It is imperative to separate trees from forests and wood from trees when managing procurement activities.
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The Pareto 80:20 rule states that 80% of our time is spent on activities that contribute 20% to the well-being of an organisation. Buyers are inundated with the trivial-but-many class of purchases that are mostly of a clerical nature.
It is also important to note that such type of requirements cannot be totally eliminated, they just need appropriate management.
The only danger is that such purchases drain the buyers’ resources and may lead to inadequate management of the 20% items that are of 80% importance to the company. Organisations need to adopt strategies to manage the trivial, but many purchases so that they do not unnecessarily overshadow the 20% strategic items of the organisation. Appropriate procurement strategies need to be adopted to manage trivial requirement of the organisation.
It is also important to note that the trivial items, create an opportunities for bribery and corruption in procurement. The suppliers are many yet, the volume of purchases are little though many, creating the desire for suppliers to bribe buyers to win business in that category. The solution is adoption of framework agreements to manage that category of spent.
Framework agreements constitute arrangements whereby purchaser and supplier establish the terms on which purchases may be made over a period of time.
The rational for framework agreements is to allow parties involved to establish in advance, terms of future transactions for specific requirements.
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The arrangements are suitable where procuring entities’ have recurring or continuous needs to purchase certain types of products or services. Categories of spent include stationery, computers and maintenance services.
For framework arrangements to work the volumes must be significant and the exact timing and quantity requirements will not be known. They will then eliminate the need to go to the market every time a need arises.
Framework arrangements can be concluded with a single-provider or with multi-providers. Single provider arrangements are limited to a specific provider for one or many lines of products. There is an option to consider price discounts in return for the exclusivity of the supply arrangement. They also provide an opportunity for long-term partnerships and encourage research and development.
Multi-provider framework arrangements involve a two phase approach where initially, suppliers are prequalified on the basis of capability to supply goods and services on specific terms set out by the procuring company, the a second phase of call-off is undertaken when specific requirements arises.
The call-off could be based on the results of the prequalification stage or maybe in the form of another mini-competition among the prequalified suppliers to identify the most advantageous overall terms. The mini-competition will be necessary where it is difficult to know in advance which supplier provides the best terms and where the market prices are volatile by nature like the fuel, oils and lubricants market.
Establishment of framework arrangements reduces the workload on the buyer and providing them with ample time to focus on the more strategic needs of the organisation. Framework arrangements are suitable for all the three major sectors of public, private and third sectors of the economy.
However, for the application of such arrangement in the public sectors, the Procurement Act needs to provide for such arrangements to allow for appropriate legal direction.
lNyasha Chizu is a Fellow of the Chartered Institute of Purchasing and Supply writing in his personal capacity. Feedback: [email protected]
