Project Management Unit 10

Unit 10 Purchasing and Contracting for Projects

Structure:
10.1 Introduction
Objectives
10.2 Purchase Cycle
Indent goods
Shortlist suppliers
Invite, receive and choose bid
Preparation and placement of purchase order
Follow-up
Receipt, inspection and storage of goods
Maintenance of records
10.3 Contract Management
Contract planning
Contract negotiations
Contract administration
10.4 Procurement Process
10.5 Summary
10.6 Glossary
10.7 Terminal Questions
10.8 Answers
10.9 Case Study

10.1 Introduction
In the previous unit, we dealt with the concept of Project Management
Information System (PMIS), planning of PMIS, and design of PMIS. PMIS
aims to provide relevant information on time, resulting in improved
performance. PMIS are system tools and techniques used in project
management to deliver information. In this unit, we will deal with the concept
of purchase cycle, contract management, and procurement process.
Materials and equipment structure the core of the entire project. These are
the basic materials used for production of the products or completion of the
project. Materials consists of raw materials, supplements (primary and
intermediate goods), iron bars or sheets, cement, bricks, pipes, wooden
planks or boards, hydrogen gas, oxygen cylinders, water etc., are some of

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the widely used materials on site projects. Industrial projects call for specific
raw materials and related intermediary goods that help manufacture
designed output. Indeed, it could mean anything by which finished output
can be made, for a painter a blank canvas can be material along with
colours and brush, for a carpenter wood boards are material and tools will
be intermediaries, for builder, cement bricks, sand, etc. will be materials and
cranes, hammers will be intermediary tools.
On the other hand, equipments are the tools required for the handling of
materials. It relates to the movement, storage, control, and protection of
materials, goods, and products throughout the process of manufacturing,
distribution, consumption, and disposal.
A Project requires a large variety of materials and equipment for which
purchase orders have to be placed for supplies and contracts have to be
negotiated for services. Purchasing plays a major role in ensuring our
capability to achieve quality, cost effectiveness, and timely completion and
delivery. The role of purchase department becomes significant in the project
due to the following:
 Purchased goods and services are likely to account for over half of the
total project cost.
 Availability of the right quality of goods and services on time are
essential to avoid time and cost over-runs of the project.
 Improper quality of goods influences project performance in the future.
Hence, it is essential to procure goods and services at an appropriate price,
quality, and on time. In this unit, you will study the important steps involved
in the purchase and procurement of materials and equipments.

Objectives:
After studying this unit, you should be able to:
 identify the key steps involved in purchasing cycle
 recognise the essentials of contract management
 describe the procurement process

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10.2 Purchase Cycle

Purchase cycle is a standard process that corporations and individuals
progress through (in order) when purchasing a product or service. It is also
known as the 'buying cycle' or 'purchase process'. This cycle discusses
about the decision points that the buyer or the purchasing team goes
through. Usually, purchase cycle of a project consists of the following
elements. Figure 10.1 depicts a purchase cycle.

Maintenance of Indent Goods

Records

Receipt,
Inspection and Shortlist
Storage of Goods Suppliers
Purchase Cycle

Follow-Up Invite Receive

and Choose Bid

Preparation
and Placement
of Purchase Order

Fig. 10.1: Purchase Cycle

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

Let us now discuss each of these elements in detail.

10.2.1 Indent goods
This involves identifying the needs, preparing specification of goods, and
filling up indents and obtain signature of the competent authority. Based on
the project network, the project engineers identify the need (description of
goods, quantity, and time of need).
The next task is to specify the goods. Purchase specification is called the
heart of procurement. It describes a product in terms of its design
characteristics which includes dimensions, weight, shape, size, surface
finish, physical and chemical properties, and performance. Various types of
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specifications including commercial design; materials and methods of

manufacturing; performance, function and fit; brand and trade name; and
sample and market goods are available to specify the goods. Any of these
may be used for specifying the goods.
Next to this, a purchase indent form is filled which shows the details of
goods, description, their specification, quantity, and time of need. The
purchase indent is signed by the prescribed authority. Indent authorises the
purchase engineer to procure the material.
10.2.2 Shortlist suppliers
The buyer's first task is to identify a suitable
source of supply. The list of potential
suppliers can be prepared with the help of
several sources including the supplier's
catalogue, trade register, internet, trade
journals, historical records of purchase
sections, etc. Based on the historical records
or other considerations like indigenous or
imported, local or global, etc, the suppliers are shortlisted. In case of limited
tender, 8-10 suppliers are listed. In case of open tenders, the number is
unlimited.
Besides other things, the number of suppliers short listed depends on the
availability of suppliers; if the product is highly specialised, the number of
suppliers available may be limited.
10.2.3 Invite, receive, and choose bid
Competitive bid (bid and award)
The steps involved in competitive bid are discussed below:
1. The bid or tender is invited from a required number of suppliers. Table
10.1 depicts a typical structure of bid.

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Table 10.1: Typical Structure of a Bid

Supplier’s
S. N. Particulars
Response
1 Name and address of suppliers
2 Buyer’s reference
3 Specification (suggest charge, if any)
4 Quantity and delivery (suggest charge, if any)
5 Price and firm price period
6 Supplier’s inspection clause, (third party, buyer’s inspection,
own inspection)
7 Terms of payment-advance/credit for 30 days/cash on
delivery/through bank
8 Excise duty/sale tax
9 Mode of dispatch (goods train/truck)
10 Lead time (order to receipt of goods)

2. The bid received in prescribed condition are accepted and held in safe
custody.
3. The bids are opened and made public at the stated time and place in the
presence of the bidders who are present.
4. The information received from bidders is tabulated on a comparative
statement which allows comparison of quoted prices, validity periods,
and other critical factors. Table 10.2 depicts an example of a
comparative statement of a bid for indigenous bidding.
Table 10.2: Comparative Statement of Bids
S.N. Particulars
1 Bid reference:
2 Material description:
3 Sellers: A B C D
4 Quantity (Kgs)
5 Cost Elements
5.1 Basic Price (`)
5.2 Excise duty (%)
5.3 Sub-total (5.1+5.2)
5.4 Sales tax (%) on 5.3
5.5 Transport charge (`)
5.6 Landed Price (`)
5.7 Rank

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6 Firm price period (Months)

7 Lead time (Days)
8 Payment terms
9 FOR, Tatanagar

5. The comparative statement may present various situations which

include:
(i) If the price quoted by the lowest bidder(s) when compared with
the estimated price is reasonable, the lowest bidder is selected.
The estimated price could be based on past experience, price of
similar products, own estimates, and knowledge of factors
influencing the price.
(ii) If the lowest bidders are more than one and their prices are
reasonable, the purchase manager may take one of the following
actions to resolve the ties:
o Divide the order among the lowest bidders.
o Request the lowest bidders to review and resubmit their bids.
o Analyse the cost factors such as quality rating, payment
terms, and firm price period and non-cost factors such as
lead time, past experience, and fit with the company and
choose the supplier.
(iii) If there is a large variation between the lowest and the highest
prices or if there is a negligible variation among the prices quoted
by the suppliers suspecting collusion, then the purchase
manager can discuss with the suppliers or cancel the bid
altogether and go for fresh bidding.
Negotiated bids
For new and complex products, prior manufacturing experience may not be
available with the suppliers and the price quoted may not be realistic. Under
the situation, the bid-and-award method may not be suitable and the buyer
may prefer to go for negotiated bid.
Negotiated bid also starts with bidding. Up to the comparative statement
stage, this is identical to competitive bidding (bid-and-award). After this, the
negotiated bid enters into a negotiation with bidders.

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Activity
Collect bid proposal for a project and try to find out what constitute a
typical structure of a bid.

10.2.4 Preparation and placement of purchase order

The purchase order can be divided into two parts. They are:
Specific conditions to the purchased goods
The specific conditions include purchase order no., name and address of
the supplier, delivery address of the goods, description of the goods,
product specifications, quantity, contract price, delivery date, delivery
conditions (liability to transport, packaging, insurance cost, etc.), terms of
payment, liquidated damage (right to recover some specified amount from
supplier for delayed delivery), other features (responsibility for export
licence, custom clearance at port of origin, transportation and insurance cost
upto port of loading, shipping document, etc.), and an authorising signature.
These items are typed on the front side of the purchase order form.
General commercial condition of purchase
Normally, companies standardise the commercial conditions of purchase
and print them on the reverse side of the purchase order form. Generally,
these conditions include:
 Prices: All prices are fixed for the duration of the contract and unless
otherwise agreed.
 Quantity and description: The goods shall confirm in all respect to the
specification given by the company to the seller.
 Indemnity: The seller at his own expense repairs or replaces all the
defects attributed to faulty design or workmanship which may crop up in
the goods within a period of 12 months.
 Loss or damage: All responsibility for any loss or damage to the goods
shall lie with the seller.
 Rejection: The rejected goods observed during testing/inspection will
have to be lifted by the supplier at his own cost within a month of receipt
of rejection advice from the company.
 Force majeure clause: Neither the company nor the supplier shall be
responsible if the execution of the contract is delayed/interrupted due to

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the cause absolutely beyond their control, such as acts of God, war,
major civil commotion, etc.
 Termination: The Company reserves the right to terminate the contract
either in full or in part in the event of failure/default/refusal on the part of
supplier to perform as per the contract.
 Arbitration: All disputes related to the contract will be referred to the
sole arbitrator chosen by the company.
 Applicable law: The law of the buyer's country will be applicable.
Time of orders and deliveries
Depending on the situations, the following options may be kept in view while
choosing the timing of placing the order:
 Early ordering of long lead time Items: Items of long lead time are to
be identified and procurement action for these should be initiated as
soon as possible.
 Just-in-time: It is a good practice to order goods on just-in-time concept
as it eliminates multi-handling and inventory holding cost. However, the
risk of delayed arrival of material is to be kept in view.
 Retarded deliver: Some materials are needed at a later part of the
project. Even though the order is placed earlier, their delivery should be
retarded.
 Call off order (similar to phased delivery): If the order size is large,
delivery can take place in small batches at an agreed rate over a
specified period. Items are called off as they are needed for the project.
Building supplies, cement, sand, bricks, etc fall under this category.
 Common sense timing: However there are items like screws, nuts,
washer, etc which are relatively less expensive and occupy less space.
Such items can be purchased in one lot.
Use of lot-sizing techniques to find out how much to order and when
to order
There are numerous available heuristics which provide better solutions with
regard to 'when to order' and 'how much' to order. Mishra presents the
applications of four such heuristics:
 Purchase order: Purchase order, complete with its set of conditions, is
sent to the supplier for acceptance.

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 Letter of intent (intention of purchase): Sometimes there is a likely

delay in the preparation of the purchase order. Keeping this in view, a
letter of intent is sent to the supplier to minimise delay.
 Acceptance of purchase order: Purchase order becomes a legal
contract only after it has been accepted by the vendor or any of his
authorised agents. To ensure this, two copies of purchase order are sent
to the supplier. One of these acts as an acknowledgement. This copy is
signed and returned by the supplier. It is a good practice to include a
phrase, "We acknowledge and accept the offer" in the acknowledgement
copy.
 Amendment in purchase order: If any change in the purchase order is
needed, an agreement with the supplier should be reached considering
its impact on price, delivery, etc.
An amendment to the original purchase order must be issued. It should bear
the same reference number as the original purchase order, suffixed by the
specific amendment no. (Amendment 1 or 2 or 3).
10.2.5 Follow-up
Follow-up is a preventive measure that seeks to foresee the problem and
preempt late delivery. Follow-up includes internal follow-up with
departments like store, finance, inspection, and project groups and external
follow-up with suppliers.
Internal follow-up includes co-ordination with store for receipt of materials
and dispatch of documents, finance for clearing of invoice and freight
charges, and project group for requirements of material and change of
specification, if any.
External follow-up monitors the progress of each order and calculates the
deviation between planned date and expected date of arrival of goods and
takes action either to expedite or de-expedite the supply of goods. The need
for expediting arises in situations when the item is due, soon going to be
due, or due date is advanced for some reasons. Sometimes, the due date of
item is shifted to a later date. In this case, there is a need to de-expedite the
supply to avoid excessive build-up of inventory.
Method of follow-up includes letter, telegram, telephone call, e-mail, and
personal meeting. Some firms maintain expediters in the field who keep
contacts with suppliers on important orders. At times, the expediters are

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responsible for a specific territory to follow-up all orders. Heavy construction

items of long lead times call for field expediting.
Alternate sourcing: When follow-up measures (expediting/de-expediting)
appear to be failing, purchase should look for alternate source or the design
engineer might be able to support an alternative item that can be obtained
more quickly.
10.2.6 Receipt, inspection, and storage of goods
On receipt of shipment, the Incoming Material (IM) section receives the
challan and excise document and ensures that the material is as per the
seller's packing slip and against the project purchase order. Then, the
material is unloaded and the general conditions of packing are checked. If
satisfied, the material is unpacked. The quantity and general conditions of
the material is checked. If an inspection is to be carried out, the IM section
arranges for the same.
After inspection, the IM section raises Goods Receipt Note (GRN) for right
(O.K.) material. The contents of GRN include delivery timing, shipment
damage, rejection percentage, shortages, split shipment, etc. This is used
for invoice payment, closing the order, any negotiation with the supplier, and
inventory updating. Information is sent to the concerned agencies like
accounts, project, and others for taking necessary actions. This section
arranges for shifting of the material in project stores.
In a good system, the design section develops a unique identification code
(also called a Unique Material Code-UMC) for each material needed for the
project right from the beginning. On receipt of material from IM section, the
first task of the project store is to mark each material by the correct material
code.
The project materials are stored in a specific location within closed/
controlled areas. The materials enter and leave the areas only with
authorised documents. No one can enter in the area without permission. All
receipt or withdrawals of materials are recorded in a card or register or
computer.
Every storage location has an address. Co-ordinates of a place or part
number may serve as address of the location. Each item is assigned a
specific storage space and record of it is kept in an inventory catalogue or a
location index.

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A large number of equipments such as stackable trays, pallets, racks,

trolleys, etc. are used to store the materials. Also, various types of handling
equipments including forklift trucks, cranes, truck mounted with cranes, or
stacker are used to handle the materials within the storage area safely.
10.2.7 Maintenance of records
Records of each stage from indenting to receipt and closing of orders are
maintained for the purpose of monitoring and control. Records are also
helpful in identifying vendors for new items at a later date, resolving any
disputes with the suppliers, bringing changes in product specification in the
future, and planning similar projects in the future.

Self Assessment Questions

1. Purchase _____________ describes a product in terms of its design
characteristics which includes dimensions, weight, shape, size, surface
finish, physical and chemical properties, and performance.
2. The purchase___________ is signed by the prescribed authority.
3. Purchase order becomes a legal contract only after it has been accepted
by the vendor or any of his authorised agents. (True/False)
4. Follow-up is a corrective measure that seeks to foresee the problem and
preempt late delivery. (True/False)
5. Follow-up includes internal follow-up with departments like store,
finance, inspection, and project groups and external follow-up with
_____________.
6. The __________ conditions include purchase order no., name and
address of the supplier, delivery address of the goods, description of the
goods, product specifications, quantity, etc.

10.3 Contract Management

Contract management is the management of
contracts which is entered with clients, sellers,
partners, or employees. It comprises of
negotiating the terms and conditions and ensuring
the compliance with the terms and conditions,
with documenting and approving on any changes or amendments that may

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occur during its implementation or execution. As we discussed in the

previous section, a purchase order becomes a legal contract after accepting
by the vendor or the agent. Most of the projects include a huge amount of
capital investment on purchasing the equipment and machinery.
Organisations can also get these equipments on a contractual basis. Hence,
the project manager needs to negotiate with the suppliers on quality,
delivery schedule, price, payment schedule, service, and other relevant
legal contractual aspects. The process of deliberation is called negotiation.
Contracting has three phases. They are:
 Contract planning
 Contract negotiations
 Contract administration

10.3.1 Contract planning

Contract planning should be done at the project schedule stage. The
process of contract planning includes the preparation of resource plans. The
following points should be considered for preparing the contract planning:
 Work Break Down (WBS) and packaging
 Requirement of resources, mainly equipment and manpower for various
work packages
 Type and numbers of contracts to be awarded and approximate to
whom.
 Technical, financial, and operational capabilities of the contractor
 Scope of work for each contractual job
 Method of contracting - ICB, LCB, open tender, limited tender, etc
 Choosing among suitable and comparable parties
 Obligations of both parties should be reasonable

Activity
What is a contract? List main points come under a sale contract?
Elaborate with a practical example?

10.3.2 Contract negotiations

The negotiator brings the buyer and the seller face to face. All assumptions
and parameters related to price are analysed. Eventually, a more realistic
picture emerges, which is agreed to by both the buyer and the seller.

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The following aspects should be kept in mind at the time of contract

negotiations:
 Price-related terms: Price could be fixed or adjustable during the
contract period. Fixed price is generally applicable under stable market
conditions and in case of firm specifications and product schedule.
Adjustable price applies to unstable labour market conditions and
uncertain specifications and product schedule. A suitable price
adjustable clause is agreed and included to take care of these
situations.
 Payment terms: Any of the payment terms which include advance,
credit for specified period, cash on delivery, and retiring document
through bank may be selected mutually. Retiring a document through
bank is adopted by the supplier to obviate any delay in payment after
receipt of the consignment. The process involves the following steps:
 Dispatch document in the form of railway receipt, RR (in case of rail
transport), consignment note (in case of road transport), or bill of
lading or bill of exchange (in case of ocean transport) is sent by the
supplier to its banker, after receiving the indicated amount, with a
request to handover the document to the purchasing company. In
the document, the supplier puts its name as consigner and
consignee. The supplier signs on the back of the document (like
bearer cheque).
o A letter is also written to the consignee to retire the document
from the bank.
o The recipient company gets the document after making the
specified payment and collects the consignment from the
transporter after producing the dispatch document.
o The bank charges some fee from the consigner for this service.

 Delivery conditions: These may include which mode to be used, how

much quantity to be delivered, and when.
 Agency for inspection: It is to be agreed whether inspection is to be
done by a third party or by buyers or supplier's own inspection.
 Cancellation: Cancellation of contract may be done due to default by
the vendor in failing to perform as agreed in contract while making
deliveries, convenience of the buyers, or mutual consent. In a situation

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where the seller is not at fault, it is to be ensured that he or she does not
suffer any loses.
 Quantity: Quantity may be fixed or variable in case of variable quantity;
the lower and upper bound needs to be specified.
10.3.3 Contract administration
Various problems may arise during the execution of the contract such as:
 Extra work including excess quantities of work
 Deleted work including lower quantities of work
 Non-compliance with specifications
 Delays in time schedules
 Late payments
 Taking over of completed works
 Warranties
 Contract close out

As and when the problems arise, they must be sorted out immediately
based on the provisions of the agreed contract.

Self Assessment Questions

7. Contract planning should be done at the project planning stage.
(True/False)
8. Fixed price applies to unstable labour market conditions and uncertain
specifications and product schedule. (True/False)
9. _________ of contract may be done due to default by the vendor in
failing to perform as agreed in contract while making deliveries,
convenience of the buyers, or mutual consent.
10. The process of contract planning includes the preparation of
____________ plans.
11. ____________ .is generally applicable under stable market conditions
and in case of firm specifications and product schedule.

10.4 Procurement Process

An effective procurement process plays in important role in the successful
implementation of a project. A procurement process starts with the
identification of the required materials and equipments. Delayed delivery,
manufacturing defects, incorrect specifications, belated replacement,
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pilferage, shortage, etc are common problems in almost all projects. An

efficient project management can avoid much of these problems by proper
planning and control of procurement and efficient post-procurement
materials management.
A project procurement process covers the following functions:
 Request to invite bids or tenders: This covers the listing requirements
of equipment, preparing specifications, and sending request to invite
bids.
 Shortlist suppliers: This includes identifying the required number of
suppliers out of the possible ones.
 Invite bids: This element covers the invitation of bids to receiving them.
 Evaluate, negotiate, and choose bid(s): This involves making
comparative statement of various elements of price, negotiate technical
and commercial aspects including price, select the lowest bidder(s), and
get the approval of a competent person.
 Prepare and place orders: This includes writing the purchase order
which describe the products and state all the commercial terms in simple
and clear words, obtaining the signature of a competent, authorised
person, and send order to supplier and get his or her acknowledgement.
 Order fulfillment: This includes monitoring the progress of
manufacturing of equipment, its quality, packaging, and associated
documentation.
 Transport and shipping: This covers all the formalities needed to get
the equipments from the supplier to the project site.
 Receive, inspect and store equipment at site: This includes activities
like general inspection, marking the identification number, and
inspecting and storing it at a secure place.

Self Assessment Questions

12. ___________ includes monitoring the progress of manufacturing of
equipment, its quality, packaging, and associated documentation.
13. __________ .includes identifying the required number of suppliers out
of the possible ones.

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14. A procurement process starts with the _________ of required material

and equipments.
15. An efficient project management can avoid much of these problems by
proper planning and control of procurement and efficient __________
materials management.

10.5 Summary
Let us recapitulate the important concepts discussed in this unit:
 The role of purchase department is crucial in projects as purchase of
goods and services accounts for over 50% of project cost; the
availability of right materials on time obviates time and cost overruns;
and improper quality of goods affects the project performance in the
future.
 The chapter discusses various elements of purchase cycle which begins
with raising indents. Indents portray description of goods, quantity,
specification, and time of need. It authorises the purchase to procure
goods.
 The purchasing department starts its action by short listing of suppliers
and inviting tenders. The tenders are revised, analysed, and the lowest
cost bidder is chosen. Other terms of purchasing, including price-related
terms, agency to inspect, cancellation, and quantity variation are
discussed. The purchase orders are sent and acknowledgement is
received from suppliers.
 Follow-up of purchase order ensures the receipt material when needed.
On receipt, the material is inspected and stored in a secure place. The
chapter ends with a discussion on maintenance of records.

10.6 Glossary
Landed price or acquisition price: The total price a buyer has to pay to
acquire a product or service. It includes the basic price, excise duty, sales
tax, transportation cost, and any other cost.
Purchase description or specification: It describes a product in terms of
its design characteristics which includes dimensions, weight, shape, size,
surface finish, physical and chemical properties, and performance.

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Just-in-time: it eliminates multi-handling and inventory holding cost.

However, the risk of delayed arrival of material is to be kept in view.
Tender or bid: It is an offer or proposal to carry out work, supply of goods,
etc at a stated price.

10.7 Terminal Questions

1. What are the key steps involved in purchase cycle?
2. What is the difference between a competitive bid and a negotiated bid?
3. What are the specific and general commercial conditions of purchase?
4. What are the different phases of contract management?
5. Write a note on procurement process.

10.8 Answers

Self Assessment Questions

1. Specification
2. Indent
3. True
4. False
5. Suppliers
6. Specific
7. False
8. False
9. Cancellation
10. Resource
11. Fixed price
12. Order fulfillment
13. Shortlist suppliers
14. Identification
15. Post-procurement

Terminal Questions
1. A purchase cycle starts with the indent of goods followed by short listing
of suppliers, invite, receive and choose bids, preparation and placement
of purchase orders, follow-up, receipt, Inspection and storage of goods,
and maintaining records. Refer to section 10.2.
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2. A competitive bid is suitable for bid-and-award method; on the other

hand, negotiated bid is suitable for new and complex projects. Refer to
section 10.2.3.
3. The specific conditions include purchase order no., name and address
of the supplier, delivery address of the goods while the general
commercial conditions include the description of price, quantity,
rejection, termination etc. Refer to section10.2.4.
4. The different phases of contract management include contract planning,
contract negotiation, and contract administration. Refer to section 10.3.
5. A procurement process starts with the identification of required material
and equipments. Refer to section 10.4.

10.9 Case Study

Integrating Sustainability into Nike's Procurement Process
A key element of Nike, Inc.'s corporate responsibility
strategy is integrating knowledge and values across
our organisation. It's a marathon, not a sprint. One
example of integration comes from Global
Procurement, which sources non-product suppliers
for Nike (processes for selecting and monitoring
product suppliers are described in the workers and
factories section).
Over the past five years, Global Procurement has partnered with several
Nike, Inc. functions to increase the sustainability of the goods and services
they buy. The team leverages Nike, Inc.'s purchasing power by
communicating sustainability objectives to suppliers and potential suppliers,
and challenges them to deliver innovative goods and services to meet our
objectives.
We think this is an important way to help build markets for more
sustainable – and affordable – choices. We saw this dynamic play out in a
multi-year project to shift toward more environmentally friendly materials and
processes in Nike's retail bag programme in the United States. Building on
this and other lessons learned, we began evaluating the CR performance of
current and prospective suppliers.

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A better bag
When we began looking into improving the sustainability of retail bags, we
first awarded business only to printers that were third-party certified by the
Forest Stewardship Council (FSC). At that time, FSC-certified paper was
available but too costly. We encouraged printers to work on Nike's behalf to
find acceptable FSC-certified materials.
Four years have passed since this process started, and we now source
bags using 100% FSC-certified paper printed at FSC-certified printers using
soy-based inks and distributed by an FSC-certified fulfillment company. The
complete chain of custody allows Nike to use the FSC certification number
and logo on all retail bags in North America and Singapore. We will roll other
regions into the programme as materials and providers are available.
We aim to tackle every addressable area to improve sustainability, including
looking at angles not commonly assessed or addressed. In FY07-09 some
areas we have improved include reduced energy waste in retail stores by
adopting remote lighting management, reduced traffic and miles traveled by
implementing a pooled distribution network, and reducing long-distance
shipping by finding a body form supplier who uses sustainable materials and
delivers from manufacturing plants located near Nike centers.
A better process
Through these projects, we learned that one of our biggest challenges has
been a lack of common indicators to evaluate the potential suppliers.
Though each category and project has unique attributes, we needed a
consistent process for ranking suppliers' sustainability performance in order
to fairly and systematically integrate sustainability as a factor in our
procurement process.
To achieve this goal, we developed a supplier scorecard to assess the
match between Nike's CR values and those of existing and potential
suppliers. Several yes/no questions were asked about the policies, metrics,
goals, and performance on relevant topics, including compliance,
considered, climate, community, and competition. The competition section,
for example, asks about employee and supplier diversity practices.

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Questions are universal enough to apply to all suppliers and are provided
online, enabling us to review each supplier's profile and establish baselines
for peer groups and our overall supply base.
This process is helping us to establish a baseline of Nike's current non-
product goods and services suppliers, evaluate potential new suppliers
against that baseline, and analyse and learn from the collected data to
inform future purchasing decisions.
Through FY09, we had requested more than 100 suppliers to complete the
survey. To date, responses have showed wide variation in the effort on the
part of suppliers and reveal significant differences between large and small
companies. Only one large company indicated they had no corporate
responsibility strategy or plan, compared to half of the small suppliers.
Moving forward, we expect to establish a minimum acceptable corporate
responsibility standard required for suppliers to do business with Nike. We
also plan to establish a supplier partner forum to share innovations and
solutions and to work with smaller suppliers, developing a set of tools to
help companies that do not have the resources or the knowledge to make a
strategic approach to building their corporate responsibility capabilities.
1. What are the various procedures applied by Nike, Inc.'s under its
corporate responsibility strategy for integrating knowledge and values
across organisation?
Hint: Global procurement, improving the sustainability of retail bags,
establishing a minimum acceptable corporate responsibility standard)
2. Elaborate the statement, “build markets for more sustainable – and
affordable – choices”
Hint: Shifting towards more environmentally friendly materials and
processes
Source: http://www.nikebiz.com/crreport/content/environment/4-5-0-case-study-
integrating-sustainability.php

References:
 Clements/Gido, Effective Project Management, Publication: Thomson.
 Gray, C. F. and Larson, E. W. Project Management, Publication: Tata
McGraw Hill.
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 Lock, D. Project Management, Ninth Edition, Publication: Gower.

 Nagarajan, K. Project Management, Third Edition, Publication: New Age
International.
 Chandra, P. Projects-Planning, Selection, Financing, Implementation,
and Review, Sixth Edition, Publication: Tata McGraw Hill.
 Rao, P.C.K. Project Management and Control, Publication: Sultan
Chand & Sons.
 Desai, V. Project Management, Second Revised Edition, Publication:
Himalaya Publishing House.

E-References:
 www.projectsmart.co.uk. Retrieved on 8/02/2012.
 www.projectmanagement.com. Retrieved on 9/02/2012.
 www.pmearth.com. Retrieved on 10/02/2012.
 www.nikebiz.com/crreport/content/environment/4-5-0-case-study-
integrating-sustainability.php. Retrieved on 10/02/2012.

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