Level 4

Diploma in Procurement and Supply

L4M1 Core
Scope and Influence of Procurement and Supply
1.2.2 Analyzing the key stages of Sourcing process

By/ Almahi Suliman

Supply Chain Management Consultant
Msc in Procurement Management
We are going to talk about?

• Creation of contract
• Service level agreements
• Key Performance Indicators [KPIs]
• Supplier selection
• Contract award
• Contract or supplier management
• The purpose of each stages of the sourcing process
• Added value of sourcing stages

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Creation of contract
• Procurement agreement has two components:
• Offer
• Acceptance
• We need to differentiate between an offer and invitation to treat.
• An offer is a response for ITT or RFQ while an invitation to treat is advertisement or catalogue.
• Acceptance to offer: to form the agreement, the received offer has to be accepted through:
• Unconditional acceptance: if the offer is accepted exactly as it is presented
• Counter offer: proposed offer by the buyer prior to acceptance (for example a supplier may
send an offer to a buyer to supply plastic containers at a price of $2 each. The buyer may
believe that the price is too high and send an email to the supplier making a counter offer of
$1.5 per cup.
• The counter offer does not have to be accepted. If it is accepted by the supplier, then an
agreement exists.
• If a buyer receives an offer and does not respond in any way, then there is no acceptance.

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The supplier’s offer should contains the information required
for the buyer to make an informed decision as to whether it
provides best value for money.
Factor Description
Price Ho much will the supplier charge the buyer for the product or service?
Delivery Who will be responsible for the delivery? Does the price include delivery to the buyer’s
organisation or does the buyer have to arrange collection?
packaging In what type of packaging will the goods be supplied? Who will own the packaging? Is the
packaging recyclable?
Frequency How often will the service be delivered? How often will the products be supplied?
Lead time How long it take to provide the service or to manufacture and deliver the goods?
Quality Against what quality standards will the potential order be supplied?
Minimum Order What is the minimum order quantity that has to be orders to obtain the price quoted?
Quantity (MOQ)
Payment Terms What length of time is the buyer’s organisation given before they are required to pay the
supplier/s invoices?

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Express and implied terms:
• In a contract there are two types of terms:
• Express terms: are anything which is said or written, that is agreed between two parties.
• Implied terms: are assumed to exist and are linked to common law. Such terms do not have
to be mentioned in the contract. By law they are present even if not shown.

Legislation

Implied Terms

Regulations

Agreement
Price

Express Terms

specification
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Service level agreements:
Service level agreement should be developed as part of the
contract documentation. Including these documents enables
potential suppliers to understand what will be required of
them and how they will be monitored, evaluated and
compensated.
A service Level Agreement outlines the level of services that a
buying organisation expects from a supplier.
It defines how the service level delivered will be measured
and how any conflicts will be dealt with should the service
levels not be acceptable.
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SLA Sample
• This service level agreement [SLA] is made between [procurement
organisation] and [supplier] on [date].
• The agreement will be valid until termination of contract or until an
updated and agreed copy supersede it.
• The agreement outlines the parameters of all cleaning services as
previously defined by stakeholders and agreed with the supplier.
• The purpose of the agreement is to ensure that all the correct standards
and levels of service are in place and kept to throughout the duration of
the contractual period.
• The objectives of this document are the following.
• To establish ownership, accountability and responsibility of services provided
• To describe each objective in a clear, concise, unambiguous and measurable manner.

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 Service Level Agreement [SLA] checklist
Ref SLA Criteria Yes No Don’t
Know
Do your SLA goals and objectives inlude?
13 The purpose of the SLA and
14 The goals of the SLA?
15 The objectives of the SLA?
Does your SLA overview include:
16 An outline of the scope?
17 A clear statement of the service required by the customer from the service provider?
18 Parameters of the service to be provided?
Do your SLA provide time scales include:
19 Start and end dates?
20 The duration of SLA?
21 A statement that the SLA will remain valid until superseded by a revised and agreed
SLA or the specified end date?
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Service Level Agreement [SLA] checklist

SLA Criteria Yes No Don’t

Know
22 Provision for premature termination?
23 periods of notice to be given by either the services provider or the customer?
24 What should happen when the SLA expires?
Does your SLA state full and complete details of the service agreement including:
25 Service scope?
26 Service description, with analysis into service groups (if relevant)?
27 Any limitations of particular services?
28 Exclusions – services not required, or not covered within the SLA?
29 Services provided by third parties?

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Key Performance Indicators [KPIs]

vision

Strategy

Objectives
Measure Standard Actual
Key Performance
On time delivery 95% 90%
Indicators
Conformity to specification 99.9% 100%
Accuracy of quantities 99.5% 88% Monitoring

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Supplier selection:
• Once a procurement professional has defined needs and created the
contract terms, the documents are ready to send to potential suppliers
when selected.
• Selection criteria can be tangible like financial status and their capacity to
manage the contract. Or intangible factors such as reputation and culture.
• Within the supply chain, suppliers all have to collaborate if they are to
achieve the goal of satisfying the consumer.
• The public sector has more stringent policies and procedures when seeking
and evaluating suppliers. Specially for the high value contracts
• In private sector and humanitarian agencies buyers need to adhere to the
organisation policy.

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• This is the stage for which all preparatory work has been done.
• Once the supplier that offers the best value has been selected
the supplier can be offered the contract.
• The supplier does not have to accept the contract, however, so
it is advantageous to get acceptance from the selected supplier
prior to feeding back to the unsuccessful candidates.
• With the agreement accepted, a contract is in place and the
work can star as set out in the agreed terms and conditions.

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Contract or supplier management:
• Contract management is operational on SRM includes four main factors

its nature, whereas supplier relationship

relationship
Maintain
management (SRM) is something
strategic and focus on relationship.
• The contract and supplier management Manage Monitor
are influenced by how important the Change SRM performance

contracts is, as described in the Kraljic

matrix. Not all the contracts need to be

strategy
Maintain
proactively managed.

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Outlines the difference between a
collaborative and distributive relationship

Collaborative [working together] Distributive [focus on own objevtives]

Information is shared Information is withheld

Needs are understood and attempted to be met No efforts made to understand the other side

Common goals, strategies and objectives No shared goals

Focus on teamwork, openness and trust One sided, aims to meet own needs only

Long term relationship Short term relationship

Win-win negotiation Win lose negotiation

Open communication Little and very official communication

Promotes supplier relationship management Focuses on contract management

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The purpose of each stages of the
sourcing process:
Stage Purpose
1. Understanding needs/ To ensure the need is as per the consumer’s requirements and is clearly defined
developing specifications to potential suppliers.
2. Market/ commodity and To help a buyer become aware of the current prices and trends and whether it
options would be preferable to make or buy
3. Develop a strategy and To evaluate the competition and decide on which type of suppliers to approach
plan
4. Pre-procurement, market To review demographic and trends and evaluate the life cycle stage of the need
test and market engagement
5. Developing To set out the criteria on which an offer is to be submitted against. To assess
documentation and send which suppliers meet the buyer’s criteria prior to conducting further evaluation.
PPQ/PQQ
6. Supplier selection To evaluate the short-listed suppliers to ensure they fit with the buyer’s
organisation and that they can fulfil the need

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 The purpose of each stages of
the sourcing process:
Stage
7. Issue RFQ/ITT
8. Bid/ender/quotation
9. Contract award
10. Warehouse logistics and
receipt
11/12 contract/supplier
management
13. Asset management/end-
of-life/lessons learned
Purpose
To give the suppliers the chance to provide an offer with a view to being
awarded a contract.
To assess the best cost and value for money to meet the need
To state the requirements of the buying organisation and give the supplier
visibility of the expected performance
To check goods/services are as required
To ensure efficient and effective running of the contract, develop relationship
and manage change.
To assess changing business requirements and whether the need is still valid . To
calculate end-of-life costs and review lessons learned.
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Added value of sourcing stages:
Stage
1. Understanding needs/ developing
specifications
2. Market/ commodity and options
3. Develop a strategy and plan
4. Pre-procurement, market test and market Reduce the chances of goods or services not being received well
engagement
Developing documentation
5. PPQ/PQQ
Added value
Ensure quality standards are met and reducing need for requotes
due to lack of information or misinterpretation. Save time
Research which method-make or buy – achieve the lowest cost.
Save time and ensures conformance by using suppliers that fit
with the organisation's strategy.
or the agreed contract price being uncompetitive.
Ensure potential suppliers are fully briefed on the terms and
conditions and eliminates, at an early stage, suppliers who
cannot conform.
A further way to obtain information to help achieve the correct
shot-listed suppliers. Time is saved in the long term.
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Added value of sourcing stages:

6. Supplier selection Evaluation of suppliers removes unethical, unsuitable suppliers and those in
financial difficulties
7. Issue RFQ/ITT Increase the number of suitable suppliers by opening up the need with a view to
receiving the most cost effective response.
8. Bid/ender/quotation Evaluation and comparison of suppliers’ offers results in selection of the most
cost effective options.
9. Contract award Save time compared with spot buying. Ensures goods are sourced against
ongoing needs.
Contract/supplier Develops relationships which increase the chances of innovation, change
management management and trust between organisations.

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We have talked about?

• Creation of contract
• Service level agreements
• Key Performance Indicators [KPIs]
• Supplier selection
• Contract award
• Contract or supplier management
• The purpose of each stages of the sourcing process
• Added value of sourcing stages

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• Our location: Khartoum 2, Nearby Ozone
• website www.outsourcemena.com
• Phone +249 183580586
• Business WhatsApp: +249123450445
• email info@outsourcemena.com

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