Unit 3

Procurement in Project Management

Meaning:

Procurement in project management means obtaining all the goods, services, and resources
required to complete a project successfully. It involves buying materials, hiring vendors, and
managing contracts to make sure everything is delivered on time and within budget.

Key Aspects of Procurement:

1. Vendor Selection:

Choosing the right supplier or contractor who can provide quality goods and services at a fair
cost.

2. Procurement Planning:
Deciding what to buy, when to buy, and from whom to buy according to the project schedule.

3. Tendering and Bidding:

Inviting suppliers to submit bids and selecting the most suitable one based on cost, quality, and
reliability.
 4. Contract Management:

Preparing, negotiating, and managing contracts to ensure both parties follow the agreed terms.

5. Quality Assurance:
Checking that the purchased items meet the required quality standards before acceptance.

6. Resource Planning:

Ensuring all necessary resources (materials, labor, equipment) are available when needed.

7. Payment and Documentation:

Managing invoices, payments, and keeping proper records of all transactions for transparency.

Benefits of Procurement in Project Management:

1. Cost Efficiency:
Helps control project costs by selecting cost-effective vendors and avoiding waste.

2. Time Management:
Ensures materials and services are available on time, preventing project delays.

3. Quality Improvement:

Ensures high-quality materials and services, improving overall project results.

4. Risk Reduction:

Proper contracts and supplier evaluation help reduce risks of non-delivery or poor performance.
 5. Better Resource Utilization:

Helps in the efficient use of resources and avoids shortages or overstocking.

6. Transparency and Accountability:

Clear documentation and processes improve trust and reduce chances of fraud or corruption.

Vendor Selection Methods

Vendor selection means choosing the best supplier or vendor to provide goods or services for a
project. The goal is to get good quality, timely delivery, and cost-effective service. There are
several methods used to select vendors:

1. Lowest Bid Method

In this method, vendors submit their prices (bids), and the one offering the lowest cost is
selected.

It is mainly used when the product specifications are clear and quality requirements are standard.

Example: Government tenders.

2. Quality-Based Selection

Here, the focus is on the quality of goods or services rather than just the cost.
Vendors are evaluated based on their experience, technology, and reliability.
The vendor providing best quality is chosen even if the cost is higher.

3. Technical Capability Method

Used for complex or technical projects.

Vendors are selected based on their technical expertise, resources, and ability to meet project
needs.

Often used in IT or engineering projects.

4. Combined Cost and Quality Method

This method balances both cost and quality.

Vendors are scored on technical quality and price, and the one with the best overall score is
chosen.

5. Direct Selection or Single Source

Sometimes, only one trusted vendor is selected without competition.

This is used when the vendor has a long-term relationship or provides unique products.

6. Two-Stage Tendering

In the first stage, vendors submit technical proposals.

In the second stage, only technically qualified vendors submit financial bids.

Ensures both technical and financial suitability.

 7. Negotiated Method

The buyer directly negotiates with one or more vendors to get the best price, quality, and terms.

Common in urgent or specialized projects.

Just-In-Time (JIT) Supply Chain Management

Meaning:

Just-In-Time (JIT) is a supply chain and inventory management system where materials or
products are delivered exactly when they are needed, not before.

It aims to reduce inventory costs, minimize waste, and increase efficiency.

Key Features:

1. Minimal Inventory:

Only the required quantity is kept in stock, reducing storage costs.

2. Timely Delivery:

Materials arrive just in time for production or sale, avoiding delays.

3. Strong Supplier Relationship:

Requires close coordination and trust between company and suppliers for timely delivery.

4. Continuous Improvement:
Focuses on reducing waste, improving processes, and maintaining quality.
 5. Demand-Based System:

Production starts only after customer demand is confirmed — not in advance.

Benefits of JIT:

1. Reduces inventory and storage costs.

2. Minimizes waste and excess production.

3. Improves cash flow and efficiency.

4. Enhances product quality due to regular inspection and smaller batches.

5. Encourages better supplier coordination.

Challenges of JIT:

1. Risk of delay if suppliers fail to deliver on time.

2. Not suitable if demand fluctuates suddenly.

3. Requires reliable transportation and communication systems.

Example:

Toyota is a famous company that uses JIT in its production system to reduce waste and improve
efficiency.

Cause and Effect Analysis

Meaning:

Cause and Effect Analysis is a problem-solving technique used to find the main causes of a
problem and understand how they lead to the effect (result).

It helps organizations identify, analyze, and remove root causes instead of just treating
symptoms.

Purpose:

To find out why a problem happened.

To prevent it from happening again.

To improve processes and quality.

Key Tool – Fishbone Diagram (Ishikawa Diagram):

The most common tool for cause and effect analysis.

It looks like a fishbone, where:

The head shows the problem (effect).

The bones show different categories of possible causes.
Main Categories of Causes (6 Ms):

1. Man (People): Skills, training, or human errors.

2. Machine: Equipment failure or poor maintenance.
3. Material: Low-quality or wrong materials.
4. Method: Inefficient or incorrect process.
5. Measurement: Inaccurate data or tools.
6. Mother Nature (Environment): External factors like weather or surroundings.

Steps in Cause and Effect Analysis:

1. Identify the problem (effect).

2. Brainstorm possible causes.
3. Group causes under the main categories.
4. Draw the fishbone diagram.
5. Analyze and find the root cause.
6. Take corrective action to solve the problem.

Benefits:

Helps in finding the real cause of problems.

Encourages teamwork and brainstorming.

Improves process quality and efficiency.

Example:

If a company faces late product delivery, possible causes could be:

Workers not trained (Man)

Machine breakdown (Machine)

Wrong scheduling (Method)
 ISO and Concepts of Total Quality Management (TQM) and Six Sigma

1. ISO (International Organization for Standardization):

ISO is an international body that develops and publishes standards to ensure quality, safety, and
efficiency of products and services.

ISO standards help organizations maintain consistent quality and customer satisfaction.

Common ISO Standards:

ISO 9001: Quality Management System

ISO 14001: Environmental Management

ISO 27001: Information Security Management

Benefits of ISO:

1. Improves product and service quality

2. Increases customer trust and satisfaction

3. Enhances global market recognition

4. Reduces waste and errors

 2. Total Quality Management (TQM):

TQM is a continuous process that focuses on improving quality in every part of an organization.

It involves everyone — from top management to workers — to achieve customer satisfaction.

Main Principles of TQM:

1. Customer Focus: Meeting or exceeding customer expectations

2. Continuous Improvement: Always finding ways to do better

3. Employee Involvement: Everyone participates in quality improvement

4. Process Approach: Improving how work is done, not just the final product

5. Fact-Based Decision Making: Using data to make improvements

Benefits of TQM:

Improves efficiency and productivity

Reduces defects and costs

Builds customer loyalty

 3. Six Sigma:

Six Sigma is a data-driven approach used to reduce defects and improve quality in processes.

It aims to achieve near-perfect performance — only 3.4 defects per million opportunities.

Key Steps (DMAIC):

1. D – Define the problem

2. M – Measure current performance
3. A – Analyze root causes of defects
4. I – Improve the process
5. C – Control to maintain improvements

Benefits of Six Sigma:

Reduces errors and waste

Saves time and cost

Improves customer satisfaction

Resource Planning and Allocation

Meaning:

Resource planning and allocation means identifying, organizing, and assigning all the necessary
resources (like people, money, time, equipment, and materials) needed to complete a project
successfully.

It ensures that the right resource is available at the right time for the right task.
 1. Resource Planning:

It is the process of estimating and scheduling resources needed for a project.

The goal is to avoid shortages or overuse of resources.

Steps in Resource Planning:

1. Identify resources: Find what resources (human, financial, material) are needed.

2. Estimate quantity: How much of each resource is required.

3. Schedule resources: Decide when and where each resource will be used.

4. Monitor usage: Track and control resource use during the project.

2. Resource Allocation:

It means assigning available resources to different project tasks according to priority.

The aim is to use resources efficiently and avoid waste.
Methods of Resource Allocation:

1. Priority-Based Allocation: Give important tasks first access to resources.

2. Time-Based Allocation: Assign resources according to project timelines.

3. Flexible Allocation: Reassign resources if project needs change.

4. Benefits of Resource Planning and Allocation:

1. Ensures efficient use of all resources.

2. Prevents delays and bottlenecks.

3. Reduces project cost and waste.

4. Improves team productivity and performance.

5. Helps in meeting project deadlines smoothly.

 5. Example:

In a software project:

Developers (human resources),

Computers and tools (equipment), and

Budget (financial resource)

Are planned and allocated properly to complete the project on time.

Availability and Constraints of Resources

Meaning:

In project management, resources include people, money, materials, machines, and time.

Resource availability means how easily these resources can be obtained and used when needed.

Resource constraints are the limitations or shortages that affect how these resources can be used
in a project.

1. Resource Availability:

It refers to whether the required resources are present and accessible when the project needs
them.
Factors Affecting Resource Availability:

1. Workforce availability: Skilled workers may not always be free.

2. Material supply: Materials might be delayed or unavailable.

3. Financial availability: Budget limitations can affect progress.

4. Equipment and technology: Tools or machines may be limited or shared.

5. Time: Each resource may be available only for a certain period.

2. Resource Constraints:

Constraints are the restrictions or limits that affect how and when resources can be used.

Types of Resource Constraints:

1. Human Resource Constraints: Lack of skilled staff or overworked employees.

2. Financial Constraints: Limited budget or delayed funding.

3. Material Constraints: Shortage or late delivery of materials.

4. Equipment Constraints: Limited machines or technical tools.

 5. Time Constraints: Limited time available to complete the project.

3. Effects of Resource Constraints:

Delays in project schedule

Reduced quality of output

Increased costs due to last-minute arrangements

Overloading of available resources

4. Managing Resource Constraints:

1. Proper planning and scheduling of resources.

2. Resource leveling: Adjusting timelines to match resource availability.

3. Alternate sourcing: Using backup vendors or substitutes.

4. Monitoring and control throughout the project.

 Resource Leveling and Crashing

1. Meaning:

In project management, resource leveling and crashing are techniques used to handle time and
resource constraints in a project schedule.

They help in completing the project on time while making efficient use of resources like
manpower, money, and materials.

2. Resource Leveling:

Resource leveling is a technique used to balance the use of resources by adjusting the project
schedule.

It ensures that no resource is overloaded or underused.

Key Points:

1. Focuses on efficient use of available resources.

2. Sometimes project duration may increase to avoid overuse of people or equipment.

3. Useful when resources are limited or shared among multiple tasks.

Example:

If one worker is assigned to two tasks on the same day, resource leveling reschedules one task to
the next day so that the worker is not overloaded.

4. Crashing:

Crashing is a method used to reduce the total project duration by adding extra resources (like
more workers or overtime).

The goal is to finish the project faster, even if it increases cost.

Key Points:

1. Focuses on time reduction.

2. Increases cost due to additional resources.
3. Used only for critical path activities (tasks that directly affect project completion time).

Example:

If a project is getting delayed, more workers or extra shifts can be added to speed up the work —
this is project crashing.
4. Difference Between Resource Leveling and Crashing: