10 Steps to Creating an Effective Procurement Management Plan

It’s one thing to “handle” your company’s procurements, and it’s quite another to manage them in a way that saves time and money during the process. But to effectively manage your procurements, you need a well-thought-out plan that’s based on solid information.

If you work in procurement and often feel as if projects are handling you, rather than you handling them, here’s a 10-step plan that will help you take control of the procurement process.

What is a Procurement Management Plan?

In its most compact description, a procurement management plan will help you define the requirements for the project, then guide you in effectively managing the steps required to get to the final contract. The plan should be flexible enough to change as your acquisition needs are altered, and will address important issues such as which items need to be procured, how contracts will be approved, the criteria decisions will be based on, risk identification, cost determination, and contract lifecycle management to name a few.

The Role of the Project Manager

As the project manager, it’s your responsibility to clearly define the project from the start. This will ensure that everyone involved will understand the steps necessary to take the project from its initial stages to completion. Your goal will be to ensure the project stays streamlined and easy to manage, so those involved won’t become overwhelmed. In order to accomplish this, you will have to work with other key players such as members of the project team, the purchasing department, and those responsible for approving and managing contracts.

Step 1: Define the Procurement Terms

In this step of the procurement process, you should specify what items will be procured in specific terms. Detail the items and sizes, along with the service it will provide, and the justification for it. For instance, is it a tool that your organization doesn’t make? Is it required for the manufacturing of an item needed to complete the project? If there is any technical information pertinent to the procurement process, you should list it here.

Next, you should specify the “need by” date. Each item will have a different date, depending on where it is needed in the timeline for the project’s completion. Finally, many people choose to include a list of people authorized to approve the purchase of each item. This ensures the approval process isn’t hampered by misunderstandings.

Step 2: Determine Which Type of Contract to Use

A contract defines the relationship between your company and the vendor; and it specifies how costs will be handled. Fixed price and cost reimbursement (also known as cost plus) contracts are 2 broad categories of contracts. There are also time and materials contracts, which are based on fixed hourly billing rates, actual materials costs, and fixed add-on amounts.

In addition to the type of contract, you should identify the specifics of the contract management details in this section. For example, if you want the contracts department to use e-signatures to speed up the process, detail it here.

Step 3: Identify the Risks

Most projects carry risks that could threaten the project’s completion or schedule, it’s your job to identify the ones that pertain to the procurement process. These risks could include things like vendor conflicts, unrealistic schedules, idealistic cost expectations, potential shipping delays, and a vendor’s inability to meet deadlines or perform up to standards.

Step 4: Mitigate the Risks

In order to ensure the success of the project, you should include a plan in this section to mitigate any identified risks. For example, if the specialized subcontractor fails to complete his portion of the project, you could identify a replacement contractor to call. Since you may not be able to immediately identify the solution for all the possible risks, you or a qualified representative of the procurement department should be involved in all decisions. You should also identify who will have the authority to approve issue resolution actions.

Step 5: Cost Determination

In this section, you will outline exactly how the costs associated with the project will be determined. For most procurements, you will issue a request for proposal (RFP), which will outline your needs and ask vendors to provide proposals, quotes, or bids. In their responses, they will outline their costs, what products or services they will provide, how they will do the work, their experience in providing the types of goods or services, a work breakdown structures, schedules, and a line-by-line outline of their costs. You should be clear about what is acceptable in the RFP and what isn’t. For instance, if meeting the schedule is critical to the project and some vendors don’t submit a proposed schedule, should they be eliminated from consideration?

Step 6: Identify Which Forms are to be Used

Many procurement professionals prefer to use standardized forms to ensure the project is more easily managed. Here, you should identify which forms, formats, and templates will be used for the project. This will ensure there is cohesion within the groups associated with the project, simplify the process, and make the ongoing management of the process easier. In this section, you should list the standardized forms you want used for the project, and tell the reader where to find them. For example, you may choose to use standardized proposal forms and guidelines, evaluation forms, letters of intent, contracts, and audit forms.

Step 7: State the Project Constraints

By identifying the constraints before the project begins, you will help ensure its successful completion. On the other hand, if constraints aren’t recognized early on, they may hinder the successful completion of the project. Your task is to fully describe all constraints that should be considered during the procurement process. Once identified, these constraints should be taken into consideration every step of the way until the project’s completion. For instance, if the schedule is not negotiable, state it in this section and all personnel will understand that an on-time schedule should dictate their decisions during the process. Some other constraints you may find in relation to the procurement process are cost, scope, limited resources, and technical specification.

Step 8: Contract Approval Rules

In this section, you should outline the process in which contracts will be approved. You should first include the steps that lead up to an approval, such as a review of all bids and proposals as well as a service and cost analysis. Then include the names, roles, and order in which decision makers will review and approve the contracts. Creating an approval workflow will ensure that each contract is reviewed and approved in the appropriate manner. Some contract lifecycle management systems such as Concord offer workflow capabilities.

Step 9: Identify the Decision Criteria

In this section, you should clearly outline the criteria the review board will use to decide which vendor to award the contract to. For example, you may include items like the vendor’s ability to meet the schedule, the cost, the quality of the work or product offered, the performance history of the vendor, and the compliance of each vendor to the RFP.

Step 10: Create a Vendor Management Plan

Next, you should draft a paragraph or two that outlines how the vendors will be managed in order to ensure the required products or services are delivered on schedule and with the proper levels of quality. Include how often the project manager should meet with the purchasing department and vendors, how they will meet, the purpose of the meetings, and what each meeting should accomplish. These meetings will keep the project manager informed about the progress of the procured products or services.

Finally, you should establish performance metrics for each vendor involved with the project. Rate them on the quality of the product or service, their delivery as it pertains to the schedule, the final cost, and other metrics important for evaluating the vendor’s performance on the project. These ratings will help identify areas where you can improve in the process, as well as provide you with critical data when considering the vendors for future projects.