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ASSIGNMENT NO -3

ON
PROJECT PROCUREMENTS AND
MATERIALS
(PGPM 13)

SUBMITTED TO:
NATIONAL INSTITUTE OF CONTRUCTION
MANAGEMENT
& RESEARCH (NICMAR) PUNE.
SCHOOL OF DISTANCE EDUCATION
(SODE)
By
Mr. abc
(PGDPM)
Reg.no.-abc
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PROJECT
PROCUREMENTS
&
MATERIAL

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CONTENTS
SR.NO.
1
2
3

DESCRIPTION
ASSIGNMENT.
MATERIAL MANAGEMENT
FACTORS TO BE CONSIDERED FOR

PAGE NO.
4
4
5

4
5
6
7

PURCHASING
SELECTION OF SUPPLIER
BIDDING OF DOCUMENTS
SCRUTINY OF OFFER AND FINALIZE
DEVELOP PURCHASE POLICIES AND

6
7
8
8

PROCEDURES

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ASSIGNMENT:
You have been appointed as manager of materials management department
of a
Construction firm. The company is asking you to prepare a manual on
procurement of
Materials. Prepare a manual on procurement of 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 procedures
7. Formulate strategies for improving efficiency of procurement of materials
Department.

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 analyze 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:
Profit
Rate of Return (ROR) = --------------------------------Capital employed
Profit
= -------------Sales
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Sales
-------------------------------------------------Fixed Assets + Current Assets
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= 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.

If we analyze the above graph we find that previously the breakeven point
was at A. it will come downif variable cost get reduced. Accordingly profit will
increases.

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 Entitys 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.
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Functional description is the description of the functions for which the


Goods are to be Utilized. For example, a ballpen 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 ballpen that writes at 1.5km should do so continuously and
smoothly, without skipping, and with the color 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 ballpen should
write continuously for 1.5km on pad paper or bond paper, but not necessarily
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 color 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:
1. The cost or market price of the product or service itself;
2.Incidental expenses like freight, insurance, taxes, installation costs,
training costs, if necessary, and cost of inspection;
3. The cost of money, to account for government agencies usually buying on
credit terms;
4.Inflationary factor, since the planning phase is usually done one year
ahead of the actual procurement date;
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5. Quantities, considering that buying in bulk usually means lower unit


prices; and
6.The supply of spare parts and/or maintenance services, if these are part of
the
Contract package.

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.

Thinking strategically when selecting suppliers

What you should look for in a supplier

Identifying potential suppliers

Drawing up a shortlist of suppliers

Choosing a supplier

Getting the right supplier for your business

BIDDING OF DOCUMENTS
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:

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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:


1.
2.
3.
4.
5.
6.
7.
8.

Invitation to Apply for Eligibility and to Quotation;


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

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.
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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.

DEVELOP PURCHASING POLICIES AND 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 analyzing 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.
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,
ensurethe following people with a stake in the changes (eg those whose
departments or staff will be involved in implementation, whose budgets
mightbe 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.
Identify priorities
Identify priorities for action by involve:
Considering the main findings from the review (key pressures, good
practices, impacts).
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Identifying areas of overlap, where purchasing practices that put pressure


onsuppliers and workers also have negative impacts onthe business.

Identifying good practices that could be replicated and rolled out across
other
Business areas.
Prioritizing changes that will best support good working conditions in the
supply chain and be commercially sustainable.

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.
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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