Effectively navigating the procurement landscape requires a recognition and understanding of the various procurement method categorizations. Two such methods are operational procurement and project based procurement.
Operational procurement, a term often used interchangeably with indirect procurement, centers around the routine acquisition of goods and services crucial for day-to-day business operations. The primary focus lies in securing items at optimal prices, with the right lead times, while ensuring quality and quantity standards. This procurement method frequently involves repetitive processes, emphasizing the importance of re-ordering and maintaining consistency.
Project based procurement concentrates on procuring goods and services tailored to a specific project or initiative. This method involves recognizing the distinct requirements of each project and collaborating with new or unique suppliers.
Project based procurement is similar to direct procurement, but whereas direct procurement specifically relates to an organization's purchase of goods or materials directly related to the creation of a manufactured good, project based procurement extends to the purchase of goods or materials often by a third party on behalf of a client directly related to the construction of a project.
Project based procurement finds application in diverse industries such as engineering, construction, manufacturing, energy, utilities, and information technology.
To explain further, here are five key differences between operational and project based procurement:
Project based procurement inherently presents more complexity, involving intricate schedules, changing scope, and numerous external stakeholders. Meticulous attention is required to manage these complexities, as missteps can lead to miscommunications and delays. On the other hand, operational procurement follows a more straightforward process with simple requisitions and purchase orders.
Project based procurement carries higher inherent risks due to the involvement of multiple stakeholders. It requires careful planning, communication, and coordination to ensure that all suppliers are delivering what is needed, when it is needed. In contrast, operational procurement benefits from repeatable goals and far less stakeholders, minimizing inherent risks.
In project based procurement, supplier relationships are often more complex and require greater coordination and collaboration. Success hinges on the quality of these relationships, necessitating coordination among multiple suppliers responsible for specific goods or services. Operational procurement, focusing on routine goods and services, requires less hands-on involvement from the procurement team.
Project based procurement involves dynamic and challenging outcomes that vary from project to project. Collaboration between the procurement and project teams is crucial for success. Operational procurement, however, centers on repeatable and clearly defined outcomes, challenging the procurement team to stay attuned to market changes and long-term agreements.
When a project is initiated, the project 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 dynamic 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.
Operational and project based procurement are two distinct methods of acquiring goods and services. While all organizations likely engage in operational procurement, not all organizations engage in project based procurement. Recognizing the nuances between operational and project based procurement is critical when formulating and adapting procurement strategies.
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