ST. AUGUSTINE UNIVERSITY OF TANZANIA.

FACULTY OF BUSINESS ADMNISTRATION.

DEPARTMENT OF PROCUREMENT AND LOGISTICS.

COURSE; ADVANCED DIPLOMA IN PROCUREMENT AND LOGISTICS

MANAGEMENT.

SUBJECT; PROCUREMENT PRACTICE AND TECHNIQUES.

SUBJECT CODE; SC 212

SUBMITTED TO; Ms. DORICE

SUBMITTED BY; MACHIRA, Joseph

REG No; ADPLM2 35518

DATE OF SUBMITTION; 21stNov, 2013

TASK; INDIVIDUAL ASSIGNMENT

QUESTIONS:
i. What is capital equipment?
ii. What are the procedures to consider when purchasing capital equipment?
iii. Why purchasing capital equipment?
iv. What are the factors to be considered when buying capital equipment?
v. What is the role of purchasing in capital equipment procurement?
vi. Differentiate leasing from hiring
vii. Identify factors favoring leasing?
viii. Which factors weighting against leasing?
CAPITAL EQUIPMENT.
Things such as power generating equipment, machine tools, specialized production machinery
pumps, chemical processing equipment, conveyor and handling trucks and office furniture and
fixtures are typical examples of capital equipment. ( dobler, )

PROCEDURES TO CONSIDER WHEN PURCHASING CAPITAL

EQUIPMENT.
1. Need recognition by user department typically production department or engineering
department.
2. Gather general information about the equipment in question, the procuring department
consequently obtains general sales and operating literature together with approximate
price and delivery information from various suppliers. This is to make sure that the
conditions for purchase become favorable.
3. The using department studies the preliminary information obtained by the purchasing
department and determines the feasibility of purchasing the matter further.
4. If the decision is affirmative, the detailed specifications should be drawn up jointly by the
using and engineering department.
5. The purchasing department formally requests proposal from the selected vendors. If there
is only one or two vendors that can produce an accepted machine the buyer will use
negotiation rather than bid purchase.
6. An economic analysis of the feasible alternatives is made at this point. The finance
department typically makes the analysis based on operating and technical information
provided by the purchasing, engineering and using department.
7. The necessary facts are now ready for evaluation by the departmentparticipating in the
decision.
8. The written reports are submitted to top management for decision.

REASONS WHY CAPITAL EQUIPMENT ARE PURCHASED.

1. Operational benefits over a long period of time, usually several years more. The capital
equipment bought will help the organization to conduct its operation in long period of
time, this means it is a long term investment.
2. To increase efficiency, for manufacturing to produce in more efficient way there is a need
to buy capital equipments.
3. To increase production of goods and services, the machines tend to increase the quantity
of production.
4. Fulfilling a current need and intended use of the machine, if the company wants to satisfy
a certain need it has to buy the equipment that will lead to its satisfaction.

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FACTORS TO CONSIDER WHEN BUYING CAPITAL EQUIPMENT.
i. Operating characteristics,
This means the the equipment to be bought should be in position to operate in a desired
area. If is to supply power then that function must be considered before buying.
ii. Engineering features.
The desired equipment must match with the buyer’s engineering features to the present
machines e.g. Voltage and capacity.
iii. Total economic analysis
The finance department should analyze the various alternative before buying this is for
the reasons of saving costs.
iv. Qualitative considerations.
The levels of vendor’s technical and production capabilities, also the capability of the
vendor to provide any engineering service required during installation.

PURCHASING’S ROLE IN CAPITAL EQUIPMENT PROCUREMENT.

i. Source information
The purchasing department will gather information about the equipment and the
suppliers who will be able to produce the desired equipments.
ii. Liaison service
Pre purchase relation and cooperation between the organization and supplier will lead to
good development of specification and product. Operating manager discuss technical
details with machine manufacture to see the possibilities of developing specification.
iii. Specification audit and bids
the specification developed should be audited as well as bids to make sure that the
equipments to be bought should match with the need of the organization.
iv. Qualitative analysis
This is the degree of qualification that supplier has, by looking on historical company
performance then the organization can know; the level of vendor’s technical and
production capabilities as well as willingness to provide any engineering service needed
during installation of machines.
v. Bid tabulation and economic analysis
Arrangement of bids in comparable way from the most capable to the least capable the
price also should be considered
vi. Negotiation, purchase and follow up
After all factors has been taken to account then the negotiation of terms of contract,
purchase of equipment and follow up are made to see whether the machine satisfy the
needs of the organization.

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LEASING Vs HIRING
Are two ways a company can fulfill its requirements of equipment for a short period of time
without having to invest a huge amount.

In Hire purchase one pays for the price of the equipment plus the interest for the period and this
amount is divided over a period of time, while,

In case of lease one gets to use the equipment by paying regular amount to the lessor of the
equipment.

Hire is very common word and tells the fact that one can hire the service of another person or
equipment in lien of regular payment and retains the right to fire the person/ equipment if he is
not satisfied with the service of the person hired.

Lease is a legal word that describes a contract between a lessor and lessee. A lessor is the use
lessee and lessee agrees to pay a regular amount to the lessor for specified period of time. There
is no transfer of ownership right though at the end of the lease period, the lessee has an option to
buy the asset from the lessor at discounting price.

FACTORS FAVOURING LEASING.

The factors that make leasing an attractive to real property ownership include;

i. Financial benefits such as maintaining capital and lines of credit, off- balance sheet
financial accounting, deductibility of costs and enhanced control of cash flows.
ii. Space benefits such as flexibility of size and location over time, the ability to expand
more quickly into new markets and the ability to expand and contract as dictated by the
business cycle.
iii. Subjective factors such as removing ownership risks including obsolescence loss on
disposition and cap rate volatility and the freedom to concentrate on core business
objectives rather than property management.

FACTORS WEIGHING AGAINST LEASING.

i. Financial reasons such as elimination exposure to market real fluctuation, property
appreciation, and rental income from tenants and the company’s ability to utilize

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 financial leverage as well as tax factors such as deductions for depreciation and favorable
capital quips treatment upon dispassion.
ii. Space considerations such as the ability to tailor the property to the current needs of the
operating business.
iii. Subjective issues such as promoting an image of strength and stability and the ability to
control real estate operating expenses and control over tenants and users within the
building.

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REFERENCE.
Clements.W & Engelstand.J. (2012) Lease or Own; Factors that favour Lease and
Factors that do not favor; Retrieved from http//www.ccim.com/cire-
magazine/article/lease-or-own. Nov, 20th, 2013. 06:30
Dobler. D. ( 1990) Purchasing and Material Handling Management, (5thed) New york
McGraw Hill publishing company.
Olivia (2011) Difference between Hire and Lease; Retrieved from
http//www.differencebetween.com/difference-between-hire-and-vs-lease.Nov
20th2013. 07:08