SPECIFYING REQUIREMENTS

(SPESIFIKASI, LINGKUP
KERJA)
OUTLINE
1. Introduction
2. What needs to be specified?
3. Specifying the product or service
4. Quantity, delivery and service
5. The process
6. Project Scoping based on PMBOK
Materials are mainly based on MLS-ITC Model
1. INTRODUCTION
 The connecting dots MLS-ITC (IPSCM) Model
Understanding
the Corporate Module 1
Environment

Module 2 Module 3 Module 4 Module 5 Module 6

Specifying Analysing Developing Appraising Obtaining

requirements & supply supply suppliers & selecting
planning supply markets strategies offers

Preparing Managing
Negotiating the the supply
contract contract

Module 7 Module 8 Module 9

Specifying requirements

Non-project items
Many
references

Project items

ITC Model PMBOK Model

The importance of specifying
ITC Model
requirements
1. To provide the information and requirements
necessary for suppliers to meet the user’s
expectations.

2. Fundamental since it is the major

determining factor of cost, effectiveness,
and profitability.
Determining and specifying
requirements means knowing:
 What is required?
 How much is required?
 When is it required?
 Where should it be delivered?
 How should it be transported?
 How should it be quality tested?
 What other information does my supplier need?
For services, good SOW will …
• Assist you in understanding what you are going to do
• Assist you in having the “most probably correct” cost for
your work  since you know what you are doing
• Avoid dispute between you (Company) and Contractor
during work execution
• Avoid potential change order, hence avoid potential cost
addition (amendment)
Not specifying your products or services
correctly may lead to:
 Interruptions in the production process
 Damaged and unusable inputs
 Using prohibited substances
 Machinery and equipment breakdowns
 Services not available when needed
2. WHAT NEEDS TO BE
SPECIFIED?
Types of requirements
 Operational requirements (needed to run day-to-
day business)
 Capital requirements

 Production requirements (directly related to

producing the goods or services)
 Non-production requirements

1. Operational requirements for production

2. Capital requirements for production
3. Operational requirements for non-production
4. Capital requirements for non-production
 All information needs to be communicated to the supplier

Purchase
Specification
Specifying Other
the required information
product/ needed by the
service supplier
Specifying
Specifying
Specifying supplier service/
the quantity
the delivery responsiveness
requirements
Procurement role
1. Procurement department shall be involved at the
earliest in developing the purchase specification.
2. Accountability is at the user.

1. Coordinator of the procurement

process.
2. Bringing supply market
ROLES knowledge and commercial
awareness.
3. Facilitating supplier involvement
where appropriate.
3. SPECIFYING THE PRODUCT
OR SERVICE
 Product/Service
Specifying Specification
the required
product/
service  Functionality  Color
 Design  Durability
 Capacity  Flexibility
 Performance  Safety requirements
 Recyclability  Conditions of use
 Size  Labeling

Over- and under-specifying are equally bad !!!

 Brand and trade names
 Supplier / industry codes
 Samples
 Technical specifications
 Composition specifications
 Functional and performance specifications
 Brand and trade names

 For commonly used  Clear & unambiguous

products/services  Easy to use
(cars, computers…)
 Quality can generally
 When the product is be relied on
patented

 More expensive
 Competition is restricted
 The supplier may change the
underlying specification
 Technical specifications

 When needed to be  Very specific and precise

highly prescriptive  Easy to verify
(physical characteristics,
tolerances, materials
used…)
 Require effort and specialist
 For important, complex
and highly specialised expertise to develop
equipment  May require the supplier to
 When the buyer has develop a tailor-made product
design expertise and/or  May limit the number of
wishes to keep the suppliers able to supply
design in-house  The risk of the design is borne
by the buyer
Example of technical specification I
Packaging Material Specification

Property
of ABC
Company

Date Oct.
1.1995

Item:
Glass Jar
 Example of technical specification II
Aluminium foil
Nominal thickness x 0.001 mm 7 9 12 15 20
Thickness tolerance +/- % 4 4 4 4 4
2
Yield m /kg 52.9 41.2 30.8 24.7 18.5
Bursting strength, Mullentest
-in kPa 2 >10 >15 >20 >34 >68
-in kg/cm >0.10 >0.15 >0.20 >0.35 >0.70
2
Average number of pinholes/m <800 <200 <150 <75 10
Pinhole diameter ………………………….0.1 – 0.001 mm…………………
WaterVapourTransmission
1)
Rate 100%RH70%RH
2
in
mg /dm / 24 h 0 0 0 0 0

1) Relative humidity 100% on one side of the foil and 0% on the other.
Source:PRODEC – Handbook on Procurement of Packaging Helsinki
– 1993
 Composition specifications

 When need to refer to

make-up of product  Very specific and precise
(purity, density,
ingredients,  Easy to verify
additives…)
 For raw materials,
commodities,
chemicals, food  May require specialist
products…
expertise to develop
 When safety and  The verification may require
environmental concerns
are important special testing equipment
Functional and performance specs.
Functional specifications indicate the basic function
Performance specifications also indicate “how well” the function
is to be performed

 Suppliers can innovate for optimum

 When what is to be solution
achieved is more
important than how it is  The risk is borne by the supplier
achieved  Requires less effort than a
 Can include levels and technical specification
quality of output,
capacity, use of energy,
maximum operating  May be difficult to assess the
costs, etc. (e.g., boilers supplier’s quotation
, pumps..)  Comparing suppliers’ offers can
be lengthy and complex
 Summary of When to Use Different Product Specification Types
Specification Type Where Appropriate
Brand or trade name • For commonly used item.
• When related to a brand name will differentiate your product.
• When quality is more important than cost.
Supplier/industry • For simple items.
codes • To facilitate purchases from a particular supplier.
Samples • When it is difficult to assess quality prior to purchase.
• When showing what is required is easier than describing it in writing
or otherwise specifying it.
Technical • When suppliers do not possess the required design expertise.
specification • Where the organization wishes to keep the design expertise in-
house
• Where there are complex interfaces with existing equipment.
• Where the buyer is prepared to accept the risk of the design not
resulting in the required performance.
Composition • For products as raw materials, commodities and food products.
specification • When safety or enviornmental considerations are critical.
• When performance depends on composition.
Functional/ • When suppliers have greater expertise than the purchaser.
performance • Where innovation is valued.
specification • When technology is changing rapidly in the supplying industry.
Can be more difficult to specify
than products

Should be as precise, clear and

measurable as possible

Should be stated in terms of output

Time frame should be indicated
State
people
required qualifications of
 Area Example
Deliver the specified goods - without damage or loss - to
Transport
specified destination within a period not to exceed 15 days.

Create and deliver a promotion campaign that achieves a

Advertising
15% increase in consumer awareness of our products over
the next 12 months.

Payroll Produce and dispatch by post a fully accurate salary

administration statement to each staff member (with copy to our
Personnel Department), in accordance with the attached
model.
Drawing upon an authorized bank account, arrange transfer
of salary funds to each staff member ’s bank account in
accordance with these statements

Training Achieve a passing score on the National Purchasing

Association ’s professional certification exam for at least
80 percent of our staff following the training programme.
The contents of the services scope:
 The work general description, its purpose, location
of the work, the contractor's general obligations.
 The work details, milestones, their deliverables,
assumptions and constraints.
 The required time completion for each deliverable
and their schedule.
 The requirements and standards (personnel,
materials, equipment, work methodologies, HSE).
 Company (work owner) obligations and supplied
items.
 The work reporting requirements, inspection and
acceptance criteria and the mechanism.
 • Always check first
what standards exist
 Composition • Develop your own
 Dimensions specifications when:
 Performance, quality What you are buying
& safety is highly specialized &
 Technical not easily available
requirements The value is high
enough to justify the
 Testing methods time & effort
No standards exist
 Standards
 Promote competition
and lower prices  Sometimes the
 Remove uncertainty as standard is not enough
to what is required to meet the need
 Often reduce lead-  Standards do not always
times reflect the latest
technology or practices
 Do not need to write a
detailed specification  Suppliers may not be
familiar with all
 Make comparing standards
quotes easier
 Industry standards (developed by trade
and industry associations)

 National standards

 Regional standards (e.g. EU)

 International standards (e.g. ISO)

Examples of compulsory standards
The following are examples of government standards intended to
protect general public health:

 Absence of pesticide residues in fresh fruits and vegetables and in

fish and marine products.
 Absence of salmonella, cholera and other pathogenic micro-organisms
in processed foods.
 Maximum tolerable level of 10 parts per billion (ppb) of aflatoxin in
peanuts in Japan (15 ppb for the United States).
 Maximum of 200 parts per million (ppm) of sulphite in frozen shrimp.
 At least 20% soluble solids in fish sauce.
 At least 8% protein in fish sauce for export (in the Philippines).
Source: ITC – Manual on the Packaging of Fresh Fruits and Vegetables - 1988
It means reducing the number of different
purchase specifications to the extent possible

Too many different specifications are often used

because:
 Engineers and designers often prefer to
develop their own designs &
specifications or are not aware of
existing standards

 Sometimes it is not easy to determine

which designs & specifications are
already in use by the company
 The Value Concept
 Function should be defined clear
and simple.

Function  Function is different than purpose.

Function is broader.
Value =  PC  purpose is to process, store
Cost and retrieve data. Function  to
make work more productive, to
allow people to communicate, to
help them obtaining information, to
facilitate learning, to exercise
Value: higher is better their creativity, for entertainment.

Use VA / VE Minimizing cost while still providing the

required function in terms of product features
approach such as reliability, quality and safety.
Value Analysis (VA) Hokey Min, 2015

 A systematic, organized way to identify “unnecessary”

supply chain activities used to create the intended
functions of a product, service, or system.
 VA is also a better way to get the job done at the
lowest possible cost without sacrificing quality.
 Unnecessary activities are the ones that can be
eliminated, simplified, or reduced in scope without
undermining those functions. Unnecessary activities
are sources of avoidable costs or waste. If eliminated,
it helps the firm improve its supply chain efficiency
and the subsequent profitability.
 The primary objective is to determine whether or not
the maximum value is obtained for each dollar spent
for the development of a product, service, or system.
Value:
 Value is defined as the function (performance) of a
product or service divided by its cost.
 Four types of value
 Use value: represents a property and quality that allows the
product to accomplish its intended function.
 Cost value: represents a sum of labor, material, and overhead
expenses required to produce the product.
 Esteem value: represents the pride (or prestige) of ownership.
 Exchange value: represents a property or quality of an item
that makes it tradable for something else.
 To maximize the product value, organization should ask:
 What comprises a product (or service)? What is it for? What
does it do? How much does it cost? What else will do the job?
How important is the function of a product (or service)? What
if the process changes?
Function:
 Function is classified into primary (basic) and
secondary functions.
• A product’s primary function is the principal reason
for its existence and usage.
• A product’s secondary function is the auxiliary
byproduct of the primary function, which becomes
necessary to accomplish the primary function
effectively.
 Value analysis can be conducted for a wide variety
of supply chain areas, such as part/material design
and specifications, production, assembly,
standardization, packaging, transportation,
warehousing, purchasing, and disposal of scrap,
surplus, waste, or obsolete materials.
Value Analysis Steps:
 Goal Setting Phase: set achievable goals and develop
value propositions
 Planning Phase: lay out plans to create value
 Evaluation Phase: develop performance metrics and
measure the performance outcomes
 Assessment Phase: develop the milestone and check the
progress
 Implementation Phase: put plans into practice and then
continuously improve the value creations process
 Reporting/Follow-Up Phase: present the outcome to
stakeholders and seek feedback for further
improvement, also weigh the pros and cons of proposed
changes.
4. QUANTITY, DELIVERY AND
SERVICE
 Dependent demand depends on demand for
something else (e.g., steering wheels for motor
cars)

 Independent demand relates to standalone

requirements (e.g., capital purchases)
Characteristics of Demand
 Trend: constant, increasing or reducing. But may change
over the long-term.

 Cyclical fluctuations: Demand tends to increase or

decrease over extended periods of time due to business
cycles, product life-cycles, etc.

 Seasonality: influenced by weather, regular events such

as holidays, festivals, or the end or beginning of
financial years, etc.

 Random variations: when demand varies from the

underlying pattern due to unforeseen reasons.
 Demand characteristics
1. Trend:
a) b) c)

PAST FUTURE PAST FUTURE PAST FUTURE

2. Cyclical fluctuations 3. Seasonality 4. Random variations

PAST FUTURE PAST FUTURE PAST FUTURE

Several methods of forecasting demand
 Expert Opinion Scenarios (best, worst and
likely), Delphi technique
 Market Testing (sample of population, trial
sales)
 Quantitative Analysis
 Using Computer-based Materials Planning
System
 Quantitative analysis:
 Time series analysis: use past demand data to
generate a forecast - works well for short-term
forecasts.
 Causal methods: establishing a cause-effect
relationship between independent variables and
the demand for a product. Linear regression !
 Using computer-based materials
planning systems:
 MRP (Material Requirements Planning)
 MRPII (Manufacturing Resource Planning)
 DRP (Distributed Resource Planning)
 ERP (Enterprise Resource Planning)
Determining the quantity
Order quantity is based on the stock replenishment
systems:
• Reorder level replenishment system using EOQ.
• Periodic review replenishment system using a fixed
time interval.
Economic order quantity (EOQ)
• Fixed quantity when stock level drop to a certain level.
• It considers inventory holding costs (capital &
physical costs) and ordering costs (administrative)

Order quantity vs. delivery quantity (staging)

• One order may have various scheduled deliveries
• May use call-off, framework or blanket contracts
• When & where • Full address
something is needed • Contact person
• The lead-time • Restrictions on
available to the deliveries (timings,
supplier weight & size of delivery
vehicles and packages)
• Reinforce through • Access to premises
contractual terms & • Supervision and
arrangements confidentiality (services)
• Consider damage,
time and cost

• Nature of packing
required

• Special transport
arrangements
• Levels of service

• Technical supervision/
assistance & training

• Maximum time frames for repair &

delivery of spare parts, etc.
  Technical, purchasing
& finance contact
persons  Information on the
buying company
 Statement of intent
 To help suppliers to
optimise their designs
 Scope of supplier’s  Legislative requirements
responsibilities related to:
 hazardous goods
 health & safety
 Safety &  environmental protection
environmental policies  import restrictions...
5. THE PROCESS
What can happen when procurement is
not involved in specifying...
12
Urgent requirements 9
6
3

Ignoring good commercial practice, resulting

in:
 Restrictive specifications
 Expensive customised parts
 Sourcing difficulties
 Over-specifying
Lack of clarity for the supplier
How it should work!
 Procurement should be informed & involved early
 Specifying should involve interaction at various
levels
 It should be a cross-functional process
 Procurement should contribute its market
knowledge…
 …and facilitate suppliers’
involvement to promote innovation & best solutions
Taking account of all the needs
User/consumers
 consumption habits and patterns
 influencing factors
The case of machinery & equipment
 people who will install, operate & maintain it
 operating conditions
 types & availability of materials & other required
inputs
 compatibility with existing equipment
Taking account of all the needs
(Continued…)

 Raw materials & components

 Requirements & capabilities of equipment
 Compatibility with other materials/components
Transportation, handling & storage
 conditions & facilities
 operating personnel
Factors to consider :
 Is it a new purchase item?
 When did you last review the
specification?
 How quickly is the technology changing?
 How much is being spent on the item?
 What is the potential impact on the
company if the item’s specification is not
done well?
Rank purchase items in order of expenditure:

Add all of the expenditures for a given item

Group related items

Include expenditures related to the purchase of

services

Include expenditures incurred by individuals

 Ranking purchased items by expenditure
Expenditure analysis for next year
Expenditure Product or Service to be Purchased Annual
Rank Expenditure
1 Electric motors $ 63,000
2 Valves $ 57,000
3 Welding materials $ 48,000
4 Speakers for portable radio sets $ 42,000 20% of items =
etc. … … 80% of value
12 Tuning devices for portable radio sets $ 30,000
etc. … …
37 Casings $ 16,000
38 Cleaning supplies $ 14,700
etc. … …
45 Transistors $ 13,000
46 Micro-valves $ 11,400 80% of items =
20% of value
etc. … …
185 Nuts and bolts $ 560
186 Conference room hire $ 400
Total annual expenditure: $ 1,362,500 100%
 Visualising the 80/20 rule
100%

80%

Cumulative
annual
purchase
expenditure

Vilfredo Pareto

20% 100%
No. of purchased items
The supply positioning model as a basis for prioritising
H Micro-
valves
Speakers

Give your highest priority

to items that represent
high levels of both
H
expenditure and of impact!
Tuning Electric
M devices motors

M
Impact

L
Tran- Valves
L sistors

Confce. Casings
room
hire
Nuts &
bolts
N Cleaning
Suppl.
$ 30,000
Welding
mater.
N
80% of items = 20% of value 20% of items = 80% of value
$ 400 $ 63,000
Expenditure
Supply objectives &
targets
 Ensuring the right quality
 Ensuring availability
 Ensuring the lowest
possible total cost
 Securing needed supplier
support
 The implications of supply objectives / targets on the
specification method and type
Main focus of the supply Impact on the specification
objective / target method and type
Ensuring product / service  Use Value Analysis/Value
quality and innovation / Engineering at the design stage.
differentiation:  Use performance specifications to
 Contribute to optimised encourage design creativity.
product designs.  Use quality brand names to
 Ensure latest possible differentiate.
design and/or help to  Use standards to reduce errors.
differentiate products.
 Use technical specifications where
 Ensure conformity to the
suppliers have high levels of
specification.
expertise/experience.
 Use quality brand names if this
would improve reliability.
 The implications of supply objectives / targets on the
specification method and type (Cont’d)

Main focus of the supply Impact on the specification

objective / target method and type

Minimising cost: Use Value Analysis/Value Engineering

Minimise purchase price, to identify the lowest cost solution.
cost of acquisition and Use performance specifications to
life-cycle cost. encourage design creativity.
Use standards as they are cheaper
than custom designs.
Avoid technical specifications that may
constrain competition.
Avoid quality brand names as these
will be more expensive.
 The implications of supply objectives / targets on the
specification method and type (Cont’d)

Main focus of the supply Impact on the specification

objective / target Method and type

Ensuring availability: Use standards as this usually means

Ensure continuity of supply that the product will be more widely
availability, minimise lead- available
time and secure on-time
delivery.

Use quality brand names when this is

Ensuring supplier support:
likely to give you better service.
Ensure supplier provides the
Build the required technical support
needed technical support.
into the specification.
 What can be included in a purchase specification
Product / service  The product or service specification must

quality clearly state the required performance.

 Include quality inspection and testing
requirements.
Quantity and  Quantity required.
delivery  Date and place of delivery.
 Restrictions to making deliveries.
 Special transport requirements and methods of
transport.
 Packaging requirements.
 When certain information will be provided to the
supplier.
 To achieve the agreed delivery date.
 Quantity pre-shipment inspection requirements.
 What can be included in a purchase specification (Cont’d)

Service / Required service levels.

responsiveness Requirement for a “customer manager”.
Requirement for technical support or assistance
in commissioning of complex equipment.
Training requirements.
Maintenance requirements.
Response times to repair.
Cost targets Maximum purchase price.
Maximum cost of acquisition.
Maximum total cost of ownership.
Cost basis on which suppliers’ offers will be
evaluated.
What can be included in a purchase specification
(Cont’d)

Background and General information on the company

Scope and what it is trying to achieve.

What the supplier is responsible for.

Contact Information Contact names, addresses, etc.

Legal requirements Legislation to comply with.

Policy requirements Organisational and functional policies

to comply with.
SCOPE DEVELOPMENT FOR SERVICES

SERVICES

NON-
PROJECT- PROJECT-
BASED BASED

• PRODUCTION
• CONSTRUCTION
• MAINTENANCE
• EPC
• PERSONNEL OFFICE
• DRILLING
• CAR RENTALS 66
• OTHERS
• CONSULTANCY
• OTHERS
 PROJECT-BASED

Project management body of

knowledge (PMBOK:2008-4th Ed):
1. Project life cycle
2. Project management process
3. Project management knowledge areas

67
 The 10 Knowledge Areas – PMBOK:

1. Project Integration Management

2. Project Scope Management
3. Project Time Management
4. Project Cost Management
5. Project Quality Management
6. Project Human Resource Management
7. Project Communication Management
8. Project Risk Management
9. Project Procurement Management
68
10. Project Stakeholder Management
69
 Project Scope Management Processes:

1. Plan scope management: creating a scope

management plan that defines how scope will
be defined, validated, and controlled.
2. Collect requirements: determining,
documenting, and managing stakeholder needs
and requirements to meet project objectives.
3. Define scope: developing a detailed
description of the project and product
4. Create WBS: subdividing project deliverable
70
and project work into smaller, more
manageable components.
 Project Scope Management Processes:

5. Validate scope: formalizing acceptance of the

completed project deliverables.
6. Control scope: monitoring the status of the
project and product scope and managing
changes of the scope baseline.

No. 1-4 are in the planning process group.

No. 5-6 are in the monitoring and controlling
process group
71
WBS
 OBJECTIVES OF WBS
 To provide a structure in accordance with the way the
work is to be performed
 To provide the way in which project cost will be
estimated, monitored, controlled and reported
 To provide the foundation for data accumulation which
should readily relate to construction philosophy &
meet reporting need
 To provide means of assigning organizational
responsibilities for specific element of tasks, but
WBS is not an organization chart
 To permit assignment of responsibility, delineate
objectives for monitoring cost and progress including
provide basis for uniform planning and control
EXAMPLE: WORK BREAKDOWN
STRUCTURE ( WBS )
 WBS LEVELS

 Level 1 : Total Project

 Level 2 : Major Cost Center (Manageable units)
 Level 3 : Sub Major Cost Center (Specific
Facilities)
 Level 4 : Further Breakdown to Disciplines
 Level 5 : Breakdown to primary control level for
contractor
 Level 6 : Detail Activity Breakdown
 Example Level 2 WBS

1. Processing Facilities (On/Offshore)

2. Pipeline
3. Onshore Receiving Facilities
4. Subsea Production Facilities
5. Drilling
 Example Level 3 WBS
1. Engineering & Project Management Team
2. Survey Work (Site Condition)
3. AMDAL
4. Procurement
5. Fabrication
6. Transportation
7. Installation
8. Commissioning & Hook up
9. Certification & Inspection
10.Insurance
11.Temporary Facilities & Indirect Cost
HP/WA: 0811-1554565
Email: winsukardi.tc@gmail.com