Nicmarc module 21 PGPPM

1. PGPM13 Page 1
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. DESCRIPTION PAGE NO.
1 ASSIGNMENT. 4
2 MATERIAL MANAGEMENT 4
3 FACTORS TO BE CONSIDERED FOR
PURCHASING
5
4 SELECTION OF SUPPLIER 6
5 BIDDING OF DOCUMENTS 7
6 SCRUTINY OF OFFER AND FINALIZE 8
7 DEVELOP PURCHASE POLICIES AND
PROCEDURES
8

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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
= -------------- 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

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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 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 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
A

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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;
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.

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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:
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. Invitation to Apply for Eligibility and to Quotation;
2. Instructions to Suppliers (ITB);
3. Quotation Data Sheet (BDS);
4. General Conditions of Contract (GCC);
5. Special Conditions of Contract (SCC);
6. Schedule of Requirements;
7. Technical Specifications of the Goods and Services to be procured; and
8. Sample Forms as annexed in the PBDs

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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.
DEVELOP PURCHASINGPOLICIESANDPROCEDURES
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.

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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).
•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.