PROCUREMENT MANAGEMENT 1
Procurementrefers to the acquisition of goods and services from externalsuppliers. For an organization, procurement management is concernedwith developing a systematic method of making purchases to ensuresustainability (Eglin, 2013). The procurement management process hassix progressive stages.
1. Identifyingthe Need
Planning foracquisition requires a company to determine its purchasing needs. Inthis regard, it is important to outline the objectives ofprocurement. Also, establishing a clear scope of requirements helpsto avoid impulsive decisions (Eglin, 2013). Consultations with therelevant stakeholders provide insight into the intended outcomes. Inaddition, conducting in-depth market research contributes to anunderstanding of restraints and capabilities. Due diligence must beadhered to in view of ethical guidelines (Baily, 2015). Furthermore,procurement management requires that relevant decisions aredocumented to serve as justification for the purchase. Examining thehistory of acquisitions would provide a hindsight view of decisionsthat ultimately led to the wastage of company time and resources(Baily, 2015). Therefore, transparency is a hallmark of procurementwith regards to the identification of need.
2. Defining theScope of Procurement
An enterprise mayrequire a broad variety of goods and services to sustain itsoperations. Subsequently, it is critical to identify the categoriesof products that require specialized procurement arrangements.Potential opportunities for joint procurement may arise whendifferent departments need the same caliber of goods and services.Detailed market research would highlight the viability of pursuingeconomies of scale (Eglin, 2013). Scoping the procurement requires aproper estimation of the value of purchases. In some instances, itcould be challenging to ascertain the exact value due to prevalentmarket turbulence. Nonetheless, it would be proper to place theestimation beyond the expected threshold (Baily, 2015). Therefore,scoping the procurement considers the organization’s policyframework.
3. Determiningthe Method of Procurement
Various methodscan be used to conduct procurement based on the company’s imminentand future needs. For example, an open tender can be issued to themarket as a default option. An enterprise could set a threshold thatguides the placement of open tenders. Such an approach is mostly usedby newly-incorporated companies that lack prior relationships withsuppliers (Eglin, 2013). Government regulations may require thepostage of open tenders on particular platforms. Moreover, aprequalified tender can be used in three specific instances. Firstly,it can be enforced based on a comprehensive list of potentialsuppliers that have the required expertise, qualification, andlicense. Secondly, it can involve a procurement made from a multi-uselist. A prequalified tender can also be useful where an Expression ofInterest was issued as a two-stage process (Baily, 2015).
On the otherhand, limited tenders can be used to seek direct quotations fromseveral suppliers based on the scope of work. Any procurement that isvalued below a predetermined level is issued as a limited tender(Eglin, 2013). Nevertheless, special exemptions can cause particularhigh-valued procurements to be presented to a select group ofsuppliers (Baily, 2015). Limited tenders are mostly used byestablished companies with an approved list of vendors. Having apreferred group of suppliers presents advantages such as reliability,high-quality products, and affordable pricing. Before offering thetenders to the market, an organization must institute the relevantgovernance arrangements. Existing procurement policies also stipulatethe appropriate preparation of request documentation and tenderevaluation plans (Baily, 2015). Some companies may have to seek theapproval of its delegates and other shareholders before proceedingwith procurement.
In the case ofopen tenders, an entity is obliged to notify the suppliers’ marketby posting advertisements in newspapers and business journals. Onlinewebsites may also be dedicated for the purpose of open andprequalified tenders (Eglin, 2013). The company must ensure that alltenders have essential information such as evaluation criteria andmethodology, and the likelihood of a briefing or pre-conference(Eglin, 2013). It is also critical to highlight the contact person,rules, place and mode of submission, site visit times, and the dateof submission. Providing such details enables the prospectivesuppliers to prepare and present competitive submissions that adherestrictly to the terms of reference.
Various legalfactors have to be considered before approaching the vendors’market. For example, the request documentation must include astatement of compliance and a draft contract. Standard clauses mustbe invoked to portray the company’s limitation of liability.Furthermore, mandatory language must be used sparingly to avoiddiscouraging potential suppliers from the competitive process (Eglin,2013). Additional materials should be provided to all prospectivevendors. The company must be available to offer timely clarificationson the requests made by all suppliers. In this regard, each vendorshould have access to the same amount of information (Baily, 2015).The tender evaluation plan ought to remain unchanged even after thesubmissions are opened.
5. Evaluation ofSubmissions
The companyshould use its procurement policies and guidelines to reject latetenders and address unintentional errors in submitted documents. Inthis respect, the tender evaluation plan should be utilized to drivethe procurement process (Eglin, 2013). The documents must be countedin the presence of all suppliers. Company representatives must be onhand to witness that no documents are subsequently exchanged afterthe deadline. Procurement management ensures that the process isequitable and fair so as to avoid suspicions of misconduct (Baily,2015). Notwithstanding, the organization must be prepared to handleany complaints from dissatisfied suppliers.
The competingproviders must be evaluated with regards to the terms of reference.On many occasions, vendors are graded based on a two-step evaluationof their technical and financial proposals (Eglin, 2013).Subsequently, shortlisted suppliers are assessed to determine theirfinancial viability. At this juncture, intense negotiations areconducted to ensure the optimal terms of delivery and prices for eachvendor. Such discussions help to pinpoint the flexibility andtrustworthiness of suppliers (Baily, 2015). It may also be necessaryto obtain clearance from the relevant delegates before settling on apreferred vendor. Excellent business practice requires a firm tocommunicate to unsuccessful tenderers and advise them on how toimprove their proposals for future tenders.
6. Award andContract Process
Contracts areprepared and signed upon agreement on all terms of quality, delivery,and pricing. The organization needs to draft a contract managementplan that guides the preferred supplier in how to understand andaccomplish the contractual obligations. In some cases, it may sufficeto examine the options for contract extension and price negotiation(Eglin, 2013). The contract’s terms must include bonuses and finesdepending on the fulfillment of stipulated responsibilities.Flexibility should be discernible through contract variations. Thisis due to the potential occurrence of unforeseeable circumstances.Moreover, some obligations may survive the expiry of the contract.Factors that contribute to contract breach need to be outlined forboth parties. Also, the contract must highlight remedies for breachand place of arbitration (Baily, 2015).
The contractmanagement process follows these six stages to ensure sustainabilityin company operations with regards to affordability, high-qualitygoods and services, and timely deliveries.
Baily, P. J. H. (2015). Procurement principles and management.Harlow, UK: Pearson Education Limited.
Eglin, I. (2013). Procurement management. West Yorkshire, UK:Egism Limited.