ASSIGNMENT

NICMAR / SODE OFFICE

1. Course No. - PGPM 13

2. Course Title - Project Procurement & Material

Management

3. Assignment No. - Three

4. Date of Dispatch -

5. Last date of receipt -

Of Assignment at SODE office

Assignment Submitted By:

MODHA KISHAN SURESHCHANDRA

Reg. No. 217 – 07 – 31 – 50973 – 2191

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 LIST OF CONTENT

1 Introduction………………………………………………………. 03
2 Material Management……………………………………………. 04
3 Factors to be considered for purchasing...……………………….. 07
4 Selection of suppliers…………………………………………….. 10
5 Bidding of documents…………..………………………………... 11
6 Scrutiny of offer and finalize……………….. ………………………... 12
7 Develop purchase policies and procedures……...……………….. 13
7.1 Involve relevant people…………………………………………... 13
7.2 Identify priorities………………………………………………… 14
7.3 Develop solutions………………………………………………… 14

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1. INTRODUCTION

You have been appointed as manager of material management department of

a construction firm. The company is asking you to prepare a manual on

procurement of materials. Prepare a manual on procurement on 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 procurement

7. Formulate strategies for improving efficiency of procurement of materials

department.

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2. 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 analyse 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;

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 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 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.

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 If we analyse the above graph we find that previously the breakeven point

was at A. it will come down if variable cost get reduced. Accordingly

profit will increase.

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 3. 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, performance, 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 ball pen 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 ball

pen that writes at 1.5km should do so continuously and smoothly, without

skipping, and with the colour 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 ball pen should write

continuously for 1.5km on pad paper or bond paper, but not necessarily

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 on wood or on a 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

colour 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:

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o The cost or market price of the product or service itself;

o Incidental expenses like freight, insurance, taxes, installation costs,

training costs, if necessary, and cost of inspection;

o The cost of money, to account for government agencies usually buying on

credit terms;

o Inflationary factor, since the planning phase is usually done one year

ahead of the actual procurement date;

o Quantities, considering that buying in bulk usually means lower unit

prices; and

o The supply of spare parts and/or maintenance services, if these is part of

the Contract package.

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4. 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.

 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.

1. Thinking strategically when selecting suppliers

2. What you should look for in a supplier

3. Identifying potential suppliers

4. Drawing up a shortlist of suppliers

5. Choosing a supplier

6. Getting a right supplier for your business

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5. BIDDING OF DUCUMENTS

 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:

o Invitation to Apply for Eligibility and to Quotation;
o Instructions to Suppliers (ITB);
o Quotation Data Sheet (BDS);
o General Conditions of Contract (GCC);
o Special Conditions of Contract (SCC);
o Schedule of Requirements;
o Technical Specifications of the Goods and Services to be procured; and
o Sample Forms as annexed in the PBDs

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6. 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.

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7. DEVELOPING PURCHASING POLICIES &
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 analysing 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.

7.1 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, ensure the following people with a stake in the changes

(e.g. those whose departments or staff will be involved in

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 implementation, whose budgets might be affected by implementation, or

who will be directly involved in implementing changes).

 Staff in relevant departments who will be directly involved in

implementing changes. It would also be useful to include suppliers and

workers that were involved in the review, if at all possible.

7.2 Identify Priorities

 Identify priorities for action by involve:

o Considering the main findings from the review (key pressures, good

practices, impacts).

o Identifying areas of overlap, where purchasing practices that put pressure

on suppliers and workers also have negative impacts on the business.

o Identifying good practices that could be replicated and rolled out across

other Business areas.

o Prioritizing changes that will best support good working conditions in the

supply chain and be commercially sustainable.

7.3 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.

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 Considering how these solutions fit with existing responsibilities and

targets, and whether staff objectives need to be amended to reflect the

changes.

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