Timothy J. Kloppenborg

Vittal Anantatmula

Kathryn N. Wells


Project Supply Chain Management

Chapter 13


Chapter 13 Core Objectives:

Identify the role of supply chain management in project management and its importance for ensuring project success.

Describe how to plan, conduct, & control project procurements.

Chapter 13 Technical Objectives:

Describe the various formats for supply contracts and when each is appropriate.

Given a project situation, determine which activities, supplies, or services should be purchased; create bid documents; determine criteria you would use to select a seller; & determine which type of contract you would use.

Chapter 13 Behavioral Objectives:

Explain how to use the contemporary approach to project partnering and collaboration.

Super Absorbent Polymer Turf (SAPTURF)

“The SAPTURF project required a strong team. Successful commercialization of IP is a long shot, so room for project management error is slim. I realized I would need to compensate for lack of in-house resources. Lack of in-house resources is an advantage! I was free to look for the best resources…”

Chris Tetrault, owner and founder, SAPTURF


Introduction to Project Supply Chain Management

Inter-organizational purchasing-related issues  supply chain management

A supply chain consists of all parties involved in fulfilling a customer request

Integrating SCM into PM can significantly enhance the effectiveness of project management

Introduction to Project Supply Chain Management

Integration of related functions to acquire needed products and services


Supply management


Project Supply Chain Management

A system approach to managing flows of physical products, information, & funds from suppliers and producers, through resellers  the project organization for creating customer satisfaction

SCM Components

Make-or-buy decision

Contract types

Collaboration and cooperation

System integration

Make-or-buy decisions – deciding whether to make something in-house or purchase it from a vendor

SCM Factors

The importance of SCM to general project management depends on a number of factors:

Value of outsourced products/services relative to value of the project

The timing of the work being purchased

Capability of the project team

Role of the outsourced work in the entire project

Number of suppliers required

Structure of the procurement supply chain

SCM Decisions

Distribution network configuration

Inventory control in supply chain


Supply contracts

Distribution strategies

Supply chain integration & strategic partnering

Outsourcing & procurement strategies

Product design

Information technology & decision-support systems

Matching internal inadequacies with external experience

Project Procurement Management Processes

Plan Procurement Management

Conduct Procurements

Control Procurements

Plan Procurement Management

Plan for purchasing and acquisition

Complete most of project planning first

A minimum requirement is the project scope statement

Plan procurement management – determining how project procurement decisions, approach, and dealing with sellers will be accomplished and documented

Outputs of Planning

Procurement management plan provides guidance for:

The procurement statement of work ensures that the contractor and client companies understand the work that is being requested.

Procurement management plan– portion of the project management plan that describes how a project team will acquire goods and services they choose to purchase

Procurement statement of work – documents the portion of work to be purchased, described in enough detail so potential suppliers can decide if they are capable of and interested in providing it.

Acquisition of materials and services

Selection of suppliers

Types of contracts

Risk management issues

Make or Buy Decisions

Seller may be called a supplier, supplier’s supplier, or contractor

Buyer may be called a customer, service requestor, or purchaser

A firm’s competitive advantage may be defined as lower cost, better quality, and/or fast delivery

Reasons to Make or Buy

Outsourcing Issues

Loss of time control

Lack of cost control

Gradual loss of special skills

Loss of project focus

Sharing of proprietary knowledge that impacts competitive advantage

Potential conflict of interest

Ineffective management

Loss of confidentiality

Double outsourcing

Procurement Documents

Prospective contractor companies have capability and motivation to provide proposals

Procurement documents – documents that define the requirements and contractual relationship between suppliers and customers of services and products used on a project.

Project procurement requests

Request for Information (RFI) — “a proposal requested from a potential seller or service provider to determine what products and services are potentially available in the marketplace to meet a buyer’s needs and to know the capability of a seller in terms of offerings and strengths of the seller.”

Request for Quotation (RFQ) – a type of procurement document “used when discussions with bidders are not required (mainly when the specifications of a product or service are already known) and when price is the main or only factor in selecting the successful bidder.”

Request for Proposal (RFP) – a type of procurement document used at “an early stage in a procurement process issuing an invitation for suppliers, often through a bidding process, to submit a proposal on a specific commodity or service.”

Quotes taken from

Conduct Procurements

Sources for Potential Suppliers

Approaches Used When Evaluating Prospective Suppliers

Supplier Selection Process

Conduct procurements – the process which includes receiving seller responses, selecting a seller, and awarding a contract

Sources for Potential Suppliers

Supplier websites

Supplier information files

Supplier catalogs

Trade journals

Phone directories

Sales personnel

Trade shows

Professional organizations and conferences

Electronic search engines

Published info by local, state, & federal governments

Selecting a Design-Build Contractor

Selecting a Design-Build Contractor

Exhibit 13.4 continued

Approaches Used When Evaluating Prospective Suppliers

Supplier surveys

Financial condition analysis

Third-party evaluations

Facility visits

Quality ability analysis

Delivery ability analysis

Supplier Selection

Invite suppliers to submit bids

Most common procurement document, the RFP, includes:

Purchasing overview

Basic supplier requirements

Technical requirements

Managerial requirements

Pricing information


Supplier Selection

Supplier selection a decision tree

A choice between alternatives under uncertainty

Outcome concerned with price and performance

Rate proposals and other supplier characteristics

Most important evaluation criterion is typically price

Goal is to award a contract to each selected seller

Tools and Techniques Used in the Seller Selection Decision Process

Weighting system

Independent estimates

Screening system

Seller rating system

Expert judgment

Proposal evaluation techniques

*See Exhibit 13.5 on p.438 in textbook

The Contract

A legal relationship between parties

Seller must deliver what is promised, and buyer must pay

Buyer is internal to the organization

Seller is external to the team

Contract – a mutually binding legal agreement created between buyer and seller

Major Contract Components

Statement of work

Schedule baseline

Period of performance

Roles and responsibilities


Payment terms

Place of delivery

Limitation of liability



Contract Types

Fixed-Price Contracts

Firm-Fixed-price (FFP) contracts– a contract in which the seller has to complete the job for the agreed-upon amount of money regardless of the actual cost incurred

Firm-fixed-economic-price-adjustment (FP-EPA) contracts – a fixed-rice contract with a clause to protect the seller from conditions such as inflation or commodity cost increases

Firm-Fixed-Incentive-Fee (FPIF) contracts– a contract in which the price is fixed as defined by the contract, but the seller can earn an additional amount as incentive if the seller meets defined project metrics

Cost-Reimbursable Contracts

Cost-plus-award-fee (CPAF) contract – a cost-reimbursable contract that involves payments to the seller for all allowed costs incurred for completed work, plus an award fee based on satisfying certain subjective performance objectives

Cost-plus-fixed-fee (CPFF) contract – a type of contract in which the buyer reimburses the seller for all of the seller’s allowable costs plus a fixed amount of profit (fee)

Cost-plus-incentive-fee (CPIF) contract – a type of contract in which the buyer reimburses the seller for the seller’s allowable costs and pays the seller a fee if it meets defined performance criteria such as schedule, cost, and/or performance

Time and Material (T&M) Contracts

Unit rate for each hour of labor or pound of material is set in the contract

Amount of work is not set  the value of the contract can grow

Seller charges for what is done to produce the product/service in contract

Time and material (T&M) contracts – hybrid contracts containing aspects of both cost-reimbursement and fixed-price contracts, generally used when the deliverable is labor hours and/or amounts of materials

Choosing the Right Type of Contract

Consider requirements that a buyer imposes on a seller

The degree of market competition plays a role

Consider risk for the buyer and the seller

Consider using a wrap-up

A wrap-up, or owner-controlled insurance program (OCIP), is a single insurance policy providing coverage for all project participants, including the owner and all contractors and subcontractors.

Choosing the Right Type of Contract

Things to consider:

Cost & schedule risk

Clarity about scope of work

Type & complexity of requirements

Cost & price analysis

Urgency of requirements

Performance period

Contractor’s responsibility

Contractor’s accounting system

Extent of subcontracting

Control Procurements

Buyers and sellers administer contracts

Sellers create performance reports

Buyer reviews performance reports

Control procurements – includes managing relationships between sellers and customers, monitoring contract performance, and making changes and corrections if needed.

Improving Project Supply Chains

Project Partnering and Collaboration

Third Parties

Lean Purchasing




Project Partnering and Collaboration

Partnering is a method for transforming contractual arrangements into a cohesive, collaborative team endeavor with a single set of goals and established procedures for resolving disputes in a timely and cost-efficient manner

Through strategic partnering companies are more likely to access advanced technology, share risks, & improve relative competitiveness

Project Partnering and Collaboration

Sources of Conflict During Project Purchasing

Lower price means cost reduction for buyer, but revenue loss to seller

Conflicts of interest predispose owners and contractors to be suspicious of one another’s motives and actions.

Conflicts create costly delays and questionable responses

Resolving Project Purchasing Conflicts

Use project partnering to engage the project owner and contractors

Try to increase the baseline of trust and collaboration

Sharing Requirements for Effective Project Partnerships

Mutual Goals in Project Partnerships

Securing Commitment to Partnering

Consider contractors with a mutual interest and expertise in partnership

Get the commitment of top management of all involved firms

Describe in detail all benefits and how the partnership will work


“Us and them”

Securing Commitment to Partnering

Problem resolution—Solving problems at the lowest level of organizations and having an agreed-upon escalation procedure.

Continuous improvement—Endless waste elimination and cost reduction.

Joint assessment—Reviewing the partnering process jointly.

Persistent leadership—Displaying a collaborative response consistently.

Third Parties

Mechanisms to grow supply chain performance…Aggregate:








Lean Purchasing

Implementation of just-in-time (JIT) tools/techniques in a manufacturing environment

Minimize costs


All processes required for a firm to purchase goods from suppliers.

Advantages of good project sourcing decisions:

Order aggregation

Procurement transactions more efficient

Design collaboration

Coordinated forecasting and planning

Improved customer satisfaction


Work required to move inventory throughout a supply chain

Modes of transportation used in supply chains

Transportation cost linked to responsiveness of supply chain aims

Tradeoff between responsiveness & costs—PM needs to remember which project objectives are most important!


Information enables management to make decisions over a broad scope that crosses both functions and firms

IT-based information management is crucial to the performance of project supply chains



Right kind


Cooperative relationships improve ability to compete in today’s marketplace

Project supply chain management represents a set of proactive responses

Organizations must assess need to outsource part of the project work

Contracting is used to specify and manage supplier-buyer relationships

Purchasing details are legally enforced in the contract

Partnering and coordination of purchasing allow a firm to maximize economies of scale in purchasing and reduce transaction costs.

Implications for PM in a Networked Organization Model

What is a Networked Organization?

Identify core competencies unique to your company and focus on building competitive advantage

Build alliances with best-in-class companies

An “open” organizational model

Business model drives speed and greater value of leveraging resources outside your company


Implications for PM in a Networked Organization Model

Our Approach:

Establish a common PM Methodology

Have a central point of contact—Communications is key!

Establish a Quality Management System (i.e., ISO 9001)

Invite strategic partners into business



Some of the questions you will see on the material covered in this chapter will be at least partly based on vocabulary…understand completely the difference between terms such as “cost-plus-award-fee” and “cost-plus-incentive-fee,” as well as when each type of contract may be used and how each type of contract divides risk between buyer and seller.

Similar terms are also used in the seller selection process, so know the difference between a Request for Information (RFI); Request for Quotation (RFQ); and Request for Proposals (RFP), and be ready to apply that knowledge to a variety of questions/problems.

Casa de Paz Development Project

The most fundamental supply chain question is “will Casa de Paz buy or rent and which building”?

Determine the types of professional service organizations to seek as partners.

How should partnerships be established with religious communities?

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