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LUSAKA BUSINESS AND TECHNICAL COLLEGE

DEPARTMENT OF BUSINESS AND EDUCATION STUDIES

PURCHASING AND SUPPLY- (ZIPS)

PRINCIPLES OF PROCUREMENT
LECTURE NOTES

UNIT TWO (2)

PREPARED BY: Mr. M. Mukanda

COURSE: GENERIC PROCUREMENT AND SUPPLY PROCESS

Introduction
The procurement and supply process has steps: planning, sourcing, bid evaluation,
contract management, receiving and inspection of goods, works and services, and
stock management. The aim of this unit is to ensure you get knowledge, skill and
attitude to undertake the procurement and supply function following the typical
steps.
Upon completion of this unit you will be able to:
 Prepare a procurement plan
 Know how to carry out sourcing of goods
 Conduct bid evaluation
 Undertake supply functions

Terminology
Goods: objects of every kind and description including raw materials, products
and equipment.
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Services: any object of procurement other than goods or construction.

Competitive bidding: the procedure whereby potential suppliers are invited to
make a firm and unequivocal offer of the price and terms on which they will
supply specified goods and services, which on acceptance shall be the basis of
subsequent contract.
Procurement plan: the process of deciding what to buy, when and from what
source?

Planning stage
The purpose of procurement planning is for the procurement entity to schedule its
procurement activities in advance, consistent with the organisation’s annual
procurement plan. Procurement planning is the process of deciding;
 What to buy
 When to buy and from what source
During the procurement planning process, the procurement method is assigned and
the expectations for fulfilment of procurement requirements determined.
Procurement planning is important because:
 It helps to decide what to buy, when to buy and from what source.
 It allows planners to determine if the expectations are realistic; particularly
the expectations of the requesting entities, which usually expect their
requirements met on short notice and over shorter period.
 It is an opportunity for all stakeholders involved in the processes to meet in
order to discuss particular procurement requirements.
 It permits the creation of a procurement strategy for procuring for procuring
each requirement that will be included in the procurement plan. Planners can
estimate the time required to complete the procurement process and award
contract for each requirement.
 The need for technical expertise to develop technical specifications and/or
scope of work for certain requirements can be assessed, especially where in-
house technical capacity is not available or is non-existent, and
 Planners can assess feasibility of combining or dividing procurement
requirements into different contract packages.
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Procurement needs identification

The purchasing cycle begins with the identification of a need (a requirement). In
most cases, procurement personnel have an annual or biannual planning process,
whereby they will review the spending pattern for the organisation through a spend
analysis, and prepare a forecast of what will be purchased. In some cases, there
may be a whole set of new requirements that have not been planned for (such as
for new product introductions). In such cases, purchasing personnel meet with
internal customers to discuss their needs for the coming year.
In many firms, purchasing is the primary vehicle for obtaining external input
(products or services) from suppliers, so that means that purchasing personnel have
to work with a large number of internal customers, which will often include
marketing, operations, finance, information technology, and other internal
customers. Through a structured dialogue, purchasing will understand and plan for
what these customers will be buying and translate this into a forecast that is shared
with suppliers.
This process helps the organisation to identify what it needs to buy and when.
Verify specifications
Internal customers identify their need for a product or service and communicate to
purchasing exactly what it is they need and when it is required. 
Internal users communicate their needs to purchasing in a variety of ways
including purchase requisitions from internal users, forecasts and customer orders,
routine reordering systems, stock checks, and material requirements identified
during new-product development. The needs are usually described in form of
specifications.
The specification represents the documented statement of requirements. It is the
formalization of the initial need into a technical document, which may contain any
of the following: 
a design, a set of technical/quality standards, a bill of quantities and/or an
inventory of components and materials. Suppliers use specifications to price the
need and to check if they can meet technical requirements to the buyer. Purchasing
plays an important role in helping develop the specification by giving critical
supply market information and advising on the cost implication of certain specified
requirements.
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It is important to ensure that all specifications sent out to suppliers are verified to
ensure that the organisation buys materials of the right quality.
Categorise and cost the needs
Most organisations categorise their purchasing spends along different lines. For
accounting reasons, it may be necessary to know whether the item is capital
expenditure or an expense. In other cases, it is also important to know the spending
unit so that the source of funds may be clearly identified. The total cost of the need
also need to be established.
Check availability of funds
Every purchase is only actualized based on availability of funds. If the funds for
the purchase from within the organisation, the purchasing department liaises with
the finance department, to check if the funds are available before making firm
commitments to suppliers. For funds sourced externally, (e.g. leases, loans,
external asset financing) it is equally important to ensure that the organisation has
secured such funds.
Identify supply sources
Once the need and the description of the need are identified, one of the two things
can happen:
Firstly, the need can be fulfilled by a supplier that has an existing contractual
relationship with the buying company.

Secondly, the need is fulfilled by a new supplier that is not currently qualified to
provide products and services to the firm.
In the first case, information moves quite smoothly. Through the need
identification process, purchasing personnel would have already identified which
suppliers will be used to source the need, and they have already taken steps to
evaluate and prequalify the suppliers. Qualification is important as the purchasing
firm must ascertain that the supplier meets several criteria and evaluate whether it
is qualified to do business and meet the needs of their internal customers in a
satisfactory manner. In other cases, the buyer might want to just check if the
existing supplier is still competitive.
In the second case, where a supplier is not identified or when the internal customer
requests that the need be fulfilled by a specific supplier of their choosing,
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purchasing face more difficult challenge. Because there is no existing contract,

they hesitate at approving the need fulfilment from this supplier.
For some items, some organisations would maintain a list of preferred suppliers
that receive the first opportunity for new business. A preferred supplier has
demonstrated its performance capabilities through previous purchase contracts and
therefore receives preference during the supplier selection process. By maintaining
a preferred supplier list, purchasing personnel can quickly identify suppliers with
proven performance capabilities.
In cases where there is no preferred supplier available, purchasing must get
involved in selecting a supplier to fulfil that need. This can involve purchasing
using different means to locate the source. These include checking the internet,
contacting trade associations and other buyers through networking. Other sources
would include contacting sales people, visiting trade exhibitions and checking
trade journals.
Determining procurement methods
The procurement method should be determined at this early stage because of the
impact it has on the procurement lead-time, and also to ensure that the responsible
entity is able to set realistic timeframes and expectation for contract award in the
initial stages of development and definition of their procurement requirement. 
This simple exercise of obtaining the assistance of the procuring entity early on
helps to avoid disappointments, unrealistic expectations and frustration when, due
to poor planning, it is impossible to meet expectations set during the requirement
definition phase. 
At this stage of the process, it is also important to decide if a competitive or non-
competitive procurement method will be used. The complexity of a requirement,
and monetary value are all important factors to consider when deciding to consider
when deciding on the procurement method. 
Prepare the procurement plan
The procurement plan is the product of the procurement planning process. It can be
developed for a particular requirement, a specific project, or for a number of
requirements for one or many entities in the public or private sectors. 
The procurement plan is important because; 
 It lists all requirements expected to be procured over a period of time. 
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 From it the procurement schedule is developed, which establishes the

timeline for carrying out each step in the procurement process up to
contact award and the fulfillment of the requirement. 
 It allows for consolidation of similar requirements under one contract or
the division of a requirement into several contract packages for economies
of scale. 
 From the number of procurements on the procurement plan, the procuring
entity can determine beforehand any need for additional staffing,
including external assistance for the purpose of completing all
procurements listed on the procurement plan. 
 It allows for the monitoring of the procuring process to determine how
actual performance compares with planned activities, and thus to alert the
pertinent department and adjust the procurement plan accordingly. 
 It enhances the transparency and predictability of the procurement
process. 
Prepare solicitation document
Upon receipt of an approved procurement requisition, and after reviewing the
technical specifications or terms of reference (TOR) for completeness, the
procuring entity is in a position to begin preparing the solicitation document;
otherwise, the procuring entity needs to establish contact with the requesting entity
in order to get any missing information to complete the technical specifications or
terms of reference before they can begin preparing the solicitation documents. 
Solicitation document are prepared from a template called standard bidding or
tender documents, and information specific to the particular requirement, such as
observed below, is used to complete the solicitation documents. 
Assuming that the requirement is on the procurement plan, pertinent information
needs to obtained and agreed with the requesting entity prior to completing the
solicitation documents. 
When completing solicitation documents, it’s important to: 
 Have clear technical specification or term of reference; 
 Decide on the need for pre-bid or proposal conference and/or site visit; 
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 Determine if the requirements are for international or local competitive

bidding; 
 Determine due date for request for clarifications on the solicitation
documents; 
 Decide on the deadline for submission of bids or proposals; 
 Obtain the name, address, phone number and email address of the
client’s authorized point of contact for information on the requirement; 
 Determine bid/proposal validity period; 
 Determine need for bid for security and/or performance security; 
 Determine bid/proposal evaluation criteria; 
 Identify and select evaluation panel members and observes; and 
 Determine bid/proposal opening date; 
Once the solicitation documents are complete and approved, a procurement notice
is prepared and posted to approved websites and internet portals, and also
published locally and (if necessary) international newspapers. 
The procurement department in conjunction with the user departments prepares
these documents. The primary purpose is to communicate the intention of the
organization to buy the specified items.
 Invite and receive offers/bid 
Identifying potential suppliers is different from reaching a contract or agreement
with suppliers. Competitive bidding and negotiation are two methods commonly
used when selecting a supplier. Competitive bidding or Tendering involves a
request for bids from suppliers with whom the buyer is willing to do business. This
process is typically initiated when the purchasing manager sends a request for
proposal (RFP) form to the supplier or places advertisements in the public media.
The objective is to award business to the most qualified bidder. 
Purchasers often evaluate the bids based on price. If the lowest bidder does not
receive the purchase contract, the buyer has an obligation to inform that supplier
why it did not receive the contract. 
Request for Quotations
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The request for quotation is procurement method that is used for small value
procurements of readily available off-the-shelf goods, small value construction
works or small value service procurement. 
This procurement method is also known as invitation to quote and shopping, and
it does not require the preparation of tender documents to the same extent as open
tendering, request for proposals or two-stage tendering. 
The invitations are not complex, and this method is considered non-competitive
because the procuring entity determines which contractors or service providers to
request quotations from as long as minimum of three are invited. 
This procurement method is used under conditions stipulated in the procurement
legal framework, and accordingly, can be requested in writing: email, fax, or
courier. 
Sometimes there are limitations set on the period of time and frequency within
which this method can be used for the procurement of similar goods, work or
services. This is procuring entity from spitting requirements in order for them to
fall within the threshold level where the request for quotation method can be
applied. 
Quotation received in response to a request for quotation should be first evaluated
to determined compliance with the technical specifications or scope of work of the
requirement and also for compliance with administrative requirements of the
request for quotations.
Only after the administrative and technical compliance determination, a price
comparison is made between firms found to be compliant, and then a purchase
order is signed with the bidder submitting the lowest price quotation within the
stipulated delivery or completion date. 
Advantages of Request for Quotations
 Procurement lead-time is significantly reduced given that there’s no need
to prepare solicitation documents, or to advertise requirements. And the
period for quotation submission is also equally reduced. 
 The number of quotations received is limited to the number of bidder’s
quotations were requested from, so the selection process time is also
reduced. 
 The procuring and/or requesting entities would usually have a pretty good
idea of where and from the goods; services or works can be procured, so
there’s a higher probability of response to the request for quotations. 
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      Disadvantages of Request for Quotations

 Lends itself to irregularities because the procuring entity decides which
suppliers, contractors or service providers to send request for quotations to
and competition is very limited. 
 Could be abused as a result of the breaking of requirements into smaller
sizes in order to apply this method of procurement. 
 Could easily lead to requesting quotes from a limited number of firms
even if the goods, services or works are available from a greater number. 
Bids/Tenders
Tendering or Competitive bidding is the procedure whereby potential suppliers
are invited to make a firm and unequivocal (unambiguous) offer of the price and
terms on which they will supply specified goods and services, which on acceptance
shall be the basis of a subsequent contract.
Competitive bidding is effective under certain conditions: 
 Volume is high enough to justify this method of business. 
 The specifications or requirements are clear to the seller. The seller must
know or have the ability to estimate accurately the cost of producing the
item. 
 The marketplace is competitive, which means it has an adequate number
of qualified sellers that want the business. 
 Buyers ask for bids only from technically qualified suppliers that want the
contract, which in turn means they will price competitively. 
 Adequate time is available for suppliers to evaluate the request for
quotation. 
 The buyer does not have a preferred supplier for that item. If a preferred
supplier exists, the buyer may simply choose to negotiate the final details
of the purchase contract with that supplier. Competitive bidding can also
be used to narrow the list of supplier before entering contract negotiation. 

Types of Tenders
Restricted Tendering 
Restricted tendering is a procurement method that limits the request for tenders to a
select number of suppliers, contractors or service providers. This method of
procurement is also called: Limited Bidding and selective Tendering. 
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A basic characteristic of this method is that competition is confined to a certain

number of firms either because only a few firms are qualified to fulfill the specific
type of requirement, or certain conditions warrant the use of a limited number of
forms in order to reduce the time and cost of the selection process.

Open Tendering 
Open tendering is the preferred competitive public procurement method used for
acquiring goods, services and infrastructure works. It is executed in according with
established procedures set out in the procurement guidelines and detailed in the
standard bidding documents. 
Open tendering is also known as open competitive bidding, open competition or
open solicitation, and the procurement notice used to call for bids for these
requirements are identified as: Invitation for bids or Invitation to Tender. 
The fundamental requirements of open tendering are that they should: 
 Be open to all qualified and interested bidders, 
 Be advertised locally (and internationally, when required), 
 Have objective qualifications criteria, 
 Have neutral and clear technical specifications, 
 Have clear and objective evaluation criteria, and 
 Be awarded to the least-cost provider, without contract negotiations
Two-Stage Tendering 
Two-stage Tendering is smaller to the request for proposal because the technical
and financial proposal are submitted separately, but one before the other, rather
than simultaneously. A key feature of this procurement method is that the
submission of proposals takes place in two stages. Furthermore, bidders can assist
in defining the technical requirement and the scope of work. 
Serial tenders 
Prospective suppliers are requested on either an open or a selective basis to tender
for an initial scheme on the basis that, subject to satisfactory performance and
unforeseen financial contingencies, a program of work will be given to the
successful contractor, the rates and prices for the first job being the basis for the
rest of the program.
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 Advantages of Serial tenders 

 Contractors are given an incentive to maintain a high performance level. 
 Savings in cost and time by eliminating one-contract negotiated for each
stage of programmer. 
 Supplier security of contract should enable purchases to negotiate keener
prices.
  Negotiated tenders 
A tender is negotiated with only one supplier so that competition is eliminated.
This type of contract is unusual. In the case of local authority, it would require the
waiving of standing orders. 
Supplier/contractor evaluation and selection
Buyers usually evaluate potential supplier across multiple categories using their
own selection criteria with assigned weights. Purchasers that need consistent de-
livery performance with short lead times to support a just-in-time (JIT)
production system might emphasize a supplier’s scheduling and production
system. A high-technology buyer might emphasize a supplier’s process and
technological capabilities or commitment to research and development. The
selection process for a distributor or service provider will emphasize a different set
of criteria.
Most evaluations rate supplier on three primary criteria: 
 Cost or price 
 Quality, and 
 Delivery 
These three elements of performance are generally the most obvious and most
critical areas that affect the purchaser. For critical items needing an in-depth
analysis of the supplier’s capabilities, a more detailed supplier evaluation study is
required. 

Conducting bid evaluation

After receiving and opening the bids for goods, works and services the process of
bid evaluation must commence. The examination is carried out by an evaluation
team which usually consists of at least three experts in the field. 
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The process of bid opening, preliminary examination and evaluation of the bids
resulting in identifying the lowest evaluated responsive bid is described hereafter. 
Bid Opening 
All bidders or their nominated representatives are invited to attend the opening. At
this session, the bids are read out loud, recorded along with a list of attendees and
copies are sent to all bidders. Bid opening procedures are described in the
instructions to bidders (ITB) contained in the bidding documents. 
Preliminary evaluation 
Whether bids comply with procuring entity’s formal requirements (Completeness,
presence of bid security, major deviations) 
The evaluation process starts with the preliminary examination of bids. The
preliminary examination shall identify bids that are not complete, invalid or
substantially non responsible to the bidding documents and therefore will not be
considered further. 
The following checks should be completed: 
 Verification; 
 Eligibility; 
 Bid Security or Bid Security Declaration if applicable; and 
 Completeness for Bid. 
Technical evaluation
The technical merit of bid is evaluated at this stage. Technical and quality
evaluation is one of the most important stages of the Procurement Journey. 
This stage ensures that: 
 The contract award decision is objective 
 The decision making process is fair, transparent and auditable 
 The public body can demonstrate best value in tender process 
Tender Evaluation happens once the deadline for tender submissions has passed.
The time taken to evaluate the returned submission will vary from project to
project depending on the complexity and number of response received. 
An evaluation panel of at least two people should be established and consist of
individuals with demonstrable technical ability to evaluate tenders, this may or
may not include the Procurement Officer. 
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Ideally the panel membership will be consistent throughout the entire process from
pre-qualification to presentations and site visits. 
The panel members should read and score the quality/technical aspects of the
tenders independently using pre-defined evaluation criteria and scoring system. At
the moderation meeting evaluators come together to agree the final scores.
Commercial evaluation
This evaluates the commercial aspects of bid. This include price and finance
related aspects. 
The Financial Assessment should ensure that: 
 All cost are properly covered in the prices offered; 
 Bids are comparable, that is, that currency conversion are correct at that
time; 
 Any price escalating formulae are correct and cover the effect these might
have during the life of the bid or resultant contracts. 
 Alternative costings for alternative methods of meeting the specifications are
identified and logged separately. 
 The costing compare with, or are lower than, estimated costs when the
project was conceived; 
 Details of any extra costs are identified in bid. Examples are delivery and
shipping cost, customs charges, insurance, documentation and any testing
and 
 Inspection charges; 
 Discounts are offered where appropriate; 
 Terms of payment are included; and 
 Cost of spares is included in the offer. 
This list is necessarily not complete, but gives an indication of the type of cost
make-up that should be considered. 
The evaluation should endeavor to identify and compare all the cost and benefits,
which can be quantified in money terms Price/financial evaluation criteria should
include: 
 Whole Life Cost comparisons; 
 Quantifiable financial benefits arising from the technical evaluation (e.g.
speed, fuel or electricity consumption, coverage, shelf life etc.) 
 Fixed or variable pricing;
 Cost of components, spare parts, consumables and servicing; and 
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 Risk analysis and financial appraisal (for major contracts of strategic

importance, especially those of an innovative nature) 
Recommend the successful bidder 
Once the evaluation process is completed and a tender submission is selected, the
successful tenderer will be notified of outcome and awarded a contract. Terms and
conditions of the contract are usually outlined in the invitation or Request for
Tender documents, as well as incorporating specifications from your tender
submission. In certain circumstances, some final negotiations may occur before the
contract is signed and finalized. 

Undertaking contract management

Negotiate a contract 
Once the preferred supplier has been selected, a series of negotiations and
exchange will take place to agree the final commercial and contractual details.
Once the contract has been agreed and signed, the parties are committed to
ensuring the purchase and supply go ahead. 
Sometimes despite stating the conditions and terms for bidders, the buyer may end
up with bids that do not exactly meet all the requirements. Should all bids exceed
the estimated cost, decisions have to be made as to whether to continue and
reappraise the estimated, or to abandon and recommence the whole exercise. There
are variations that may be considered, such as reducing the size or the quality, or
otherwise reducing the specification. If this is acceptable, then all bidders need to
be alerted to allow them to rebid, if desired. 
Alternatively, it may be necessary to enter negotiations with the two or three
lowest bids, in an effort to reduce costs to meet the estimated. 
In other cases, there may be need to negotiate with the selected supplier the
conditions and a term of supply all together before the contract is prepared. 

Prepare a Contract
Contracts give detailed descriptions of an agreement between the buying
organization and the supplier. They describe exactly the responsibilities, work and
service for each, together with all relevant terms and conditions.
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The buying organization will then prepare a contract of supply detailing all
conditions that all parties have to adhere to in order to ensure proper execution of
the contract. This ensures that both parties are aware of the terms that have been
set out especially if post tender negotiations have occurred. 

Signing and delivering of a contract

The two parties shall then sign the contract, which becomes an agreement,
enforceable by law, specifying the duties and obligations of the successful bidder
and those of the buying organizations.
Both parties sign and retain a copy of the signed contract for performance guidance
and future reference. 
Delivery involves the performance of the contract according to what was agreed. 

Monitor contract execution

Having signed the agreement, the supplier and their performance need to be
managed. This stage is referred to as ‘contract management’ but can equally
relate to supply management and/or supplier relationship management. The role of
purchasing is to ensure that the supplier delivers to the contracted commitment: on
time and to the right specifications. 
Monitoring of the execution of the contract is important in ensuring that the aims
of the contract are realized and each party fulfills its obligations. It also helps to
manage risk and supply chain vulnerability. 
Therefore, it is crucial to set out at the start of the contract management tasks and
ensuring the supplier is performing to standard. 
Effective performance monitoring is part of the contract management process and
needs to be included in the contract specification. 
All contracts require a minimum level of management oversight but, as complexity
and risk increase, so the need for performance monitoring rises. 
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For larger contacts, buyers will need to go beyond ensuring compliance and work
with the supplier to secure further benefits, such as cost savings. 
As part of the contract management process, it is important to ensure that proper
procedure and system for the following task are put in place and implemented;
 Verification of delivery time; 
 Verification of costs; 
 Verification of quality; and 
 Verification of quantity 
Receiving and inspecting goods, works and services 
The receiving department receives the materials supplied by the vendor. The
quality is verified and tallied with the purchase order. The receipt of the materials
is recorded in the Goods Received Note (GRN) which also specify the name of the
vendor and the purchase order number. It also records any discrepancy, damages,
condition of the consignment or inferiority of the materials.
If materials require any quality control or inspection, they are sent for such testing.
The inspection report along with the Test certificate and the recommended
acceptance or rejection should be sent to the purchasing department. 
On the basis of the recommendations made by the inspection department, the
purchase department arrange for the segregation of rejected materials.
The concerned department such as stores department, production department,
accounting department, scrap and waste disposal section etc. are immediately
informed about the rejections.
 If the defectives are within the established tolerance limits, they may be accepted
as their returning to the vendor may disrupt the production schedule.
However, the vendor should be informed about this and if possible, the credit
should be claimed from him. 

Undertaking stock management

Most organization store goods in stores for various reasons. It’s important to
ensure that procedure for managing the goods while in stock exists. The following
diagram shows the procedure for issuing stock. 
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To initiate the process, the unit that has identified the need issues the Requisition to
stores. The requisition is then verified to check the authority and availability of the
material in stores. If the item is not available, the purchase process is initiated;
otherwise the cost of the items will then be issued and stores records will be
adjusted accordingly. 

Procedure for issuing stock

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