Operational Procurement vs Project-Based Procurement: Understanding the Key Differences

Understanding the differences between operational procurement and project-based procurement is essential for organizations to choose the appropriate approach for their procurement needs. Operational procurement is focused on regularly acquiring goods and services to run a business, while project-based procurement is focused on acquiring goods and services to complete specific projects or initiatives.

Operational procurement, sometimes referred to “MRO” procurement (Maintenance, Repair and Operations) involves the regular acquisition of goods and services needed maintain day-to-day operations for an organization. This type of procurement is focused on acquiring goods and services at the right price, appropriate lead-time, quality, and quantity. In most organizations, this type of procurement has a high amount of repeatability (re-ordering).

On the other hand, project-based procurement involves the sourcing and purchase of goods and services necessary to complete a specific project or initiative. This approach generally involves engaging new or unique suppliers, as each project is unique.  Owing to the uniqueness of each project, project-based procurement is generally (but not always) more complex from a technical perspective. Often purchased components have complex technical specifications that must be managed throughout the purchasing lifecycle.

Industries that typically utilize operational procurement:

• Retail: Retail businesses require the regular procurement of goods such as inventory, fixtures, and supplies needed to run their operations.
• Healthcare: Healthcare organizations require the regular procurement of medical supplies, equipment, and services to provide patient care.
• Education: Schools and universities require the regular procurement of textbooks, classroom supplies, and other educational materials.
• Hospitality: Hotels and restaurants require the regular procurement of food, linens, and supplies needed to provide services to guests.
• Manufacturing: Manufacturing companies require the regular procurement of (generally the same) raw materials, equipment, and services to support their production processes.

Industries that typically utilize project-based procurement:

• Construction: In the construction industry, project-based procurement is used to acquire the necessary goods and services to complete construction projects, such as building materials, subcontractor services, and equipment rentals.
• Engineering: project-based procurement is used to acquire goods and services required to complete engineering projects, such as raw materials, equipment, sub-assemblies, modules, and subcontractor services.
• Information Technology (IT): In the IT industry, project-based procurement is used to acquire software, hardware, and consulting services required to complete IT projects, such as system upgrades, software development, and IT infrastructure implementation.
• Oil and Gas: Oil and gas projects often involve the acquisition of specialized equipment and services that are necessary for exploration, drilling, and production. Project-based procurement is essential to the success of these projects.
• Aerospace and Defense: In the aerospace and defense industry, project-based procurement is used to acquire goods and services required to complete defense projects, such as weapons systems, aircraft, and consulting services.
• Utilities: Utilities require the acquisition of goods and services to support specific projects or initiatives, such as the construction of new power plants or the installation of new water treatment systems. Project-based procurement can help utilities manage the complexity of these projects, ensure that all vendors are delivering what is needed, and build strong relationships with key suppliers.

The key differences

So, what are the key differences between project-based procurement and operational procurement, and how do they impact the success of a project?

1. Scope and complexity

One of the key differences between project-based procurement and operational procurement is the scope and complexity of the procurement process. Project-based procurement is typically more complex than operational procurement, as it involves managing complex schedules, larger numbers of external stakeholders,  changing scope,  and ensuring that all deliverables are met. In contrast, operational procurement is typically more straightforward, with simple purchase orders or requisitions.

This complexity can have a significant impact on the success of a project. With project-based procurement, there are more moving parts to manage, and more opportunities for delays, miscommunications, or other issues that can impact the outcome of the project. In contrast, operational procurement is generally less complex, and may have more flexibility in general execution.

2. Risk

Project-based procurement and operational procurement have different risks involved. Project-based procurement carries a more complex risk as typically there are more than one stakeholder, meaning there are several different companies involved in decision making and end goals.  In contrast, operational procurement is less risky, as they have repeatable defined goals and metrics on success factors for the organization.

This increased risk can make project-based procurement a more challenging process. It requires careful planning, communication, and coordination to ensure that all vendors are delivering what is needed, when it is needed. However, if done correctly, project-based procurement can also lead to significant rewards in terms of project success and outcomes.

3. Relationship with Vendors

In project-based procurement, the vendor relationships are often more complex and require greater coordination and collaboration. The success of the project often depends on the quality of the vendor relationships. Project procurement typically involves multiple vendors who are responsible for delivering specific goods or services, and it is essential to ensure that all vendors are meeting their commitments and coordinating effectively to ensure timely delivery of all deliverables.

Operational procurement typically involves ongoing relationships with vendors who provide goods and services needed for day-to-day business operations. These relationships typically require less coordination since the procurement process is focused on acquiring routine goods and services at the right price, lead-time, quality, and quantity.

Another critical difference is the level of involvement required from the procurement team in vendor relationships. In project-based procurement, the procurement team must be more hands-on, actively managing the vendor relationships to ensure that all vendors are meeting their commitments and that the project stays on track. In contrast, operational procurement may require less hands-on involvement from the procurement team since the procurement process is more routine and predictable.

4. Focus on outcomes

The outcomes and goals on project-based procurement change from project to project which makes it both challenging and dynamic.  The procurement and project team need to work closely together to ensure the project is a success based on the specific project measurables.

Operational procurement focus on outcomes that are typically repeatable and well defined.  This challenges the procurement team to have a constant pulse on market changes and long-term agreements to minimize disruption.

5. Changing scope

When a project is initiated, the scope is defined as the specific goals, objectives, deliverables, and timeline that must be achieved. However, as the project progresses, the scope can change due to a variety of factors, such as new requirements, changing business needs, and unexpected challenges. These changes can impact the procurement process, requiring project-based procurement to be more adaptable and flexible.

In contrast, operational procurement typically has a static scope, as the goods and services needed are predictable and repetitive. This allows for a more straightforward procurement process, with well-defined specifications and requirements that do not change significantly over time.

Project-based procurement requires a more dynamic and flexible approach, as the procurement process must be able to adapt to changing project requirements. This can involve redefining the procurement process, adjusting procurement timelines, and even changing vendors or procurement strategies. Project managers must be prepared to manage these changes effectively, ensuring that the procurement process continues to support the project's overall goals and objectives.

Conclusion

In conclusion, project-based procurement and operational procurement are two distinct methods of acquiring goods and services that are used in various industries. Operational procurement is focused on procuring goods and services that are needed regularly, project-based procurement is focused on acquiring goods and services that are necessary to complete a specific project.

Project-based procurement is a complex and risky process that requires careful planning, communication, and coordination among multiple vendors. It also involves building strong relationships with vendors and a focus on delivering specific outcomes.

Understanding these differences,  can help choose the procurement approach that best fits the organization's needs and goals and ensure that they are using the right approach to achieve success. The right approach might be to utilize both approaches in different areas of the organization.

How can Current SCM help?

Current SCM, being a cloud-based procurement and material management system, can provide several benefits in facilitating project procurement processes. Some of the ways that Current SCM can help with project procurement include:

• Centralized Procurement Management: Current SCM can provide a centralized platform for managing procurement processes, allowing procurement teams to track and manage project-specific procurement activities in one place. This can improve visibility and control over procurement processes, making it easier to manage complex projects with multiple vendors.
• Improved Collaboration: Current SCM provides collaboration features that allow procurement teams to collaborate with stakeholders across different teams and departments involved in the project. This can enhance communication and coordination throughout the procurement process, ensuring that everyone involved is aligned with the project goals and timelines.
• Real-time Visibility and Control: Current SCM provides real-time visibility and control over procurement activities, enabling procurement teams to track progress, identify bottlenecks, and take corrective actions as needed. This can help to keep the project on track, ensuring that procurement activities are completed within the specified timelines and budget.
• Automated Procurement Processes: Current SCM provides automation capabilities for procurement processes, reducing the time and effort required for manual procurement tasks. This can free up procurement teams to focus on more strategic activities, such as supplier selection, contract negotiation, and relationship management.
• Enhanced Reporting and Analytics: Current SCM provides advanced reporting and analytics capabilities, enabling procurement teams to gain insights into procurement activities and vendor performance. This can help to identify areas for improvement, optimize procurement processes, and drive better decision-making.

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