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Percorso di Eccellenza in PROJECT MANAGEMENT
PORTFOLIO APPROACHESPORTFOLIO APPROACHES
Guido MICHELI & Enrico CAGNO02.2399.405602.2399.4054
Guido [email protected]@PoliMI.it
2
AgendaAgenda
Date Object Tutorial Examples Teamwork
Thursday 29/10Morning (4h) Project Procurement
(focus point)
Thursday 05/11
Morning(4h) Portfolio Approaches +Afternoon (4h)
Tuesday 17/11
Morning(4h) Supplier Selection +Afternoon (4h) & Vendor Rating
(hints)
Wednesday 02/12
Afternoon (4h) Project Work (follow-up)
Guido JL Micheli © LIUC - Portfolio Approaches
Guido JL Micheli © LIUC - Portfolio Approaches 3
Team WorkTeam Work
+ ResultsCommunication &Discussion
Guido JL Micheli © LIUC - Portfolio Approaches 4
Focusing available resources by means of Procurement Portfolio Approaches
The goalThe goal
Focusing resources in order to use the most fitting tools/strategies/practices (BSR, Outsourcing, e-Procurement, …)
Guido JL Micheli © 5LIUC - Portfolio Approaches
Focusing resourcesFocusing resources
Focusing resources• First: spending analysis (PARETO)
Guido JL Micheli © 6LIUC - Portfolio Approaches
Low value… what about risk?
Val
ue p
er C
lass
Cum
mulative %
0%
20%
40%
60%
80%
100%
120%
€ 0
€ 100.000
€ 200.000
€ 300.000
€ 400.000
€ 500.000
€ 600.000
€ 700.000
Total Value Accum Value
Focusing resources – Overall TeamworkFocusing resources – Overall Teamwork
TeamworkGroups of 4/5 people• ABC classification• Items vs. classes of items …• Comments
Guido JL Micheli © 7LIUC - Portfolio Approaches
Earliest portfolio approachesEarliest portfolio approaches
Earliest portfolio approaches• Kraljic Matrix is the most common approach and it represents
one of the first attempts at focusing the available resources on the actually demanding items.
• Key issues:– Procurement must be considered as strategic– Items to be procured have different levels of criticality (e.g.:
screw vs. bridge crane)– Resources (manpower - first of all -, time, money…) are never
enough… thus it is vital to use them in the best way!
Guido JL Micheli © 8LIUC - Portfolio Approaches
KraljicKraljic
The dimensions• The dimensions identified by Kraljic to classify an item are:
– Importance for purchasing• Purchase volume• Added value
– Supply market complexity• Descriptive complexity• Specificity• Supply market concentration• Suppliers bargaining power
• Other• Purchase Frequency (-)• Environmental (-) / legal constraints (+)• Level of innovation (+)• Internal complexity (+)
– Is this description exhaustive?
Guido JL Micheli © 9LIUC - Portfolio Approaches
Kraljic - TeamworkKraljic - Teamwork
Teamwork:Same groups of 4/5 people
• Each group must evaluate 36 practices (9 practices times 4 types)– Green: very useful or recommended– Yellow: modest impact, sometimes applicable– Red: useless, not applicable or even dangerous (avoid)
• Comments
• 30 minutes
• Discussion
Guido JL Micheli © 10LIUC - Portfolio Approaches
Bottleneck
Parts standardizationRisk/Benefits sharing
Supply base enlargement / Global sourcingVolumes consolidation
Stressed NegotiationSuppliers development
Partnership and collaborationLife cycle cost
Multiple and Parallel sourcing
Strategic
Parts standardizationRisk/Benefits sharing
Supply base enlargement / Global sourcingVolumes consolidation
Stressed NegotiationSuppliers development
Partnership and collaborationLife cycle cost
Multiple and Parallel sourcing
Non critical
Parts standardizationRisk/Benefits sharing
Supply base enlargement / Global sourcingVolumes consolidation
Stressed NegotiationSuppliers development
Partnership and collaborationLife cycle cost
Multiple and Parallel sourcing
Leverage
Parts standardizationRisk/Benefits sharing
Supply base enlargement / Global sourcingVolumes consolidation
Stressed NegotiationSuppliers development
Partnership and collaborationLife cycle cost
Multiple and Parallel sourcing
Importance for Purchasing
Supp
ly M
arke
t Com
plex
ity
Low High
Low
High
Kraljic - TeamworkKraljic - Teamwork
Guido JL Micheli © 11LIUC - Portfolio Approaches
Project-specific portfolio approachesProject-specific portfolio approaches
A Project Procurement perspective
PROCUREMENT
PROCUREMENT MANAGEMENT (& SRM)
MARKETINTERNAL
SKILLS AND CAPABILITIES
ITEM TO BE PROCURED
ITEM PROCURED
SS VR
TIME-WINDOW
Guido JL Micheli © 12LIUC - Portfolio Approaches
A Project-specific portfolio approach: further dimensions• A more exhaustive description includes several dimensions:
– Time availability. Nowadays completion time is getting shorter and shorter. It is necessary to distinguish the items that have to be procured “in a hurry” from those that don’t have to be. This is a particularly important dimension when working for a project.
Projects duration: from 36 to 24 monthsProcurement: critical items acquisition start BEFORE the
project itself!!!!
Project-specific portfolio approachesProject-specific portfolio approaches
Reliability of the Supplier …Critical path of the projectLong lead time acquisitions…
Guido JL Micheli © 13LIUC - Portfolio Approaches
A Project-specific portfolio approach: further dimensions• A more exhaustive description includes several dimensions:
– Quality request. This dimension concerns the required performances of the item to be purchased.
Quality is a QUALIFIER!
Plant performance
Commissioning OK
Project Success (ON TIME!!!!!)
Project-specific portfolio approachesProject-specific portfolio approaches
Guido JL Micheli © 14LIUC - Portfolio Approaches
A Project-specific portfolio approach: further dimensions• A more exhaustive description includes several dimensions:
– Reference level. It is about the obligation to select the suppliers within a number provided by the customer.
Typical of the EPC: Emergent Countries National Governments as clients (Middle/Far-East)?
Project-specific portfolio approachesProject-specific portfolio approaches
Guido JL Micheli © 15LIUC - Portfolio Approaches
A Project-specific portfolio approach • A scheme of the model
Project-specific portfolio approachesProject-specific portfolio approaches
StrategicClassification
Internal Criticality
Value importance
- Time availability- Quality request
Market
- Number of suppliers - Reference level
Kinds of productsFirm’s Strategy
TOTAL CRITICALITY
Guido JL Micheli © 16LIUC - Portfolio Approaches
A Project-specific portfolio approach • A zoom on the evaluation of the total criticality
Project-specific portfolio approachesProject-specific portfolio approaches
HIGH VALUEMEDIUM CRITICALITY
HVMC
HIGH VALUEHIGH CRITICALITY
HVHC
LOW VALUELOW CRITICALITY
LVLC
LOW VALUEHIGH CRITICALITY
LVHC
Internal Criticality
Valu
e im
port
anceHIGH VALUE
LOW CRITICALITYHVLC
LOW VALUEMEDIUM CRITICALITY
LVMC
Guido JL Micheli © 17LIUC - Portfolio Approaches
A Project-specific portfolio approach • The outcome is a set of ‘n’ extended matrix, where ‘n’ depends on
the number of kinds of products. For every kind of products, the matrix can be depicted in the following way:
Project-specific portfolio approachesProject-specific portfolio approaches
LVLC HVLC LVMC HVMC LVHC HVHC
TOTAL CRITICALITY
MA
RK
ETC
OM
PET
ITIV
E
M
ON
OPO
LY
std.
non
std
.
s
td.
n
on s
td.
Guido JL Micheli © 18LIUC - Portfolio Approaches
Supply Strategies and ToolsSupply Strategies and Tools
The use of a Project-specific portfolio approach • The outcome of the innovative model (a set of ‘n’ extended matrix,
where ‘n’ depends on the number of kinds of products) allows to identify the best strategies and tools for each item to be procured. Particularly:
– Buyer-Supplier Relationships– Outsourcing of one or more phases of the procurement process – E-Procurement tools
– … (Supplier Selection, Expediting, VR policies, …)
Guido JL Micheli © 19LIUC - Portfolio Approaches
Supply Strategies and ToolsSupply Strategies and Tools
The use of a Project-specific portfolio approach • A scheme
LVLC HVLC LVMC HVMC LVHC HVHC
TOTAL CRITICALITY
MA
RK
ETC
OM
PET
ITIV
E
M
ON
OPO
LY
std.
non
std
.
s
td.
n
on s
td.
Buyer-Supplier Relationships
Outsourcing
E-Procurement tools
Guido JL Micheli © 20LIUC - Portfolio Approaches
Supply Strategies and ToolsSupply Strategies and Tools
The use of a Project-specific portfolio approach– Buyer-Supplier Relationships
Medium-term Relationships (agreements)
Partnerships
Short Term
Medium Term
Long Term
Spot Relationships (price-oriented)
Tactical Relationships
Low Criticality
High Criticality
Resources, Commitment
and Integration
with Suppliers
Guido JL Micheli © 21LIUC - Portfolio Approaches
Supply Strategies and ToolsSupply Strategies and Tools
The use of a Project-specific portfolio approach– Outsourcing of one or more phases of the procurement process– Strenghts:
• It allows to focus on more strategic phases of the whole process• A portion of the costs of a firm can get variable
– Weaknesses• Less control on the outsourced phases • Loss of Know-how in medium/long term
Guido JL Micheli © 22LIUC - Portfolio Approaches
Supply Strategies and ToolsSupply Strategies and Tools
The use of a Project-specific portfolio approach– E-Procurement tools
Pre-Purchasing
Purchasing
Post-Purchasing
e-DESIGNe-INTELLIGENCEe-SOURCING
e-BUYING
e-AUCTION
e-BIDDING
e-CATALOG
e-ESCROW
P-CARDe-PAYMENT
e-RATINGe-LOGISTICSe-FULFILLMENT
Guido JL Micheli © 23LIUC - Portfolio Approaches
Class of items
Kindof product
Project Criticality ValueMarket
Time
Cost
Quality
In-Group Acquisitions
Reference
# Suppliers
Application – Alstom Power ItalyApplication – Alstom Power Italy
• Classes of items vs. items
• Project-oriented
• Goal: fitting strategies/tools
Guido JL Micheli © 24LIUC - Portfolio Approaches
Competitive
Market
Crit
ical
ity fo
r Pro
ject
Crit
ical
ity fo
r Pro
ject
Low
Hig
h
High Value
Partnership Medium-term
Tatical Spot
Competitive
Market
Oligopolistic
Crit
ical
ity fo
r Pro
ject
Crit
ical
ity fo
r Pro
ject
Low
Hig
h
Application – Alstom Power ItalyApplication – Alstom Power Italy
Guido JL Micheli © 25LIUC - Portfolio Approaches
• Area of a bubble: value
• Colour of a bubble: class of items
Monopolistico
Competitive
Market
Oligopolistic
Crit
ical
ity fo
r Pro
ject
Crit
ical
ity fo
r Pro
ject
Low
Hig
h
Low Value
Medium-term Tactical
Tactical Spot
Complex Systems
Tailor-made materials
Complex Systems
Tailor-made materials
Servizi Materiali Standard
Servizi Materiali Standard
Sistemi Complessi
Materiali Non Standard
Sistemi Complessi
Materiali Non Standard
Servizi Materiali Standard
Servizi Materiali Standard
Oligopolistic CompetitiveMarket
Crit
ical
ity f
or P
roje
ctC
ritic
ality
for
Pro
ject
Low
Low
Hig
hH
igh
E-Procurement Buyer-Side
Marketplace
Intensity of Relationship
- Outsourcing opportunity +
Partnership
Spot
Tactical
Medium-term
Seller-Side
Application – High ValueApplication – High Value
Guido JL Micheli © 26LIUC - Portfolio Approaches
Complex Systems
Tailor-made materials
Complex Systems
Tailor-made materials
Servizi Materiali Standard
Servizi Materiali Standard
Sistemi Complessi
Materiali Non Standard
Sistemi Complessi
Materiali Non Standard
Servizi Materiali Standard
Servizi Materiali Standard
Oligopolistic CompetitiveMarket
Crit
ical
ity f
or P
roje
ctC
ritic
ality
for
Pro
ject
Low
Low
Hig
hH
igh
E-Procurement Buyer-Side
Marketplace
Intensity of Relationship
- Outsourcing opportunity +
Medium-term
Spot
Tactical
Tactical
Seller-Side
Application – Low ValueApplication – Low Value
Higher Outsoucing opportunity
Guido JL Micheli © 27LIUC - Portfolio Approaches
• 3 Projects of industrial plants for energy production
• Global value ~ 450 Mln €
• # Orders: 3.000 (> 20.000 Order lines)
• Considered 70% of the global value
• 306 item codes grouped in 47 Classes
Application – Spending AnalysisApplication – Spending Analysis
Guido JL Micheli © 28LIUC - Portfolio Approaches
Oligopolistic CompetitiveMarket
General ind. materialsField materials
Nuts & Bolts
ChemicalsPiping
Electric Components
Civil Components
Tools SW
Varnishings
Consultancy
Commissioning
Administration
Valves
ICT Consultancy
Tech.Systems
Boilers
Civil works
Electric Installations
Assembling
Transportsi
Analysis SW
Cathodic Prot.Comm. Sys.
Clock Sys.
Transformers
Actuators
Pumps
Containers
Electric Panels
HVAC
DCS
Frames
Handling tools
Transducers
Engines
De-superheater
U.P.S.
Valves
Mixers
Filters
GeneratorsHeat exchangers
Compressed air
Crit
ical
ity f
or P
roje
ctC
ritic
ality
for
Pro
ject
Low
Hig
h
Complex Systems
Tailor-made materials
Standard Materials
Services
Supervision
Fire Protect.
Application – Spending AnalysisApplication – Spending Analysis
Guido JL Micheli © 29LIUC - Portfolio Approaches
Complex Systems
Tailor-made Materials
Complex Systems
Tailor-made Materials
17,7%2,90%
5,99%1,30%
14,67%1,64%
7,72%1,57%
Services Standard Materials
Services Standard Materials
17,48%51,87%
Complex Systems
Tailor-made Materials
Complex Systems
Tailor-made Materials
Services Standard Materials
Services Standard Materials
Value%#Orders%
15,58%13,74%
Oligopolistic CompetitiveMarket
Crit
ical
ity f
or P
roje
ctC
ritic
ality
for
Pro
ject
Low
Low
Hig
hH
igh
Complex Systems
Tailor-made Materials
Complex Systems
Tailor-made Materials
4,13%1,26%
0,58%0,65%
3,69%1,19%
Services Standard Materials
Services Standard Materials
1,13%0,17%
2,00%1,02%
1,71%2,08%
Complex Systems
Tailor-made Materials
Complex Systems
Tailor-made Materials
0,61%0,2%
0,77%0,17%
0,23%0,24%
1,45%3,58%
Services Standard Materials
Services Standard Materials
0,00..%0,3%
1,80%1,77%
2,77%14,62%
Oligopolistic CompetitiveMarket
High ValueHigh Value Low ValueLow Value
Application – ResultsApplication – Results
Guido JL Micheli © 30LIUC - Portfolio Approaches
Portfolio approach to project procurementSame groups of 4/5 people• ABC classification• Items vs. classes of items• Suggested supply strategies/tools/practices• Comments
Overall TeamworkOverall Teamwork
Guido JL Micheli © 31LIUC - Portfolio Approaches