3 Success Factors in the Procurement Process

In this podcast, Ricardo talks about the dangers of underestimate the complexity of the procurement management. He gives three tips on how we can increase the chance of success in our projects. They are:
1 - Seek knowledge about what will be purchased;
2 - Analyze the total cost of acquisition, not just the price;
3 - Associate payment events to deliveries on your project.

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Episode transcript

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Hello, everyone. Welcome to the five minutes PM podcast. Today I'd like to share with you three success factors of the Procurement. Process a lot of people misunderstand that concept behind the Procurement process. When you do a Procurement process, you are, or something like outsourcing or a piece of your project scope. This scope is something that you need to do. The Procurement process is something that is, you want, that someone else does for you. It could be a service. It could be, it could be a project component, but it's very, very important that you understand that do the Procurement process is not to the supermarket, where you go and you see on the shelves, what you want, you just grab and pay.

It's not simple like that. You need to understand first, the reasons why we buy, we can buy because it's cheaper to buy than to produce. We can by because we don't have knowledge on the product. We don't have the knowledge to produce that piece of the product. So we decided that was a source. And this will drive me to the first Success factor. You need to look for knowledge, which about what your going to buy, because most of the people they decided to buy because they don't know exactly what they need.

So then you start looking for, with the knowledge to do that, but it's very important that you in not your supplier, understand the minimum required. You know what you are buying because you can be easily manipulated. That is in the procurement process. So if you don't know how to study and how to understand this better, it's very nice. And I did this many times that you heard one as a consultant, as an advisor, to support you in the Procurement process, someone with no conflict of interest, someone that does not belong to the supplier, that to give you the advice, what do you need to buy?

So it's exactly. You need to look for the knowledge about what you are going to buy. The second one it's to understand the total cost of ownership weigh. This is a very important success factor because sometimes what is the cheapest product? It's potentially the most expensive product. You need to understand that when you buy something, you are not just buying the product or maybe you're buying the cheaper product, but that it will increase your maintenance costs.

You are a cheaper product, but the installation cost is very high. You are buying the cheap service, but the damage that they will do is dramatic. And then you will need to spend much more. So you need to understand the total cost, that ownership and not just the cost of your purchase, because most of the time when you are taking the beads and deciding, just considered the price, okay, this is on me, $10. This is charging me $5. So I will go for the $5 because it's cheaper.

You need to understand that this is fair when you were comparing total cost of ownership. But if you're comparing just the price of one project company, you need to understand, okay, how much does it cost to integrate this component? To my network, to the work site currently have maybe when you do this it to be an extremely high price. So you need to understand this. And the third one it's that you need to link payment. We went to project events.

Let's suppose you are buying bricks. You need to understand that you were not your enemy, and this is not to buy breaks. Your project is not to buy bricks. Your project is to build a house. So how you can incorporate the delivery off this bricks, to the building walls. It's a very, very important, because if you link to payments the payment event, too, your project events, you will have to, you have your supplier as a partner to deliver the project. And not as someone that, okay, I did my job.

I want the money. So if you incorporating the Procurement process in the beading, Process that you need your supplier to be more engaged. Maybe this cost to be a little bit higher, but you are buying the commitment of the supplier. So maybe this little bit, the Mount of money that you are spending more on the Procurement process, you will save dramatically when you are as acute in the project. So you need to understand that if you link the payments, you increase the chance of success.

If you only think the payments, and then you have a supplier like a supermarket cashier, by give you the product, you give me the money and there is no commitment at all of delivering the product. It's very, very important to discuss this because most of the projects Today are using a very big amount, big chunk of suppliers. So if you don't understand this, if you don't want to understand these three concepts, you are project will be driven to fail. So it's very, very important to understand this.

I hope you enjoy this podcast. See you next week with another five minutes BM Podcast.

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