Relationship between Procurement and Performance

Procurement Performance

Procurement performance relies on a number of factors such as market knowledge, quality of staff, procurement policies and procedure, and the available resources. Technically, procurement in construction is necessary both at the design and construction phases of the project. Notably, successful procurement depends on the strategies used by the project managers to meet the objectives of the client business plan (Bennett & Peace, 2006). However, the procurement strategies should and procurement systems used by an organization should aim at reducing cost, completion time, and other legal obligations. Consequently, there are seven key factors that influence procurement performance as identified by Smith and Conway (1993) and they include procurement strategy, corporate structure, and development of expertise, proactive approach to coordination, staff, information, and control system and focused efforts. In addition, communication is another key factor in enhancing success at all levels of a project since it enhances the coordination and cooperation among the procurement partners.

Records Management System and Procurement Performance

Procurement records should be constantly updated to enhance quality and timely decision making. Organizations require an accessible and accurate record of information that is error-free, timely, and original to make an informed decision. An informed decision can reduce construction cost and hence enhance timely rectification of errors in the procurement if any. Notably, to operate effectively in the modern business, there is need to embrace digital record system that is easy to retrieve and use. With the availability of the internet, the digital records can be accessed by various parties in different parts of the globe and hence enhance quick decision making (Saffady & Association of Records Managers and Administrators, 2011). Remarkably, 20th Century Home Inc has developed a strong and elaborate record management system based on modern technology. Electronic record management system used by the organization enhances sharing of information with key stakeholders in various parts (20th Century Homes, Inc., 2017). With this regards, contractors, managers, and the client can coordinate the project to ensure that the end product meets the customer’s specification.

Sound record management system is also critical in ensuring that there is transparency, accountability and that the procurement parties share responsibilities in the procurement process (Saffady & Association of Records Managers and Administrators, 2011). In addition, it can reduce vulnerability to legal issues that might arise during the course of the project, promote efficiency in terms of human resources, maintenance, and control as well as promoting coordination among the project parties. 20TH

Century Inc, Record management system enhances the performance of the procurement in the sense that it provides weaknesses of financial losses and provides the best direction for best practices in terms of sourcing. The future of record management system lies in the appropriate use of advanced electronic systems useful in supporting the overall goal of the business (Walker & Hampson, 2008). In addition, electronic records management must be infused into the overall document systems that enhance document identification, storage, safety, and retrieval of relevant records for decision making.

The organization can improve its records management systems and policy by outsourcing this function to an organization specialized in the service. Outsourcing this function to one of the reputable organizations specialized in the record management for both the paper and electronic records can ensure the security and easy access of the documents. With the constant cyber crimes that threaten the security of electronic documents, relying on such organizations can be a better way of securing such important information. Ideally, record management system should be viewed as a critical support function in the procurement process.

Procurement procedures and Procurement Performance

Procurement procedures are the operating instructions of an organization that detail the duties and authorities of each party in the procurement process. In this regard, all the steps in the procurement cycle should be properly authorized and documented. Procurement is heavily tied to the existing organization structure, past experience, quality of internal communication systems, and the available resources. Remarkably, procurement policy defines and approves the processes for various contracts, including the role of purchasing, buyer-seller relationships, the conduct of procurement staff and operational issues. 20TH

Century Homes is considered to have the best procurement policy that promotes transparency and shared values with major stakeholders 20th Century Homes, Inc., (2017). In addition, the organization also has the best procurement policies in terms of tendering, purchasing. Ideally, a standard procedure which covers all the aspect of the procurement cycle such as supplier selection, contract negotiations, order placement, and payment is necessary for enhancing the procurement performance (Walker & Hampson, 2008). Such standards ensure separation of the task, shared responsibilities, and reduce wastages. In addition, the standard procedures curbs fraud and bottlenecks that could delay the project delivery time.

Remarkably, the organization procurement procures tend to enhance collaborative working with all the stakeholders. Key stakeholders such as the contractor, subcontractors, the client, and the organization work together in determining the quality of the materials to be used in the construction work (20TH

Century Homes 2017). In addition, e-procurement used by the organization promotes collaborative working through the development of strategic partnership and building long-term relations with the focus on many projects and not just a singular project. Ideally, the organization considers the interests of all the major parties that are affected by its procurement system and its final product. In this regard, the organization relies on its standard procurement procedures to approve contracts, get the best supplies, and build a relationship with other stakeholders such as home buyers (20TH Century Homes 2017). In addition, procurement procedures control spending activities, the conduct of the procurement staff, as well as other operating activities that affect the procurement.

Staff Qualification and Procurement Performance

Effective operations of procurement functions such as planning and control of procurement processes depend on the ability and quality of the procurement employees. Strategic plans of any organization should, therefore, include the acquisition, development, and the reward of the human asset. Ideally, employees are considered to be the most important assets if any organization since they are involved in coordinating and performing various tasks to ensure that the organization achieves its objectives (Masterman, & Masterman, 2013). 20TH Century Homes seek to get the most qualified personnel by outsourcing the recruitment process to other firms that are specialized in recruitment. The outsourcing of the recruitment process has the advantage of minimizing the time involved in the search for qualified personnel, interviewing, hiring, and training of the new employees. In addition, multi-skilling, and constant training of the staff provides employees with extensive and variety of skills that enhance the quality of its procurement process. Getting the most qualified personnel to hand the procurement issues has helped the organization eliminate various risks and financial losses that result from delays, and poor quality.

Remarkably, purchasing partnership has increasingly gained popularity over the past few years and with such advancement, organizations should take into consideration the level of education of its procurement staff. Ideally, procurement is no longer considered as a clerical function; rather, it is a strategic function of any business. In this regard, the staff training and skill development, skills, and education must be improved to fulfill strategic potential goals (Bennett & Peace, 2006). In addition, procurement involves a wide variety of functions such as supplier negotiation, quality certification, supply market research, and the management of value analysis processes which calls for a high level of professionalism in order to enhance procurement performance. Consequently, 20TH Century Homes rely on teams, oriental job responsibilities, extensive information system, and cross-functional managers to improve processes and balance conflicting interest thereby enhancing the quality and operation of its staff.

Information Communications Technology and Procurement Performance

Procurement personnel are considered information as information processors since they receive, analyze, and disseminate such information to enhance quality decision and proper management of the flow of goods and services along the supply chain. Notably, ICT is necessary for the construction procurement since it enables sharing of relevant information in the procurement that can help in reducing bloated inventory levels resulting from the poor flow of information (Masterman, & Masterman, 2013). The digitalization of operations and the automation of information sharing initiates have helped 20TH Century Homes to build supply chain partnership that enhances collaborative planning, the flow of physical materials to the sites. Edum-Fotwe (2002) argues that automation of information sharing can shorten information processing time and improves procurement performance.

Procurement Systems

Procurement systems are the structures that an organization adopts for managing the designing and construction of a project. Over the past few years, there has been a development in the procurement systems focusing on electronic procedures. In addition, it enhances and simplifies the process of procurement and other legal aspects of doing business. Selecting the best procurement system is crucial for the successful completion of the project since a wrong selection of procurement system can lead to project failure, loss of business, and the dissatisfaction of the client (Masterman, & Masterman, 2013). Remarkably, Procurement System Judgment (PSJ) method can be used to identify the best procurement system that is applicable to a particular construction work. In this regard, selection of an appropriate procurement system can reduce the overall project construction cost. With the increasing complexities and many available options for client, consultants, and contractors, selecting the most appropriate Procurement system is extremely challenging. Overally, choosing the appropriate procurement system can reduce such risks as the time delays, quality problems, and cost overrun.

In addition, certain management strategies are required to be incorporated into the procurement systems to ensure the success of the procurement system adopted by the organization. Remarkably, 20TH Century Homes have adapted the e-procurement system that enables it to make informed decisions regarding various projects (20TH Century Homes 2017). Electronic procurement system also enables the organization to coordinate with other procurement partners within the supply chain management. In this system, the organization has adapted both the lump-sum and the design and builds procurement systems. However, it is important to note that project delivery depends on the methods related to the contract involving the acquisition of the project.

Lump-sum procurement System

Lump-sum procurement system is associated with all the traditional approaches to construction contracts. Competitive tendering and bill of quantities is often preferred in this type of system. The construction industry is full of many risks and this method is considered by the organization since it obliges the contractor to complete his work at the negotiated price should there be no changes (Chong, & Preece, 2014). It also offers maximum cost protection to the employer when minimum changes take place. In this regard, the risk is assumed to be fairer since the employer has a better control of the contractor and can apply any change management if necessary. However, 20TH Century Homes is not considering using this system because of the bottlenecks associated with it that can slow down decision making leading to the longest time option for the project completion. This system also requires clear definition of roles and responsibilities of the professionals working on the project, without which, there can be delays in the delivery of the project which could lead to legal issues.

Design and Build Procurement System

More closely attached to the organization e-procurement system is the design and build procurement which aims at the rectification the problem of having to deal with separate entities designing and constructing a project since it incorporates both parties into one singular unit. This system is used by the 20TH Century Home because it allows the contractor to design and work on the project all through in one singular package (20TH Century Homes 2017). Design and Build system also allows the organization to build long-term working relationships and trust among the working partners. The contractor is solely responsible for saving costs, and this approach is commonly associated with the negotiated approach where the contractor has to work with strict deadlines. In this regard, the design and construction processes are often done concurrently in order to avoid project delays (Morledge, & Smith, 2013). Ideally, the design and build procurement system is preferred by the organization as it shortens the overall duration of the project and thus greatly enhancing the smooth flow of cash and other resources to ensure quality product.

However, this method has several setbacks despite its advantages. Some of the critics of this system argue that it lacks independent advice on the valuation of variations since it is based on fixed prices. In addition, introducing any changes once the contract is signed can be costly since it involves starting the process afresh. Moreover, the client has minimum control of functionality and quality produced by the contractor. In addition, comparing bids using this approach can be complicated and may not produce a well thought out bids (Morledge, & Smith, 2013). Despite the challenges of this procurement system, the organization considers using it because of building a strategic partnership that can help in saving cost and the overall duration of project completion. In addition, this project focuses on collaborative working relationship and strategic partner agreement.

In addition, Design and build have a high compatibility 20Th Century organization projects. The criteria for its structure, staff, system, and the organizational principles seem to be in favor of this approach. Since the 20TH

Century is a projectized organization, the idea of design and builds procurement system provides the organization with an opportunity to manage its internal control and build collaborative working relationships in order to reach the desired goal of delivering quality product within the contract time.

Integrated Procurement System

An integrated approach to procurement serves well within the project and ensures that there is a balance between contractual agreement and risk allocation so that no particular individual suffer the risk alone should they occur in the process of design and construction. This approach can greatly improve collaborative planning and better organization at the onset of the contract. In addition, this approach has the advantage of incorporating organization principle to ensure that they work well with the procurement system (Thomas, & Thomas, 2008). Remarkably, procurement function must relate to other functions of the organization such as the finance, human resource, and the general management function. In this regard, it is to the advantage of the procurement department to work closely with these other functions to achieve the organization goal. Furthermore, the collaborative working relationship between the client, the employer, and other stakeholders in the supply chain is necessary for ensuring the end product meet the customer’s satisfaction (Thomas, & Thomas, 2008). Also, it can promote integrated management for governance of the organization.

It is important to note that integrated procurement system also involves the e-procurement approach which is the modern approach to procurement. Adapting this integrated approach has several advantages to the organization including being used as a competitive advantage. Ideally, intense global competition in the construction industry has brought about the search for supply system that can yield sustainable competitive advantage for the organization and that is why the integrated approach is greatly encouraged.

Competitive Advantage Associated with the Integrated Procurement System

This approach eliminates the cumbersome manual steps that could lead to delays in the project delivery. It encourages the sharing of relevant information so that the contractor and the employer can work within the time frame of the contract. In addition, the quality of the end product will meet the customers’ specification and satisfaction since all the parties are integrated (Cox & Townsend, 1998). A satisfied customer means loyalty leading to repeat purchase and further recommendations. This would mean that the company would expand its market based and definitely, there would be an increased profit to increase the shareholder’s wealth.

In addition, this approach greatly increases working efficiency thereby reducing financial and legal challenges that might result from the design and construction of the project (Thomas, & Thomas, 2008). This approach aligns the employees, technology, and processes into one integrated system for easier management. In addition, this procurement system comes with other approaches such as total quality management (TQM), reduced inventory cost, lean production, and supplier collaboration. Notably, this approaches can enhance the organization competitive advantage through overall cost reduction.

This approach makes it easier to coordinate activities along the supply chain which enhance greater control. Standardized workflow set by this system ensures that only the correct level of authorizations is done to specific contracts. In addition, this approach makes it easy for potential clients to locate the final product thereby reducing the cost of inventory and having to source for buyers. Ideally, integrated system ensures compliance with the existing procurement policies. Through linking of supply information with the internal information a greater coordination is achieved which enhances the quality of end product.

Recommendations

There is need to take into consideration the modern trends in the procurement systems in the construction industry, and in the view of this, the following recommendations are made.

- Record management should be accorded high status in the organization since information enhances quality decision. Digitalization of all the organization procurement records along with networking with key players in the organization’s supply chain will ensure that the organization achieves quality and timely completion of its projects.

- The organization should also streamline its procurement processes and automate its activities to ensure the efficient and effective working of the stakeholders.

- Automation of operation and use of modern ICT enables integration of various systems, promotes accountability and reliability to enhance relationship management. 20TH Century Homes should fully automate its operations to achieve such benefits.

Summary

Procurement is one of the important factors that can lead to the success of design and construction projects. In a globally competitive environment, construction organizations must constantly look research for the procurement systems that can improve efficiency, cut cost, timely completion and put the organization at the competitive advantage. The following are some of the factors that enhance procurement process.

Record management system and procurement

Effective procurement records ensure that there is a working interface with the organization key stakeholders to promote appropriate decision making.

Procurement Procedures

Organization management structure and procedures enhance the procurement performance. 20TH

Century Homes has one of the best procurement policies that enhances control of procurement activities.

Information Communications and Technology

Easy to access and accurate information leads to better decision making. The automation of information sharing can curb inefficiency and losses that could result from poor decision making.

Staff Quality

Internally qualifies staff leads to the effective management of procurement functions.

There are many procurement systems that are applicable in the construction industry. Notably, the lump-sum and the Design and Build procurement systems are the most common. However, with the digitalization of procurement functions, these approaches can be integrated into one singular approach that can enhance quality, timely delivery, sharing of related risks such as legal and other risks. The integrated procurement system enables an organization to choose the appropriate approach as per the circumstances. In addition, it can enhance an organization competitive advantage by wider market coverage and reduced procurement bottlenecks that can lead to time delays. When all the stakeholders are able to be integrated into one singular system, there are greater chances of efficiency and the quality of the final project can greatly be increased.

References

Bennett, J., & Peace, S. (2006). Partnering in the construction industry: A code of practice for strategic collaborative working. Routledge.

Chong, H. Y., & Preece, C. N. (2014). Improving construction procurement systems using organizational strategies. Acta Polytechnica Hungarica, 11(1), 5-20.

Cox, A., & Townsend, M. (1998). Strategic procurement in construction: towards better practice in the management of construction supply chains. Thomas Telford Publishing.

Edum‐Fotwe, F. T. (2002). Introduction to Building Procurement Systems. Engineering Construction and Architectural Management, 9(4), 363-364.

Masterman, J., & Masterman, J. W. (2013). An introduction to building procurement systems. Routledge.

Morledge, R., & Smith, A. (2013). Building procurement. John Wiley & Sons.

Smith, R., & Conway, G. (1993). Organisation of Procurement in Government Departments and their Agencies. London: HM Treasury Consultancy and Inspection Services Division. Gower Publishing

Thomas, G., & Thomas, M. (2008). Construction partnering and integrated team working. John Wiley & Sons.

Saffady, W., & Association of Records Managers and Administrators. (2011). Records and information management: Fundamentals of professional practice. Lenexa, Kan: ARMA Internationa

Walker, D., & Hampson, K. (Eds.). (2008). Procurement strategies: A relationship-based approach. John Wiley & Sons.

20TH Century Homes Inc. (2017). http://www.20thcenturyhomesinc.com/