Organisations lose revenue and profits from direct actions or the failure to act by the procurement function.
Purchasing and Supply with Nyasha Chizu
Procurement is a pivot to organisational productivity and efficiency, their wrong actions and/or failure to act appropriately impact directly on the organisation’s trading accounts.
Management of input costs is vital for profitability the same way as the quality of inputs.
Meeting production targets is critical for achieving sales revenue targets.
This, therefore, calls for procurement staff to innovate in support of organisational goals.
Lack of planning is the greatest weakness for most procurement personnel.
Most buyers are mostly reactive, they simply process purchase requisitions.
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When there are no purchase requisitions to process, the buyer is idle. In such instances, the sources of supply are not secure for the organisation.
Such organisations are always involved in fire fighting because of lack of strategic procurement activities in the organisation.
The second problem arises from deficiencies and ambiguities in the contracts. Challenges that arise from failure to complete projects emanate from unclear expectations from both parties.
It is, therefore, critical that standard contracts are developed by each organisation and in the event that a standard contract is not sufficient, legal experts need to be engaged to draft appropriate contracts.
When a contract with clear obligations has been signed, it is the beginning of management of losses emanating from procurement. The contract requires supervision. Obligations need to be monitored and reported appropriately.
Good contracts fail to achieve results due to the fact that obligations were not monitored. Obligations are two-pronged; the contractor and the client have a role to play.
Contract management is, therefore, a critical element for successful implementation of projects. Project implementation is very critical and parties to the contract need to play ball.
The above issues are critical in the management of all types of contracts. Buyers initiate different types of contracts that include supply goods and services, construction projects and consultancy.
All these type of contract require that the procurement is planned, contracts are free from ambiguity and that the contracts are managed for the organisation to minimise losses resulting from procurement activities.
Contract management will ensure that obligations of parties are enforced. In the event of delay in project execution, the contractor maybe charged liquidated damages if they were provided for in the contract. Liquidated damages are an agreed percentage of the invoice sum that will be deducted when a contractor fails to deliver as agreed.
On the other hand, if the client is failing to meet the contractual obligation on the settlement of invoices, the contractor may claim interest if it was provisioned in the contract. For many, failure of project implementation is normally blamed on the contractor, in reality, most contracts fail due to the failure by the client to settle invoices as agreed in the contract.
Projects need to be monitored to ensure that waste is minimised. Waste arises from use of inappropriate material and/or methods. When a process has failed, it would need rectification and such actions amount to waste.
Poor quality work requires elimination and the contract should allocate the costs of rectification to the contractor. It is, therefore, critical that procurement is resourced to ensure that it effectively contributes to the profitability of the organisation.
Nyasha Chizu is a Fellow of Chartered Institute of Purchasing and Supply writing in his personal capacity. Feedback: [email protected]
