profit, the industries are now thinking of introducing the concept of scientific materials management.

If we analyze the above graph we find that previously the breakeven point was at A. it will come downif variable cost get reduced. Accordingly profit will increases.

FACTORS TO BE CONSIDERED FOR PURCHASING Factors to be considered for purchasing are belong to technical specification. The term “technical specifications” refers to the physical description of the goods or services, as well as the Procuring Entity’s requirements in terms of the functional, perfo rmance, environmental interface and design standard requirements to be met by the goods to be manufactured or supplied, or the services to be rendered. The technical specifications must include the testing parameters for goods, when such testing is required in the contract. “Functional description” is the description of the functions for which the Goods are to be Utilized. For example, a ballpen is expected to write 1.5 km of straight, continuous lines. “Performance description” refers to the manner that the Goods are required to perform the functions expected of them. For example, a ballpen that writes at 1.5km should do so continuously and smoothly, without skipping, and with the color of the ink being consistent. “Environmental interface” refers to the environment in which the required functions are performed at the desired level. For example, a ballpen should write continuously for 1.5km on pad paper or bond paper, but not necessarily on wood or on a

A

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white board. “Design” refers to the technical design or drawing of the goods being procured. A design Standard is particularly useful in cases where the goods procured are specially manufactured for the Procuring Entity. For example, in procuring BDA for the PA, there is a specific pattern of color and shade that the BDA should follow. In determining the technical specifications of the goods it will procure, the PMO or end -user unit must consider the objectives of the project or the procurement at hand, and identify the standards that should be met by the goods in terms of function, performance, environmental interface and/or design. It must also conduct a market survey that will include a study of the available products or services, industry developments or standards, product or service standards specified by the authorized government entity like the Bureau of Product Standards, ISO9000 or similar local or international bodies. As a rule, Philippine standards, as specified by the Bureau of Product Standards, must be followed. For all of these we required ABC which is approved budget of contact. The factors for determining ABC are below: In determining the ABC, the PMO or end-user unit, with the assistance of the TWG (when necessary), must consider the different cost components, namely: 1. The cost or market price of the product or service itself; 2.Incidental expenses like freight, insurance, taxes, installation costs, training costs, if necessary, and cost of inspection; 3. The cost of money, to account for government agencies usually buying on credit terms; 4.Inflationary factor, since the planning phase is usually done one year ahead of the actual procurement date; 5. Quantities, considering that buying in bulk usually means lower unit prices; and 6.The supply of spare parts and/or maintenance services, if these are part of the Contract package.

SELECTION OF SUPPLIERS

Choosing the right supplier involves much more than scanning a series of price lists. Your choice will depend on a wide range of factors such as value for money, quality, reliability and service. How you weigh up the importance of these different factors will be based on your business' priorities and strategy.

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A strategic approach to choosing suppliers can also help you to understand how your own potential customers weigh up their purchasing decisions.

This guide illustrates a step-by-step approach you can follow that should help you make the right choices. It will help you decide what you need in a supplier, identify potential suppliers and choose your supplier.

Thinking strategically when selecting suppliers

What you should look for in a supplier

Identifying potential suppliers

Drawing up a shortlist of suppliers

Choosing a supplier

Getting the right supplier for your business

BIDDING OF DOCUMENTS

Quotation documents are documents issued by the Procuring Entity to provide prospective Suppliers all the necessary information that they need to prepare their quotations. These clearly and adequately define, among others:

1. The objectives, scope and expected outputs and/or results of the proposed contract;

2. The technical specifications of Goods to be procured;

3. Expected contract duration, the estimated quantity in the case of procurement of Goods, delivery schedule and/or time frame;

4. The obligations, duties and/or functions of the winning supplier; and

5. The minimum eligibility requirements of suppliers, such as track record to be determined by the Head of the Procuring Entity.

The Quotations Documents contain the following: 1. Invitation to Apply for Eligibility and to Quotation; 2. Instructions to Suppliers (ITB); 3. Quotation Data Sheet (BDS); 4. General Conditions of Contract (GCC); 5. Special Conditions of Contract (SCC); 6. Schedule of Requirements; 7. Technical Specifications of the Goods and Services to be procured; and 8. Sample Forms as annexed in the PBDs

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SCRUTINY OF OFFERS AND FINALIZE The criteria to be used in the evaluation of quotations and the award of contracts Shall be made known to all suppliers and not be applied arbitrarily. The purpose of quotation evaluation is to determine substantially responsive quotation With the lowest evaluated cost, but not necessarily the lowest submitted price, Which should be recommended for award. The quotation/ quotation price read out at the bid opening shall be adjusted at the time of evaluation with correction for any arithmetical errors for the purpose of evaluation with the concurrence of the supplier/ contractor. Where there is a discrepancy between the rates in figures and in words, the rate in words will prevail. Where there is a discrepancy between the unit and the line item total resulting from multiplying the unit rate by the quantity, the unit rate will prevail. The conditional discounts offered by the bidder shall not be taken into account for evaluation. This however does not apply to cross-discounts. The purchaser shall prepare a detailed report on the evaluation and comparison of quotations setting forth the specific reasons on which the recommendation is based for the award of the contract.

DEVELOP PURCHASING POLICIES AND PROCEDURES To act upon the findings of the purchasing practices review, you need to identify and priorities areas for improvement within your business, and develop a plan for putting those improvements in place. This stage of the review involves pulling together and analyzing all the information you have gathered in steps 2 and 3, and using it as the basis for developing an improvement plan. Initial experience of company members of the ETI purchasing practices project has shown the Following factors to be beneficial to this process. Lessons on developing sustainable action/implementation plans will be captured and shared as ETI members continue to address these issues.

Involve relevant people Involve and bring together people who will be able to help priorities issues, develop solutions and put them into action. Refer back to Step 1 to identify likely people (such as people from sourcing, design, buying, merchandising, quality, technical, social compliance and marketing) and, at a minimum, ensurethe following people with a stake in the changes (eg those whose departments or staff will be involved in implementation, whose budgets mightbe affected by implementation, or who will be directly involved in implementing changes). •Staff in relevant departments who will be directly involved in implementing changes.

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It would also be useful to include suppliers and workers that were involved in the review, if at all possible.

Identify priorities Identify priorities for action by involve: •Considering the main findings from the review (key pressures, good practices, impacts). •Identifying areas of overlap, where purchasing practices that put pressure onsuppliers and workers also have negative impacts onthe business.

•Identifying good practices that could be replicated and rolled out across other Business areas. •Prioritizing changes that will best support good working conditions in the supply chain and be commercially sustainable.

Develop solutions Once you have identified priorities for action, you will need to develop practical solutions to bring about change. This should involve: •Working with staff in relevant departments to develop practical solutions within their job roles. •Considering how these solutions fit with existing responsibilities and targets, and whether staff objectives need to be amended to reflect the changes.