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A. Decision Tree Production options In-house Outsource Investment $100k Investment $40k 70% probability 30% probability 50% probability 50% probability $120K Gain $30 Loss $100k Gain $10k Loss EV= ProbabilityImpact EV= 0.7$120K EV= 0.3$30k EV= 0.5$100K EV= 0.5*$10k EV= +$84K EV= - $9K EV= +$50K EV= - $5K Total EV of In-house Total EV of Outsourcing EV= (+$84K) + (-$9K) EV= (+$50K) + (-$5K) EV= +$75K EV= +$45k Profit/Loss = EV – Initial Investment = +$75K – ($100K) = +45 – ($40K) Loss = - $25K Profit = +$5K Conclusion: Outsourcing is preferred as there will be a profit of $5K
B. Procurement Management Plan The procurement management plan describes the ways to acquire goods and services from outside the organization. It describes how the procurement processes will be managed from developing procurement documents through contract closure. Project name: Production of electronic auto-parts Background: Production of special electronic auto-parts is required as part of car upgrade project. A decision tree analysis was carried out which concluded that outsourcing is preferred option over in- house production. Scope: Production of 400 units of electronic auto-parts of car model XYZ by outsourced shortlisted contractor. Time: The project should be completed within 12 months from the date of award of contract, in 2 deliverable stages which will be used as milestones for this project as per below: Stage 1 – 6 Months from the date of contract award – Deliver 40% which is 150 units Stage 2 – 12 months from the date of contract award – Deliver 60% which is 250 units Project budget: $40,000.00 (Fixed Price) Budget approval: to be provided by procurement manager Procurement methods: Request for Information (ROI), Request from Proposal (ROP), Request for Quotation (RFQ) and Request for Bid (RFB). Payment Schedule: Payment to be made in 2 stages per below: Stage 1 – 40% of total sum after the delivery of 40% of deliverable i.e. 150 units of auto-parts Stage 2 – 60% of total sum after the delivery of 60% of deliverable i.e. 250 units of auto-parts Schedule Dates: Release tender: 8th^ Nov 2020 Close tender: 22nd^ Nov 2020 Tender Panel meeting to finalize supplied: 28th^ Nov 2020 Negotiations with supplier: 30th^ Nov 2020 Update rejected suppliers: 1st^ Dec 2020 Supplier debrief: 1st^ Dec 2020 Stage 1 deliverable: 1st^ June 2021 Stage 2 deliverable: 1st^ Dec 2021
C. Agreement An agreement is a legal (formal & written) document which is signed between the two parties; one party is called the Buyer and the other party is called the Seller. The seller supplies the goods/services and the buyer pays for them in return. Agreement can be a contract, purchase order, understanding, or undertaking. Agreement should have legal remedies. Below is the sample agreement for this project: SOW/Description of project: Production of special electronic auto-parts is required as part of the car upgrading project. The contract requires the supplier to produce and deliver 400 units of special electronic auto-parts of car model XYZ. Contractor is not obliged to install the electronic auto-parts into the car system. Schedule: Phase Deliverable Timeline Stage 1 150 units if electronic auto-parts including testing, commissioning and technical support 6 months from the date of contract award Stage 2 2 50 units if electronic auto-parts including testing, commissioning and technical support 12 months from the date of contract award Reporting: Supplier is required to do a bi-weekly progress reporting to the procurement manager and project manager of the buyer. Deliverables:
- 400 units of special electronic auto-parts
- Technical report that comprises of production capacity, approaches and progress
- Testing and commissioning report
- Operation and maintenance manual of auto-parts
- Product warranty for the 5 years from the date of delivery
- Product support for the 2 years from the date of delivery Payment terms: The contract is awarded with the total sum of $40,000.00 for the execution of the work stipulated in this contract. Payment term is as below: Phase Payment term Amount (In USD) Stage 1 40% of total sum after the completion of stage 1 deliverable
Stage 2 60% of total sum after the completion of stage 2 deliverable
Insurance/performance bond: Seller to provide a performance bond for the production of electronic auto=parts, in the aggregate amount of five thousand dollars ($5,000.00), as part of the schedule performance guarantee which will be re-imbursed upon completion of this contract. Bond must be provided within 10 working days from the date of contract award. Terms & Conditions:
- Seller to sign NDA and privity of contract waiver upon contract award
- Force Majeure: In case seller or buyer is impacted by act of god which in turn affected the deliverable of this project, would call for an amendment which will be signed with updated schedule for deliverable.
- Dispute resolution: In case of any dispute between both the parties, formal meeting will be required before taking any legal action
- Termination clause: o For Buyer: If deliverables are not per schedule, then buyer has the right to request for information, followed by contract termination, in which case pending stage’s payment will not be paid and the bond amount will be withheld. o For Seller: If payment schedule is not met even after timely deliverable, then seller has the right to request for information, followed by contract termination, in which case pending stage’s deliverables will not be provided and the bond amount will need to be returned in full.
- For any changes to this contract, procurement manager will prepare the amendment which will need to be signed by both the parties. Seller Signature Buyer Signature
