Chapter one

Overview of project logistics and

procurement
 Objective of the chapter
At the end of this chapter the students will be able to:

• Understand the concept of project logistics

• Understand project logistic outsourcing
• Understand the concept of procurement
• Understand project procurement management process
components
 Questions for discussion
1. What is project?
2. What is logistics?
3. What is supply chain management?
4. What is project logistics?
5. What is project supply chain management?
 1.1. project logistics

The Council of Supply Chain Management

Professionals (CSCMP, 2016) defines logistics
management is part of supply chain management that
plans, implements, and controls the efficient
forward and reverses flow and storage of goods,
services and related information between the
point of origin and the point of consumption to
meet customers' requirements.
 project logistics-----------------

Supply chain management

• encompasses the planning and management of all activities
involved in sourcing and procurement, conversion, and all
logistics management activities (CSCMP, 2016).
• includes coordination and collaboration with supply chain
partners, namely suppliers, intermediaries, third-party service
providers, and customers.
• effectively integrates supply and demand management
within and across companies.
 project logistics-----------------

• From the two definitions, we see that logistics management

is a subset of supply chain management.

• When we come to project management, there is a need to

fulfill the variables in the supply chain management and
logistics management. Their name are project supply chain
management and project logistics.

• Project SCM is a subset of SCM, whereas project logistics

is the subset of logistics in general. See the next figure
 Project Logistics ---
• Project supply chain management is a system
approach to managing flow of physical products ,
information, and funds from suppliers and producers,
through resellers
 Project logistics
The importance of SCM to project management
depends on a number of factors:
• Value of outsourced products/services relative to value
of the project
• The timing of the work being purchased
• capability of the project team
• Role of the outsourced work in the entire project
• Number of suppliers required Structure of the
procurement supply chain
 Discussion Questions

1. What are the possible activities of project

logistics?
2. How the performing organization manage those
activities
 Project Logistics activities
• One of the critical activities in logistics in general and
project logistics in particular is procurement
• In the following figure:
• the first box represents the procurement component
of the chain.
• the second box represents the conversion or fabrication
phase of the project. It is in this component of the chain
where the project’s product is created.
• the last box is the front-end portion of the project
logistics, delivery of the completed project to the
customer.
 Project Logistics outsourcing
• To become more cost effective and efficient, project
managers have started to outsource project logistics.

• Outsourcing is the transfer of a function previously

performed in-house to an outside service provider.

• Outsourced providers are often referred to as

contractors or ‘third parties’. It may further to 4 th
party logistics
 Project Logistics outsourcing

• In the project environment, 3PL service

providers would handle tasks like:
• trucking, marine cargo transport and
specialist transport of very heavy loads,
• broader activities like inventory
management and order processing-see the
next picture
• 3PL service providers have their area of
specialization.
 Project Logistics outsourcing

• 4th party logistic is a company hired to manage all of

a firm’s project logistics and supply chain
management capabilities) but have also developed
internal skills in managing their supply chains .

• These four 3PL service providers report to a

coordinating 4PL service provider.
 Project logistics outsourcing -----
• Outsourcing in a project is more than
concentrating material movements and
management.

• the project logistics manager may also be

tasked with the provision of the workforce and
other site infrastructure.
• These includes:
 Project logistics outsourcing -----
• Personnel supply: The right mix of engineers,
welders, electricians, safety officers, clerks
and laborers as may be required for the
project;

• Personnel transport: Transport is required to

get the personnel to their places of work and
for personnel movement as the work dictates;
 Project logistics outsourcing -----
• Housing: Adequate housing for the personnel on or near
the project site. In some cases, the erection of the required
housing is the first part of a project;

• Canteen facilities: The personnel must be provided with

nutritious and tasty meals three times a day to keep up
their strength;

• Communication infrastructure: Intra-site

communication, as well as facilities to allow site workers
to communicate with.
 Project logistics outsourcing -----
• Medical support: This is especially needed for undeveloped
areas. Emergency medical treatment is required as a minimum,
with arrangements in place for evacuation to a medical center

• Psychological support: Project work is a high-pressure

environment and arrangements must be in place for
psychological support for work or personal problems

• Waste management: Much waste is generated during the

construction of any facility. Waste, especially hazardous waste
needs to be disposed of responsibly, even if this means the
construction of a dedicated hazardous waste disposal site.
 1.2. Project procurement

• The concept of Procurement?

• The concept of Project procurement management
and its process?
 The concept of procurement---------

• Procurement involves all activities that are vital in acquiring

goods or services that will enable an organization to produce the
product or complete a project for its customer .

• Procurement involves identifying and analyzing user

requirements and type of purchase, selecting suppliers,
negotiating contracts, acting as liaison between the supplier
and the user, and evaluating and building strategic alliances
with suppliers.
• It is based on make or buy analysis and decision
 The concept of Project Procurement management

• Project Procurement Management is the processes required to

acquire goods and services, or results needed from outside the
performing organization.

• Includes contract management and change control processes

required to develop and administer contracts or purchase orders
issued by authorized project team members.

• Includes administrating any contract issued by an outside

organization( the buyer) that acquiring the project from
performing organization( the seller), and administrating
contractual obligation placed on the project team by the contract.
 Project Procurement ------

• Project Procurement Management is discussed

from the perspective of the buyer-seller
relationship.
• The buyer-seller relationship can exist at many
levels on one project.
• Depending on the application area, the seller
may be called a contractor, a vendor, or a
supplier.
 Project procurement-----
• The seller will typically manage their work as a
project. In such cases:
• The buyer becomes the customer and is thus a key stakeholder
for the seller.
• The seller’s project management team must be concerned with
all the processes of project management,
• The terms and conditions of the contract become a
key input to many of the seller’s processes. The
contract may actually contain the input (e.g., major
deliverables, key milestones, cost objectives).
 Project procurement-----
• The term deliverables is the quantifiable goods or
services that must be provided upon the completion
of a project. Deliverables can be tangible or
intangible in nature

• Milestones are tools used in project management to

mark specific points along a project timeline. These
points may signal anchors such as a project start and
end date, or a need for external review or input and
budget checks.
 1.3. Project Procurement management process

• Project procurement management process

includes:
1. Plan procurement
2. Conduct procurement
3. Administer procurement
4. Close procurement
 Plan procurement

• Is the process of documenting Project purchasing

decisions, specifying the approach, and identifying
potential sellers
• It identifies those Project needs which can best be, or
must be met by acquiring products, services, or
results outside of the Project organization
• Is an element of Planning Process group
 Conduct procurement

• Is the process of obtaining responses from

sellers, selecting a seller and awarding a
contract
• Is an element of Executing Process group
 Administer/control procurement

• Is the process of managing the procurement

relationships, monitoring contract performance, and
making changes and corrections as needed
• Both the buyer and the seller will administer the
procurement contract for similar purposes
• The Project Management team shall be aware of the
legal implications of actions taken when administering
any procurement
• Is an element of Monitoring and Controlling Process
group
 Close Procurements

• Is the process of verifying that all work and

deliverables were acceptable
• Close Procurements process involves administrative
activities such as
• Finalizing open claims
• Updating records to reflect final results
• Archiving such information for future use.