Procurement

PROCUREMENT
Copyright 2006 © Fritz Institute. All Rights Reserved.
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INTRODUCTION
Welcome to the Procurement unit of the Certificate in Humanitarian Logistics course. During this
unit, you will be looking at the function and the activities of procurement.
You will see that procurement is a key part of the supply chain process in ensuring that goods and
services are sourced and obtained. To achieve this it is important that people carrying out
procurement build relationships with the people who are requesting goods and services and with the
suppliers who provide them.
The unit will look at the procurement process and that the process starts with a need. Understanding
and specifying that need is vital to the rest of the process. When carrying out the process we need to
recognise that different humanitarian organisations will have procurement procedures and rules that
need to be followed.
UNIT AIMS AND STRUCTURE

The aim of this unit is to provide the foundation skills and knowledge in the function of procurement
performed by people working in logistics/supply chain in humanitarian organisations.
This unit is designed to help you develop an understanding of :
The function of procurement and the procurement process.

The sourcing of goods and services.
The different stages of the procurement process.
Progress monitoring and control and the monitoring of supplier performance.
The management of risk.
This unit has been separated into 6 modules :
Module 1 : The Function of Procurement.

Module 2 : Managing Risk.
Module 3 : Sourcing.
Module 4 : The Procurement Process.
Module 5: Supplier Performance Monitoring and Supplier Development.
Module 6: Procurement Tools and Documents.
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MODULE 1 CONTENTS: PAGE NO:
PROCUREMENT
The Function of Procurement
Definition of Procurement 7
The Procurement Process 11
Procurement Planning 12
Procurement Policies 15
External and Internal 20

Relationships
MODULE 2 The Impact of Risk 25

Managing Risk
Establishing the Importance of 26

Goods and Services
Managing the Different Risks 27
MODULE 3 Identify Source Requirements 30

Sourcing
Supply Markets 32
Market Conditions 34
Sourcing Strategies and

Sources of Supply 36
Supplier Appraisal and 41

Registration
MODULE 4 Need 44
Procurement Process
Specify 46
Source 52
Method 53
Enquiry 58
Evaluation 59
Order 61
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Progress 62
Delivery 65
Payment 67
Review 68
Negotiate 71
MODULE 5 Vendor Rating and Supplier 73

Supplier Performance Monitoring Performance Monitoring
and Supplier Development
Supplier Development 75
MODULE 6 Procurement Systems 77

Procurement Tools and Documents
Documentation 78
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MODULE 1 : THE FUNCTION OF PROCUREMENT
The above is an example of a humanitarian supply chain, which shows the movement of goods from
suppliers through to beneficiaries.
Procurement is a key part of the supply chain process, it takes the needs for goods and services of
customers and carries out all the activities and tasks required to obtain and meet those needs.
Effective procurement ensures that the right goods or services of the right quality arrive at the right
place in the supply chain at the right time.
(We shall be using the term customer throughout this unit - by customer we mean the person who is
requiring goods or services and is asking for these goods or services to be procured.)
It is important to recognise that procurement within humanitarian organisations also needs to follow
three important principles. These principles are important because the money that is being used to
procure goods and services has been provided by the public through donations. The three principles
are :
Transparency – all phases in the procurement process are fair and accurately documented.
Accountability – accountable to donors who may require certain rules to be followed when
using money they have provided.
Efficiency – that the money is being used in the best possible way and not wasted.
Procurement must guard against risk, understand the marketplace, build relationships with suppliers
and constantly monitor performance. This will ensure that the goods and services are procured at
the right price, provide the best value for money and that suppliers are treated fairly.
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The function and scope of procurement has changed significantly since the 1970’s both in the
commercial world and in the world of humanitarian aid.
In the past procurement was seen as just buying. Orders or requisitions would be placed by
customers wanting a range of goods or services and whatever was ordered would be bought.
Many organisations have now recognised the integral role procurement plays as a key element in
the total supply chain of an organisation, and not merely a support activity. It has also led to a
change in role and a change in the knowledge and skills needed by people carrying out
procurement. Procurement is no longer an administrative process, it now involves working with both
customers who are requiring the goods and services and the suppliers who will be providing the
goods and services. Working with customers and suppliers requires significant communication, good
communication and the timely sharing of information.
This unit will be looking at the function of procurement. Procurement, and the activities involved in
procurement, may be carried out by a range of different people in different roles within humanitarian
organisations. The content of this unit is appropriate to procuring both goods and services. There
are specific issues in sourcing and procuring certain services such as freight forwarders and
transport providers, these are covered in detail in other units.
In this module we will look at the definition of procurement, we will look briefly at the procurement
process (this is covered in more detail in a later module), we will consider the planning of
procurement at a strategic and operational level, we will look at procurement policies, the main
external and internal relationships and finally the management of risk when procuring goods and
services.
DEFINITION OF PROCUREMENT
We can define procurement as :
‘The process of identifying and obtaining goods and services’
The aim and objective of procurement is to carry out this process so that the goods and services are
of the right quality, from the right source, are at the right cost and can be delivered in the right
quantities, to the right place, at the right time.
The general aims and objectives of procurement is therefore to always work to the “Six Rights” :
Right Quality.
Right Quantity.
Right Time.
Right Place.
Right Cost.
Right Source.
By carrying out procurement according to the Six Rights we can be sure that every aspect has been
considered to allow us to decide whether we are buying to the best of our ability.
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The priority by which the rights are applied will be dictated by organisational strategy and operational
requirements and their priorities may change during aid operations.
For example, during the early stages of the emergency relief phase of an operation, the right time
and right place is likely to be higher priority than right cost.
It is important to recognise that the Six Rights are interrelated and may influence each other. For
example, it may be possible to obtain the right quantity but not at the right price. There may be
competition for certain goods, so to get the quantities required may mean paying a higher price.
RIGHT QUALITY
Quality is the degree of level of excellence as required by the customer.
Ultimately, the goods and services must be fit for purpose. To this end, quality will be defined as the
level of excellence required meeting the needs of the customer. A higher level of quality may incur
unnecessary cost and return very little extra value. A lower level of quality may mean the goods or
services cannot be used by the customer.
The right quality must be agreed with the customer.
The quality agreed should allow competition between suppliers. If the quality specification is too
high, it may restrict competition. However, this may be a necessary requirement, for example,
telecommunication equipment may need to have very specific requirements, which require high
quality products that may only be available from a limited number of suppliers.
Humanitarian organisations have done a lot of work to define the quality of the goods that they
procure on a regular basis. These quality requirements have been developed by technical
specialists, taking into account the experiences of the use of these goods in field operations.
RIGHT QUANTITY
The right quantity will attempt to balance the requirements of the customer and the supplier. This
may be difficult, as the customer may only want a specific number of items. This may conflict with
the supplier’s terms of delivery, for example, a customer may want five items but the supplier only
supplies in hundreds.
Lower prices can be obtained for larger quantities, but this may conflict with storage capabilities and
lead to goods taking unnecessary space in warehouses or being held for long periods of time.
RIGHT TIME
The right time should be established from two aspects :
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The right time to buy. It may be appropriate to buy goods when prices are low or there is
excess available. Alternatively, it may be necessary to buy when market factors predict future
shortages. This is probably not appropriate for all humanitarian organisations, but for those
who are stockpiling certain goods they can take advantage of excess availability and low
prices and can react to future shortages. There may be opportunities to buy goods during the
disaster preparedness phase of an operation particularly if it is predicted that suppliers will not
have the capacity to supply once the disaster occurs.
The right time to deliver. Delivery too early or too late may also incur unnecessary costs.
Delivery too early can mean goods have to be stored until needed and will incur costs whilst
being stored in warehouses.
Delivery too late can mean the costs of setting up facilities, for example, feeding stations and
having people ready to distribute goods, is wasted because the goods have not been
delivered. Late delivery can also mean more costly transport, for example, aircraft/helicopter
has to be used to move the goods more quickly along the next part of the supply chain.
The right time to buy will be influenced by :
Availability.
Market conditions.
Competition.
Procurement policies.
Customer Demand.
The right time to deliver will be influenced by :

Total lead time.
Organisational requirements.
Customer demand.
In disaster/emergency relief situations, timing of delivery can have a serious impact on the relief
operation and on the beneficiaries. This can be even more significant where the relief operation is
dependent on certain specific goods or services being available at a specific time - or where the use
of one particular item is dependent on the delivery and availability of another item. Lives can be lost
if goods are not delivered on time at the beginning of an emergency operation.
RIGHT PLACE
It is the responsibility of procurement to ensure that the goods or services are delivered to the right
place. As well as asking the customer where they want goods to be delivered, it is important to look
at the total supply chain and where other goods are being delivered and stored. For example, a
customer may want delivery to a local warehouse as near to the beneficiaries as possible, but to
enable the goods to be consolidated with other goods, and to avoid holding unnecessary amounts of
the goods at the local warehouse, the right place for the supplier to deliver to would be a regional
warehouse. The goods can then be consolidated and moved to the local warehouse, and the
beneficiaries, when needed.
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Procurement will need to ensure that the user or customer provides the correct delivery
details and documentation.
Procurement will also need to ensure that the supplier has complete and comprehensive
delivery details.
RIGHT COST
We use the term right cost rather than right price, as the price on its own does not reflect how
much particular goods or services will cost the organisation. The aim of procurement should be to
look at the total cost of obtaining the goods or services and any ongoing costs of operation or
maintenance. What may seem a good initial purchase price may become a poor total cost because
the supplier may add extra costs for packing the goods or transporting the goods. For other items,
such as vehicles, a good initial purchase price may become a poor total cost with expensive
operating or maintenance costs.
What is the right cost for particular goods or services?
This is not an easy question to answer, as there will be lots of different factors and constraints that
will affect the initial purchase price and the total cost. The aim should be to achieve the best value
for money given the different factors and constraints.
RIGHT SOURCE
When procuring goods and services there are often likely to be a number of different sources, and
different suppliers, who can supply them. The decision on which to use is an important decision to
ensure the ‘right’ source is being used.
The right source can be a source that must be used, either because the organisation’s procurement
strategy and policy dictates what the source must be, or the rules and requirements of a donor
dictates what the source must be.
The right source can also mean a reliable, ethical supplier that is able to meet the requirements of
the organisation.
It is the responsibility of procurement to ensure that the right and best source is used. The ability of
people in procurement to identify what sources are available, assess these sources, understand any
organisation or donor requirements, and then select the right source is therefore important.
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THE PROCUREMENT PROCESS
At the beginning of this programme we defined procurement as :
‘The process of identifying and obtaining goods and services’
Whether it is procuring goods, materials, products or services, there is a fairly standard generic
process that can be followed to ensure they are identified and obtained and they meet the aims and
objectives of right quality, right quantity, right cost, right place, right time, and right source.
In most organisations, the customer creates the initial need. The customer could be anyone in the
organisation that requires goods and/or services. These could be disaster relief operations
managers needing food, medicines, etc., for beneficiaries. They could be people in Logistics who
need a transport provider or equipment for a warehouse.
Once the customer begins to specify what is required, the people responsible for procurement start
to play an important part in the process and they either lead or guide the other stages of the
process.
The process follows the following stages :
The following is a brief description of the process. We will look in more detail at each of the stages
later in the programme.
The procurement process has to start with a need. This need will be identified by a ‘customer’ but
the need may not be for specific goods or services at this stage. A customer may know broadly what
their need is but not what they can get to meet that need.
Many customers will know what specific goods or services they need and will make a request or
complete some form of requisition order. At this stage the customer may have an immediate need
for goods and services or they may be forecasting what their future needs will be.
The need is then converted into a specification that can then be sourced and purchased. This is the
stage when the person responsible for procurement is helping the customer to identify and specify
exactly what they need, so that goods or services that are then sourced and purchased are fit for
purpose.
Even where customers have completed a detailed requisition order, there can still be opportunities
to help or advise the customer by providing information to enable them to ‘better’ specify their needs,
and to complete the requisition order.
On completion of the specification stage and the completion of any requisition order, the goods or
services can now be sourced. If the goods are standard items that have been previously purchased
from a selected supplier, then it may be possible to place a repeat order and there is no need to
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follow the next three stages in the process. (Humanitarian organisations will have different rules on
the use of repeat orders and whether they are allowed.) If the goods are not standard or if there is
the need to look for a different way of sourcing the goods or services, then this stage of the process
is about identifying the potential sources available.
The method of procurement should then be determined. There are a number of different methods
available and organisations will have policies, procedures and strategies that will usually determine
what method should be used for different situations, goods or services.
The enquiry stage involves contacting possible suppliers, identified in the sourcing stage, with
details of the specifications of the goods or services required that would enable them to produce a
quote to supply. This could be in the form of a request for quotation or a tender.
The quotes received from possible suppliers can then be assessed and evaluated. These can then
be compared with each other and against the enquiry to determine the most appropriate supplier(s).
Involving the customer, at this evaluation stage, can ensure that the decision on how to source and
which supplier to use is agreed and ‘bought into’ by the customer.
A purchase order will now be issued to the supplier whose quotation, is the most acceptable. The
order should be placed in writing containing details of the specifications, delivery details, etc., and
the terms and conditions of the order. An order acknowledgement should be requested to show that
the supplier has accepted the order and the terms and conditions.
The procurement process doesn’t stop as it includes obtaining the goods and services. There may
be the need to progress the order to ensure that delivery dates are met or overdue orders are
chased up and delivery made. It is also important to keep the customer of the goods or service
informed of the progress of the order, particularly if delivery dates are changed.
On receipt of the goods they will need to be inspected and checked for quantity, quality and that they
meet the specifications. A record of receipt made so that this can be compared against the original
order. If the delivery is not satisfactory and does not meet the order, then this will need to be taken
up with the supplier.
Once the delivery has been confirmed, then the goods or services can be paid for. Suppliers should
be required to submit an invoice that can be compared with the original order and with the record of
receipt. Payment can then be made.
The final stage of the procurement process is to review with the original customer that the goods or
services that they have received, or are receiving, have met the original needs they had and are fit
for purpose.
PROCUREMENT PLANNING
Planning and forecasting is a very important part of procurement. Procurement planning, as we will
see, is done at both a strategic and operational level. We will look at both levels of planning in
general terms. It is important that people who may only be involved in operational planning also
understand strategic planning and how procurement strategies are developed.
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PROCUREMENT STRATEGIC PLANNING
The development of the procurement strategy is normally the responsibility of senior management of
the organisation, in particular, the senior manager of procurement, for example, the Chief
Procurement Officer. The strategy will be developed in collaboration with other senior managers
from other areas of the organisation. Analysis and the provision of information needed to develop
the strategy, will be carried out by others working in procurement and other areas of the
organisation, for example, Finance.
The planning will usually take place in line with the organisation’s normal planning cycle. For most
organisations this planning process is undertaken either on an annual or biennial basis.
The procurement strategy is developed by first reviewing the organisation’s strategic direction and
objectives. Procurement strategies must reflect the overall aim, strategy and objectives of the
humanitarian organisation.
For example :
If a humanitarian organisation’s strategy is to provide prompt high quality emergency

humanitarian aid to people in disaster/emergency situations, then the procurement strategy
needs to reflect this.
If the aid organisation strategy is to provide medical aid, then the procurement strategy needs
to recognise the particular requirements in sourcing and obtaining medical supplies.
If the humanitarian organisations strategy is to maintain stocks of emergency items, either

centrally or locally, then the procurement strategy needs to recognise the need to source and
purchase certain items based on future forecasted demand.
If the aid organisation strategy is not to hold emergency items, then it needs a procurement
strategy that enables it to source and purchase goods quickly when a disaster/emergency
situation arises.
Once the organisation’s strategic direction and objectives have been reviewed, the next step in
developing the strategy is to analyse the organisation’s procurement ‘portfolio’ and the
organisation’s procurement function/department and capability. (Portfolio is the list of goods and
services which are procured by the organisation).
Purchasing portfolio - there are two main factors that will influence the procurement strategy :
The expenditure on goods and services.

The difficulty and risks associated with procuring the goods and services.
The purpose, therefore, of analysing the purchasing portfolio is to develop a complete picture
of the procurement needs of the organisation. This involves analysing both past and
projected procurement expenditure, and identifying the risks involved.
Purchasing function and capability – analysing the purchasing function includes :
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The roles, responsibilities, structure and reporting.
The procurement systems and processes.
The skills and capabilities of people working in procurement.
These should be appropriate to, and match the procurement portfolio.
By bringing together the review of the organisation strategic direction, the procurement portfolio and
the procurement function and capability, the procurement strategic objectives can be developed.
This might include :
Setting up regional procurement centres.

Increasing the number of frame agreements/long term agreements.
Increasing the co-ordination with other humanitarian organisations.
Outsourcing procurement for certain goods or services.
When these objectives have been identified measures or key performance indicators (KPI’s) need to
be put in place to enable the organisation to measure whether the objectives have been achieved.
PROCUREMENT OPERATIONAL PLANNING
The goal of operational planning is to enable co-ordinated and integrated actions to be taken to
procure goods and services in a timely manner and at a reasonable cost. Early and accurate
planning can reduce or avoid the need for last minute, emergency and poorly planned procurement.
Last minute procurement can be very costly but it is also contrary to open, efficient, effective and
transparent procurement.
The greatest opportunities for potential savings in the procurement process are achieved in the
planning stages, particularly the need and specify stages.
Good planning is essential to make sure that procurement is optimising its contribution to the
organisation and to the aid programme taking place. It enables :
Early identification of the right goods and services and right quantities to meet the needs of
the programme.
Sufficient time to fully explore different sources of supply and different procurement methods
such as joint bidding with other humanitarian organisations or the use of other organisations
frame/long term agreements.
Aggregating requirements for goods to strengthen the buying power and provide opportunity
for obtaining better prices for larger quantities.
Development of long term contracts
The avoidance of unnecessary urgent actions and the possible ‘cutting of corners’ so that
procurement, and donor, rules and procedures can be followed.
The timely placing of enquiries and contracts so that delivery of goods and services can be
met even where there are relatively long lead times.
Procurement planning clarifies what is needed and when it is needed for both the customer and the
person procuring the goods or services. Effective procurement planning enables the organisation to
achieve its goals and enables its aid programmes to achieve its objectives. It also allows managers
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more time to focus on proactive work, such as people development and research. Ineffective
procurement planning puts in jeopardy these goals and objectives and the credibility of the
humanitarian organisation.
The most significant cost savings are made during the first phases of the procurement process,
where planning takes place. As illustrated in this diagram.
Cost savings
PROCUREMENT POLICIES
Humanitarian organisations will also have procurement policies that determine how different aspects
of procurement will be carried out in the organisation and how people working in procurement should
behave.
Procurement policies will include :
Policies on Ethics in Procurement.

Internal Policies.
Source Policies.
Donor Related Policies.
POLICIES ON ETHICS IN PROCUREMENT
These policies are mainly to ensure fair-trading and professionalism on the part of the people
carrying out the procurement process, and the suppliers used to provide goods and services.
Ethics in any type of procurement is important but it is particularly important in the humanitarian
organisations. Value for money is the core principle underpinning humanitarian organisation
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procurement, incorporating ethical behaviour and the ethical use of resources. The application of the
highest ethical standards will help ensure the best achievable procurement outcome.
Value for money entails more than just getting the best price, ethics are important when considering
value for money.
Ethics are about how the procurement process is conducted and it should be considered in two
different ways :
1. Ethical sourcing and conduct of suppliers.

2. Ethical conduct of people carrying out procurement.
ETHICAL SOURCING AND CONDUCT OF SUPPLIERS

To ensure that procurement is carried out in an ethical way, organisations will include in their
policies and procedures specific policies or principles that ensure procurement is carried out in an
ethical way.
Ethical procurement policies have become more common in organisations because of the
globalisation of the market place for goods and services and because of the increase in sourcing
from low labour cost economies.
These policies can include – Labour Standards, Environmental Standards and Business Behaviour.
Every organisation will have its own policies and own codes of conduct. The following is an example
of an Ethical purchasing policy.
The following example is an extract from the OXFAM Ethical Policy related to supplier behaviour.
(More details can be seen on the Oxfam website – www.oxfam.org).
Oxfam Ethical Purchasing Policy
Oxfam’s policy is to seek to purchase goods and services which :
a) are produced and delivered under conditions that do not involve the abuse or exploitation of
any persons,
b) have the least negative impact on the environment.
Such considerations will form part of the evaluation and selection criteria for all goods and services
purchased by Oxfam.
In addition, Oxfam will seek alternative sources where the conduct of suppliers demonstrably
violates the basic rights of Oxfam’s intended beneficiaries, and there is no willingness to address
that situation within a reasonable time period, or where companies in the supply chain are involved
in the manufacture or sale of arms in ways which are unacceptable to Oxfam.
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Purpose
The purpose of the policy is to :
a) Promote good behaviour and environmental standards in the supply chain of goods and
services to NGOs.
b) To protect Oxfam’s reputation.
Code of Conduct for Suppliers
Suppliers adopting this Code of Conduct should commit to continuous improvement towards
compliance with the labour and environmental standards specified, both in their own companies and
those of their suppliers.
a) Labour Standards.
The labour standards in this code are based on the conventions of the International Labour
Organisation (ILO).
Employment is freely given.

Freedom of association and the right to collective bargaining are respected.
Working conditions are safe and hygienic.
Child Labour shall not be used.
Living wages are paid.
Working hours are not excessive.
No discrimination is practised.
Regular employment is provided.
No harsh or inhumane treatment is allowed.
b) Environmental Standards.
Suppliers should as a minimum comply with all statutory and other legal requirements
relating to the environmental impacts of their business. Detailed performance standards are a
matter for suppliers, but should address at least the following :
Waste Management.
Packaging and Paper.
Conservation.
Energy Use.
c) Business Behaviour.
The conduct of the supplier should not violate the basic rights of Oxfam’s intended
beneficiaries.
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The supplier should not be engaged :
In the manufacture of arms.

In the sale of arms to governments which systematically violate the human rights of their
citizens; or where there is internal armed conflict or major tensions; or where the sale of
arms may jeopardise regional peace and security.
ETHICAL CONDUCT OF PEOPLE CARRYING OUT PROCUREMENT
Ethics are important in procurement, as people who are buying goods and services are probably
more subject to temptation to act unethically than most other people employed by organisations. The
people are also representing their organisation when dealing with suppliers and their actions will
reflect on the way that organisation is regarded by those suppliers.
Many organisations will produce written codes, rules or guidelines, on the standards of behaviour
they expect from people carrying out procurement on behalf of the organisations.
Some organisations have based their codes on the professional codes of conduct, and subscribed to
members of professional purchasing institutions; such as the National Association of Purchasing
Management in the USA and the Chartered Institute of Purchasing and Supply in the UK.
A typical code will state that people :
1. Should not use their authority or position for personal gain and shall uphold the standing and
reputation of the organisation.
2. Will demonstrate an unimpeachable standard of integrity in their relationships with suppliers.
3. Will comply with the letter and spirit of the law of the countries they are operating in and the
contractual obligations they have with their suppliers.
4. Will reject any business practices, which might reasonably be deemed improper.
It is also good practice for people to be given ethical guidance covering the following areas :
Declaration of Interest - any personal interest they have which might affect their impartiality,
for example, sourcing from relatives.
Confidentiality and Accuracy of Information - confidentiality of information received during

the course of their work and the provision of true fair information that is not intended to
mislead.
Competition - avoidance of arrangements that might prevent the operation of fair

competition.
Business Gifts - what gifts are allowed to be accepted from suppliers and the procedure to
follow when gifts are sent to them. Many humanitarian organisations do not allow any gifts to
be accepted.
Hospitality - what hospitality is allowed to be accepted from suppliers, for example, lunch,
entertainment.
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INTERNAL POLICIES
Internal organisation procurement policies are usually expressed as rules, procedures or guidelines.
The typical areas that these policies will cover are :
Authority to purchase goods and services - authority limits are set so that it is clear who
can authorise the placing of orders. This is usually done on monetary values. Different
financial limits will require different levels of authorisation or will need more than one person
to authorise the spend.
Authority to make decisions on supplier selection - authority will be restricted to certain

people, in particular roles, to be able to make decisions on which suppliers the organisation
will use.
General terms and conditions - such as settlement of disputes, and process for arbitration.
Procurement documentation - the documents that will be used during the procurement
process. These will include requisition orders, purchase order forms, enquiry forms and
supplier evaluation forms.
Tracking procedures - tracking and tracing of goods to enable recalls of goods. This is very
important for pharmaceuticals where goods should be tracked by batch.
Marking of goods - what markings should be put on goods by suppliers, particularly

markings that may impact on security.
Procurement records - what information needs to be recorded and stored on suppliers and
on goods and services being supplied?
Quotation and tender procedure - one of the main rules will cover the minimum number of
quotations or invitations to tender required for different levels of financial spend. This can be
for direct purchase for low expenditure goods, to international open tenders for very high
expenditure.
SOURCE POLICIES
These will provide guidance in selecting suppliers. In particular, they will cover the rules/guidelines
on using local suppliers or using international suppliers. Local suppliers are usually defined as
suppliers in the country where the goods or services will be used. These suppliers will either
produce locally or will import and make available locally.
Organisations will seek as much as possible to source locally, but some restrictions can occur, for
example :
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Required quality is the main factor. Many organisations purchasing pharmaceuticals, for
example, are very strict about the quality of the products. Suppliers need to be validated
regularly. These organisations will often have a very centralised policy in sourcing
pharmaceutical products.
Import restrictions will ‘oblige’ local purchase even if prices are not competitive.
International regulations.
Jeopardising the local economy.
The use of frame agreements/long term agreements (LTA).
Speed of delivery.
DONOR RELATED POLICIES
As goods and services are often bought using money provided by donors, then donors might make
specific requirements on humanitarian organisations that they need to include in their policies. For
example, if money is provided by ECHO or USAID they may stipulate how many supplier enquiries
or tenders they expect the aid organisation to get when sourcing goods.
EXTERNAL AND INTERNAL RELATIONSHIPS
A key part of procurement is the management of relationships. To carry out the procurement
process and all the activities involved in it, requires dealing with relationships both internally within
the humanitarian organisation and also externally with suppliers.
It is important to develop and have good relationships with people at different levels both within the
organisation and also at different levels within supplier organisations.
These relationships are clearly important when working with customers and suppliers during the
early stages of the procurement process and when working with customers on their needs through
to placing orders with suppliers. Communication with customers and suppliers is critical during these
stages.
The need to manage relationships and communicate with customers and suppliers does not stop
when the orders are placed. It is probably even more important during the progress through to the
review stages of the procurement process. During these stages, problems with delivery and quality
of goods and services will need managing with suppliers and with customers.
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EXTERNAL RELATIONSHIPS
The main external relationships are with :
The external market place.

Suppliers and service providers.
Donors.
Other humanitarian organisations.
THE EXTERNAL MARKET PLACE
People working in procurement need to understand the market place in which they are sourcing and
purchasing goods. The market place may be the country in which they will be sourcing goods and
services or it may be the market place for specific goods or services, for example, food, medicines,
transport providers or warehouse equipment.
A good relationship means people will have knowledge or will know where to go to get the
knowledge on such things as potential suppliers, availability of goods in the market place, types of
goods and services available and prices they should expect to pay.
SUPPLIERS AND SERVICE PROVIDERS
Suppliers play a key part in the total humanitarian aid supply chain process and can therefore have
a significant effect on the effectiveness and efficiency of the process. The service that suppliers
provide to humanitarian organisations will vary, as suppliers do not treat all their customers equally.
In the same way, organisations will have different ways of working with different suppliers, whilst
treating them all fairly.
Supplier performance is significantly affected by the type of working relationship between the people
working for the supplier and the people managing procurement in the humanitarian aid organisation.
There are a range of different types of supplier relationships these include :
Distant Relationships - this is a simple order/supply relationship where orders will be placed
and the supplier will then supply. There is nothing to be gained in spending time building a
closer relationship with these suppliers, each party is acting for the interests of there own
organisation. This relationship is appropriate where there are a number of suppliers who can
supply the same goods or services and are in competition with each other or where orders are
placed infrequently when the need arises.
Co-operative Relationships - this is a closer relationship where there are likely to be fewer
sources of supply and where it is important to work closely and share information for the
benefit of both parties. Suppliers are recognised as being important and communication is
more than simply placing orders. Often with these suppliers, frame agreements are developed
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between procurement and the supplier that defines a framework (covering prices, quality and
lead times) in which orders can be placed.
Collaborative/Partnership Relationships - this is a very close relationship, which may be a

single source supplier and one where a long term relationship is needed. In these
relationships the supplier is willing to put time and money into developing specific goods or
services for an organisation because they know the relationship is a long term relationship
and they will not suddenly be ‘dropped’ as a supplier.
With the co-operative and collaborative relationships there will be regular on-going contacts between
the supplier and people in procurement which enables quick decisions and actions to be taken in
case of problems or opportunities, for example, significant changes in quantities of goods required,
or the supplier being able to supply alternative goods when those ordered are in short supply.
The different supplier relationships will be determined based on :
The importance of the supplier, or the goods and services, to the organisation.
The type of procurement - is it a ‘one off purchase’ where the supplier may only be used
once, or is it a regular recurring need where the supplier will be used regularly over a long
period.
The organisations procurement strategy/policy towards suppliers, for example, the aid
organisation may have a particular supplier strategy to develop long term contracts with a
reduced supplier base.
The different ‘balance of power’ between the organisation and the supplier, the supplier may
be the sole source available for particular goods or services so they are in a position of power
particularly when negotiating price, terms, etc.
DONORS
Donors will either be providing the funds that are being used to purchase goods and services or they
may be the source of goods and services.
If they are providing the funds, then they may have set certain criteria or rules for how those funds
will be used and they will need regular feedback to show them these criteria are being met. The
relationship with these donors is therefore an important relationship. People in procurement need to
ensure they understand these criteria and provide the feedback required by the donor to
demonstrate the criteria or rules are being met.
Rules set by institutional donors can be very strict and are often very specific and prescriptive. Some
donors will have rules stating what procurement method(s) should be used according to the financial
levels of the procurement.
Donors may also have rules on where goods can be purchased. They may specify certain countries
that they will not allow goods to be sourced from, or they may state that they prefer, where possible,
that goods are sourced locally in the country where an aid operation is taking place.
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Institutional donors may also stipulate budget spend limits for specific goods. These have to be
respected and authorisation is usually needed by the donor if these limits cannot be met.
There may be procedure that enables rules and restrictions set by donors to be waived. Knowledge
of individual donor procedures is therefore important, and need to be followed.
If the donor is actually providing goods or services they need to be treated as suppliers and the right
type of supplier relationship should be developed with them.
OTHER HUMANITARIAN ORGANISATIONS
Other humanitarian organisations are likely to be using or looking to be using the same suppliers. In
the Humanitarian Supply Chain Unit of this programme, we identified the risk of humanitarian
organisations being in competition with each other for goods and services, and even for the same
suppliers, and the problems this could cause. We also identified the potential for working together to
avoid these problems. The relationship between people in procurement in different humanitarian
organisations is another important relationship. A good relationship can lead to actions including -
the sharing of information on potential suppliers, working together when placing orders when goods
are in short supply, and sharing information on supplier performance.
It is also possible where one humanitarian organisation has a long term agreement/frame agreement
with a supplier that other organisations can use this same agreement.
Humanitarian organisations often work together to develop and standardise the specifications for
products that will be procured by a number of humanitarian organisations. Developing a good
relationship with people in procurement in other organisations can increase the opportunities for this
work.
INTERNAL RELATIONSHIPS
To manage the procurement process there is the need to work with and develop relationships with
people in other functions/departments in the organisation. This is particularly important to be able to
demonstrate that procurement is more than just processing requests and placing orders. If the
people responsible for procurement do not demonstrate to their customers/users that they can help
them meet their needs and can carry out the procurement process well, customers/users will often
bypass them and purchase goods and services themselves.
The main internal relationships are with :
Customers and users.

Other functions/departments.
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CUSTOMERS AND USERS
Anyone in any part of the organisation may be a customer or a user. A customer is the person who
has a need and is making a request for goods or services to be obtained. Users are the people who
will be using the goods or services when they have been obtained.
If we use a disaster/emergency relief operation as the example, then members of the programme
team may want to source goods such as food, medicines and tents. People working in logistics may
want to source vehicles, transport providers and warehouse equipment. People working in the local
office may want to source office equipment or communication equipment. They will all want goods
that are available on time and that are fit for purpose.
Procurement has a key relationship and role to play with these people in providing them with help
and advice to enable them to identify the goods and services they need to meet their needs. They
then have a role in ensuring the first part of the procurement process is completed and that any
organisational procedures are followed and appropriate forms are completed so that the sourcing of
the goods and services can begin.
The relationship does not end once the customer has made a request. It could do if the people in
procurement now take over and believe that they don’t need to involve the customer again until the
goods are obtained and made available to the customer. This belief is wrong, the people managing
procurement need an ongoing relationship with the customer and users throughout the procurement
process and will need to ensure good communication takes place. More on this later in the
programme.
OTHER FUNCTIONS AND DEPARTMENTS
As well as having to develop relationships with customers and users, the procurement process also
requires people managing the process to develop relationships with others in their organisation.
These can include :
Warehousing and Transport - to ensure the goods that are being supplied are suitably
packaged so that they can be moved and stored, and ensuring deliveries are planned and co-
ordinated.
Finance - to agree payment terms, process invoices and arrange to pay suppliers. Finance
will usually have a set of financial procedures that need to be followed when procuring goods
and services. Finance will carry out audits to ensure these procedures are being followed. It
is therefore important to understand what these procedures are for the organisation.
Head Office and Regional Office - for information on potential sources of goods and
services, for international procurement and for advice on organisational procedures, rules and
relevant legislation.
Local Office - for information and advice on local suppliers and on local relevant legislation.
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MODULE 2 : MANAGING RISK
There are risks involved in procuring goods and services and it is the role of people carrying out
procurement to guard the organisation against these risks.
The main areas of risk in procurement that will need managing are :
Risk that goods ordered are never delivered and services ordered are not supplied.
Risk that suppliers will default on contracts.
Risk that the price paid for goods and services is too high.
Risk that the wrong goods or goods that don’t meet agreed specification will be delivered or
the service provided is not acceptable.
Risk of fraud and corrupt practices.
Risk that goods and services are not supplied on time.
Risk that goods and services are ordered that don’t meet the needs of the customer.
Risk when procuring goods and services is something that cannot be avoided or eliminated entirely.
It is part of the normal work environment within which we operate. Risk needs to be managed to
reduce it where possible or to minimise the impact and reduce the consequences should things go
wrong.
There are ways of managing risks, which we will cover later in this section. The main way of
managing risk is by carrying out the procurement process effectively and efficiently. Other ways
involve specific actions based on analysing specific risks inherent in certain goods and services.
The nature of aid programmes, particularly emergency/disaster programmes, can bring specific
procurement risks. These include :
The process for approving activities and agreeing budgets can mean the time to carry out the
procurement process, particularly the planning activities, can be shorter than is required to
carry out the process efficiently.
The complexity of certain aid programmes/projects can mean information on requirements
can be difficult to specify (particularly quantities) or will change at short notice.
The urgency that goods need procuring and services need to be put in place requires the
procurement process to be carried out quickly.
THE IMPACT OF RISK

Not managing and eliminating these risks can have an impact on service and costs.
Goods and services not being delivered or wrong goods and services being provided will have an
impact on service to the customer and ultimately to beneficiaries. This can ultimately mean the
difference between life and death of the beneficiaries.
Time will need to be spent placing orders with new suppliers or even finding new sources of supply.
If goods are not to specification or services not to standard, customers may have to accept them but
they will not meet their exact needs and be fully fit for purpose. There will be a secondary impact on
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costs as there will be costs in sourcing from new suppliers particularly if to get the goods quickly,
extra costs are incurred.
Suppliers defaulting on contracts and the paying of too high a price will have an impact on costs.
Where suppliers default on contracts there is often costs involved in legal actions with that supplier.
One further impact, which should not be overlooked, is the impact on the reputation of the aid
organisation. If there is fraud or corrupt practices taking place when procuring goods and services,
then the reputation of the aid organisation with its donors, the beneficiaries and with other
humanitarian organisations, can be seriously affected.
ESTABLISHING THE IMPORTANCE OF GOODS AND SERVICES
Once the need has been identified, the amount of effort and analysis which will be undertaken,
needs to be determined against the importance that is applied to the goods or services.
Pareto rules (or ABC analysis) provides a basis to identify where spend is greatest and where most
effort should be directed if spend is the deciding factor.
Pareto, also known as the 80/20 rule, states that, in most cases, 80% of purchase value is
concentrated within 20% of the items purchased.
By doing this analysis decisions can be made on how much time and effort needs to be allocated to
the procurement process for different goods and services, particularly how much effort is spent on
negotiating price and costs.
We need to recognise that value is not the only factor that might affect how much effort is spent on
particular goods and services. When discussing needs and formulating specifications, it is important
to understand, from discussions with the customer, how critical particular goods and services are so
that a supply risk analysis can be carried out.
To take account of risk, as well as spend, the inventory of purchased items can be further broken
down into four categories :
1. High risk, high spend

These items rank high in the Pareto analysis of spend but are also difficult to source probably
due to low numbers of suppliers. There needs to be a concentrated effort to secure supply of
these items, particularly if there is competition and a shortage of supply.
2. High risk, low spend

These items would not rate as important when analysing spend alone, but due to difficulties
in sourcing there would need to be concentrated effort to secure supply of these items.
3. Low risk, high spend

There would be a need to create competition in the market place for these items to drive
down price.
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4. Low risk, low spend
Minimal effort would need to be applied to sourcing these items due to the relatively low
impact purchasing can make on reducing costs.
To take account of usage, as well as risk, the goods can be broken down once more :
1. High risk, high usage

These items rank high in the ABC analysis of usage but are also difficult to source. As with
high risk, high value items, it is essential to concentrate effort on securing a supply of these
items particularly if there are a low number of suppliers. Effort needs to be put into identifying
new sources of supply.
2. High risk, low usage

Usage is very low on these items but they are vital to customer service. Even though usage
is low, it is essential that these items can be made available to customers when they are
needed. If we don’t hold stocks of items, it is important to have suppliers who can respond
quickly to orders.
3. Low risk, high usage

These items are easily sourced but due to their recurrent use require a guaranteed supply.
4. Low risk, low usage

These items do not pose a risk in terms of sourcing and have little stock turn. Procurement
effort and time should be put into other items before these items.
THE IMPORTANCE OF SPEED
An important factor when doing a risk analysis, particularly when procuring for an
emergency/disaster operation, is speed. An analysis of the different goods and services needed can
highlight the different importance of speed of procuring them and the different levels of risk. This can
again enable a decision to be made on where to put the procurement effort. It can also highlight the
need to find sources of supply and suppliers who can supply quickly.
MANAGING THE DIFFERENT RISKS
The first stage in managing risk is to identify and analyse the risks. There are a number of actions
that people working in procurement can take, which we will look at. With certain risks it is important
that people in procurement explain the risk to the customer who is requesting the goods or services,
as they are the people who must decide how they want the risk managing.
The customer should be given details of the risk and the options that are available to them.
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Using the example of speed that we looked at earlier, a customer may be requesting some important
goods to be delivered quickly. To achieve this, procurement would have to use a local supplier that
they haven’t used before so there is a risk in using a new supplier whose product quality may not be
good. The option is to use an existing supplier who cannot guarantee delivering on time.
The customer with this information can then decide if they are willing to take the risk of using the
new supplier.
There are a number of different actions that can be taken to reduce or eliminate the different risks,
these include :
Procurement strategies.
Procurement process, procedures, rules and guidelines.
Legal contracts.
Ethical standards.
Role of procurement.
PROCUREMENT STRATEGIES
Developing appropriate strategies to manage risk can reduce or eliminate certain aspects of risk. If
we are procuring critical goods where quality and timeliness of supply is critical, then the strategy
may be to only use established suppliers who have already demonstrated their ability to supply the
same goods, or similar goods in the past, thus reducing the risk compared to sourcing from a new
supplier.
With some goods or services having a range of suppliers who can supply and by sharing orders
between them, will reduce the risk of only being able to source from one sole supplier.
PROCUREMENT PROCESS, PROCEDURES, RULES AND GUIDELINES
Having clear documented procedures, rules and guidelines that are understood and followed by
people carrying out procurement, can also reduce risks. These procedures as we saw earlier in the
programme provide a common, consistent and professional way for procurement to be carried out.
They also help reduce fraud, corrupt practices and conflicts of interest.
A transparent process can help to reduce the risk of fraud and corrupt practices.
Having standard documents that provide consistent information, can speed up the process of
procurement and ensure all the information needed is gathered and communicated, for example,
standard forms for tenders, and standard requisition forms.
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LEGAL CONTRACTS
The use, content and wording of legal contracts can reduce risk.
When entering into a contract, the buyer should be aware of their responsibilities. The adage
‘Caveat - ‘Let the buyer beware’ - sums up the need for people responsible for producing legal
contracts to have sufficient understanding of contract law or to ensure they get guidance from
someone with a legal understanding of contract law.
Terms and conditions guard the organisation against certain risks but often it requires additional
clauses to protect against specific risks.
The use of the right Incoterms can reduce the risk of misunderstandings as to the responsibility of
the organisation and the supplier. Incoterms clarify who is responsible for goods as they are
transported, and clarify responsibility for insuring goods. Incoterms are covered in detail in the
Import/Export Module.
ETHICAL STANDARDS
Having rules and guidelines on the ethical standards expected of people carrying out procurement,
can also reduce the risk of fraud and corrupt practices.
It is common for organisations to also have ethical standards of behaviour that they expect from their
suppliers and they will only use suppliers who can demonstrate they are following these standards.
ROLE OF PROCUREMENT
The role and status of procurement in the humanitarian organisation can help to manage risk. If
people working in procurement are involved early in the assessment process for aid operations, it
can enable them to start the procurement process as early as possible to reduce the risk of late
supply. Involvement in the identification of needs and the development of the specifications can also
reduce the risk of goods and services not meeting the needs of the customer. Involvement can
ensure the goods and services are not over-specified and specifications are paid for that are not
needed.
The professionalism, knowledge, skills and training of people working in procurement can have a
significant effect on reducing risks. As well as being able to carry out the purchasing process
effectively and efficiently it also means customers are confident to involve them in the assessment
process and in developing specifications.
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MODULE 3 : SOURCING
Sourcing is the process of identifying sources of supply that can meet the organisations current and
future requirements for goods and services.
Humanitarian organisations will have sourcing strategies and policies, which we will look at later in
this section, but a key part of the role of people working in procurement is to be able to identify
sources of supply that the organisation can use to meet the requests of customers.
In this module we are going to look at how to identify sources of supply and to assess supplier
capabilities.
Identifying sources of supply and assessing supplier capabilities will either be carried out before
customers are placing requests on procurement or it will take place once a request has been
received.
Identifying sources of supply can take place :
In disaster prone areas as part of supply chain preparedness.

Where the organisation knows in advance what goods and services it is going to need. This
could be as part of a development programme, or to replenish goods that it holds in stock, or
as part of an annual procurement plan.
At the start of a disaster/emergency operation when the assessment has identified needs but
before customers start to place requisitions.
When requisitions for goods and services are received.
One of the key aspects of the above is the time and speed by which the sourcing needs to take
place and this will have a major influence on the amount of time and effort people can put into
identifying sources of supply.
However short this time is, sourcing is a key part of procurement and how effective and efficiently it
is carried out can have a significant impact on the procurement process, and the goods and services
that are provided.
In this module we will look at identifying source requirements, understanding supply markets and
supply market conditions. We will consider different sourcing strategies and sources of supply and
how to appraise and assess supplier capabilities.
To be able to identify sources of supply, procurement need to have information on the requirements
for goods and services that they will be expected to source.
IDENTIFY SOURCE REQUIREMENTS
This information may be very specific where the requirements are known in terms of specification,
quantities, delivery details, etc.
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The request may be less specific with the exact information on specifications, quantities, delivery
details, etc. not yet available.
Requests may be for goods and services needed immediately or the request may be for goods and
services that are forecasted for the future.
In whatever form this information comes to procurement, the role of procurement is to help to clarify
what the requirements are, so that there is enough information to be able to identify potential
sources of supply and potential suppliers.
This information needs to be as clear and unambiguous as possible and contains the essential
features or characteristics of the requirements. It is also important that requirements are not over or
understated or that they contain non-essential features that might limit the sources of supply or limit
the number of potential suppliers.
Purchasing can be related to a number of different types of situation :
Straight rebuy, where you are purchasing the same goods and services from the same
supply. An example would be the situation where a disaster relief operation is well underway
or a development operation is taking place where goods or services have already been
purchased and people in procurement are being asked to purchase the same goods from the
same supply source.
Modified rebuy, where the purchase is modified in some way, for example, the specification
has been revised. Examples would be where a programme manager has decided that to meet
the changing needs of beneficiaries they want to change the specifications of the goods they
need, or because of a shortage of goods available they have amended the specifications to
increase the availability of goods.
New task, where no purchasing experience exists. An example would be a new disaster relief
operation requiring goods and services. Another example would be the decision to source
goods locally where previously they were sourced internationally.
Supplier performance, where there is a need either because the current supplier is not able
to perform to the standard required or the supplier is no longer able to supply the goods or
services.
In all of these situations there will be the need to understand the market place and the capability of
suppliers. Even in the first situation, it is necessary to keep reviewing whether there are ‘better’ or
new sources of supply available.
To be able to carry out the process of sourcing and to be able then to obtain the right goods and
services, people in procurement need to understand the supply market in which they will be sourcing
and purchasing.
Customers who will be requesting goods and services will expect people in procurement to know the
different sources of supply available (the supply market place) and to know the capability of the
different suppliers.
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SUPPLY MARKETS
Analysing supply markets involves gathering information on potential suppliers, range of products,
prices, and availability.
There is a range of different sources of this information :
Catalogues and brochures.

Trade directories.
The Internet.
Exhibitions.
Trade journals.
Government offices.
Other people involved in procurement.
Other humanitarian organisations.
Supplier records.
Requests for Information/ Requests of Expression of Interest.
Pre-Qualification of Suppliers.
CATALOGUES AND BROCHURES
These may include internal aid organisational catalogues containing information on sources of
‘standard’ goods or suppliers that the organisation currently uses.
Suppliers will often produce their own catalogue or brochure of goods or services they supply. These
may be paper based catalogues but it is now becoming more common, particularly for large
suppliers, to produce these catalogues on CD’s or on-line on their websites.
TRADE DIRECTORIES
Trade directories are useful sources of information on the range of suppliers for particular trade
groups. They can give valuable information on location, size of business, facilities, product ranges
and contact details.
THE INTERNET
The Internet has now become a major source of supply market and supplier information. Search
engines enable specific requirements to be searched and accessed.
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EXHIBITIONS
Exhibitions provide the opportunity of comparing competing products and meeting a range of
suppliers in a short space of time. Exhibition catalogues also provide details of the suppliers who are
exhibiting and can be retained for future reference.
TRADE JOURNALS
Journals will provide information on new products, new suppliers and innovations in products.
Journals will often contain letters and articles written by others involved in procurement and can
provide a means for sharing information and recommendations on suppliers.
GOVERNMENT OFFICES
Local or regional government offices will have information on the local market and on local suppliers
who are based in the area. Different local governments are organised in different ways but many will
include local chambers of commerce (or similar organisations).
OTHER PEOPLE INVOLVED IN PROCUREMENT
In larger humanitarian organisations there will be others working at regional offices, head offices or
in other countries, who will also be procuring on behalf of the organisation. These people are
potential sources of information on suppliers or on a particular market. They may also provide
information on specific suppliers that the organisation will or won’t use.
OTHER HUMANITARIAN ORGANISATIONS
People in procurement in other humanitarian organisations will be gathering or will have gathered
similar supply market information. The sharing of this information is an ideal opportunity for aid
agencies to work together. This is a particularly good source of information when sourcing at the
beginning of a disaster/emergency operation. There will be humanitarian organisations that are
going through the same sourcing process as they are new to the country/region where the disaster
has taken place. There will also be humanitarian organisations, particularly local NGOs, who know
the country/region and will have information on the local market and local suppliers.
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SUPPLIER RECORDS
The aid organisation will be using current suppliers and will have used suppliers in the past. These
past supplier records are another potential source of information. This is an important source of
information in situations where personnel are responsible for procurement changes. For example, a
different person takes over procurement during an aid operation, the information kept by the
previous person is one of the most valuable sources of market information.
REQUESTS FOR INFORMATION/REQUESTS OF EXPRESSION OF INTEREST
A Request for Information or Request of Expression of Interest is used by some humanitarian

organisations as a non binding enquiry that is requesting information from suppliers. The request
can be information on such things as, technical developments, supply availability, or indicators of
price. The requests can be openly advertised for any supplier to respond to, for example, on a
website or in a newspaper, or they can be restricted to certain suppliers already known.
PRE-QUALIFICATION OF SUPPLIERS
Some organisations use pre-qualification of suppliers as part of their market research. This involves
advertising for suppliers to apply if they meet a set of qualification criteria. This provides the
organisation with information on potential suppliers who believe they meet certain criteria required
by the organisation. These suppliers would then need to be appraised and registered. This is
covered later in this section.
MARKET CONDITIONS
There are a number of influences that will affect the conditions of supply markets, these include :
The type of goods and services.

Competition.
Market size and access.
TYPE OF GOODS AND SERVICES
Certain goods required by customers may be very specific and specialised and there will only be a
limited number of suppliers who can supply those goods.
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An example would be specific drugs or medicines where there may only be a limited number of
potential suppliers. In some cases with branded products there may be only one supplier capable of
supplying. The supply market can therefore be very limited.
Donors may specify certain conditions on where and how their funds will be spent which can also
mean the number of suppliers might be limited because of these conditions.
The type and specifications of goods needed by humanitarian organisations can be very specific
and the demand for them will not be consistent throughout the year or over a number of years.
Some suppliers will decide not to provide these goods because of these factors.
People working in procurement will need to recognise this and try to ensure goods and services are
specified in such a way that they are fit for purpose but don’t unnecessarily restrict the supply market
and the number of suppliers able to supply.
COMPETITION
Competition and the number of suppliers and their location will influence the price of goods and
services in the market place. For a competitive market to operate, demand and supply needs to
operate freely but there are markets where either the demand or the supply is not operating freely. In
situations where there is only one supplier or one supplier who has a large share of the market,
there is the opportunity that they can fix the price and/or determine the quantity of goods that are
available.
Monopoly markets where there is only one major supplier, restricts the ability of people in
procurement to negotiate on price and quantities.
Oligopoly markets where there are a few suppliers who dominate the market should still provide
competition. Yet price comparisons in some markets would suggest that this is not the case. This
can be by fixing of prices, setting up cartels or limiting the quantities supplied. It is important to
gather price and cost breakdowns to identify what is a realistic price.
It is also possible in certain countries that legislation or government control can also affect
competition.
In monopoly and oligopoly situations, where this is having a major effect on the ability to source
goods at a realistic price or in required quantities, opportunities should be found to encourage new
suppliers to enter the market, change the specifications of goods or find substitute goods.
MARKET SIZE AND ACCESS
People procuring also need to be aware whether the market in which they are sourcing is expanding
or contracting. An expanding market will bring new potential suppliers but a contracting market will
reduce the potential suppliers and the capacity available for producing goods.
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In disaster/emergency situations, local suppliers may be affected by the disaster so the local market
for goods and services may be limited or may not exist at all. As the relief operation continues local
suppliers may start to become available and the market will expand with the opportunity to use more
local suppliers.
SOURCING STRATEGIES AND SOURCES OF SUPPLY

There are a number of different sourcing strategies that organisations can adopt. It is the role of
people in procurement to decide the most appropriate strategy to adopt recognising the benefits and
risks of the different strategies.
Organisations will adopt different strategies for different goods and services rather than one strategy
for all goods and services. The decision is also affected by the different types of suppliers and the
range of different sources of supply available.
DIFFERENT TYPES OF SUPPLIERS
When looking at the market and identifying sources of supply it needs to be recognised that there
are different types of suppliers. The three main types of supplier are :
Manufacturers are at the source of goods and will be actually producing the goods. They are
likely to hold stocks of goods which they will sell directly to organisations but they may also
sell goods through wholesalers or distributors.
Manufacturers ‘own’ the production and the production capacity so they are able to make
decisions on the volume of goods they will produce and stock. A manufacturer will also
determine the specifications of the goods they produce, so if the goods you want to source
have specifications that are unique or different from a standard product, then it is usual to deal
directly with a manufacturer.
Manufacturers will usually focus on producing one category of product, for example, food,
medicine, and some manufacturers will only produce a particular ‘brand’ of product.
Prices charged for goods by manufacturers will usually be better than prices from other
sources although if you are only purchasing small volumes, it may be cheaper to purchase
through wholesalers or retailers.
Wholesalers, distributors and retailers are not at the source of goods and do not produce the
actual goods. They do not have any production capacity but will purchase product from a
manufacturer and then sell these products to organisations or to individuals. They will hold a
certain level of stock. Distributors may only supply goods from one manufacturer but it is more
usual for distributors, wholesalers and retailers to supply goods from a range of
manufacturers and for a range of categories.
Prices will often be higher for goods sourced from these types of suppliers as they will add
their own profit to the price they paid the manufacturer. There will be situations where the
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price they will charge is less than the price an organisation would pay the manufacturer for the
same goods. They will be able to negotiate a much lower price with the manufacturer because
of the volumes they are purchasing and even when adding on their profit margin they will still
be cheaper.
Traders do not have production capacity and will not hold stock. Traders will source products
from the above sources. The goods they supply may be inferior in quality, for example,
damaged or out of date, or they may be old stock/products that the manufacturer has stopped
producing. Organisations may have sourcing policies that traders should not be used as
sources of goods and services.
RANGE OF DIFFERENT SOURCES OF SUPPLY AVAILABLE
There are a range of different strategies and sources including :
Single source.
Multiple sources.
Supplier alliances/partnerships.
Supply/frame agreements/long term agreements.
Local.
International.
New or existing suppliers.
Other agencies/organisations.
SINGLE SOURCE
This may be the only possible strategy where :
The amount of business is too small for more than one source. It would not make sense to
divide the business and the quantities needed between different suppliers.
The supplier is in a monopoly position where they are the only supplier who can supply
particular goods or services, for example, branded goods, or the only supplier in a
country/region.
The supplier’s reputation makes it desirable to use their particular products.
There are obvious risks involved in single sourcing should the supplier, for whatever reason, not be
able to supply. Single source can also cost more as suppliers may use their monopoly position to
charge excessive prices.
There are also potential benefits and advantages in single sourcing. These include the long-term
goodwill that can be built up with a supplier that means the supplier will provide you with a higher
level of service. Having a number of single sources will also mean people in procurement will have
fewer suppliers that they need to place orders with and will need to manage.
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MULTIPLE SOURCE
Multiple sourcing may be chosen as the strategy where :
The goods and services are so important to the organisation that it needs to guard itself
against the possibility that a single supplier will let them down.
The quantity of goods required or the level of service needed means that individual suppliers
do not have the necessary capacity to supply what is needed.
It is important to encourage or maintain competition between suppliers.
There is local legislation or donor requirements that means single sourcing is not an option or
is regarded as anti-competitive.
The advantages of multiple sourcing are that if one supplier fails, then there are other suppliers who
are still able to supply and there is competition between suppliers that can keep prices low and
service high.
The disadvantages of multiple sourcing are that there are more suppliers to manage, so more time
will be needed to manage them, also it is less likely to develop close relationships with these
suppliers.
SUPPLIER ALLIANCES/PARTNERSHIPS
Organisations may decide that certain goods or services, and the supply of these goods and
services, are so critical to them that they will develop close partnerships and alliances with the
suppliers supplying them.
Alliances and partnerships involve close working relationships and the sharing of plans and
strategies.
SUPPLY/FRAME AGREEMENTS/LONG TERM AGREEMENTS
Supply, frame, framework or long term agreements, as they are sometimes called, are made with
suppliers where the organisation has the same requirements from a number of different people in
the organisation.
Organisations will recognise that because of similarities in the needs of different aid operations in
different countries that there will be the need for people procuring for these aid operations to source
and purchase the same goods and services.
A strategy to better manage and control this situation is to set up agreements with suppliers to
supply these goods and services. This strategy is often used by organisations that have regional or
central procurement functions. These central functions will set up agreements with suppliers that
people in procurement in the field will then use rather than doing their own sourcing and using
different suppliers.
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This strategy can also be used at a country or field level of procurement. This would be where there
are similarities in the needs of different users in that country. People in procurement in the field can
set up an agreement with a supplier and different people, including the actual users, can then call off
goods against the agreement directly with the supplier.
There are a number of different types of agreement :
Fixed value or volume agreements - These are agreements that will fix either a total volume
or total value of goods and services with a supplier. The supplier will then supply to an agreed
schedule to meet the specific requirements of an organisation. This type of agreement is
appropriate for development aid operations where the organisation knows in advance its
requirements over a period of time and the supplier will supply against those requirements.
The organisation does not have to keep placing new orders and can plan its development
operations knowing goods will be supplied to the agreed schedule.
Call Offs - These are agreements where different people can call off what goods and services
they need at the times when they need them. This type of agreement is appropriate for
disaster/emergency relief operations where the goods and services required are known, for
example, tents, but the quantities and the timing of when they will be required is not known. In
this type of agreement the different aspects of the agreement will have been negotiated (this
is covered in the following section) and different people can then call off quantities whenever
they need to.
Agreements will usually include the following :
How long the agreement is made for. Agreements are usually made for fixed periods of
time rather than as ‘open ended’ agreements.
What goods and services are included in the agreement? The agreement will usually
cover specific goods and services rather than agreements covering all the goods and services
provided by that supplier. This is common where an organisation has set precise
specifications for specific goods and services and it ensures all people purchasing from this
agreement can only purchase those specific goods and services.
Prices for the goods and services. These prices will have been negotiated and are set and
guaranteed for fixed periods of time. Anyone purchasing in the organisation from this
agreement will pay this guaranteed price.
Quality standards for the goods and services. In the same way that prices are negotiated,
fixed and guaranteed, so is the quality. This ensures that whoever is purchasing from this
agreement, wherever they are in the organisation or in the world, are guaranteed a level of
quality negotiated and agreed by the organisation.
Lead times. The agreement will cover the time between when orders are placed with the
supplier and when the goods will be delivered. This might include different lead times for
delivery to different locations or a fixed lead time for delivery to one specified location, for
example, an organisation’s central warehouse.
Terms and conditions. This will include any specific terms and conditions including payment
terms or minimum and maximum order quantities allowed under the agreement.
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LOCAL
Local could be determined as being in the country where the aid organisation has a local operation
or where a disaster/emergency relief operation is taking place. It could also be local within the
country itself.
Humanitarian organisations may have specific sourcing strategies that encourage, or stipulate, the
use of local suppliers wherever possible. These strategies will usually include recognition that local
purchases should not disrupt the local market through high volume purchasing of goods and
services. For example, large food purchases might deplete the local market and lead to price
increases for the local market. They may also state that there are certain goods which should, or
should not, be sourced locally, or they may stipulate that suppliers should not be used if they are ‘too
close’ to one side of a conflict.
The advantages of sourcing locally include reduced transport costs, improved availability (shorter
lead times) in situations where time is important, and ‘social’ responsibility shown by supporting local
businesses and spending money in the local area.
INTERNATIONAL
Organisations may also have specific strategies for sourcing goods and services internationally. This
can include specifying certain goods must be sourced internationally and not locally. This strategy is
adopted particularly in organisations that have a central procurement operation often based at an
organisation’s head office. This central operation will source goods internationally from global
suppliers. Field procurement operations may then either source from these global suppliers or they
will source from the central procurement operation that will then source from the global supplier.
The advantages of sourcing internationally include potentially lower prices, and internationally
recognised standards and quality of goods.
The disadvantages include delays due to longer lead times, costs involved in transporting the goods
and delays and costs involved in importing goods.
NEW OR EXISTING SUPPLIERS
Where suppliers are currently being used by organisations a strategic decision is whether to
continue to use those existing suppliers for new purchases or to source from new suppliers.
Organisations may have a strategy to develop relationships with existing suppliers and use them
wherever possible. Others will have a strategy that encourages new suppliers. In particular their
tender process (this will be covered in detail later in the programme) will encourage new suppliers to
submit tenders to supply the organisation.
OTHER ORGANISATIONS AND AGENCIES
Organisations may have a strategy to source certain goods or services from other humanitarian
organisations and agencies. Some organisations have relationships or agreements with other
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organisations and United Nations agencies to work in partnership and to distribute goods on their
behalf.
SUPPLIER APPRAISAL AND REGISTRATION

After identifying potential sources of goods and services, and following organisational sourcing
strategies, there will be the need to appraise potential suppliers to see if they are capable of meeting
the organisations requirements. They can then be registered as potential suppliers or become a pre-
qualified supplier.
A supplier appraisal process needs to be able to establish if a supplier should be used by the
organisation.
The amount of time and effort and the type of appraisal will depend on the importance of the goods
and services that will be purchased from the supplier. This will include its importance to the
customer and the relief operation, the value of the intended purchases and the risks of the goods
and services we intend to purchase.
The type of appraisal will therefore depend on the importance of the goods and services and the
amount and type of information needed to be gathered on the prospective supplier.
The type of appraisal will include :
No appraisal.
Research and supplier questionnaires.
Supplier visits.
NO APPRAISAL
For low value goods and services where there is no risk in the market place, the decision may be
made not to put any time into a ‘formal’ appraisal of the supplier.
Doing no appraisal at all is probably not acceptable, but the appraisal is probably only likely to
involve asking others in the organisation or in other organisations whether they are aware of any
reason why a particular supplier should not be used.
RESEARCH AND SUPPLIER QUESTIONNAIRES
This type of appraisal will not actually involve visiting the supplier but involves gathering and
analysing information gathered from different sources including the supplier. Information can be
gathered from published supplier data, which is available electronically on the Internet or on
computerised databases.
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Supplier information will often be held at local government offices, libraries or at the local chamber of
commerce or industry.
This information will be factual information on the supplier including :
Size of business including capacity.

Type of supplier, i.e. manufacturer, wholesaler, distributor.
Location of business and facilities.
Length of time it has been in business.
Who owns the business.
Products and services supplied.
Financial data including company accounts and turnover.
Company reports.
Organisation structure.
As well as gathering factual information, research will also include gathering views, opinions and
references on the supplier. The main sources of this information are :
Other people in the humanitarian aid organisation who may have used the supplier in the
past, or people who have views on the reputation of the supplier.
People working in other humanitarian organisations who have used the supplier who is being
appraised. This could include verbal or written references.
Staff working in local government or chambers of commerce and industry who as well as
having factual information on suppliers may also have views and opinions on suppliers.
Supplier questionnaires enable information to be gathered from the supplier without having to visit
the supplier. The scope and size of the questionnaire will depend on the information required which
in turn will depend on the importance of the goods and services they will be supplying.
Simple questionnaires will include questions to gather facts about the supplier and information that
will enable an appraisal of their ability to meet the requirements of quality, quantity, time, place and
cost to be carried out. This will often include product samples.
More comprehensive questionnaires will include questions on supplier culture, attitudes, ethics,
policies and environment. These types of questionnaires are much more difficult to develop as the
questionnaire is still trying to get facts rather than the opinion of the supplier. To do this, these
questionnaires will usually ask the supplier to provide evidence in the form of written policies and
procedures.
SUPPLIERS VISITS
Questionnaires may be followed up by visits to the supplier to obtain further information or to gather
evidence that supports, or otherwise, the information provided by the supplier.
For certain important supplier appraisals a visit will replace the questionnaire.
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Visits are often carried out by teams of people particularly where there is a need to evaluate the
supplier from a specialist viewpoint, or where there is the need to share responsibility for the
decision to approve or reject a supplier.
Areas that require particular attention when visiting suppliers are :
Location, size and layout of premises.

Age, quality, capacity, adequacy and care of equipment.
Quality policies and quality control activities including inspection methods.
Health, safety, hygiene and environmental procedures.
Number and quality of workforce.
Competence of management.
Attitudes and morale of employees.
When the information has been gathered and analysed a decision can be made on the suitability of
a supplier. This decision needs to be as objective as possible.
With so much information being gathered from an appraisal system, it is necessary to identify the
criteria which are most important in identifying whether the supplier is acceptable and can be used
by the organisation.
Examples of criteria used to evaluate and appraise suppliers who supply humanitarian
organisations include :
Reputation.
Reliability.
Good Commercial Practice.
Ethical Practices.
Experience of the Market and of Humanitarian Aid Requirements and Conditions.
Location.
Delivery Lead Times.
Legality of the Supplier.
Environmental Standards.
Product Quality.
Price.
Product Availability.
Quality of Service.
Quality of After Sales Service.
Delivery Reliability.
Donor Constraints.
The criteria can then be weighted based on the needs of the person doing the procurement, the
organisation they work for and the specific needs of the customer and user of the goods and
services.
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MODULE 4 : PROCUREMENT PROCESS
In the section on ‘The Function of Procurement ‘ we identified and looked briefly at the procurement
process. We will now look at each of these stages in more detail.
NEED
Requirements for goods and services can originate from a range of different customers. These can
be customers who need goods that are to meet the needs of beneficiaries or customers who require
goods or services that will be used to manage the supply chain process to enable the goods to be
made available to the beneficiaries.
The request may be in the form of a specific order requisition which may be made manually or
electronically or it may be a verbal request. The request may be very specific where the customer
knows exactly what they need in terms of specification, quantities, delivery details, etc.
The request may be less specific with the customer not able to provide exact information on
specifications, quantities, delivery details, etc.
Requests may be for goods and services needed immediately or the request may be for goods and
services that the customer is forecasting they are likely to need in the future.
In whatever form the request comes to procurement, the role of procurement is to help the customer
clarify what their requirements are so that there is enough information to be able to identify potential
sources of supply and potential suppliers.
This information needs to be as clear and unambiguous as possible and contains the essential
features or characteristics of the requirements. It is also important that requirements are not over or
understated or that they contain non-essential features that might limit the sources of supply or limit
the number of potential suppliers.
PROCESSING A REQUEST
Customers will place requests for goods and services that they want purchasing. These requests will
usually be in the form of a Requisition Order.
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In certain circumstances, particularly where there is an urgent need for goods, verbal requests may
be made by customers. In these circumstances, initiative should be used to decide if the verbal
request could be accepted if followed up with a written confirmation.
Many organisations will have a standard pre-printed requisition order form that customers need to
complete. This form will contain all the information required by the people who will purchase the
goods or services and the necessary authorisation needed for that purchase to be made.
A typical requisition order will contain :
A clear specification of what is required.

What quantities are required including units of quantity if appropriate.
The location for delivery.
When the goods or services are required.
Who is the requester.
Organisation financial account codes to which the goods or services will be charged.
An estimate of the expenditure.
Specific or suggested sources of supply.
Many organisations will have a catalogue with reference numbers, that contain the standard goods
that the organisation uses and often customers requesting goods are required to use these standard
goods. Humanitarian organisations have put a lot of work into standardising goods to avoid
confusion and to help people when requesting goods.
If people don’t want the standard goods but want to request non standard goods, there will usually
be a procedure they have to follow to get agreement to do this.
It is difficult, and often it is not allowed, for requisitions to be processed if any of the information is
not provided by the customer placing the requisition or if this information is not clear. The people in
procurement should avoid ‘guessing’ information and completing a requisition order themselves.
It is important to have good communication between people in procurement and customers who are
making requests.
The customer may need help and advice on how to complete a requisition and on some of the
information they need to complete it. This can include help with the specification (more on this later
in the programme), costs and timing to acquire goods or guidance on the organisations purchasing
policies. They may still need help at this stage in identifying exactly what their needs are.
The requisition should then be validated to ensure it is completed correctly and the correct
authorisation has been given for the purchase.
The content of the requisition should not be altered without discussing the alteration with the
customer placing the requisition.
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SPECIFY
To be able to purchase goods or services we need to have a clear description of what the customer
is wanting. The specification can then be used to tell a supplier what it is we want to purchase and
what we want them to supply, it is therefore important to have correct, accurate specifications.
Humanitarian organisations will usually have specifications already written for a large number of the
goods that they procure. These specifications will have been developed from experience of using
the goods on previous aid operations, and may have been developed with other humanitarian
organisations and with suppliers.
As a consequence of the size of the humanitarian aid market there are suppliers who are interested
and keen to work with humanitarian organisations to develop goods with specific specifications for
this market.
To meet their needs customers may therefore have to use specifications that are already developed
and written and the people in procurement will be required to procure goods using this specification.
It is important though to keep reviewing any specifications to ensure they are still the most
appropriate specifications.
Where there is not a specification for the goods and services they need, a specification will need to
be produced.
The specification may be very precise and very simple, such as a part number in a catalogue or a
proprietary/branded product. It may be quite complex such as a specification for a service to be
provided by a transport company.
The customer plays the main role in developing and producing the content of the specification.
There is, though, an important role to be played by people responsible for purchasing the goods or
services. Customers requesting goods or services may need help to clarify what they need and to
turn these needs into a specification that can be used with suppliers. This could involve advising the
customer on the specifications that already exist within the organisation that could meet the needs,
or that they have to use. It might also involve working with a supplier, particularly their technical
people, to get their advice on the specifications that will meet the customer’s needs.
People in procurement can help customers in developing the specification through inputting into the
development of the content of the specification, by helping them to use the most appropriate type of
specification (we will look at different types later in this section) and to develop a ‘good’ specification.
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WHAT MAKES A GOOD SPECIFICATION?
A specification should :
Be clear and unambiguous.

Contain enough information so that an order can be placed and suppliers will understand
what is required.
Contain the essential features and characteristics of what is required.
A specification should not :
Overestimate or underestimate the requirements.

Contain non-essential features that can directly or indirectly discriminate against or favour any
supplier.
Specify a specific brand or proprietary product if this is not necessary. Adding ‘or equivalent’
demonstrates it does not have to be that specific brand/product.
People in procurement can also contribute to developing the specifications through :
Checking the specifications to ensure they are accurate, clear and they adhere to any specific
humanitarian organisation policies.
Advising on the best type of specifications (types of specifications are covered later in this
section).
Provide information on goods and services that are available and different sources of supply
that exist.
Advise on any risk factors when purchasing particular goods or using particular suppliers.
Asking ‘fitness for purpose’ questions.
Fitness for Purpose – Fitness for purpose means the goods or services are fit for the purpose they
are going to be used for, in the organisation they are going to be used.
By helping a customer to identify what they are going to use the goods or services for can eliminate
non-essential features and the over and underestimating of requirements.
Specifications that are not clear or are incorrect will lead to goods and services being purchased that
don’t do what people want them to do. These will either mean that they have to be used even though
they are not ‘right for the job’ or new specifications have to be produced and more goods and new
services purchased. This can both be time wasting and also expensive as the original goods
purchased may have to be written off, as the supplier may not take them back as they met the
specifications they were given.
This can be even more difficult with services that were not specified properly and there is the need
to re-specify the service and renegotiate a service contract.
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A specification can be :
Simple - if the need is for a standard product, or a product that is already being used then the
specification can simply be a catalogue number/part number or a brief description.
Complex - where the goods or services have to meet specific requirements. Specifications for
services are usually more complex as they will need to include standards of performance that
the service must meet.
Open - a specification can be less detailed and enable the supplier to provide goods or
services that are fit for purpose. Open specifications can be used where we know what we
want the goods or services to do (their purpose) but the supplier knows more about what they
can supply. So it is enabling the supplier to be ‘innovative’ in what they supply.
There are a number of different types of specification and it is important that the most appropriate
type is used for different types of goods and services. This, as covered earlier, is an important role of
people in procurement to advise customers on the most appropriate type of specification.
The following are the main types of specifications :
Technical specifications.
Performance specifications.
Functional specifications.
TECHNICAL SPECIFICATIONS
These specifications concentrate on the technical aspects of the goods or services required as these
are key to the purchase. These might include the materials to be used, power inputs and outputs or
the manufacturing process to be used, or in the case of services, the working methods to be used.
Goods where the design, ingredients, materials, etc are essential or important should have a
technical specification.
The specification may include :
A brand name. This simplifies the specification by naming the actual product and the
company who produce it or supply it. It is clearly stating that the technical nature of that
product is what is important, in this case so important that no other product will be acceptable.
For example, an organisation may only use brand/original spare parts for vehicles that are
provided by the manufacturer. This is to avoid being supplied with fake original spare parts.
A brand name or equivalent is emphasising that the equivalent must have the same technical
aspects as the branded product.
The physical characteristics, for example, dimensions or weights. It might be important that
food being purchased for distribution to beneficiaries is supplied in specified size/weight
containers so that it can be handled and distributed without having to be unpacked and
repacked.
The chemical/ingredient/material make up of a product. Food products may need to have very
specific ingredients or may need to be free from specific ingredients. This could be to do with
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health and safety requirements or it could be because of the religious requirements of the
people who will be eating the food.
A tent may require a technical specification where the materials used to make the tent are
important and need to meet certain technical requirements on strength, water resistance, heat
resistance, etc.
Samples may be included in a technical specification. This provides the supplier with
something to test and analyse so that they can match the technical aspects and quality of the
sample.
Drawings may be included in a technical specification. This could be a detailed technical

drawing but may also be a more simple drawing where something is being built. For example,
a warehouse manager may want some shelving built for a warehouse and the drawing will
provide the dimensions and shape, etc. of the shelves needed.
Standards. Technical specifications can include standards. These standards may be

international, national, humanitarian, or specific humanitarian organisational standards. These
will be recognised standards that the goods or services need to adhere too.
PERFORMANCE SPECIFICATIONS
A performance specification describes the outcome the goods or service is required to achieve.
They will describe the performance that is required without stating how that performance is to be
achieved. To ensure the performance the specification may include references to standards, for
example, ISO or environmental requirements, e.g. Energy Star. This type of specification gives a
supplier the opportunity to provide a solution that meets the performance requirements and uses the
expertise of the supplier.
This type of specification is used where the performance of the goods or services is the essential
aspect and the technical specification is not as important or not important at all.
FUNCTIONAL SPECIFICATIONS
A functional specification is similar to a performance specification. It describes what it wants the

goods or service to do/achieve, i.e. its function. It also gives the supplier the opportunity to provide a
solution.
The potential benefits of using performance and functional specifications are :
The supplier’s expertise is used.

The supplier can offer alternatives.
There will be a wider choice of suppliers available who could supply.
It provides access to goods and services that both the customer and the people in
procurement may not know existed or know are available.
The potential problems of using detailed technical specifications are :
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It can restrict the flexibility of using a range of suppliers.
The technical specification may be very specific and special which can lead to suppliers
charging inflated prices for these specific requirements. Particularly where they have to adapt
their standard products or standard services.
If the goods or services meet the specification but are not suitable, the supplier will have the
opportunity to avoid any liability because they supply according to the specification they were
given.
The following is taken from a UN document and provides advice on what may be included in a
specification :
Content of Specifications :
Below is a list of information that may be included in a specification and some hints and examples
on what they should contain.
Title
Use a simple and broad description of the specified goods for the title. For example, Steel
Reinforcing Bar. Potential suppliers may decide not to make an offer only on the basis of the title.
Background Information
A well-written introduction usually increases potential suppliers interest in the invitation and help
them understand the needs.
Standards
Standards are the most common document referred to in a specification. Try to refer as much as
possible to international standards such as ISO, EN, etc., rather than national standards as this
might limit the competition. If a specific standard is not mandatory, indicate “or equivalent
standards”.
Specific constraints and limitations

A few examples: Operating conditions, for example, maximum and minimum temperatures, noise,
pressure, humidity, wind velocity, altitude, dust, etc; Physical space available for installing
equipment; Compatibility with existing equipment, systems, etc; Availability of power supply;
Servicing or maintenance requirements or limitations, etc.
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Requirements
This describes the requirement in detail. As described earlier there are 3 types of specification types:
functional characteristics, performance characteristics, and technical characteristics. Usually the
requirement is a combination of the three types of specifications.
Marking
Possible marking requirements (to be agreed with end-user or project coordinator) are :
Identification marking.
Manufacturer’s name.
Model number.
Manufacturing standard.
Warnings (e.g. if fragile equipment).
Packing
Items may need to be packed before delivery to protect them from damage during shipment and
storage. If a special packing is needed, this must be specified: cartons, wooden box, wooden crates,
containers, etc. If particular size or condition of the container is required, it should be specified.
Further, if the organisation wants to keep the containers, pallets or other packing material, this
should also be specified.
Packaging
Some goods may be available with different options for packaging, concerning the size and
composition of the container. Whenever different possibilities might exist, specify what is required.
For example, “computer screen cleaning fluid in 100ml plastic bottles”.
Quality
Specifying quality requirements reduces risks associated with the goods. Example: only goods
produced by suppliers adhering to the ISO 9000 quality system are acceptable.
Testing
For some goods, testing might be required. This can be done :
By the supplier (the buyer should specify the test requirements).

By a third-party organisation.
If testing is specified, the provision of test results should be specified as well.
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SOURCE
The previous module looked in detail at Sourcing, in particular it looked at what is involved in
sourcing before a requisition has been received and before the procurement process starts. If
sourcing has been carried out prior to receiving requisitions, then we will already have analysed the
market place, identified and appraised suppliers and have a list of suppliers already approved by the
organisation.
When the customer requirements have been received and confirmed we can now identify and select
the supplier(s) we will use and place orders with those suppliers.
Sourcing prior to receiving requisitions is an ideal situation and in a stable environment where, for
example, a humanitarian organisation is running a development programme or it is purchasing to
replenish stocks where the needs for goods are already known, this can take place.
In other situations it is not possible to source before requisitions are received and sourcing becomes
a stage in the procurement process. For example, in emergency relief operations in countries where
a humanitarian organisation has not worked before, there will be no information available on the
supply market or on local suppliers. The need to respond quickly to the emergency will mean there
is no time to gather sourcing information and approve suppliers before customers start to place
requisitions.
Sourcing at this stage in the procurement process will therefore depend on the situation and on the
time available to carry out sourcing.
The situation and the time available may mean it is possible to carry out comprehensive
sourcing even after requisitions have been received.
It may be possible to get information on the potential needs of an emergency relief operation
and with this information carry out some sourcing activities, particularly an analysis of the
supply market and of potential suppliers.
If there is no time to analyse the market and identify different sources of supply, it may be
necessary to resort to single sourcing.
If there is no time to analyse the market and identify different sources of supply, an
organisation may meet its needs through international preferred suppliers or frame
agreements with international suppliers approved by their regional or head office operations.
This may also provide time to enable the local market to be analysed and sources identified
so that sourcing can then be moved locally.
Where an organisation holds stocks of certain goods it may be necessary to source from
these stocks initially until there is time to identify other sources.
The decision on selecting a supplier will also be affected by the method of purchasing that is used.
There are a number of different methods of purchasing that can be used to purchase goods and
services.
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METHOD
The main methods for purchasing goods and services used by humanitarian organisations are :
From stock.
Cash purchases.
Calling-off from an existing frame or supply agreement.
Ordering from a sole source.
Issuing a request for quotation.
Issuing an invitation to tender.
The different methods used will usually be determined by the humanitarian organisation’s
procurement policy, procedures and sourcing strategy.
SOURCING STRATEGY
We looked at different sourcing strategies earlier in this unit. We identified a number of different
strategies that organisations adopt for different types of sourcing. These sourcing strategies need to
be adhered to when choosing the method of purchasing and selecting suppliers. For example, an
organisation may have a strategy to develop supply agreements for certain key goods. When these
goods need purchasing there will be a supply agreement with a supplier and goods should be
called-off against that agreement.
PURCHASING POLICIES AND PROCEDURES
Most organisations will have purchasing policies that will affect the methods that can be used to
purchase goods and services. The most common policy is a financial limit for purchasing that will set
financial thresholds and limits and the particular method of purchasing that must be adopted.
For example, cash purchases and purchase orders with sole source suppliers, may be made for
orders up to a certain financial limit. Beyond that limit, and up to a different financial limit, quotations
should be requested from a minimum number of suppliers and a particular procedure followed to
obtain and process those quotes.
Beyond that limit and for specific purchases then the policy would be to invite tenders from a
minimum number of suppliers and a particular procedure followed to obtain and process these
tenders. The policy may also determine what type of tender, for example, an international open
tender, is necessary for certain financial limits.
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The requirements to request quotations or tenders may be a requirement of the donor who has
provided the funds for the purchase. For example, USAID or ECHO may stipulate as part of their
funding that quotations must be obtained from a minimum number of suppliers.
FROM STOCK
Goods requested by customers may already be held as stock by the humanitarian organisation.
These may be goods where the demand has been anticipated and the decision made to purchase
and hold stock.
Some humanitarian organisations will, for example, hold stocks of emergency items either centrally
or regionally. Requests for these items can therefore be initially met from these stocks.
CASH PURCHASES
Requests for goods may be met by purchasing from a supplier and paying that supplier in cash. This
is usually where the value of the goods is small and the cost of placing an order and the need to get
quotes from different suppliers is not warranted. A cash purchase is also a quick purchase and may
be appropriate where the customer has an urgent need.
A record of the purchase is still needed and a receipt for such purchases should be used as the
record of purchase.
Some organisations will not allow cash purchases for goods that are going to be distributed to
beneficiaries. It is usual for organisations to set financial limits on what can be purchases by cash.
Usually goods for beneficiaries will exceed these financial limits.
CALL OFF FROM EXISTING AGREEMENTS
Frame or supply agreements (covered earlier in the programme) may be in place for certain goods
or services with specific suppliers.
Goods or services can be ‘called-off’ from this agreement. This is a quick way of purchasing goods
as the supplier will already have been approved but more importantly the price, quality, terms, etc.,
have already been agreed and form the contract/agreement, and generally the supplier is keeping a
stock of goods.
These agreements are being used more and more by humanitarian organisations to speed up the
procurement process.
As well as people responsible for procurement, purchasing goods in this way is becoming more
common for the agreement to be set up by procurement and then for customers/users being given
the authority to call-off goods from the contract.
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ORDERING FROM A SOLE SOURCE
Where the goods or services requested can only be purchased from one supplier, then they can be
purchased directly using a purchase order. This may be because the goods are branded or it is a
proprietary product and there is only one supplier who can supply.
An example is the procurement of vehicles where because of the ease of maintenance and to
standardise goods, organisations will choose a very specific vehicle model from a specific
manufacturer. A deal may be done directly with the vehicle manufacturer. It may also be because
the value of the goods or service does not warrant the need to get quotations and there are no donor
requirements.
REQUEST FOR QUOTATION AND INVITATION TO TENDER
A quotation is a process for obtaining a number of different offers from suppliers to supply particular
goods or services. Humanitarian organisations will have rules on when quotations or tenders are
required and there may be particular rules or restrictions added by donors, for example, requests for
quotations need a minimum of three quotes.
A tender is a process for inviting various suppliers to make offers to supply particular goods or
services. This is a process that is usually used for high value purchasers, or where there is a
requirement from a donor to adopt a tender process.
The tender process is more formal than the quotation process. For example, it may require sealed
bids, where as a quotation process can include getting verbal quotations from suppliers.
As a consequence of the similarity between quotations and tenders we will use the tender process
as our example in this programme.
It is important that customers requesting goods or services are made aware that the tender method
of purchasing is going to be used and they are aware of the time scale for this process and for the
goods or services to be purchased.
There are two main types of tender :
Restricted Tenders.
Open Tenders.
RESTRICTED TENDERS
Restricted tenders invite a limited number of suppliers to submit tenders. These suppliers will
preferably be suppliers who have already been identified, appraised and registered as part of the
sourcing process.
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In organisations where they have Central or Regional Centres any tender process, being carried out
by people in local (field) purchasing, will usually include the Central and Regional Centres as
potential suppliers and they will be included in the tender process.
OPEN TENDERS
Open tenders invite everyone to submit a tender. For the tender process to be fully open it is not
restricted to suppliers who have already been identified as part of the sourcing process, but it is
open to any supplier who feels they can supply the goods or services.
An open tender also avoids humanitarian organisations being accused of restricting companies from
becoming suppliers.
An open tender involves having to find ways of informing potential suppliers that tenders are being
invited. This can include local, national or international publications or newspapers. Where this isn’t
possible, a notice could be placed with local government or local chambers of commerce.
The process of tendering can be very time consuming and can take time to complete. The urgency
of operational needs of humanitarian organisations and the difficult environments they operate in will
mean that they will mainly use restricted tenders.
Open tenders will therefore be usually used when time is not a constraint and when an organisation
wants to look at a market. An open tender, for example, can be used as the tendering process for
frame agreements.
Obtaining Tenders
Humanitarian organisations will have different ways of inviting and obtaining tenders and quotations.
The following are some of the main ways used by organisations including examples of when they
would be used :
Direct contracting
Contract value.
Prices or rates are fixed (sole source).
Standardisation of supplies or equipment.
Urgency of the service.
Purchase of Proprietary articles or perishable supplies.
Competitive bidding will note give/has not given satisfactory results.
Competitive bidding for the same product/services conducted during a defined period (length
of the period varies from organisation).
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Request for quotation
Used for informal competitive bidding when clear and complete specifications for specific
quantities are available.
Normally applies to low value procurement requirements; for readily available goods, works,
services with standard specifications as available on the market.
Invitation to bid
Used for formal competitive bidding when clear and complete specifications for specified
quantities of goods are available.
Normally applied for procurement of goods of higher value or larger quantities which are
easily available from the market. (No “technical solutions” or “management” required).
Request for proposal
Used for formal competitive bidding when requirements cannot be described in a definite or
complete manner, i.e. when a technical or other solution is sought.
Normally used for procurement of works and services.
Open International competition
Used for Invitation to bid and Request for Proposal for high value contracts.
Specific goods depending on organisation procedures.
Requires specific advertisement in a media of wide circulation.
Restricted International competition
Used for Invitation to Bid, Request for Proposal, Request for Quotation.
Requires SHORTLIST of qualified suppliers.
Used when Open International Competition unsuitable because of value, urgent demand or
limited list of suppliers.
Local competition
Open or limited, but restricted to suppliers located in the country or region where goods and
services will be used.
Low value, urgency, language requirements, competitive market.
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ENQUIRY
INVITING TENDERS
The process for inviting and evaluating tenders will vary depending upon an organisation’s own
procedures but the following is regarded as ‘best practice’ :
Potential suppliers need to be informed of the procedure they need to follow to submit a tender, this
will include :
The time frame for the tender process.

The closing date and time of tender acceptance.
The method by which tenders are to be submitted, for example, sealed envelopes hand
delivered, sealed fax.
The format in which the tender should be submitted.
Action that will be taken on late tenders, for example, no late tenders will be considered.
Detailed information on the goods and services need to be specified. These will include :
The specifications of the goods or services required.

The purpose and final destination of the goods.
The quantities of goods required.
Delivery location, and dates.
Packaging and marking requirements.
Quality and inspection requirements - this is particularly important for food and medicines.
Documentation required. This can include a certificate of origin, or a certificate of fumigation
and in the case of equipment, it should include technical manuals/instructions and
maintenance requirements.
Payment including currency, terms of payment and any specific penalty clauses.
If the goods are to be sourced and moved from another country, it will be important to include which
INCOTERMS the final contract will be subject to. INCOTERMS are covered in detail in the
Import/Export Unit.
INCOTERMS are a set of rules covering the most commonly used trade terms in international trade.
They enable the buyer and seller to know exactly what the responsibility of each of the parties is for
arranging and paying for the movement of goods and who is responsible for goods as they are
moved. Suppliers are likely to charge different amounts, which they will include in the tender,
depending on the INCOTERMS that will be included in the contract.
For certain goods, samples need to be requested as part of the tender. A sample enables an
evaluation and comparison to be made between the different supplier offers. The sample can also
be retained to enable this to be compared with actual goods supplied once an order has been
placed. This can ensure that the actual goods supplied are the same as the sample provided in the
tender.
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As well as it being important that all the information is available in the enquiry to enable suppliers to
provide quotes, it is also important because the contract that follows should include exactly what
was included in the tender request. If the actual contract is different and there is something extra
that was not in the tender request, the supplier is likely to want to change his original tender.
RECEIVING TENDERS
Tenders received from potential suppliers should be recorded and registered on receipt. Some
suppliers may ask for a confirmation of receipt so that they know their tender has been received.
The tenders should be treated as confidential and should not be opened until the final closing date
and time has passed.
Each organisation will have its own rules and procedures for receiving and opening tenders. A
common procedure in organisations is that tenders should be opened at the same time on the
appointed day, witnessed by two members of staff, one of whom should be independent of the
procurement decision process. In some organisations this process will be overseen by a Tender
Committee of which the technical team will be represented. Whatever the actual procedure is, it
needs to be consistent and fair to all suppliers.
This provides visibility of the process and enables all suppliers to see that the tender process is fair
and has not been influenced. It also provides visibility to donors that their requirements have been
adhered too.
EVALUATION
EVALUATING TENDERS
The evaluation of tenders and the awarding of contracts to suppliers is the most important phase of
the process. It has a direct impact on the customer who requested the goods or services and
therefore on the aid operation that is underway, as it is the evaluation and awarding of a contract
that will determine the quality, reliability, delivery, etc. of the goods and services.
It will also have a financial impact, particularly where there are significant differences between the
prices quoted by the different suppliers.
It is just as important at the evaluation/awarding phase that the person responsible for the purchase
follows the procedure to avoid any potential accusations of price fixing or undue influence or
favouritism. Transparency of this phase is therefore essential.
Two people should be involved in opening and recording the tenders. In some organisations this is
carried out by ‘neutral’ people, i.e. people who are not directly involved in the process.
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The tenders should be recorded and registered with the details of the supplier. The content of the
tenders should be treated with confidentiality and access to the documents restricted to the people
doing the evaluation.
The people responsible for evaluating the tenders will depend upon the tender type. People
responsible for procurement should be involved as it is their responsibility to purchase the goods or
services. Where there is a technical content to the tender someone with technical knowledge needs
to be part of the evaluation. The ideal situation, but not always practical, is to include the customer
who requested the goods or services in the evaluation. If they cannot be involved in an evaluation
meeting, then it is important to involve them in discussions before decisions are made. This is
particularly important where ‘trade off’ decisions have to be made.
For large value contracts many organisations will have a group of people, for example, a Committee
on Contracts who will meet to evaluate the tenders. They will often be made up of people who have
no involvement or interest in the procurement. The role of these people is to see whether the
procedures have been followed correctly and then to endorse the proposal of the person from
procurement as to which supplier to award the contract to.
The first step in the evaluation is to define the criteria against which the tenders will be evaluated.
Each criteria should be defined and its importance and ranking agreed, for example, is delivery time
more important than reliability?
The main types of criteria will include :
Conformity to the specifications.

Quality of goods or service.
Service and reliability.
Price, costs and payment term.
Delivery time.
Special requirements e.g. origin and crop year for food.
If the customer is not part of the evaluation, they should be involved in the decision on the
importance and ranking of the criteria.
Each tender can then be evaluated and analysed against these criteria and the ranking of the
criteria.
The criteria which needs particularly careful evaluation is Price. It is easy sometimes to focus on the
price quoted and making a decision based on the lowest price. The price quoted may hide other
costs that should be taken into account. For example, the price for a product may not include
delivery so the cost of arranging delivery or the cost the supplier will charge for delivery needs to be
considered. The price charged for a service may have certain clauses that mean significantly extra
charges will be made. It is important therefore to always consider ‘best value for money’ when
evaluating price.
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ORDER
The next stage in the process involves placing orders for the goods or services with the supplier, or
establishing contracts which need to be sent to suppliers.
PLACING ORDERS AND AWARDING CONTRACTS
Following the completion of any quotation or tender evaluation, all suppliers who have submitted
tenders should be informed of the decision, as to whether they have been successful or not. The
details of the supplier who has been successful and the price, terms, etc., that they submitted should
be kept confidential and not discussed with other suppliers.
Suppliers who were not successful with their bid may ask for feedback on why their bid was not
successful. It is good practice to provide this feedback particularly where suppliers have spent
significant time and work in producing the bid and where it is important to keep a good relationship
with a supplier.
The feedback should be given using facts and information that will help the supplier should they
want to bid for future business. These may be facts regarding the way they presented their tender
and/or facts regarding the content of their tender.
PURCHASE ORDERS AND CONTRACTS
The purchase of any goods and services (except for most cash purchases) should be supported by
a contractual document. In most cases this document will be a form of Purchase Order.
The purchase order will either contain a standard set of terms of contract or there will be a separate
contract document sent with the purchase order.
Most humanitarian organisations will have a contract with a standard set of terms and conditions that
can be used for the majority of goods and services that are purchased. For example, the ICRC has
an ICRC General Conditions on Purchasing.
Certain contracts though may need specific special terms and conditions, which will be over and
above the standard terms and conditions and only apply to that contract.
Terms and conditions help guard an organisation against certain risks (we looked at risk earlier in
this programme). There are always risks that a supplier will not supply goods and services to the
right quality, quantity, at the right time, to the right place. So, as well as the details provided on the
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Purchase Order, the contract will state the general requirements of the organisation and the
conditions that suppliers must conform to when supplying the organisation.
People working in procurement who are purchasing goods and services, are not expected to be a
legal expert. They do need to be aware of the standard terms and conditions that their organisation
uses and also seek advice from legal experts, particularly where there is the need to add specific
special terms and conditions.
Suppliers should confirm that they have received a purchase order. A contract should be signed by
both the supplier and an authorised employee of the humanitarian organisation. Acceptance of the
contract is important as it means that the supplier accepts the terms and conditions and that these
override their own terms and conditions of sale.
A typical Purchase Order will contain :
Order number.
Date the order is placed.
Name and address of supplier.
Name and address of purchaser.
Quantity of goods required.
Description of goods or services.
Delivery requirements.
Authorised signature of purchaser.
Consignee address
PROGRESS
Once the order is placed and the supplier has confirmed they have received it and they have agreed
to the contract terms and conditions, the role and the amount of work that people in procurement
have to do will be affected by the performance of the suppliers.
In the ‘ideal’ world the next involvement they will have will be to confirm that the goods or services
have been delivered and that the supplier can be paid. We do not live in the ideal world, which
means that the role now becomes one of monitoring the progress of orders and monitoring the
performance of the suppliers.
Depending on how good the performance of the suppliers are, will determine the amount of time and
money that has to be spent in expediting orders and in managing the suppliers.
If the sourcing process and the process for selecting suppliers within an organisation is good, and
the people working in procurement are good at carrying out these processes, then the suppliers who
are being used should be expected to perform well.
There are though a number of reasons why a supplier may not perform as expected and why they
will need monitoring and managing.
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Expediting or progress chasing, as it is sometimes called, is the monitoring and following up an
order to make sure the supplier supplies goods in line with the order and the organisation’s contract.
In particular, expediting is ensuring goods are delivered on time in the right quantities to the right
place.
Expediting is not just following up orders that have not been delivered or have not been delivered in
line with the requirements of the order, as by then it may be too late to respond or manage the
problems this causes.
Expediting orders will involve monitoring the progress of certain orders to ensure they are met or if
they are not going to be met, we can take appropriate actions.
Not all orders will need expediting and different orders will need expediting in different ways. When
orders are placed with suppliers a decision should be made as to whether the order will be
expedited and the way it will be expedited.
This decision will be influenced by :
The importance of the goods and services.

The previous performance of the supplier.
THE IMPORTANCE OF THE GOODS AND SERVICES
The customer is the person who should determine how important the goods and services are to the
organisation and to the aid operation that they are involved in. The importance could be affected by
the type and phase of aid operation. If the goods are needed at the beginning of a
disaster/emergency response, the goods may be vital and it is important that they are delivered on
time. The goods may be a key part of a beneficiary service programme, which means if they are not
delivered on time in the right quantities, then the whole programme will be affected.
We need to recognise that if you ask a customer how important the goods are, most customers will
say all of them are important. It is, therefore, often the role of the person in procurement to ask the
customer questions to gauge for him or herself the way the order will be expedited. These questions
should be to identify the impact if the goods were not delivered on time, or in the right quantities.
If all goods are important and it is not possible to monitor all orders, then it is important to prioritise
the orders to determine how they will be expedited.
THE PREVIOUS PERFORMANCE OF THE SUPPLIER
If the order has been placed with an existing supplier we should have information on the previous
performance of that supplier. If that supplier has a good performance record, then we may decide
not to monitor the order closely. If the supplier has got a poor performance record or if they are a
new supplier, then we may decide we cannot risk them not delivering on time so we will monitor
them much closer.
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WAYS OF EXPEDITING
When orders are placed they can be categorised and the way they are categorised will determine
how they are expedited.
For example :
Category 1 - orders that will not be monitored and will only be chased up if the order is not
delivered on time.
Category 2 – orders that will be monitored x weeks/days before delivery is due.
Category 3 – orders that will be constantly monitored.
Orders may be placed in a category when they are placed, but circumstances may change and they
may need to be re-categorised. An order that is being constantly monitored may change to one that
now only needs monitoring nearer to the delivery date. (Category 3 to Category 2.)
EXPEDITING SYSTEMS
An expediting system should provide information on :
Which orders to expedite.

What dates the orders need expediting.
What action to take, for example, telephone call or visit.
The actual system will depend upon the number of orders that are being expedited and the facilities
available to the people in procurement.
The system can be a diary or calendar in which reminders are manually placed, stating which orders
need following up and what action to take. These reminders can be placed at the same time as the
order is placed. For example, if an order is due for delivery on the 30th September, and it is a
category 2 order, then a reminder is placed in the diary so many weeks or days prior to that date.
The system can be a date index file in which a copy of the order is placed. Once the order has been
progressed on that date, a decision can be made whether further progress is needed and the order
can be re-filed.
The system could make use of technology by programming a computer to display reminder
messages at the start of each day. The computer could even be programmed to automatically send
a message to a supplier on a specific date to ask for information on progress of an order.
Whichever system is used the important decisions are how to contact the supplier and what to say to
the supplier.
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The supplier can be contacted by telephone, by e-mail, by letter, or by a visit. The location of the
supplier and the availability of e-mail and telephone will obviously affect this decision, but if they are
all available, the decision can significantly affect the response from a supplier. A letter usually
means it isn’t urgent and doesn’t enable us to talk to the supplier, whereas a visit usually shows it is
important and we can talk to the supplier and also see for ourselves the progress of an order.
The decision on what we say to a supplier can also significantly affect the response. If a supplier is
late delivering an order and they receive a standard e-mail asking them for a new delivery date, then
the impression they may have is that delivering late is not a problem and all they need to do is give a
new date. A phone call asking them to explain why they have not delivered on time and what they
will do to ensure it doesn’t happen again, shows that delivering late is not acceptable.
A different approach to expediting, which is becoming more common, is to put the emphasis on the
supplier to monitor their own orders and to keep the organisation informed of any problems that
might affect them being able to meet the order and conform to the contract requirements.
People in procurement need to remember that when expediting orders and dealing with suppliers
that they are doing this on behalf of the customer who has requested the goods or service. It is
important that the customer is kept informed of any problems that might affect them not receiving
goods and services on time or in the right quantities and quality. Procurement will usually be the link
between the supplier and the customer and good communication is needed to ensure decisions can
be made when expediting orders. On other occasions it can be better to put the customer and
supplier into direct contact so that they can look at the problems that are affecting their orders. If this
happens, procurement still need to keep in touch with what is being discussed and agreed so that it
can be recorded, and in case they have to follow up the discussion and what was agreed with the
supplier at a later date.
Expediting can be a costly and time wasting activity, so wherever possible the process should
encourage the supplier to identify the root causes as to why they are not able to meet the
requirements of an order and to resolve them to avoid problems in the future.
DELIVERY
The physical receipt and inspection of goods will take place at the place of delivery. This will usually
be a warehouse and this activity is covered in the Warehouse and Inventory Unit.
The process of procurement though includes ensuring that delivery takes place and that the supplier
has delivered in line with the purchase order and that the delivery complies with the contract
requirements.
Whoever is responsible for accepting delivery and inspecting the goods should understand the
procedure to follow if there are any problems or discrepancies. For certain goods an independent
inspection company may be used to inspect the quality of the goods.
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The contents of the delivery should be checked against the delivery note or packing list, this should
be checked against the original purchase order and any special terms and conditions. In particular,
the delivery should be checked for correct labelling markings and coding.
It is important, therefore, that the warehouse has got a copy of the purchase order containing any
special terms and conditions.
If the delivery conforms to the order, then a record of goods received should be sent to the person
responsible for procurement. The role of procurement is then to check and match all the documents
relating to that delivery so that payment can be made to the supplier.
The documents will be :
The Purchase Order.

Goods Received Note/Entry Form from the Warehouse.
Suppliers Invoice.
If the delivery is not accepted, then it is the role of people in procurement to contact the supplier to
resolve the problem.
Suppliers should be contacted as soon as possible so that the problem can be resolved quickly.
How and where goods are rejected is very important. At some point the goods will transfer from the
supplier to the organisation and the transfer of cost and risk moves to the organisation.
Goods need to be inspected and checked at the point of delivery otherwise the supplier will probably
not accept any responsibility for the goods as someone in the organisation has accepted them. For
most goods, this delivery takes place when someone in the organisation’s warehouse signs a
document accepting delivery.
There are a number of possible actions that procurement can take with suppliers when goods have
been rejected, these include :
Agreeing to accept the goods - the goods may not conform exactly to requirements but it is
decided that they can still be accepted. The customer who requested the goods may need to
be consulted before making this decision. The supplier still needs to be made aware that the
goods did not conform even though they have been accepted.
Arranging for the supplier to take the goods back - the goods may not be acceptable, i.e.
quality problems, so the supplier will need to take them back and not re-deliver them or
replace them.
Arranging for the supplier to re-pack goods and re-deliver - the goods themselves may
be acceptable but there are problems with the way they are packed. The supplier will be
required to re-pack and re-deliver the goods.
Arranging for the supplier to replace the goods - the supplier may have goods in stock
that are acceptable so replacement goods can be supplied.
Any corrections will need to be made to the supplier’s invoice including the charging of any penalty
clauses, contained in the contract, that come into force.
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INSPECTION COMPANIES
Quality inspection companies are sometimes used by humanitarian organisations - this may be for
specific goods such as food or where important amounts are involved. The company will ensure that
the goods requested meet the specifications and the contractual requirements.
A donor or the receiving country may request that an inspection company is used.
An inspection company does not only inspect goods at the point where ownership passes from the
supplier to the humanitarian organisation.
The main objective of inspection companies is to control goods, this can be at all stages of
production, before loading, during storage and transport, and at the delivery point. This could include
inspecting and ensuring :
The quality of goods that are provided meet the specifications, this can include visual
inspection to laboratory analysis.
The correct quantity of goods are delivered.
The weight of each piece and the whole order matches what was requested.
The markings requested on the goods and their packaging meets the requirements.
The packing of the goods matches the requirements.
The quality of transport is acceptable.
Humanitarian organisations use inspection companies to carry out certain activities including :
Quality control before loading.

Supervising loading and unloading of goods.
Supervision of the warehousing of goods.
Sampling goods.
Treating goods, for example, fumigation.
Issuing weight and quality certificates.
Not all inspection companies provide a full range of inspection activities so it is important to select
companies carefully, and to treat them like any other supplier.
PAYMENT
When goods or services are received and accepted the next stage in the procurement process is to
pay the supplier. To make the payment the accounting department need to receive the following
documents :
The Purchase Order.

Goods Received Note/Entry Form from the Warehouse.
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The Suppliers Invoice.
A Packing List ( if applicable).
These documents should have been checked and matched as part of the Delivery stage of the
process, they can now be sent to the accounting department for them to arrange payment. The
sending of these documents is authorising the payment to be made.
It is important to separate the tasks in this phase so that the same person cannot issue a purchase
order, approve payment and make the payment. This avoids any opportunity for fraud.
Supplier relationships are affected by the timeliness by which their invoices are paid. Late payment
or payment that is held up for reasons not accepted by the supplier can affect the relationship and
the future service that a supplier will provide and it can damage the reputation of the humanitarian
organisation. As this is important to future procurement, it is in the organisations interest and the
interest of people responsible for procurement, to ensure the documents are sent to the accounting
department without delay.
Even though it is the responsibility of the accounting department to process the documentation and
make the payment on time, there will be occasions when this might not happen and they will need
reminding of the importance of paying the invoice on time.
The payment terms that organisations have with their suppliers will be part of the organisations
contract terms. Each organisation will have its own terms which will usually be a number of days
after receiving the goods, the most common is 30 days.
In some countries suppliers will often request to have prepayment of part or even the total amount of
the goods or services.
There is obviously a risk in prepayment and guarantees should be asked for and the amount of
prepayment should be negotiated. Some organisations do not allow any prepayments even partial
prepayments. We need to recognise the reasons a supplier is asking for prepayment. It may be
about trust particularly if they have never supplied to the organisation before, or it may be they need
the money to purchase the raw materials needed to make the goods.
REVIEW
It is very easy, particularly when there is a lot of procurement activity taking place, to forget or not
put much time and effort into the final stage of the procurement process, the review stage.
The review stage has got three main objectives. :
A review with the original customer on whether the original needs they had have been met.
A review of the performance of procurement in carrying out the procurement process.
A review of the supplier performance.
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It is important to point out that a review should be taking place throughout the different stages of the
process and not waiting until goods and services have been delivered and paid for before doing any
review.
As we have looked at the different stages we have emphasised the importance of communication
and regular contact with customers and with suppliers. This regular contact is to ensure that any
problems that might affect the customer receiving goods or services that meet their needs, are
managed when they happen and actions are taken.
The review stage at the end of the process ensures that a review of the performance of procurement
in adhering to the procurement process is carried out. This is done so that we can learn from what
was done well or not done well and improve the performance in the future.
The review of supplier performance at the end of the process ensures that the performance of the
supplier throughout the process is carried out. This will enable decisions to be made on whether to
use that supplier in the future or what aspects of the supplier's performance they need to improve in
the future.
REVIEW WITH CUSTOMER
It is easy to sometimes forget about the initial need that a customer had, particularly if through the
process, changes had to be made to the goods and services that were eventually delivered. This
review should go back to the initial need and ensure the customer is happy that the goods and
services they have, or are receiving, are meeting those needs.
If the customer is continuing to receive the goods or the service, a decision can be made as to
whether changes need to be made to the goods or service being provided or to look for alternate
sources of supply, or whether the customer is happy to continue with the current arrangements.
If the review is taking place after all the goods have been received, or the service has stopped, the
review can identify if there is a need to review the specifications for those goods and services for
future procurement. This is particularly important if the specifications are a standard specification
within the organisation.
The review can also identify any significant problems with the source of supply and can identify if
there is the need to change that source of supply or a particular supplier in the future.
The feedback from the customer will also provide valuable information to help review the
performance of procurement.
REVIEW OF PERFORMANCE OF PROCUREMENT
Reviewing, as the final stage in the procurement process, provides the opportunity to ‘stand back’
and look at how successful procurement has been in carrying out the process to meet the needs
initially identified by a customer. This should be done to identify any changes that should be made to
how the process is carried out in the future.
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This can be done in two ways :
1. Customers should be asked to provide feedback on the performance of procurement. This

feedback should be both qualitative and quantitative.
Qualitative – this is looking for feedback on how they felt about the service they were given
and how helpful people in procurement were. For example, getting feedback on how they feel
about the help they were given in developing specifications or on producing a requisition. The
way questions are worded to get qualitative feedback is important, to help people to provide
useful feedback. This may include asking customers to rate performance and giving them
ratings to choose from. An example of a good question to ask customers is ‘ Was the help
you received in developing the specifications what you expected and needed ? If not what
did you expect and need ?’
Quantitative – this is looking for feedback that is objective and measurable. This can be
achieved by setting and agreeing service standards with customers. For example, a standard
can be set for the time it will take for a requisition to be processed, or for tenders to be
evaluated. The customer can then provide feedback on whether these standards were met.
2. Records and data can be recorded and kept within procurement that can be analysed to give
some information on performance. The measurement of the performance of procurement is
not easy to do (this is also the case for commercial organisations). The most common
measurement used by commercial organisations has been to compare actual prices paid for
goods and services against the original budgeted price.
It is possible to measure performance in carrying out the procurement process particularly if there
are standards set, for example, all relevant documents should be sent to the accounting department
within …days of delivery of goods.
Records can be kept for each customer need/each requisition which will contain details of the time
taken to carry out each stage of the procurement process and notes on problems. These records
can then be analysed at this final stage of the process so that any lessons can be learnt for the
future.
In the Humanitarian Supply Chain Unit we recognised that when looking at the performance required
from the supply chain that this will be different depending upon the different phases of an aid
operation.
This clearly has an impact on the performance required from procurement and needs to be
recognised when measuring the performance of procurement. In the early emergency relief phase of
an operation speed is likely to be more important than cost. So it is important when reviewing
procurement and the procurement process, to recognise the type and phase of operation that was
taking place. For example, in the early part of an emergency relief phase the speed at which the
process was carried out to enable goods and services to be delivered would be a critical
performance requirement.
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REVIEW OF SUPPLIER PERFORMANCE
The review stage of the process also provides the opportunity to review the performance of the
supplier in supplying the goods and services to the organisation.
To do this it is necessary to monitor and keep good records of the supplier’s performance throughout
the procurement process. This can be achieved by keeping a supplier record which contains a
record of any contact with the supplier by people in the organisation, particularly meetings or
discussions on poor performance.
It is important when reviewing performance with a supplier to be able to provide information and
examples to support your decisions on whether to continue to use that supplier or to explain what
aspects of performance the supplier needs to improve.
As a consequence of the importance of monitoring and reviewing supplier performance there is a

separate module on supplier performance monitoring and supplier development later in this unit.
NEGOTIATING
This programme is not going to look at the skills involved in negotiating but it is important we
understand when it is acceptable to negotiate.
Most humanitarian organisations will have very strict, clear rules and procedures, on who can
negotiate with suppliers and when negotiation is acceptable. It is important to understand and follow
these rules and procedures and for people who are considering negotiating with a supplier to consult
their head office/manager to get permission to proceed.
It is vital that if any negotiations take place, the process must be fair and transparent.
The following are some general rules and principles about negotiating.
When purchasing, using a quotation/tender process, any negotiation should take place after the
tender has been accepted and before the contract is agreed. Negotiation should not take place
during the tender process.
When purchasing from an existing contract or supply agreement, the supplier will not expect a
negotiation every time someone calls-off from that contract, as the price, terms etc. will have been
agreed when the contract was set up. The time to negotiate is when the contract or agreement
becomes due for renewal.
Since price is key in the selection of a supplier, it is not recommended to negotiate price. However,
negotiations may be conducted with the selected supplier to finalise payment terms, special terms
and conditions, delivery, etc. It is of the utmost importance that the negotiations should result on a
clear understanding of both parties on their responsibilities under the contract
For cash purchases it is usually acceptable to negotiate price. Negotiation is acceptable where we
believe the price has been artificially inflated, this can particularly happen where the supplier knows
there are a number of humanitarian organisations wanting to purchase the same goods and
services.
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Negotiation with a supplier is much easier where there are a number of different suppliers who we
can purchase from, i.e. there is no risk that we will end up not purchasing the goods.
Negotiating when purchasing from a sole source can be much more difficult. A sole supplier will
often have a fixed price which will not be negotiable, i.e. everyone will pay that price.
The outcome we are aiming for in most negotiations is a win-win situation where both the
organisation and the supplier gain something from the negotiation. If the supplier feels they have lost
out, the risk is that they will find a way of ‘getting back’. This might involve them reducing the quality
of the goods and services they supply or delivering later than agreed.
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MODULE 5 : SUPPLIER PERFORMANCE MONITORING AND
SUPPLIER DEVELOPMENT
We looked earlier at the main relationships people in procurement need to manage. Suppliers were
one of those relationships. We also identified that an important part of the Review stage of the
procurement process was the review of supplier performance. This module looks at both the
monitoring of supplier performance and working with suppliers to develop their ability to meet the
needs of the organisation.
An important role of people in procurement is to monitor and manage the performance of suppliers.
VENDOR RATING AND SUPPLIER PERFORMANCE MONITORING
Vendor rating is a way of assessing the performance of suppliers against a set of performance
criteria. They are used to :
Provide the supplier with objective feedback on their performance.

Compare the performance of suppliers.
Provide information to determine whether to continue to use a supplier.
Identify areas for improvement in the supplier’s performance.
The ratings should be as objective and as quantitative as possible to avoid the rating being based on
subjective views. The main problem with quantitative ratings is the time and cost involved in
collecting the data on which the ratings will be based.
A decision needs to be made as to the benefits of producing vendor ratings and the time and effort
involved.
Using Pareto analysis of the organisations suppliers will identify a number of key suppliers who
supply critical or high cost goods. A quantitative rating could then be produced for these important
suppliers and be used to either discuss improvements with the supplier or to help with any decision
whether to continue to use that supplier.
Ratings will be calculated based on a scoring system using a series of performance criteria. The
criteria used will depend on the specific needs of an organisation but the criteria usually used will
be :
Price and Costs.

Quality of Goods.
Delivery.
Service.
73
PRICE AND COSTS
Price and costs will assess the increase in price charged by a supplier and the price charged against
either a market price or prices that other suppliers charge.
The cost of doing business with the supplier will be assessed in the same way, i.e. are the costs
increasing and how do these compare with other suppliers?
QUALITY OF GOODS
This measure would include the percentage of goods rejected when inspected, as part of the
delivery inspection process and the percentage of goods that had to be returned to a supplier under
a warranty/guarantee.
DELIVERY
This measure would include the percentage of deliveries received on time in full. So it is measuring
both timeliness and the quantities delivered on time.
SERVICE
Service would measure after sales service provided by the supplier or the way the supplier responds
to queries and problems.
A vendor rating system will use weighting of the different criteria to come up with an overall rating
that can be given to a supplier.
There are some suppliers that the organisation will use over a long period of time. In particular these
will be suppliers of services or suppliers where the organisation has a supplier agreement. For these
suppliers we need to ensure we have regular discussions and provide feedback so that a
relationship is maintained between the supplier and with people in procurement.
Often with these suppliers the relationships and contact will be developed with other people in the
organisation. These will be people they deal with on a day to day basis. People in procurement need
to be aware of these relationships and how these may be affecting the commercial relationship
between the supplier and the organisations.
As we have seen vendor rating is a way of providing suppliers with feedback but there are other
activities that people in procurement can carry out. These include :
Using the expediting process to give suppliers feedback on performance.
74
Gathering information from the customers and users of the goods and services on the
performance of the supplier. This is particularly important for suppliers of services. If there are
problems with the service, this needs to be communicated to the supplier and actions agreed
to deal with the problems. By talking to customers and the users, information on any after
sales service, or information on how good the goods were when they were used, can be
gathered. Food supplied by a supplier may have been delivered to the right quality but there
were problems when the food was used.
Having regular review meetings with suppliers. There are two different types of supplier
review meetings – meetings when there is a specific problem that needs resolving and regular
meetings to discuss general performance and progress with supplier development initiatives
(supplier development is covered in the next section).
Keeping a record of supplier performance conversations and supplier meetings, which will
provide an accurate record of a supplier’s performance for future reference.
SUPPLIER DEVELOPMENT
Supplier development involves working with and supporting suppliers to enable them to develop and
meet the requirements of the organisations. It requires the organisation to work closely with the
supplier and to put time and or resources into the relationship with the supplier.
Supplier development can include providing the supplier with :
Finance - this could include special payment terms.
Technical or management support and advice - this could include advice on what is
required to supply organisations working in humanitarian aid. It could be advice on the legal
requirements or standards they need to achieve to supply specific goods, for example, food
and medicines, and ethical issues.
Shared facilities - this could include using warehouse space or sharing equipment.
Different organisations will have different strategies and approaches to supplier development.
Supplier development takes time and resource and for some organisations they don’t have this
resource.
The aim of supplier development is to work with a supplier to enable them to perform in the way the
organisation needs them to perform and to be able to supply goods and services that better meet
the organisations needs. It recognises the supplier cannot do that without support and help.
The different situations where supplier development is appropriate are :
Existing suppliers with performance problems but the organisation would like to continue to
work with – this could be for social or political reasons.
Existing suppliers with performance problems but there are no other sources of supply
available.
75
Where there is no current source of supply available to meet the requirements of the
organisation. Working with a supplier to enable them to meet the requirements.
Strategically important suppliers.
Supplier development initiatives should be undertaken with suppliers whose performance can be
improved and who want to be improved. Some suppliers will be wary of being offered support and
help. They will be wary of the motive behind development initiatives.
Communication and the sharing of information are very important and it will require the sharing of
information, which might not normally be shared between a supplier and a customer. It is important
therefore that it is clear at the start of a development initiative what the objective of the initiative is
and what the benefits are for both parties. Targets and timescales need to be set so that
improvements in performance can be monitored.
Supplier development requires more of a partnership relationship between the organisation and a
supplier.
76
MODULE 6 : PROCUREMENT TOOLS AND DOCUMENTS
Different humanitarian organisations will have their own systems and documentation that they use
during the procurement process. These are used to enable people to carry out the process
efficiently and consistently. Historically the procurement process has been paper based and has
required the use of a range of documents. In this module we will look at the use of computerised
systems and at examples of documents used in procurement.
PROCUREMENT SYSTEMS
Using computerised purchasing systems can enable the procurement process to be automated and
carried out electronically. This reduces the need for paperwork and will reduce the time taken to
carry out different stages of the procedure.
Systems can either be Internal (within the organisation) or External (between the organisation and
the suppliers).
Internal purchasing systems will be operated by people responsible for procurement within the
organisation. The system can be a standalone system that enables requisitions to be placed
electronically, or it can be a system, which is part of a larger system, which can include
requisitioning, tendering, ordering, deliveries and payment. Many commercial organisations are now
implementing Enterprise Resource Planning systems (ERP).
ERP systems automate the tasks involved in performing a business process. This means there is
one system that can be used to manage the total process rather than having a number of different
systems. Within the system there will be a number of modules of which purchasing would be one of
these modules.
External systems, often described as Business-to-Business (B2B) systems, are used to

electronically order goods and services from suppliers.
The term e-procurement is now used to describe the procurement of goods and services
electronically. The development and availability of the Internet has made e-procurement easier to do
and more accessible.
Examples of how e-procurement is developing include :
Suppliers will provide ‘electronic catalogues’. This involves suppliers putting a catalogue of
their products on line on the Internet. Goods can then be ordered and purchased
electronically. Where the Internet is not appropriate, suppliers may supply the catalogue on a
CD ROM.
Payment for goods can also be made electronically.
Organisations will set up a system that contains details of what they want to purchase. This
enables suppliers to bring their offerings to the organisation. This system can be used to
make suppliers aware of goods and services that are available for tender.
77
On-Line Auctions. These are used to reduce the time and money spent on the
tender/quotation process. Suppliers who submit quotes or tenders take part in an auction, on
line, where they are in competition with each other to bid for the business. The buyer is in
control of the auction, they can see these bids and they will set a time limit for the auction.
DOCUMENTATION
It is important that people understand the different documents used during the procurement process.
The design of these documents and the information contained in the document will vary between
different organisations but the following are the main types of documentation used during the
procurement process :
Request for Supplier Information or Expression.

Supplier Questionnaire.
Requisition Order or Request for Goods and Services.
Specifications.
Request for Quotations.
Purchase Order.
Purchase Contracts.
Record of Purchases.
Supplier Records.
Goods Received Note.
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PROCUREMENT

Copyright 2006 © Fritz Institute. All Rights Reserved.

All rights reserved. No part of this publication may be reproduced or

transmitted in any form or by any means electronic or mechanical, including

photocopying, recording, or by any information storage and retrieval system,

without permission in writing from the Fritz Institute.

Copyright 2006 © Fritz Institute. All Rights Reserved.

UNIT AIMS AND STRUCTURE

This unit is designed to help you develop an understanding of :

The function of procurement and the procurement process.

This unit has been separated into 6 modules :

Module 1 : The Function of Procurement.

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The Procurement Process 11

External and Internal 20

MODULE 2 The Impact of Risk 25

Establishing the Importance of 26

Managing the Different Risks 27

MODULE 3 Identify Source Requirements 30

Sourcing Strategies and

Supplier Appraisal and 41

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MODULE 5 Vendor Rating and Supplier 73

MODULE 6 Procurement Systems 77

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‘The process of identifying and obtaining goods and services’

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Quality is the degree of level of excellence as required by the customer.

The right quality must be agreed with the customer.

The right time should be established from two aspects :

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The right time to buy will be influenced by :

The right time to deliver will be influenced by :

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What is the right cost for particular goods or services?

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At the beginning of this programme we defined procurement as :

‘The process of identifying and obtaining goods and services’

The process follows the following stages :

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If a humanitarian organisation’s strategy is to provide prompt high quality emergency

If the humanitarian organisations strategy is to maintain stocks of emergency items, either

The expenditure on goods and services.

Purchasing function and capability – analysing the purchasing function includes :

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These should be appropriate to, and match the procurement portfolio.

Setting up regional procurement centres.

PROCUREMENT OPERATIONAL PLANNING

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Procurement policies will include :

Policies on Ethics in Procurement.

POLICIES ON ETHICS IN PROCUREMENT

1. Ethical sourcing and conduct of suppliers.

ETHICAL SOURCING AND CONDUCT OF SUPPLIERS

Oxfam Ethical Purchasing Policy

Oxfam’s policy is to seek to purchase goods and services which :

b) have the least negative impact on the environment.

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The purpose of the policy is to :

b) To protect Oxfam’s reputation.

Code of Conduct for Suppliers

Employment is freely given.