The role of procurement in business is to acquire goods and services efficiently and effectively.
Purchasing and Supply with with Nyasha Chizu
Most losses in business are attributed to poor performance of the product on the market.
Although marketing has a role to drive sales, limitations arise if the product is not of the desired quality or if the cost is not competitive.
Procurement in an organisation should drive quality and manage costs. Quality of outputs is assured by good quality inputs that the procurement function is responsible for. Marketability of a product is driven by the management of input costs against your completion in addition to efficient production methods.
Buyers have a role to ensure that goods and services are procured efficiently, eliminating all possible waste in the process. To assure that the costs and quality of products is effectively managed, buyers must ensure that the procurement process adapted is the most effective.
Most losses in the public sector arise when goods or services are sourced without going to tender, or failure to adopt the appropriate procedures in line with the laws.
Public procurement methods are defined by value thresholds that most corrupt officials choose to ignore.
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Private sector buyers may opt to acquire goods and services without quotations to cover up for their inefficiencies.
The other critical area is on the evaluation of bids and quotations. In the public sector, it is a requirement that bidders know in advance how they shall be evaluated. In both the public and private sector, it is critical that the evaluation criterion is specific, measureable, attainable and realistic.
A good evaluation criterion produces almost the same results even if different adjudication teams are used. Subjectivity ought to be eliminated in order to minimise losses emanating from improper evaluation of bids.
All procurement must be based on procurement plans that are backed by a procurement budget. A procurement plan assists in defining when, how much and what method shall be employed to purchase the required goods or services.
Most procurement losses arise from excessive procurement. Excessive procurement arises when a buyer acquires more than what is required for no apparent reason. It is a fact that bulk purchases attract economies of scale.
This, however, requires a balance between many factors that includes immediate requirements, space available, procurement constraints and resources available. Some suppliers may induce buyers to buy more than what is required, crippling other organisational activities. When the amount of inbound logistics is not managed, huge losses can be realised.
Payments to suppliers require effective management. There are dangers that suppliers are paid in excess of what is due to them or that they are paid well before goods are received outside the provisions of the contract.
In the public sector, direct purchases are paid in advance and the mechanisms of price due diligence are limited.
This is against the background that purchases from a competitive process result in suppliers offering competitive payment terms.
The assumption is that, a direct purchases result from an existing relationship and as such, the relationship should yield good payment terms. Advance payments negatively affect cashflows.
