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Procurement process

TABLE OF CONTENTS Page 1. INTRODUCTION.. 1 1.1 Procurement and supply chain process. 2 1.2 What benefits does Procurement provide to Project Management?.. 3

2. SELECTION OF SUPPLIERS.. 4 2.1 Identifying Potential Suppliers.. 5 2.2 Supplier Selection Method. 6

3. CASE STUDY NALEAP .. 8 3.1 Background .8 3.2 Public Procurement Process for selection of suppliers 8 3.3 NALEAPs Selection of suppliers... 9

4. CONCLUSION 12

BIBLIOGRAPHY . 13

1.0. INTRODUCTION Procurement is the acquisition of goods or services. It is favorable that the goods/services are appropriate and that they are procured at the best possible cost to meet the needs of the purchaser in terms of quality and quantity, time, and location. Corporations and public bodies often define processes intended to promote fair and open competition for their business while minimizing exposure to fraud and collusion. All projects require materials to operate. The type of materials will depend on the type of project that is to be undertaken. Procurement does not only cater for acquisition of the materials but also how the materials are managed once they get into the organization. This systematic management of material brings about the concept of supply chain management.

Supply chain management (SCM) is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers (Harland, 1996). Supply chain management is the whole all movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption (supply chain).

From this definition then one can conclude that indeed procurement is an element of supply chain management. this aspect is well captured in the definition according to the Council of Supply Chain Management Professionals (CSCMP), supply chain management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management. It also includes the crucial components of coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. Projects are the new kid on the block in contemporary organizations; projects are unique, transient endeavors undertaken to achieve a desired outcome[1]. The Japanese define projects asa value creation undertaking based on a specific mission, which is completed in a given or agreed timeframe and under constraints, including resources and external circumstance[2]. From the above definitions there some common themes that are evident; the uniqueness, temporary nature and the deliverable or product; a project can thus be defined as a temporary endeavor undertaken to create a unique product, service or result. Project management is the application of knowledge, skills, tools and techniques to project activities in order to meet stakeholder or customer expectations. The project output or deliverable should be achieved with the given time and budget constraints. Many organizations use this approach to manage ongoing operations. Project management and procurement marry where it is necessary for a project to have materials for it to make its end product or meet its objectives. These materials needed for the project may either be in terms of goods or services. Based on this then one can confidently conclude by saying that the absences of a procurement and supply chain management department in a project may lead to the failure of the project.

1. Purchasing process Procurement life cycle in modern businesses usually consists of seven steps: Information gathering: this step includes searching for information for the relevant suppliers. This is important especially if the customer does not have an already established relationship with suppliers. The search should be limited to the area of focus that is the area in which the customer needs product or services. This can be done through various way such as catalogues, advertisements (expression of interest), direct sourcing among others Supplier contact: after gathering instructions then one can identify suitable suppliers and requests for quotation, requests for proposals, requests for information or requests for tender may be advertised, or direct contact may be made with the suppliers. This constitutes an offer to treat. From the given documents then the project manager can identify which supplier to use and thus send an offer. Background review: References for product/service quality are consulted, and any requirements for follow-up services including installation, maintenance, and warranty are investigated. Samples of the P/S being considered may be examined or trials undertaken. This just ensures the procurement is dealing with qualified persons to avoid shoddy deals that may cost the project dearly. Negotiation: Negotiations are undertaken after the supplier has been identified. During these negotiations the parties have to come to an agreement on aspects such as quantity, quality, price, availability, delivery, time and customization possibilities where need be. The result of this negotiation is a contract that should be executed by both parties. This ensures the parties have a legally binding relationship with obligations and sanctions as per the law. Fulfillment: at this stage the contract is concluded and the supplier makes preparation to deliver the goods or services. On the other hand the procurement officer should be ready to process payment upon delivery and inspection of the goods or services.

This process includes supplier preparation, expediting, shipment, delivery, and payment for the product and services are completed, based on contract terms. Consumption, maintenance, and disposal: During this phase, the company evaluates the performance of the product or services and any accompanying service support, as they are consumed. Renewal: When the product or service has been consumed or disposed of, the contract expires, or the product or service is to be reordered, company experience with the product or service is reviewed. If the product or service is to be re-ordered, the company determines whether to consider other suppliers or to continue with the same supplier. 1.2 What benefits does Procurement provide to Project Management? The key role for a project manager is the responsibility for planning, coordinating, controlling and executing a given task (the project) while juggling resources, risk management, and internal/external stakeholders. Becoming a successful project manager requires training and experience which can itself act as a facilitator of leadership skills. A good project manager can aid the procurement process. The procurement department will tackle the following aspects of procurement such as: Outsourcing Competitions/Tenders Purchasing for NPI (New product Introduction) Supply chain rationalization Performance improvement Each of the above could be considered a project and would benefit from the rigors and controls that robust project management can provide. Thus there is need to have a comprehensive project plan that covers the resource planning as a key consumer of the procurement process. Projects at times fail to deliver on their objectives, this many a times can be attributed to poorly defined requirements, poor time management/planning, scope creep, unclear deliverables, all this can however be improved upon by applying the right skills and approach.

Procurement and supply chain management is not a stranger to these and they suffer from the same issues. 2.0 SELECTION OF SUPPLIERS Once an organization has been able to decide an appropriate delivery model based on the type of goods or services required then they shall be tasked in designing criteria that governs selection of suppliers. In such a case there might be one or many suppliers depending on the project. When evaluating suppliers the focus is mostly on the suppliers resource as this is what is visible on first instance. In reality this should just be one of the aspects to consider and much more how the suppliers are able to turn their resources into capabilities that can meet customer needs. In this regard then when evaluating supplier it would be prudent to evaluate them based on their Competencies, Capabilities and Resources Breaking down a bit further one has to look out for the following when selecting a supplier: Financial security It's always worth making sure your supplier has sufficiently strong cash flow to deliver what you want, when you need it. A credit check will help reassure you that they won't go out of business when you need them most. Reliability The supplier must be one who is reliable in that they are able to deliver goods on time and in the right quality at a given place. A supplier who is not committed shall end up disappointing the project team and in turn the customer as the product or service may not be delivered on time. Value for money The lowest price is not always the best value for money. If you want reliability and quality from your suppliers, you'll have to decide how much you're willing to pay for your supplies and the balance you want

to strike between cost, reliability, quality and service. Quality Every material is ordered for a specific purpose. The supplier must ensure that material delivered on site and fit for purpose otherwise this shall adversely impact on the project and even result to a failure in meeting project objectives. Clear communication that is service oriented You need your suppliers to deliver on time, or to be honest and give you plenty of warning if they can't. The best suppliers will want to talk with you regularly to find out what needs you have and how they can serve you better. This also enables the supplier to know whether or not there any changes in the quality or quantity of goods. A partnership approach A strong relationship will benefit both sides. You want your suppliers to acknowledge how important your business is to them, so they make every effort to provide the best service possible. And you're more likely to create this response by showing your supplier how important they are to your business. 2.1 Identifying Potential Suppliers Potential suppliers can be identified through two key methods: a) Pre qualification suppliers Theses refers to where a supplier is registered to an organization thus they are called upon when need arises to deliver certain goods or services. This is a form of closed sourcing that upon agreement then the parties enter to a contract. Pre qualification is a method best used when procuring for technical services or when there is limited time to acquire the said goods or services. Mainly works in a monopoly market. b) Short listing of suppliers This is an open process of identifying suppliers. It encourages competition among market players and ensures that the organization gets a good price for their material.

A list of suppliers for short listing can be obtained through the following: Recommendations Ask friends and business acquaintances. You're more likely to get an honest assessment of a business' strengths and weaknesses from someone who has used its services. Directories If you're looking for a supplier in your local area, it's worth trying directories such as Yellow Pages. Exhibitions and Trade fairs Exhibitions offer a great opportunity to talk with a number of potential suppliers in the same place at the same time. Before you go to an exhibition, it's a good idea to check that the exhibitors are relevant and suitable for your business. Trade press Trade magazines feature advertisements from potential suppliers. Advertisements The procurement department can call for tenders, expression of interest or calls for proposals in the media. This will enable them to identify interested suppliers based on the responses they will receive. These applications shall enable them to shortlist the suppliers and grade them until finally they get one preferred person. Unsuccessful applicants details are kept I the organizations database for future reference. After short listing the suppliers then one has to consider the following the above discussed aspects before settling into a legally binding relationship with them. Research is an adequate component at this juncture as it assists in narrowing down to the most suitable partners. 2.2 Supplier Selection Method When choosing a supplier focus is mainly on three key aspects: Price- all suppliers must meet the threshold set by the organization.

There must be a chosen basis of price that the supplier has to meet. Quality - the preferred supplier is selected on the basis of quality, with the price being negotiated afterwards. Both price and quality the quality attributes of the suppliers are graded and the preferred supplier is selected by balancing price and quality. Thus the following methods are used in selection of suppliers: Direct appointment This occurs mainly where there is single sourcing. Direct selection occurs mainly in monopolistic markets or in situations where time does not allow for the organization to go through the whole tendering process. Procurement officer selects from a list of pre- qualified suppliers or directly makes contact with a supplier to provide the required goods or services. For instance if one is undertaking an electrification process then the procurement officer makes direct contact with Kenya Power as they are a monopoly. Lowest price conforming and Purchaser nominated price Price is one of the key factors that assist in determining which supplier to choose. The price set by the purchaser is usually dependant on the budgetary allocation made to the project. It should however be noted that price is not everything. A supplier might be chosen based on quoting a low price- lowest price conforming or by quoting a price that is well within the purchasers estimates- purchaser nominated price. These two are methods which a supplier can be selected based on the price. Price quality method As earlier indicated price should not be the ultimate reason for selection. The quality of the goods must also be taken into

consideration. One has to create a delicate balance between the price and the quality. It is salient to get good quality at a reasonable price other than a good price for poor quality. Quality based. Goods must be fit for the purpose which they are intended. The quality of goods being delivered should greatly influence who get the contract to supply. A supplier thus can be selected based on the quality of goods he quotes. For instance; if looking for wheat flour, one quoting EXE may get the contract compared to one quoting Ndovu. Aside from the quality and price factors that determine the method which a supplier is selected the following attributes also have to be taken into consideration: Relevant Experience and Skill the suppliers previous experience in technical areas relevant to the outputs being purchased as well as their competence based on the personnel they intend to use with particular emphasis to a certain skill. This is relevant especially if a contract if for both goods and services. Track record or reputation or experience the suppliers record of delivering works or services to the quality standards required, on time and within budget. This also ties in with the methodology that the supplier uses in delivery of the goods and services aimed at achieving a specific result. Resources the equipment, including facilities and intellectual property, that the supplier proposes to use to deliver the outputs as well as the financial viability of the supplier. This greatly and directly impacts on the suppliers ability to deliver on time and within budget. A CASE STUDY OF THE NATIONAL LEGAL AID AND AWARENESS PROGRAM 3.1 Background Information

The National Legal Aid and Awareness Programme (NALEAP) is a national pilot programme under the Ministry of Justice National Cohesion and Constitutional Affairs (MOJNCCA) and is aimed at advising government on matters of access to justice and drawing of lessons for the establishment of a national legal aid scheme. NALEAP was launched in 2008 and has a secretariat, a national coordinator, legal aid officers and other support staff. The National Legal Aid (and Awareness) Steering Committee[3] has the mandate to oversee, coordinate, and monitor the programme for legal aid provision in Kenya. NALEAP contributes to the implementation of the Governments first Medium Term Plan, 2008-2012 of the longer term development plan, the Kenya Vision 2030 under the Strategic Theme 6, focused on increased access to justice. The programme is expected to inter alia lay a foundation for the establishment of a structured and sustainable legal aid scheme to streamline the provision of legal aid services in Kenya.[4] The programme itself is as collaborative effort between the government and civil societies runs six pilot projects which are facilitated by civil societies.

NALEAP being a department in the Ministry of Justice, it uses the public procurement process for selection of suppliers.

3.2. Public Procurement Process for selection of suppliers The government just like any other individual is a consumer of goods and services. Owing to the fact that it uses tax payers money it has to make stringent measures to guard against corruption. The Public Procurement & Disposal Act 2005 was enacted with the following objectives in mind: To maximize economy and efficiency; To promote fair competition;

To promote integrity; To increase transparency and accountability and promote local industry. The act and the regulations assist those involved in public procurement to observe the rights of purchasing. Observing the rights of purchasing helps in engaging in wise buying, reducing theft of funds, misuse of purchased materials, buying from the wrong suppliers, buying at exaggerated prices, colluding with friends to under supply and to cheat users among other irregularities. a. Right Quality This refers to what is required for the intended application or use by the user (specification). Users must specify what they need in writing (specification) and all parties involved must agree on the specification b. Right Time This implies that goods and services must be received at the time when they are expected to be ready for use or as and when required as per the contract of supply. c. Right Quantity This refers to the amount required at the time it is required. The users must agree on this as per their required use or demand schedule. d. The Right Source The right source refers to vendor/s or suppliers with the capacity to meet the stated needs. e. The Right Price This is the value of what is offered by the vendor or what is negotiated between the buyer and the vendor. In public procurement the bidder who has the lowest price for the specified quality is the one who is usually awarded the tender. The Law provides for three (3) main methods of procurement. These are: -

Cash Imprest Request for Quotation (RFQ) Open Tender The five rights must be achieved to satisfactorily say that taxp ayers money has been wisely spent. Further the procurement process should be subjected to constant monitoring and evaluation to maintain the integrity of the process. 3.3. NALEAP s Selection of suppliers The following methods are used by government ministries and department in procuring goods and services. This is despite the fact that the act only provides for three methods of acquisition of the same, special circumstances has forces going beyond the provision of the Act. a) Restricted Tendering Method This method is used in procuring large and complex goods, services or works. The procedures are similar to those used in open tendering. The difference between the two tendering processes is that the invitation to tender is sent out to specific persons. The invitations sent out should not be less than three. b) Open International Procedures This method is used where international firms are also invited to tender for provision of goods and services. Mainly used where effective competition could not be achieved within the country. c) Direct Procurement Direct procurement is used when single sourcing for goods, services or works in cases where there are no alternative suppliers or firms to compete for business. This method can also be used during emergencies or national disasters. Processes of Buying d) Through Imprest When buying through imprest, the following steps are followed:

A request is forwarded by the user to the one with authority to commit funds for expenditure for approval, and then directed to the procurement/ supplies office, upon receipt of approval. Costing is done based on the technical specifications and cash is applied for which shall be used to buy the items requisitioned for. The item is then received by the stores clerk. It is then recorded on the stores ledger and control card. Issues of the item/s to the users are also recorded or posted. e) Through Quotations When it is agreed as per regulations to buy through quotation:A requisition is written and approval /authority given/granted. Request for Quotation forms are sent out to potential bidders. The forms are filled, submitted back and opened by the Procurement Committee for award of contract to supply. Minutes are then confirmed and LPOs are raised; for services, LSOs are raised. Receiving is as above but verification is done by the inspection and receipt committee which consists of 3 or more members. Members must commit themselves in writing to the decisions made. f) Through Open Tender The principal document here is tender form that details the items required plus their respective quantities. This is where prices are filled. Other documents include conditions of tendering and anti-corruption declaration forms. Tenders are advertised in any widely circulated daily edition. The duration of tender must be 21 days. The advertisement captures the closing date and time, venue of opening and where to deposit the bids. The location of the tender box must also be indicated. Prices quoted must be valid for 90 days. Counting starts from the date the tender closes on the 21st day. The tender committee opens the bids on the 21st day, marks and signs the documents. Each member of the committee must sign or initial every page of the tender document. After the analysis is done, the committee critically examines and makes decisions on the tenders and recommends the awards. Letters of acceptance are written in two

copies. If a supplier accepts the offer, an LPO is raised.

[pic] 4.0. CONCLUSION Selection of suppliers is usually based on criteria that the organization opts for. The criteria is set based on the type of product or service the organization wants to give the client as well as ensuring client satisfaction in the service that is to be offered. One key thing that should not be done is to sacrifice quality at the altar of pricing. This results in poor quality work that does not meet its objective and in the long run can cost the organizations reputation. The suppliers selection process must be fair to all potential suppliers. The suppliers input into the contract should be made during the negotiation stage so as to have a contract that caters for the rights of both parties. Fairness and confidentiality should be observed to ensure a competitive process, and may the best man or woman win. BIBLIOGRAPHY 1. Harvey Maylor, 2010; Project Management, 4th Ed., Prentice Hall 2. http://www.businesslink.gov.uk; The Supplier Selection Process; 2009 3. ISO 9000-1: 1994 Quality management and quality assurance standards. Part 1: Guidelines for selection and use. 4. ITC Training, 2009; Supplier Selection Qualification and Appraisal; UNEP.

5. KIM Training Series; Supply Chain Management Theory Concepts & Practice; Moran Publishers, 2009. 6. NZ Transport Agency, 2009; Procurement Manual 1st Ed.

7. PMI Standards Committee, William R. Duncan, 1996; A Guide to the Project Management Body of Knowledge, 4th Ed. 8. Public Procurement & Disposal Act 2005 9. Willocks LeslieP., Cullen S, Lacity M.C. The CEO Guide to Selecting Effective Supplier. 10. www.business.govt.nz/procurement; Guide 3 to Sustainable Procurement Evaluate and Select Suppliers, 2010. 11. CGD& NTA Citizens Guide to Public Procurement; Public Procurement Procedures for Constituency Development Fund

----------------------[1] Association for project managers, 2004 [2] Project management association of Japan, 2005 [3] Established by His Excellency the President of Kenya vide Gazette Notice No. 11598 of 30th November 2007 to oversee, coordinate and monitor national secretariat and pilot projects. [4] Even though the Steering Committee was established in 2007, NALEAP was launched in 2008 after the National Coordinator was appointed by the Minister. Its official launch therefore marked the beginning of the implementation of a programme that will ensure that legal education and aid becomes a reality in Kenya. Thus NALEAP is the lead organisation at government level spearheading the coordination and implementation of legal aid services in Kenya.