Procurement Contracting Process By End Analysis Touched Case Study

Excerpt from Case Study :

procurement contracting process. By end analysis touched aspects contracting process plan purchases acquisition stage select sellers phase.

Ideally, a company should be able to in-source as many of the business processes, in order to ensure a better coordination between these. However, the current economic conditions have impeded the partners' capacity to commit to all the activities that a travel magazine proposes. As such, the decision has been made to outsource several of these. This paper will aim to underscore the services that will be outsources, motivate the managerial decision to do so and analyze all different procurement issues that such a business decision involves.

Processes to be outsourced

After an analysis of the different processes that a travel magazine will involve, the partners have arrived to the conclusion that the core activities of running a travel magazine should be retained as internal processes, while the non-core processes should be outsourced. The core processes are all those processes that are related to editorial content, as well to ensuring the financing for the future of the organization and the development of the business.

With that in mind, the table below shows how the main activities were split into these two categories:

In-Source

Outsource

Articles/editorial content

Advertising

Editorial

Layout/design

Photography

Publishing

Distribution

Accounting

There are a couple of comments worth mentioning here. First, advertising was retained as a core business process to be in-sourced because of the importance that this segment plays in successfully financing the business and providing the funding for its development. The layout and design was also retained as an internal process: it is our belief that this type of activity ties into the way the magazine will present itself to the public and the business owners want to have a greater say in how this is done and how this is tied to the other aspects of the business.

On the other hand, photography was outsourced mainly because there is no distinct reason for which one cannot purchase travel photos presenting a certain location that is being described in the articles. The publishing segment is also secondary to the business and this can be outsourced.

There are a couple of project and procurement management issues that should be worth pointing out before moving on to an analysis of the services to be outsources and how this will be done. Project management and contract or procurement management are in fact two sides of the same coin. On one hand, the procurement manager has a more ample view of things, coordinating a multitude of aspects related to an acquisition process, including financial and accounting requirements, human resources (if any are necessarily involved beyond the project management team in the acquisition process) and legal matters.

On the other hand, the project manager has a more detailed view of the projects, of its needs and requirements, as well as its particularities. The project manager will be able to know more in detail how the project will develop, which of its elements are being subcontracted and why, how these acquired elements will be blended into the project etc. However, the project manager and the procurement manager will need to be in a continuous cooperation over the entire length of the project.

With that in mind, the primary scope of the procurement manager is to successfully finalize the acquisition processes throughout the life of the project. The project's manager scope is to finalize the project itself. Of this, the procurement phase is only a part of the entire whole: the project manager has a set of other different functions, such as determining and mitigating the risks of the project, planning the projects (include resource allocation), scheduling (monitoring that the projects respects the deadlines that have been imposed for the different phases) etc.

The functions of the procurement management are limited to administrating the contract. These functions include monitoring the legal aspects of the contract, matching the outsourced product or service with the general performance expectations for the project, handling other financial or accounting related issues pertaining to the acquisition contract.

Procurement Division Responsibility Matrix

Roles & Responsibilities

CEO

Procurement Manager

Project Owner

Evaluation Committee

Procurement

Officers/Experts

Budget Approval

X

Establishing Procurement Strategy/Arrangements

X

Providing Procurement Advice & Support

X

X

Giving Procurement Approval

X

X

Drafting Briefs / Specification

X

Market Assessment

X

X

Evaluating Quotes & Tenders

X

X

Awarding of the contract

X

X

X

Approval of Award of Contract

X

Project Division of Responsibility Matrix

Roles & Responsibilities

Project Manager

Accounting Department

Acquisition Department

Human Resource Department

Defines content

X

Defines expectations

X

Identifies necessary resources for the project

X

X

X -- coordinates with X

Analyze labor and roles involved in developing the project

X

Discusses acquisition opportunities/selection

X

X

Moving onto the services that will be outsourced, here is the proposed approach in each case:

Publishing

In terms of pricing, Garrett and Williams identify two different contract pricing strategies: the Lowest Price Technically Acceptable (LPTA) strategy and the Best Value strategy

. The former pricing strategy should be adopted in a situation in which there are several potential contractors offering the same product or service, with no real differentiation in terms of quality or any other characteristics. In this case, if the price is the only real differentiator between the providers, the LPTA pricing strategy is more appropriate to be used.

The Best Value strategy implies a more extensive analysis of the product or service that each contractor offers. This evaluation will take into consideration several elements, such as the quality of the product or service that will be delivered, the quality of the team developing it, the history of the suppliers in terms of other projects they have been working on in the past and their results etc. Basically, the Best Value strategy is aimed towards presenting "the best tradeoff between price and performance"

Taking both pricing strategy into consideration, it seems obvious that the Best Value strategy would be advisable in most purchasing situations. There is, however, one important problem that may appear in this scenario. The Best Value pricing strategy involves a comprehensive and coordinated effort within the buying company in a pre-acquisition planning phase to determine the different elements that will be considered under the evaluation, as well as tradeoffs.

This will take time and will imply additional costs even before the acquisition is made, even if this is only an increase in labor costs. However, this method is recommended especially in projects of high value and costs, where it is best to make an analytic purchasing decision rather than one based just on costs, mainly because an analysis may be able to reveal hidden costs and save on these.

In the case of publishing, there are small differentiations between the vendors that offer this service for our magazine on the market. For example, the quality of the printing, including the quality of the ink and of the paper on which the publishing is done will be different from one vendor to another. Another element that is worth considering when making the pricing decision for the publishing segment is the temporal aspect: how fast can the vendor deliver? Given these considerations, it is better to outsource the publishing segment with a Best Value pricing strategy.

Performance targets/level of service the paper should be of X quality, the ink of Y quality (depending on the different levels, as paper and ink are rated on the market);

publishing should be completed by mm/dd/yy;

publishing should be done in X numbers.

Type of contract

A unit-priced contract shall be used, since all elements related to layout and design shall be completed internally. As a consequence, the contract will clearly state the number of copies that the subcontractor will be printing, and the price per unit for each of the prints.

Evaluation criteria previous assignments; references from other customers; number of employees vs. number of clients (this will establish the reliability of the company in terms of completing the assignment on time and at the established quality levels); equipment; training and software publishing knowledge.

Single vs. Multi-vendor solutions

The decision of single vs. multi-vendor solutions is not necessarily important in terms of publishing. With the specifications previously mentioned, the publishing service is pretty much standardized. One could start with single-contracting and include multi-vendor solutions at a later time, in order to be able to analyze whether the latter option is more efficient.

Timeline

Days 1-8

Days 9-10

Days 11-15

Days 15-17

Days 18-24

Define specifications, requirements and quality benchmarks

Analyze publishing market, identify potential subcontractors

Prepare RFP

Distribute RFP, manage responses

Select subcontractor, contract negotiations

Distribution

Performance targets/level of service

Evaluation criteria

rate of delivery success in other contracts;

number of clients (to determine reputation and success on the market);

number of years in the business;

any potential problems with past clients

Single vs. Multi-vendor solutions

A single vendor will be preferred. There are two reasons for this. First, using one vendor will enable the company to quickly…

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