Procurement
Introduction
● Procurement is the process of purchasing or buying goods and service for use by a company
from an external supplier.
● An organization enters into a contract with an external contractor, who deals with the supply of
goods and services, to carry out certain works or supply to the company the required goods and
services.
Basic Concepts in Procurement
● Transparency- Transparency requires the company to supply full and accurate information to
prospective tenderers regarding the said contract and the procedures that the company would
use to select tenderers and award contracts.
● Equal treatment- All tenderers must receive equal treatment so as to promote fair competition
among the tenderers and also attain the prospect of being supplied by the best contractor in the
market.
● Non-discrimination- This entails the segregation of tenderers at different stages of the
procurement process in a manner that makes it difficult for some of the suppliers to tender their
contracts.
● Value for money - the optimum combination of the whole-life cost and quality or fitness for
purpose to meet the user’s requirement.
● Thresholds- Most companies have set the minimum value of money from which goods or
services may be procured through the tendering process.
The Procurement Process
● Key players are
○ Purchaser
○ Buyer
○ Need
● Process
○ Identify goods or services needed
○ Raise request to procurement department
○ Procurement officer will consolidate all requests and will come up with a procurement
plan.
○ The budget will also be made
○ The Procurement officer will start looking for the requested goods or services within
budget.
■ Direct sourcing- obtaining goods directly from a single supplier.
■ Restricted tender- this involves obtaining goods or services from a list of
suppliers for a common supply that may have been pre-qualified by the
organization.
■ Open tender - This is an open process whereby adverts are placed in
newspapers to have sellers who are capable to respond by submitting their
tenders without necessarily going through the process of prequalification
○ The process therefore continues with tender opening on the date of tender closing
deadline.
○ Once that is done, an evaluation committee is constituted which evaluates the bids/
tenders and documents and an evaluation report with recommendations on the award
sent to the company’s management.
○ This evaluation report is then presented to either the tender committee or the
Procurement committee for consideration or approval of the recommended awards.
○ Once the awards are approved by the committees mentioned, a contract or an order is
raised.
○ The tender who won is then given a contract or order which he agrees to by signing his
acceptance. The Tender is then secured
○ The duty now then rolls over to the tender supplier who should then prepare to supply
the good or services as stimulated in the contract or order.
○ Once delivery is done, goods or work services are inspected by a committee called
inspection acceptance committee.
○ Once accepted, the goods are then adopted as stock items and therefore stocked and
issued to the user departments to meet the initially identified need.
Stock Control and Management
● Stock is the total merchandise kept on hand by a merchant, commercial establishment,
warehouse, or manufacturer for production or sales
● Stock control is defined as the activity of checking an undertaking’s stock.
● Stock can be categorised as:
○ Raw materials and components which are waiting to be used in the manufacturing
process
○ Finished goods held in store so that customers’ orders can be swiftly met immediately it
is made.
○ Work in progress which includes incomplete products in process of being made.
○ Consumables which include fuel and stationery among others.
● Stock control features
○ Ensuring that products are on the shelf in shops in just the right quantity.
○ Recognizing when a customer has bought a product.
○ Automatically establishing when more products should be put on the shelf from the
stockroom.
○ Reordering stock at the appropriate time from the main warehouse.
○ Coming up with management information reports that could be used both by local
managers and at Head office
● There are two methods of stock control:
○ Just in case and
○ Just in time.
Objectives of stock control:
● The aim of stock control is to minimise the cost of holding the stock while they are ensuring
that there are enough materials for production to continue and be able to meet consumer
demands.
Role of stock control:
● To work closely with purchasing and marketing departments since it is not easier to obtain the
correct balance.
Advantages:
● Records are kept in a more compact manner so that reference to them is facilitated.
● Records can be kept in a neat and clean way
● Stock control systems ensure that only the right amount of stock are on the shelves - not too
much or too little.
● Stock control systems will assist in saving a lot of staff time.
Disadvantages
● Poor stock control leads to problems associated with overstocking and stock out.
● Overstocking is caused by too much buffer stock and its effects include:
● It increases the costs for business as holding stocks are an expense for the firm.
● Increases warehouse space needed.
● Higher insurance costs.
● Higher security costs.
● Damages danger and this is in relation to perishables.
● Stock out simply means business running out of stocks. Its effects include:
○ Loss of production since some workers may be paid for jobs not done
○ Potential loss of sales or missed orders which can harm the company’s reputation.
Inventory management:
● Inventory is the stock of any item or resource kept on hand for use.
Inventory (stock) management process:
● Not all goods and equipment required to carry out a project are utilized immediately. Some
goods are kept in a ware house or store.
Importance of keeping of a supply of inventory item or stock of any item used:
a) To maintain independence of operations
b) To meet variation in product demand
c) To allow flexibility in production scheduling
d) To provide a safeguard for variation in raw material delivery time
e) To take advantage of economic purchase time
Stock management process
● Analytical Process - The analytical technique uses a classification (A-E) process to list the specific
items.
● ABC inventory classification - The ABC approach divides this list into three groupings by value:
○ A Item ,constituting about 15 % of the items
○ B —Item ,35%
○ C-Items ,50%
Factors to consider in the procurement process
● Income of company
● Expenses of company
● Quantity of goods
● Quality of goods
● Cost benefit analysis
● Cost utility analysis
● Risks involved
● Time
● Price
● Delivery
Practical Approach to Inventory
Objectives of Inventory Management
● To maintain a large size of inventories commensurating with a modern law firm and work-in-
progress for efficient and smooth running of the organization.
● To maintain a minimum investment in inventories to maximize profitability in the legal
profession.
Nature of Inventories
● The various forms of inventories exist in a law firm or in a manufacturing company are facilities
or raw materials work-in-progress and finished goods.
Need to Hold Inventories
There are three general motives for holding inventories, namely;
● i) Transaction motive - Emphasizes the need to maintain inventories to facilitate the smooth
running of the firm and/or facilitating the smooth production and sales operation in a factory.
● ii) Precautionary motive - Necessitates holding of inventories to guard against the risk of
unpredictable changes in demand and supply forces and other factors.
● iii) Speculative motive - Influences the decision to increase or reduce inventory levels to take
advantage of price fluctuations.
To manage inventories efficiency, the following two questions may be sought as guidelines;
a) How much should be ordered?
b) When should it be ordered?
● The first question, how much to order, relates to the problem of determining economic order
quantity (EOQ) and is answered with an analysis of cost of maintaining certain level of
inventories.
● The second question, when to order, arises because of uncertainty and is a problem of
determining the reorder point.
Stationery Control
● Stationery refers to all the office-e supplies like pens, paper envelops, pins, staples etc.
● These are also referred to as office consumables.
● Stationery is essential for the smooth running of the office activities.
Stationery Levels:
● Max Level
● Min Level
● Reorder level
Factors Affecting stock Level / Quantity
● User Demand / consumption rate - The higher the demand, the more quantity required.
● Cost of storage i.e. the cost of hold such an item in the store. The higher the cost, the lower the
quantity.
● Cost of items - The higher the cost, the lower the quantity kept in the store
● Nature of items
● Lead time
● Distance
● Availability of items
● Budgets
● Safety and Security
● Space
● Company policy
Stationary Procedure
● Purchasing
● Receiving
● Storing
● Issuing
Control of Stationery:
1) Budget - each department should have a budget for the stationery requirements.
2) Accurate records - The stock controller should ensure that records are accurate and up to date
3) Centralization - Stationery should be purchased by a centralized department in order to get a
quality discount.
4) Requisition - No issue of purchase or stationery should be made without authorized requisition.
5) High quality stationery - The store controller should ensure that stationery purchase is of high
quality.
6) Proper arrangement in the store - Stationery should be arranged so that the more to the
entrance.
7) FIFO method of issue — This should be adopted to avoid expiry of stationery.
8) Correct stock level — This should be monitored to avoid over or under-stocking.
9) Recycling — User departments should be encouraged to recycle stationery e.g. envelopes
10) Safety and security - The stock controller should ensure that safety is provided for stationery e.g.
fire protection and that the store is always secure.
11) Tight monitoring - The store controller should monitor the user departments to ensure that
there is no misuse and wastage of stationery.
12) Responsibility — one storekeeper should be in-charge for the storage and issue of stationery.
Guidelines to reduce cost:
● Maintain min stocks
● Efficient storage
● Issuing system
● Efficient purchase
● Devising proper forms - This is in order to avoid any
● wastage in usage
● Centralized buying
● Budgeting
● Competitive tendering
● Qualified staff
● Use of requisition
● Proper record keeping
● Tight monitoring
Objectives of stationery control
1. To ensure that there is continuous supply of stationery to meet the needs of the company.
2. To maintain correct stock level in order to avoid over or under-stocking
3. To ensure that stock records are accurate and upto date.
4. To minimize losses arising from deterioration and theft of stationery.
5. To ensure that stationery of high quality is purchased
6. To ensure that stationery is purchased using the most economical process
Continuous stationery:
This is paper which is joined together into a continuous strip whereby each section of paper is divided
using perforation (tear off section). It is used by companies which produce a high volume of documents
Types of Continuous Stationery:
1. Roll Stationery - This is a large roll of paper normally used in adding machines or cash registers.
2. Interfold Stationery - This is A4 continuous paper which is divided by perforation. It is normally
folded along the perforations before use eg computer printing paper.
NB: Continuous paper also has a duplicate copy attached to it.
Uses of continuous paper
1. For cash sales in retail outlets
2. For preparing payrolls and payslips
3. For mass production of invoices, receipts and even paper money.
Advantages
1. It saves time and effort that is required for inserting separate sheets of paper and carbon paper.
2. It increases the speed of producing printed documents like invoices and receipts.
3. It promotes uniformity of work because all departmentsuse the same stationery.
Disadvantages
1. It is expensive to purchase
2. There may be damage to the paper due to friction of the machine or paper jam.
3. It requires a skilled machine operator.
Conclusion
The modern structure of the procurement life cycle consists of 8 major steps, with the first 7 steps being
essential for each and every organization that engages in procurement. The processes are summarized
as under;
1. Information gathering- Whereby the potential customer has got no established contacts of
suppliers or if it is a new entity in the market.
2. Supplier contact- Is whereby 2 or more suitable suppliers have been identified hence the need
to establish merit through requirements such as proposals, price quotations, request for
information and request for tendering.
3. Background review- The proposals made by prospective contractors are put to test to
determine their chance of success.
4. Negotiation- Upon the identification of a successful bidder, the company might wish to
negotiate with him on the terms and conditions of the contract.
5. Fulfillment- The supplier is then required to perform his part of the promise which may be done
through activities such as installation, shipment, delivery and any other such acts depending on
the nature of the contract.
6. Consumption, maintenance and disposal- The company then evaluates the work done by the
contractor and other performance-related aspects of the contract to ensure compliance.
7. Renewal- The Company may choose to re-order for other goods through the same contractor
especially in those instances when the company has run out of goods or services before the
financial year ends.
8. Tender notification- The Company may choose to re advertise the tender even when they have a
contractor on board so as to raise the level of competition hence improved standards of
qualities so supplied by the tenderers.
Relationship between procurement and technology
Advantages
● ICT has brought about accuracy, efficiency, automation , time saving
● Increase of procurement velocity through technology assisted process standardization and
automation.
● To drive talent retention and performance
● Identification and storage of knowledge and information necessary for effective future success,
use and re-use.
● Making the procurement process cheaper and faster hence in the end boosting the economies
of scale for the company due to reduced procurement costs and an effective analysis and
undertaking of the said process.
● Access of goods and services from a wide scope of suppliers hence a chance to make a choice of
the best available goods at the price budgeted by the organization without actually jeopardizing
the quality of goods and services so procured into the company.
Disadvantages:
● The use of technology automation does not necessarily guarantee operational efficiency as
there needs to be some input by the human resource of the organization so as to ensure that
the technology employed functions efficiently.
● Technology selection does not necessarily correlate with optimal outcomes of the organization
as other factors come into play to ensure the general performance of the organization.
● The cost of acquiring technology is high and most organizations may not be in a position to
acquire and maintain certain types of technology.
● Technology therefore can absolutely address negative stakeholder perception especially in
modern day commercial world as the level of quality of services is associated with the type and
level of technology employed by a company.
● By using the appropriate technology to show the financial ‘strength’ of the business, the
organization will go a long way to driving buy-ins that would ultimately increase the levels of
profit for the organization.
