[Abstract] From the perspective of the reasonable use of earmarked funds, this paper discusses several management methods to reduce procurement costs, minimize cash outflows, and improve the efficiency of project fund usage in the procurement management of projects.
[Keywords] Project procurement management, cost, supplier, performance management
China Library Classification: F23 Document Identification Code: A Article Number: 1002-6908(2007)032-086-01
Project management involves a series of management activities conducted under limited capital conditions to achieve project objectives. Besides necessary human resources, project execution requires corresponding equipment, facilities, raw materials, components, services, and other material resources. Under market economy conditions, these products and services are obtained through procurement activities. Obtaining the required products or services for a project from outside the executing organization is referred to as project procurement management. The acquisition of these resources necessitates the expenditure of project funds. How can these project funds be reasonably and effectively utilized? How can a limited amount of funds be made to serve its maximum utility? These are questions that should be considered in project procurement management.
By controlling certain aspects of project procurement, procurement costs can be effectively reduced, thereby achieving optimal allocation of project funds and obtaining as many resources as possible with limited funds. This is one of the cost objectives we aim to achieve in project procurement management. Below, I will discuss some methods for reducing procurement costs in project procurement management from the perspective of cost control.
I. Formulating Procurement Budgets and Estimating Costs
A budget is not merely an aspect of planning activities or an extension of organizational policy; it also serves as a control mechanism, providing a comparative standard. Formulating a procurement budget involves estimating and predicting project procurement costs before specific procurement actions are implemented. It represents a rational plan for the entire project funds. It not only allocates and distributes project procurement funds reasonably but also establishes a standard for fund usage. This allows for continuous monitoring and control of fund usage during procurement activities, ensuring that project funds are used within a reasonable range. With the constraints of a procurement budget, the efficiency of project fund usage can be improved, the allocation of resources in project procurement management can be optimized, exceptions in fund usage can be identified, and the flow and volume of project funds can be effectively controlled, thereby achieving the goal of controlling project procurement costs.
II. Selection of Suppliers
Suppliers are an important component of project procurement management. When procuring for a project, the principle of fairness should be followed, giving all eligible contractors equal opportunities. This reflects the rules of market economy operations and helps control procurement costs while improving the quality of project implementation. Therefore, there are two key issues to consider when selecting suppliers:
First, the number of suppliers to choose.
The issue of the number of suppliers chosen essentially relates to the division of supplier shares. From the perspective of the procurer, relying on a single source increases the risk of project resource supply and is disadvantageous for negotiating prices with suppliers, weakening the strength of procurement cost control. On the other hand, bulk orders, due to their quantity advantage, allow suppliers to offer commercial discounts, reducing payment amounts and procurement-related expenses, which helps minimize cash outflows and lower procurement costs. Therefore, when choosing the number of suppliers, it is important to avoid reliance on a single source, seeking multiple suppliers while ensuring that the selected suppliers handle sufficient supply shares to obtain favorable policies from suppliers, thus reducing material prices and procurement costs. This ensures both the quality of material supply and effective control of procurement expenditures. Generally, it is advisable to limit the number of suppliers to no more than 3-4.
Second, the method of selecting suppliers.
The methods for selecting suppliers mainly include open competitive bidding procurement, limited competitive bidding procurement,
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