Achieve competitiveness, control input costs

Budgets and procurement plans are necessary for control and management of input costs. The tools are more financial and administrative and are not complete for the management of input costs.

Report by Nyasha Chizu

The technical element of defining needs can affect the manner and basis of procurement budgets, creating a false start for the business. The definition of needs is a technical activity that determines the level of quality of a product or service required.

Over-specifying and under-specifying have the same consequences; they add unnecessary costs to the business.

In some cases, specifications have been used by personnel with criminal tendencies to limit competition and if such practices are not controlled, the competitiveness of most business will inevitably suffer at the expense of economic revival of Zimbabwe.

A Japanese term “nemawashi” needs to be embraced in business transactions. Loosely translated according to the dictionary of purchasing and supply, it means “consensus decision taking”. Essentially, it may be regarded as a way of ensuring that middle managers keep their superiors informed based on the theory that senior management is able to make better decisions. This is essential when developing specifications to ensure that purchase descriptions are not tailored for one supplier at the expense of competition that aids input costs control.

Specifications for the purpose of procurement are in two forms, there are specifications for the supplier and the product. One of the important responsibilities of a procurement function is to locate suppliers that are competent and uniquely qualified to satisfy the requirement of the buying organisation. Staying up to date on the status of suppliers is not feasible and most procurement organisations use approved suppliers’ lists that are derived from responses from suppliers that meet a certain criteria. The other option would be defining the criteria of a supplier for a tender process. While it is important to ensure that only suppliers who are competent are engaged, there is danger of limiting competition unnecessarily if the nemawashi principle is not embraced. Superiors must question reasonableness of criteria used for supplier appraisal and tenders to widen competition in order to reduce input costs.

  •  Technical specifications form the heart of the procurement. The success of a purchase contract is dependent on the ability of a purchasing organisation to specify requirements. Specifications are necessary for communication of need for greater clarity and precision of expression. In order to increase competition, I recommend the following for consideration when developing technical specifications:-
  •  Use of international standards rather than product specific attributes to allow comparison of products from different suppliers. This is most common in specifications for engineering products where British Standards or equivalent maybe requested.
  • Use of range rather than arbitrary numbers such as 10–15cm above the ground instead of a straight 12cm for vehicle ground clearance. Application of this suggestion must take into account availability of constraints which limit the range required such as space or compatibility with existing equipment.
  •  Use of minimum or maximum where applicable in order to consider superior offers other than what has been specified.

Nemawashi can also be strengthened by using external independent institutions to assess fairness of specifications before RFPs are floated. Zimbabwe Council of Engineers may need to be consulted when specifications for engineering products are developed so that we enhance the brother’s keeper concept in business to control input costs through use of appropriate specifications.

  • Nyasha Chizu is a Fellow of the Chartered Institute of Purchasing and Supply writing in his personal capacity. chizunyasha@yahoo.com
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1 Comment

  1. weston mutongoreya

    I hope all, both goods and services, private and public industries are taking advantage of Nyasha’s contribution to the development and growth of these industries.Enermy number one at the moment,for all organisations,worldwide,is the issue of costs.Which implies that any endeavour or inch of effort to reduce costs by organisations is embraced with all hands.NEMAWASHI principle is important,especially with multi-functional thinking,where both buyer and supply chains organisations are involved,with early supplier involvement in product designing and specifying.Both over-specifying and under-specifying are a cost and waste.Therefore,it is of paramount importance that specifications have to be optimal.

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