Role Procurement Plays In Manufacturing Project Construction Essay

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The purpose of this chapter is to discuss key findings from the literature reviewed by appraising individually and collectively, the objectives identified from chapter one and set precedence for concluding this research in the next chapter. By interpreting these findings using critical argument in support or dismissal of concepts explored in the literature review, it is expected that the aim of this project will begin to be perceptible. The research study focused on identifying the role procurement plays in manufacturing project whilst seeking to establish a relationship between procurement practices and the performance of projects.

This analysis will also attempt to be the justification for carrying out the project. Figure 16 is an illustration of the scope of work required at task level to serve as guidance for this chapter.

Figure -WBS for chapter four

(Author)

OBJECTIVE APPRAISAL

From the literature explored in chapter two, there was a consensus that procurement methods have positive impact on the performance of projects. The literature also identified several gaps between specific manufacturing project procurement practices and project performance. While there is ample backing for the role of procurement projects in construction, the debate on what role procurement plays in manufacturing projects is on-going. As stated earlier, an individual appraisal of the project objectives will assist in the dismissal or support of initial argument. This role is summarised in Appendix 13 in concurrence with numerous studies (Eriksson and Westerberg 2010; Zacharia and Nix 2009; Duconby and Searcy 2007; Ling 2004).

Evaluation of procurement and performance principles

In reviewing theoretical principles of procurement, this study identified interconnectivity between procurement practices of supplier selection/outsourcing and project performance of cost savings. From the literature reviewed it was observed that numerous procurement practices were linked to positive cost performance of projects as highlighted by Lock (2009) but this study by focusing on outsourcing and supplier selection did not imply the triviality of other procurement practices/processes but simply sought to confine the field of study to accomplish more realistic findings.

It could therefore be suggested that a solid procurement process can deliver project profitability hence influence the performance of the project as established in agreement with Van Weele (2005) but there needs to be good performance measurement systems in place as suggested by Kerzner (2009) to monitor specifically how this relationship can be improved upon in order for procurement practices to mature. Fleming and Koppelman (2006) agreed that the use of EVM and variance analysis as techniques of measuring cost performance require the project manager to be well rounded and knowledgeable in the application of these techniques.

When it comes to the issue of which procurement processes are more prevalent in concept, this study finds that though there are different terminologies used for different stages, most of them mean the same thing and are applicable to any project depending on the organisational need. Table 5 tries to compare the different frameworks that exist amongst various authors while noting that most terms encompasses others for example contract management may include requisition, ordering expediting, payment and follow up.

Concerning the use of purchasing and procurement interchangeably, this study disagrees with Lysons and Farrington (2006) suggesting that the terms purchasing and procurement are the same but agrees with Nissen's (2008) argument that procurement is wider than purchasing as it encompasses other entities such as functions, organisation, processes and systems.

This study agrees with Ling (2004) that evaluation of performance in any system is the key to measuring how well the system is functioning and finds that the criteria for project performance goes beyond the iron triangle of cost, time and quality as suggested. The use of KPI's balance scorecards and EVM as suggested by Fleming and Koppelman (2006) is also adopted reason being that:

"Measurements of organizational value in the current business environment using traditional accounting methods are increasingly inadequate and often irrelevant to real value in today's economy" (Sharma et al 2007:487).

Wang and Huang (2006) identified a very useful but often missed performance criterion of stakeholder's performance. Being that a stakeholder has interest or is affected by the project (APM Bok 2006), it is very important to also note how their performance in the project affects the overall project outcome.

Concerning the importance of cost performance over other performance criteria, this study finds that the realisation of investments by the procuring company is the basis for being in business as Jainendrakumar (2008: 1) stated;

...'the success of any project or program lies in aligning it with the overall business successes'.

For this reason, this study agrees that managing cost through measuring and monitoring of budgets and as a means of evaluating cost performance suggested by Turner (2007) is key to adhering to planned cost during procurement which in turn improves the cost, project and hence corporate performance.

'Make or buy' Assessment/Supplier selection

From literature reviewed, this study observed that the 'make or buy' process introduced the practice of outsourcing as a means to reduce project cost thereby promoting project profitability. Altan (2001) agreed that for project managers working on projects in the manufacturing industry, it is important to understand early in the project lifecycle whether the organisation has the capacity to procure or not by asking hard-line questions identified by Momme (2002) to avoid risk of project failure. This assessment needs to be thorough and tied to the objectives of the organisation to elicit support from senior management.

The observation made by Momme (2002) on benefits of outsourcing to the manufacturing sector was satisfactory to this study as the general consensus is that it is better and financially beneficial to outsource certain services than to undertake them in-house. For example it is better to outsource a procurement process in a project to skilled service specialist than to undertake it within a non project organisation.

This study however disagrees with the concept that outsourcing in manufacturing operations is on the rise and this is supported by Van Weele (2005) noting that its application in sectors such as manufacturing still being low as only 7% of manufacturing organisations outsource and organisations have to be careful not to transfer core competency/ knowledge thereby rendering themselves inefficient. The consensus is therefore on increase in outsourcing of procurement in manufacturing projects.

Having explored the meaning of good procurement practices as Blanden (2002) established, this study agrees that good procurement practices are also dependent on conditions and variables that exist within the project, the organisation and the sector.

As established in chapter two that supplier selection is very important and beneficial to improving cost performance through increased cost savings, it could be suggested that the appraisal stage in selecting suppliers is even more important as observed by Gonzales et al (2004) and Kumaraswamy et al (2000). While there is a consensus of the selection process this study introduces a new method by Boer et al (2001) to use selection process of definition, Formulation of criteria, qualification and final choice for selecting suppliers.

While this study agrees with Kumaraswamy et al (2000) to use evaluation criteria such as, prequalification rating, value for money, transparency and performance based contracting for selecting suppliers, it could be suggested that an evaluation of the suppliers should also be carried out at the close of the project. This concept introduced by Hsu et al (2006) suggests that it helps to maintain long term relationship between suppliers and ensures repeat business by reducing risks associated with new and unknown suppliers.

This study also agrees with Rahman and Bennet (2009) that one of the key benefits of supplier selection to project performance is that it sets precedence for establishing a relationship between all stakeholders especially the SCC which is very strategic to managing project cost since the SCC will require remunerations for their services. For detailed summary of link between procurement practices and cost performance, see Appendix 15.

Exploration of best practices

In agreement with literature exploring procurement best practices in chapter two, there was a consensus that a combination of different methods using individual strengths and weaknesses will deliver a better performance of project especially in the area of cost performance as suggested by Andersen et al (1999). After analysing the various methods explored in the literature, this study agrees with Boer, Harink and Hejboer (2010); Walker and Harland (2008); Puschman and Alt (2005) that methods such as E-procurement, sustainable and lean procurement can reduce procurement cost and impact the project budget by simply cutting out unwanted processes thereby eliminating wastage.

This study also agrees that agile, strategic, joint and sustainable procurement leads to long term savings and corporate profitability by creating long term relationship that ensures repeat business as suggested by Cox and Townsend (2000); Blanden 2002); Sohal (1999) and Wilding and Humphries (2006).

Correlation of relationship

In order to satisfy the second part of the first objective of

..."evaluate project procurement and project cost performance theoretical principles and consequently correlate the relationship between them";

the following were identified in chapter three and will be validated using researched literature. These relationships were summarised as premises that offer direct connection/links between procurement and cost performances.

Premise:

Procurement in manufacturing projects has a direct impact on project performance.

Good or bad procurement practices have different impact on project cost performance in the manufacturing sector.

Supplier selection can improve project cost performance in the manufacturing sector.

Outsourced procurement can increase cost savings in manufacturing projects but not necessarily in manufacturing operations.

Van Weele (2005) and Erikkson and Westerberg (2010) validated the first and third premise by identifying key procurement procedures that can have direct effect on project performance amongst which choice of supplier/outsourcing were identified as having a relationship with cost performance. Some articles (Zacharia and Nix 2009; Duconby and Searcy 2007) are of the opinion that the basic direct impact procurement has is on the three key success criteria of Time, cost and Quality.

The second premise is supported by Blanden (2002) suggesting that good procurement practices can increase profitability amongst other benefits which alternately means that bad procurement practices can lead to losses. Although the meaning of bad procurement practices is subjects to personal interpretation, this research assumes it to simply mean not following proper procedures. In agreement with (Van Weele 2005) this study finds that improved savings and corporate profitability are tied to procurement practices as benefits of outsourcing and supports the fourth premise to be accurate. Therefore this study validates these premises as true.

See Appendix 13 for detailed conceptual framework

CONCLUSION

This chapter followed an in depth discussion on key findings highlighting the role of procurement in performance of manufacturing projects by agreeing with or dismissing previous suggestions from a plethora of literature reviewed. It can be assumed therefore that the aim of this chapter has been achieved. It is also believed that the debate over the impact different procurement practices such as supplier selection and outsourcing have on the outcome of a manufacturing project was triumphant. The final chapter will aim to pull together all research work done for this project by making recommendations, highlighting areas for further research and observing lessons learnt and hopefully this will only be the beginning of a primary research into the role of procurement practices in the UK manufacturing sector.

CHAPTER FIVE

CONCLUSION AND RECOMMENDATION

INTRODUCTION

This chapter pulls together all reviewed literature and discussions while affirming the position of this study on the role of procurement in project performances. This research will be concluded by making relevant recommendations for improvement of procurement practices applicable to the manufacturing industry in the area of what needs to be utilised and what lessons have been learnt from the research. Focus will be to enhance research that addresses identified gaps along with grounds for making recommendations.

CONCLUSION

With many organisations still seeing procurement as a transactional process rather than as a function that can add value, the discussion over the role of procurement in projects which is the aim of this study is very significant as organisations may begin to realise its importance and therefore strive to understand how to mature in organisational practices. In the debate over the role of procurement in project performance, the objectives of this study which included: critical evaluation of procurement and project performance; evaluation of 'make or buy' and supplier selection and exploration of best practices sought to correlate a relationship between both procurement and project performance.

The research identified the main categories that are central to the procurement process as outsourcing and supplier selection and the argument is won with profound evidence of the impact of these procurement practices on cost performance. These impacts have been summarised as premises that were validated by offering direct connection/links between procurement and cost performances which satisfies the research objectives.

Although it may seem presumptuous to attribute positive performance to procurement only as failure to mention the existence and contributions of other project variables such as planning, monitoring and controlling may suggest the study is biased, it is still recognised that there is a profound role which procurement plays due to the magnitude/percentage of project cost that is allocated for procurement. This evidence was addressed through research objectives that explored key elements of procurement and project performance.

For these crucial reasons mentioned above, the necessity for this study is unrivalled and the aim achieved.

RECOMMENDATIONS

The recommendations were made in three parts, the first part satisfies the fourth research objectives, a second part provides solutions to the challenges identified in chapter two and the third are recommendations for improvement relevant to industry practices.

Conceptual framework

This section will satisfy the fourth objective of "To propose a conceptual framework for improved project performance in the manufacturing sector using procurement practices".

The achievement of the fourth objective ensured organisations can grow from present transactional stage of procurement to a more functional stage that can add value to the company. In order to achieve the maturity of procurement practices, manufacturing organisations such as the Balmoral tanks ltd should employ the use of a best practice framework as identified by this study as the best conceptual framework for successful procurement practices that can increase savings on cost in projects.

This best practice framework depicted in Figure 17 will include using maturity models to assess the organisations' project management capability and then combine different methods that collectively will provide the company with a much needed competitive advantage. A maturity model provides a systematic framework for carrying out benchmarking and performance improvement (OGC 2010) and is applied to an organisation, business unit or team offering a plan for performance improvement. To improve upon outsourcing and supplier selection, recommendations were made for application of this best practice framework.

Figure -Best practice framework

(Author)

Solutions to Challenges

The solutions to the challenges identified summarised in Appendix 16 forms the first part of the recommendations.

Recommendations

The manufacturing sector needs to adopt a continuous process improvement culture suggested by Huber (2009) which will ensure the company is current with procurement practices.

In order to enhance procurement practices, there should be an incorporation of the different processes from all the methods discussed earlier combining their individual strengths and learning from their weaknesses to achieve a best practice framework.

In order to ensure smooth procurement planning which is critical to better project performance, the manufacturing sector needs to make use of lifecycles for projects and procurement

Incorporating policies on transparency suggested by Gindlesperger (2010) will ensure a well rounded process that adds credibility to supplier selection processes.

Manufacturing companies such as the Balmoral Tanks ltd should have a solid performance measurement system in place to evaluate both procurement practices and project performance. The use of Value added Management systems such as the balance Score card to measure the intellectual capital of the company which consists of Human capital, Structural capital and Customer capital is also highly recommended by this study. Using a Balanced Score card will integrate performance of the company, financial performance , business processes, learning and growth with the aid of some of the key performance indicators discussed in Appendix 5 as part of the lead and lag indicators to measure performance.

This study suggests the use of the OGC maturity model as illustrated in Figure 17 against which the current project management competence of the company's procurement practices as well as cost performance will be evaluated. It is recommended that this model be integrated within the primary research as indicated in the questionnaires from Appendix 12 to serve as the foundation for initiating an improvement in procurement practices by the case study.

LESSONS LEARNT

Evaluation of project management methodology

There is need to address the study within Project management context.

Using a method that matches research chapters to a project management lifecycle to address the chapters ensured logical delivery, visible progress and control of individual chapters.

The inclusions of some elements differ from and depend on individual researcher.

Evaluation of research components

There was constant revision of research aim/objectives as the research advanced thereby allowing approach and strategy of components delivery to become clearer. See Appendix 14 for initial aim/objectives.

There is need to have a more focused research to ensure clarity and concision.

Procurement is a lot wider than the researcher had previously envisaged and this often caused scope creep in the literature review.

Evaluation of Individual performance

The researcher understood the need to expend time on each chapter to guarantee clear understanding and revision of work.

It is very important to be guided by a supervisor and constantly review work before going ahead.

There was a need to get unvarying and constructive feedback from supervisor.

FURTHER RESEARCH AREAS

This study discovered that although studies focused on procurement practices and performance outcomes have been carried out, gaps in the study of direct impact of procurement practices on projects performance within projects in the manufacturing sector are copious and will require further full scale research not permissible due to the scope of this study but within its' context to be carried.

Research should aim to align specific procurement practices to known performance outcomes of projects using project management methods.

Further research should concentrate on why some organisations still see procurement as a transactional process rather than a functional one which can add value to the organisation.

Lastly, research on other components of procurement that may increase performance of project should be carried out in order to ensure that manufacturing industries have the knowledge to improve upon corporate profitability within projects.

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