PLANNING
Planning is the first stage of the procurement process where procurement requirements are determined and specified by the user. The approach or strategy is decided, in relation to considerations such as whether to produce the product(s) in-house or source them externally.
Other decision areas to be considered include funding, the application procurement rules and the method of procurement.
SOURCING
Sourcing is the process of finding the best suppliers, building relationships with them and using these supplier relationships to maximize value for an organization. Since the cost and quality of goods or services purchased have a direct impact on the financial and operational results of an organisation, it makes sense to devote enough though, time, and resources to make sourcing both strategic and successful.
The activities to be undertaken at this stage include,
- pre-qualification of potential suppliers
- preparation and issue of tender documents,
- requests for quotation or requests for proposals,
- evaluation of responses and the selection of the successful tenderer.
CONTRACTING
A procurement contract is a written agreement between a buyer and a seller in which the buyer agrees to purchase goods and service from the seller in exchange for payment transactions. A procurement contract states each party's obligations and usually includes detailed price lists, payment information, conditions of delivery and other legal terms and conditions.
At the end of the sourcing period, notification of award is sent to the most responsive tenderer. After indication of acceptance of offer on the terms of contract, a contract is signed by both parties.
Contract include the following,
1. Specifications of goods or service or works
2. Terms of contract (delivery period, payment terms, quantity, contract sum, warranties etc)
Contract must be signed and witnessed by both parties to market it valid. Simpler requirements may use a purchase order or where framework contracts exist, contracting may consist of placing a call-off order under the existing contract.
A purchase order is a legally binding document between a supplier and buyer. It details the items the buyer agrees to purchase at a certain price point. It also outlines the delivery date and terms of payment for the buyer. Purchase order computer systems have made the purchasing process more efficient and allow for better inventory payment tracking.
CALL OFF ORDER
A call-off order is an order that references a purchase contract. A call-off is an order created to cover multiple suppliers or deliveries from a single company. For a medium or long or regular term supply of the same services from the same supplier.
CONTRACT MANAGEMENT
The awarded contract must then be managed, to ensure that both the buyer and supplier perform their contractual obligations. A bank guarantee and a letter of credit are both promises from a financial institution that a borrower will be able to repay a debt to another party, no matter what the debtor's financial circumstances. While different, both bank guarantees and letters of credit assure the third party that if the borrowing party can't repay what it owes, the financial institution will step in on behalf of the borrower.
Activities may include,
- expediting delivery
- arranging inspection
- checking bank guarantees
- establishing letters of credit
- making arrangements for receipt and installation of goods,
- verifying documentation and making payments.
Works contracts will often require technical supervision by an engineer. Contracts for consultancy services often require the direct participation of the buyer or client organization, as the recipient of training or technical advice or in responding to studies or reports.
STORAGE
Where goods are not being used immediately, there is often a need to store them, ensuring that no damage or loss occurs. The value of stock can be high and timely availability can be crucial to an organisation's operations. Goods may require particular storage conditions or have limited shelf life, so effective storage, handling and management of stock levels are essential.
DISTRIBUTION
Goods in storage need to be delivered to their final destination, in accordance with customer requirements. Distribution may involve complex in-country supply chains, with delivery to multiple regional stores facilities or end-user sites. There may be a need to respond to varying user demands and transport goods through difficult environments with poor infrastructure.
DISPOSAL
Unserviceable, obsolete or surplus stocks need to be disposed of. Depending on the nature of the goods and their condition, they may be sold by public tender or auction, transferred to another public organisation or destroyed. Appropriate adjustments must be made to accounts to reflect value of the goods disposed and any income received.
EVALUATION
Controlling the performance of the procurement function and ensuring its efficiency and effectiveness is essential to the management of the procurement process. It is vital to evaluate how well the procurement process has gone, identify any weaknesses or problems and agree actions to prevent similar problems in the future. Evaluation may include a formal procurement audit.
