Procurement Management

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Abstract

The procurement management concept is the strategy an organization implements to get certain products and services. Procurement management plays a key role in the effectiveness and success of a modern organization. As many organizations pay too much attention on the efficiency and timely delivery of their products and services to end users, they often risk neglecting and overlooking the need of establishing a relationship with suppliers. Such relationship is considered to be mutually beneficial and results from excellent communication. Therefore, procurement does not only mean purchasing products and services, but also presupposes general construction management. This report aims at outlining problems related to the procurement management within the Ministry of the National Guard (MNG). Also, it suggests recommendations that will beneficially influence purchasing and improve projects in general.

Introduction

The techniques of procurement management have been successfully applied by most modern organizations with the aim to create successful products and services, positively influence results and improve projects. However, many managers have still been making numerous mistakes while implementing the processes of procurement. These mistakes tend to affect operations and the end products and services.

The MNG plays the role of a consultant for the Saudi Armed Forces (SAF). It has gained the experience with numerous construction projects showing excellent results. However, the MNG has also had some issues with the implementation of procurement procedures. This section provides a better understanding of the current procurement procedures within the MNG. In addition, it explains the main difficulties associated with procurement management and represents the ways of addressing them aiming to avoid delays and information shortages. Also, the paper analyzes flaws in the MNG’s scheme of the procurement management providing recommendations for concerning the use of procurement methods that will help to resolve procurement related problems within the organization.

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Discussion

The MNG’s Procurement Process and Function

The procurement department of MNG plays a major role in meeting the organizational objectives through the preparation and completion of the construction tendering process. As a rule, procurement presupposes a number of stages. The first stage includes the preparation of all needed documents. The second one requires the process of selecting the bid type and the project size. The organization’s procurement department deals only with the processes of public tendering, direct contracting, and selected bidders. However, it also invites bids announcing the tender using public media channels. In addition, it is involved in inviting a limited number of qualified bidders. The third stage requires an elected committee to evaluate the bids in accordance with certain financial and technical standards. The final stage of tendering means awarding the tender (See Figure 1).

Procurement Problems at the MNG

Project Delays

The most urgent issue that should be addressed by procurement managers at the MNG is project delay. Accurate scheduling and execution of projects can be achieved through the improvement of system flexibility. Some projects, for example, hospitals, require immediate beginning. As an organization needs to follow the “Rules of Government Procurement and Competition System,” its process of procurement is time consuming. It is necessary to advertise projects through public media for at least two months. Afterwards, special delegation and slow processes of decision making take place at all levels. It leads to the eight-month long bid process (starting from the initial advertisement and lasting to the contract signing).

Because of the increased cost of materials during the delay and some other reasons, some bidders revise or even withdraw theirs. Moreover, some bidders submit revised bids, but they are usually higher than the original ones (Essig & Arnold, 2001). Frustration incident to such delay organization’s relationship with suppliers, otherwise, would be successful bidders. Thus, some suppliers may reject choosing a bid to the MNG in the future. Consequently, tt may limit the boost of the organization’s options.

Lack of Information about Potential Suppliers

The MNG experiences issues related to the lack of organized information about bidders. Nowadays, the organization is unable to analyse previous experiences and practices concerning its suppliers. However, the MNG has no database information that should be used to select the best and the most qualified bidders. It is believed that engineering and maintenance contractors have no system of supplier of procurement management. In addition, they have no explicit selection policy (Gardiner & Robertson, 2005, p. 30).

There exists no central potential supplier register. That is why the organization approves bids in the vacuum of information. The MNG lacks background information about bidder pre qualification. Therefore, bidders without the requisite qualifications have an opportunity to be approved for work excluding the qualified bidders. It means that the organization’s relationship with qualified bidders may be natively influenced. In addition, the process of hiring an unqualified supplier leads to the increased costs and wasted time, in case a supplier does not properly perform the work (Belev, Berg, & Doll, 2004).

The Skills of Weak Procurement

One of the difficulties the MNG faces is a procurement skill weakness. Currently, the organization’s staff is inexperienced and not enough qualified. The main weakness is present in the tender negotiation sphere. Baily (2008) stated that this weakness is usually accepted as the major competence of a procurement executive in his negotiation ability (p. 248). Also, the MNG experiences a shortage of experts in the areas of legal matters, technical disciplines, and quantity surveyors. Lack of expert involvement made the organization cancel projects. In addition, the MNG faces difficulties as it seeks legal remedies against suppliers who do not follow requirements or are in the contract breach. Further delays associated with supplier selection and the related difficulties are the result of the organization’s inability to assign a project within the approved budget and time. Therefore, the above mentioned weaknesses affect the MNG’s relationship with the organization’s suppliers.

Procurement Department. SWOT Analysis

The SWOT analysis describes the situation with the actual procurement department related to the process of supplier selection. The analysis results will help to make improvements.

Strengths:

  • Different areas of the process related to the selection of proper suppliers;
  • Several potential suppliers in the selection process;
  • Different communication types with the potential supplier;
  • Legal agreements to start external source services.

Weaknesses

  • Lack of attributes used to evaluate proposals suggested by suppliers;
  • Absence of defined actual attribute weight used in the process of supplier selection process. As the result, cost is the final distinction taken into account while choosing suppliers;
  • Absence of request for proposal (RFP) that guides suppliers in the proposal elaboration. Project charter is considered to be the first indentation in the project idea creation;
  • Incomplete actual agreement template. It does not include quality indicators, post-support plan, and penalties due to delays in deliverables and the company staff training.

Opportunities

  • Best technological practices may be shared through benchmarking with other companies of the same sector ;
  • Outsourcing practices may be successfully implemented to delegate non-core operations;
  • Ability to have access to technological counseling, update maintenance and supplier selection;
  • Database creation to manage suppliers for the future projects.

Threats

  • Lack of proper relationship between the organization and its suppliers;
  • Absence of delimited boundaries to evaluate the supplier performance and maintain effective and efficient future relationship;
  • Vision of company-supplier sides that can clash. It may happen due to undefined benefits each side wants to obtain in the project;
  • Lack of activities related to risk and reward sharing between the organization and its supplier because the organization does not take measured concerning the supplier performance.

Recommendations

Analysis of the organization’s procurement managements has shown that there exists a number of solutions that can minimize the impact of procurement related problems and improve the procurement process. First, it is suggested to rectify the policy as it leads to the decrease of the procurement life cycle. It was found that the European model limits the time period between tender announcing and award noticing. In the UK, for example, the SAF has changed its procurement policy to provide proper specification, procurement and support of goods, services, as well as equipment (Baily, 2008, p. 91). Shortening of the procurement life cycle tends to reduce or even eliminate delays. In addition, it can improve time, cost and quality of the organization’s projects, and beneficially influence the MNG’s relationships with its suppliers.

The process of procurement may be strengthened through the improvement and development of information technology area. It is necessary for the MNG to apply “historical relationships” (PMBOK’ GUIDE, 2013) that can be achieved through the combination of all existing procurement information areas into a previous project database. Moreover, e-procurement is the latest and most sophisticated technology that can successfully enhance the procedure of supply and procurement. In 2003, the Chartered Institute of Purchasing and Supply (CIPS) defined e-procurement as the use of the Internet to make operation related to the transactional aspects of requisitioning, ordering, authorizing, receipting and payment processes required for certain products or services. E-procurement can rapidly complete the approval processes and assist procurement managers in communicating and negotiating with vendors and suppliers. In addition, e-procurement promotes sharing information with governmental organizations in order to quickly and easily identify qualified suppliers and contractors reducing costs.

It is vital for the organization to focus on proper and careful planning and strategize procurement. Therefore, the planning stage is essential for the activities associated with successful procurement (Weele, 2010). The MNG’s senior management should create a team that consists of members from different departments being able to address all procurement processes. According to Baily (2008), the integrated project team plays a central role in the smart acquisition success. The procurement team should care about recruiting experts. Careful planning tends to ensure proper decision making processes. Also, it improves the skills of procurement managers. This approach positively influences business relationships, evaluates purchasing methods, monitors performance, and corrects errors. Nowadays, there exist different types of supply chains. Selection of proper supply chain can help to manage, improve and enhance the relationship between customers and providers. The MNG’s business requires the application of an Arm’s Length supply chain that presupposes open competition, respect and reinforcement of the connection between the organization and sellers (See Figure 2).

Conclusion

It was found that the MNG faces project delays, lack of proper information, and weak skills of procurement managers that are the major concern of the organization. However, there exist the standards and solutions of the procurement management that can help to manage and eliminate these problems. Promotion of successful projects may be done through the suggested steps including policy, plan and technique improvement, education of managers, development of well-supported technical information, as well as management of the procurement processes that promote successful projects. Proper combination of these steps will enable the MNG to achieve its key project objectives.

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