Procurement Process, Negotiation, and Strategic Purchasing

Course Overview & Business Process Lifecycle

• Primary Course Sections:

  • Procurement Process for Awarded Projects

  • Negotiation 101

  • Strategic Procurement 101

• Business Process Lifecycle Phases:

  • Business Development (Winning Phase):

  • Steps: Projects Prospecting $\rightarrow$ Qualification $\rightarrow$ Bidding

  • Major Actions:

    • Conduct site visits and thoroughly understand site conditions

    • Expand the supplier base geographically

    • Issue Requests for Estimate (RFE)

    • Identify alternative materials or new products

  • Project Organization and Contracting (Winning/Executing Transition):

  • Steps: Handover $\rightarrow$ Project Start-up

  • Major Actions:

    • Update the Risk Register

    • Develop the Procurement Strategy (ProcStrat)

    • Identify and resource manpower requirements

    • Engage suppliers

    • Review and understand the Client Contract

  • Project Execution and Accountability (Executing Phase):

  • Steps: Construction $\rightarrow$ Project Turn-Over

  • Major Actions:

    • Develop Procurement Programme Monitoring Report (PPMR)

    • Execute Purchase Request (PR) $\rightarrow$ Purchase Order (PO) $\rightarrow$ Delivery $\rightarrow$ Receipt flow

    • Manage supply and subcontractor continuity

    • Oversee inventory and warehouse management

    • Perform PO closures and financial settlements

    • Manage excess material transfers and disposals

    • Project Completion / Celebration

Procurement Process Stage 1: Planning

• Procurement Strategy (ProcStrat):

  • Definition & Purpose: Identifies procurement strategies, line items, subcontractor packages, potential vendors, lead times, risks, and opportunities prior to execution.

  • Process Owner: Quantity Surveyor (QS) / Planner.

  • Approved By: Project Manager (PM) & Department Head.

  • Core Elements Evaluated:

  • Project Needs:

    • Materials: Cement (Type I, Type II), Rebar (Grade 40, Grade 60), Aggregates (G1 Gravel, S1 Sand).

    • Services: FRC Works (Foundation and Perimeter Walls), Masonry Works (Plastered Interior Walls).

  • When Is It Needed?: Schedules actual PO issuance, deliveries, and site mobilization.

  • Who?: Identifies potential vendors and market options.

  • How Much?: Analyzes market rates and aligns with project budget.

• Work Packages (WP):

  • Derived directly from the Approved Bill of Quantities (BOQ) and Project Schedule to structure package-by-package purchasing.

• Procurement Programme Monitoring Report (PPMR):

  • Definition & Purpose: Systematically monitors line items, subcontractor packages, Material Approval Request (MAR) status, PR status, and PO status across established lead times.

  • Process Owner: Project Procurement Specialist / Project Procurement Officer.

  • Approved By: Project Manager.

  • Tracking Scope: Tracks actual vendors with POs, actual PO financial values against budget, and exact delivery/mobilization schedules.

Procurement Process Stage 2: Requisition

• Purchase Request (PR):

  • Definition & Purpose: Document that officially initiates sourcing in the Procurement Department and triggers the ordering of items listed in the PPMR.

  • Process Owner: Quantity Surveyor (QS) / Cost Engineer (Project).

  • Approved By: Project Management Team (PMT), Project Manager (Project), and Admin Head (Head Office).

  • Key Content Requirements:

  • Service or Material Item Description

  • Quantities

  • Date Needed on Site

  • Approved Budget

• Additional Requisition Documents:

  • Material Requisition (MR):

  • Contains detailed technical specifications and required site delivery dates for line items.

  • Initiates PR for items not initially included in standard Work Packages.

  • Process Owner: Requestor / QS.

  • Approved By: Project Manager or Department Head.

  • Capital Investment Request (CIR):

  • Mandatory additional request for acquiring fixed assets (e.g., laptops, office furniture) under material requests.

  • Process Owner: Requestor / QS.

  • Approved By: Accounting Department Head.

  • Material Approval Request (MAR):

  • Required for items requiring client approval prior to purchase.

  • Process Owner: Quality Assurance / Quality Control (QAQC).

  • Assisted By: QS.

  • Approved By: Client.

• Requisition Requirements for Subcontractors:

  • Prospective subcontractors must be made fully aware of scope complexity during requisition, adhering to Main Contract specifications.

  • 13 Standard Subcontract Requisition Documents:

  1. Bill of Quantities (Responsible: QS / Cost Engineer)

  2. Drawings (Responsible: QS)

  3. Work Schedule (Responsible: Planner / Subcontractor)

  4. Responsibility Matrix (Responsible: QS / PM / Subcontractor)

  5. Specifications (Responsible: QS)

  6. Method of Measurement and Payment (Responsible: QS / Cost Engineer)

  7. Subcontractor Quality Requirements Checklist (Responsible: QAQC / Subcontractor)

  8. Guaranteed Maximum Quantity [GMQ] (Responsible: QS / Cost Engineer)

  9. Resources Loading (Responsible: Planner / Subcontractor)

  10. Technical Data Sheet (Responsible: Subcontractor)

  11. Method Statement (Responsible: Operations / QAQC / Subcontractor)

  12. Detailed Programme [Optional] (Responsible: Subcontractor)

  13. Contractor's ESH Management Guidelines [CEMG] (Responsible: Environmental Safety & Health [ESH] / Subcontractor)

Procurement Process Stage 3: Sourcing

• Vendor Accreditation:

  • Vendors are formally evaluated and verified by a third-party service provider.

  • Required Compliance Documents:

  • Company profile

  • SEC and DTI Registration (Certificate of Business Name Registration, Deed of Articles of Partnership, Articles of Incorporation and By-Laws)

  • Business Permit / Mayor's Permit

  • BIR Registration

  • List of Completed / Served Projects

  • Credit Facilities / Bank References

  • Copy of Board Resolution for Authorized Signatories / Secretary Certificate

  • Latest SSS Sample and Official Receipts

  • Sales Invoice Sample and Official Receipts

  • Sustainability Compliance Form

  • Authorization Letter

  • Vendor Code and Policy

  • Disclosure Statement

  • Vendor Information Sheet (VIS)

• Key Sourcing Documents & Processes:

  • Request for Quotation (RFQ):

  • Formal request sent to prospective vendors for pricing on required materials or services.

  • Process Owner: Procurement Specialist.

  • Key Considerations: Granular cost breakdown (materials, equipment, labor, delivery), VAT inclusion, price validity period, lead times/availability, commercial terms & conditions, exact delivery point.

  • Canvass Sheet / Bid Evaluation Summary Form:

  • Matrix tabulating all incoming supplier proposals.

  • Inputs are normalized to ensure equitable ("apple-to-apple") comparison.

  • Explicitly highlights pros and cons of each supplier offer.

  • Process Owner: Procurement Specialist.

  • Award Recommendation:

  • Required for high-value procurements; provides formal technical and financial justification for vendor selection.

Procurement Process Stage 4: Purchase Orders

• Purchase Order (PO) & Subcontract Agreement:

  • Definition: Legally binding contract between buyer and seller.

  • Execution Platforms: SAP Purchase Order / ARIBA.

  • Process Owner: Procurement Specialist / Category Lead.

  • Approved By: Project Manager (governed by Limits of Authority / LOA levels).

  • Core PO Components: Vendor name, item descriptions, ordered quantities, unit and total prices, agreed delivery dates, and comprehensive terms & conditions.

  • Function: Triggers the official delivery and fulfillment process from the vendor.

Procurement Process Stage 5: Delivery & Materials Management

• Scope & Management Responsibilities:

  • Process Owner: Site Quantity Surveyor / Site Procurement Officer.

  • Approved By: Project Manager & Procurement Head.

  • Key Operational Tasks: Managing full or staggered PO delivery schedules; maintaining minimum inventory threshold levels (ideally $2\times$ to $3\times$ lead time); receiving and quality checking goods; warehouse storage and issuance; excess material management; PO financial closure.

• Delivery & Material Workflow Lifecycle:

  1. Delivery: Site QS/Procurement creates a Goods Receipt (GR) upon delivery.

  2. Inventory: QS/Procurement/Warehousemen store items securely in the site warehouse.

  3. Goods Issuance: Warehousemen release stored items to authorized requestors.

  4. Excess Management: Unused items are formally redirected for resale or transfer to other active project sites.

• Inventory & Delivery Documentation:

  • Delivery Receipt: Physical document recording material backloading and returns to suppliers. (Process Owner: Vendor, QS, Project Procurement; Accepted By: Warehouse Manager).

  • Goods Receipt and Issuance: Digital ERP (SAP) records reflecting receipt of incoming goods and system issuance of stock. (Process Owner: Warehouse Manager; Overseen By: Vendor, QS, Project Procurement).

  • Material Delivery Inspection Report: Documents physical and technical verification (quality, quantity, specifications) conducted by QAQC, Discipline Representatives, and MIA against RFQ specs. (Process Owner: QAQC; Overseen By: QS/Procurement; Approved By: PM / QS Manager).

  • Material Inventory Monitoring: Manually updated inventory ledger tracking material movements across defined reporting periods. (Process Owner: Warehouse Manager; Overseen By: QS/Procurement).

  • Material / Asset Disposal Routing / Approval Form: Secures management authorization to dispose of scrap materials with residual commercial value. (Process Owner: QS/Procurement; Accepted By: QS / Procurement Head per LOA).

• Scrap Management Examples:

  • Unused Structural Materials: Corroded scaffolding, structural steel offcuts, scrap rebar, discarded wire rolls.

  • Defective Machinery: Non-functional concrete mixers, damaged wheelbarrows.

• Site Warehouse Audits:

  • Monthly audit ensuring proper warehouse upkeep and safety compliance.

  • 7 Audit Scope Areas: Layout and Space, Inventory Management, Emergency Procedures, ESH and PPE Management, Manual Handling / Ergonomics, Waste Disposal, Client-Supplied Materials.

  • Case Example (DNL Warehouse Audit - Feb 2020 vs. Mar 2020):

  • February 2020 Score (79%): Hazards noted included correct but delayed GR/GI processing, disorganized inventory sorting, and poor housekeeping in the Pipe Storage Area.

  • March 2020 Score (88%): Corrective action verified organized inventory sorting and a tidy, hazard-free Pipe Storage Area.

Procurement Process Stage 6: Vendor Management

• Strategic Objectives:

  • Maintain a reliable and qualified vendor pool.

  • Build strong collaborative partnerships with top-performing suppliers.

  • Enforce strict adherence to contractual terms and conditions.

• Vendor Performance Report (VPR):

  • Purpose: Evaluates supplier performance periodically based on delivered scope.

  • Contributors: PMT, ESH Officers, QAQC Officers.

  • Overseen By: Vendor and Project Manager / Procurement Officer.

  • Approved By: Procurement Head.

• VPR Evaluation Frameworks:

  • Subcontractor VPR for Services (Example: Tartaro Construction Inc., Palayan Project, Nov 2021):

  • Project Management (40% Weight): Business Relations ($10\%$), Management of Key Personnel ($10\%$), Schedule ($20\%$), Cost Control ($20\%$).

  • ESH Performance (18% Weight): ESH Incident Record ($3\%$), Occupational Health ($2\%$), Safety & Health Compliance ($4\%$), Environmental Regulations ($4\%$), Site ESH Requirements ($4\%$), ESH Participation ($3\%$).

  • Quality of Construction (20% Weight): Qualified Workers ($5\%$), Compliance to Drawings/Specs ($5\%$), Defect Rate ($5\%$), Submittals ($5\%$).

  • Sample Outcome: Accounted Score = $2.85 / 5.00$ ($79\%$, rated Marginal/Needs Improvement).

  • Vendor VPR for Materials (Example: Sorcom Readymix Concrete, Palayan Binary Power Plant, March 2024):

  • Quality (30% Weight): Adherence to Specs ($15\%$), Defect Rate ($15\%$).

  • ESH Performance (10% Weight): No Recordable Incidents ($5\%$), No ESH Violations ($5\%$).

  • Delivery (40% Weight): Quantity Reliability ($10\%$), Timeliness of Delivery ($30\%$).

  • Responsiveness (20% Weight): Response to Queries ($10\%$), Complaint Rectification ($10\%$).

  • Sample Outcome: Overall Rating = $87.50\%$ (Very Satisfactory; Passing threshold is $80.00\%$).

Negotiation Strategies for Procurement

• Core Negotiator Mindset:

  • Procurement professionals must maintain full leverage ("hold all the ACES") during supplier discussions.

  • Anticipate sales tactics to counter inquiries effectively while gathering intelligence.

• Sales Questions vs. Best Negotiator Responses:

  • Lead Time:

  • Sales Question: "When do you really need this by?"

  • Optimal Response: "What’s your standard delivery? What are you currently delivering at?"

  • Competition:

  • Sales Question: "Who is our competition?"

  • Optimal Response: "Company policy doesn’t allow me to reveal that - who do you regard as your major competition?"

  • Quality and Specifications:

  • Sales Question: "What do you like/dislike about your current supplier? How do we compare with others?"

  • Optimal Response: "Would you want us talking about your problems with your competitors?"

  • Price:

  • Sales Question: "Out of price, quality, delivery, terms and warranty, what’s most important to you? What is your budget?"

  • Optimal Response: "I’m concerned about the total package – price, terms, quality, delivery, warranty, contract length. They are all important. That’s not the point. The point is, what’s the best you can do?"

Strategic Procurement & Portfolio Analysis

• Tactical vs. Strategic Purchasing:

  • Tactical Purchasing: Reactive, transactional execution of administrative tasks (requesting quotes, issuing POs, expediting orders) without alignment to enterprise goals or long-term value creation.

  • Strategic Purchasing: Proactive planning, implementing, evaluating, and controlling purchasing decisions to align supply chain capabilities with long-term corporate goals.

• Long-Term Contracting Frameworks:

  • Master Purchasing Agreement (MPA): Overarching agreement establishing pre-approved terms, conditions, and pricing for repetitive material/goods purchases, expediting individual PO releases.

  • Master Services Agreement (MSA): Establishes baseline legal and commercial terms for recurring service engagements (e.g., equipment calibration, third-party inspection, maintenance), streamlining future scope execution.

• Kraljic Portfolio Analysis Matrix:

  • Leverage Items (Low Supply Risk, High Profit Impact):

  • Strategic Focus: Volume consolidation, competitive bidding/tendering, vendor selection, umbrella agreements.

  • Examples: Bored piling works, design-and-build designers, structural rebars, ready-mix concrete.

  • Strategic Items (High Supply Risk, High Profit Impact):

  • Strategic Focus: Strategic alliances, long-term partnerships, early supplier involvement (ESI), cost and technology roadmap alignment.

  • Examples: High-technology automation systems, client-mandated specialized equipment brands.

  • Non-Critical Items (Low Supply Risk, Low Profit Impact):

  • Strategic Focus: Product standardization, call-off orders, operational efficiency, delegated purchasing.

  • Examples: PVC pipes, standard office supplies, consumables, drinking water.

  • Bottleneck Items (High Supply Risk, Low Profit Impact):

  • Strategic Focus: Volume insurance contracts, supply security, alternative sourcing identification.

  • Examples: Aggregates sourced from environmentally sensitive or highly restricted locations.

• Supplier Positioning Matrix (Spend vs. Supplier Attractiveness):

  • Exploitable (High Spend, Low Attractiveness): Vendor seeks to extract margin; procurement must command better terms.

  • Nuisance (Low Spend, Low Attractiveness): Minimal vendor interest; loss of supplier causes low operational impact.

  • Core Customer (High Spend, High Attractiveness): Vendor provides full support, best commercial terms, and long-term commitment.

  • Developmental (Low Spend, High Attractiveness): Opportunities to engage, explore, and expand business relationship.

  • Fundamental Rule: Know where your organization stands; do not demand concessions without established market leverage.