Project Procurement and Management Notes Final

PROJECT PROCUREMENT MANAGEMENT
LECTURE NOTES
1. INTRODUCTION TO PROJECT PROCUREMENT MANAGEMENT
Deinition;
Procurement is the process of acquiring goods and services by purchasing, renting, or leasing. The
procurement process includes preparing specifications and solicitations. The procurement process also
includes evaluating bids and proposals, awarding contracts, and contract administration.
What Is Project Procurement Management?
Procurement is the act of obtaining goods, supplies, and/or services.

project procurement is obtaining all of the materials and services required for the project.
Project procurement management encompasses the processes used for making sure project procurement is
successful.
Project procurement management includes three primary processes. These are:
1. Plan procurements
2. Conduct procurements
3. Administer (or control) procurements
(i) Plan procurements
The first step in successful project procurement management is making a plan. This includes planning for
the following:
 What are all the materials and services you will require for the project? This includes all
specifications of the materials and services, such as minimum quality requirements.
 What can be provided by your company, and what should you purchase elsewhere? This is called
the make vs. buy decision. Even when your company can do something in-house, there may be a
benefit of outsourcing such as cost savings, faster delivery, etc.
 What are your contract requirements for outside purchases?
 Do you have the required delivery dates?
 Do you want a fixed price contract or cost-reimbursable?

 Are there key milestones to be included?
 What about legal terms and conditions that must be met?
 How will you search for suppliers of the materials or services you need?
 Will you release a request for proposal (RFP)?
 Do you have a preferred supplier?
 What are the criteria for who will win the work?
 Will it be based on price if all contract requirements are met?
 Is there another way to evaluate bidders? For example, will their Better Business Bureau ranking be
taken into account?
During the planning stage, it’s also important to determine how changes will be handled once a contract is
awarded.
The primary output of this process is a written procurement management plan, which is a subsidiary of
your project management plan.
Other outputs may include:
 RFP forms
 Vendor selection criteria
 Statements of work
 Documented make-or-buy decisions
 Change request forms or process documentation
 Any noted risks added to the risk register and risk management plan
(ii) Conduct procurements
This is the execution phase of project procurement management. It’s when the RFPs are released, bids are
gathered, and selections are made. Any vendor negotiations will occur during this phase, and then the
agreed-upon contracts are signed. Conducting procurements also includes the actual receipt of and
payment for goods and services.
1. The control or administer procurements process is focused on monitoring and controlling project
procurements to ensure all requirements are met.
(iii) The project manager’s role
Some companies have procurement managers who work alongside the project manager and take care of
the majority of these processes. . Here are some general guidelines of what you will be responsible for as
a project manager, regardless of what the procurement management department in your company looks
like:
 The planning process: As the project manager, you will not create the plan in isolation. It will
likely be undertaken with the input of your entire project team, including the procurement team,
legal team (if you have one), and any other relevant subject matter experts within the company. Eg
estimators, finance, scheduling, design or engineering, operations, etc.
 Controlling procurements: The project manager does not generally conduct the procurements.
However, you are still responsible for ensuring they are conducted appropriately. This means you
need to be aware of the status of procurements. If something is late, you need to know how it impacts
the rest of your project schedule and mitigate it appropriately.
IMPORTANCE OF PROCUREMENT IN PROCUREMENT IN PROJECT MANAGEMENT
Procurement plays a crucial role in project management, as it involves the acquisition of goods, services, or
works from external sources to fulfill project requirements. The importance of procurement in project
management can be highlighted through various aspects:
i. Resource Acquisition: Procurement is essential for obtaining the necessary resources, including materials,
equipment, and services, required for project execution. This ensures that the project team has access to the
right resources at the right time.
ii. Cost Management: Effective procurement helps in controlling project costs. By carefully selecting
suppliers and negotiating contracts, project managers can optimize costs, avoid unnecessary expenses, and
ensure that the project stays within budget constraints.
iii. Risk Management: Identifying and mitigating risks related to procurement is critical for project success.
Issues such as supplier reliability, market fluctuations, and delivery delays can impact the project timeline
and budget. Procurement strategies can help manage and mitigate these risks.
iv. Quality Assurance: Procurement processes include defining quality standards and specifications for the
products or services to be acquired. This ensures that the project receives the desired quality, and
compliance with standards is maintained throughout the project lifecycle.
v. Supplier Management: Selecting and managing suppliers is a key aspect of procurement. Developing good
relationships with suppliers can contribute to successful project outcomes. Effective communication,
collaboration, and performance monitoring are crucial for maintaining positive supplier relationships.
vi. Time Management: Timely procurement is essential for project timelines. Delays in obtaining necessary
resources can lead to project setbacks. Efficient procurement processes, including early supplier
involvement and planning, contribute to timely project execution.
vii. Legal and Ethical Compliance: Procurement involves adhering to legal and ethical standards. Contracts
and agreements must comply with applicable laws and regulations, and ethical considerations must be
taken into account to ensure fair and transparent procurement practices.
viii. Stakeholder Satisfaction: Meeting stakeholder expectations is a key project management goal.
Procurement processes contribute to stakeholder satisfaction by ensuring that the project team has the
necessary resources, the project is delivered on time, and costs are managed effectively.
ix. Scope Management: Procurement activities are closely linked to project scope. Clearly defining project
requirements and specifications during procurement helps in aligning the acquired goods or services with
the project's overall objectives.
x. Flexibility and Adaptability: Procurement strategies allow project managers to adapt to changing
circumstances. Whether it's adjusting resource requirements, renegotiating contracts, or finding alternative
suppliers, procurement provides flexibility in responding to unforeseen challenges
Impact of enacting PPDA 2015
Kenya enacted a PPDA in 2015 or around that time, it is has had several impacts on public procurement in the
country. Here are some potential impacts based on general expectations from such legislation:
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Regulatory Framework: The enactment of PPDA 2015 in Kenya would provide a structured and
comprehensive regulatory framework for public procurement. This framework outlines the rules, procedures,
and standards that public entities must follow when procuring goods, services, or works.
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Transparency and Accountability: A well-crafted procurement law is expected to enhance transparency in
the procurement process. This includes requirements for disclosing information related to procurement
activities, contract awards, and financial details. Enhanced transparency contributes to greater public trust and
accountability.
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Competition and Fairness: The legislation would likely promote competition in public procurement by
requiring open and competitive processes. This helps prevent favoritism, promotes fair competition, and
ensures that a wide range of suppliers can participate, leading to better value for money.
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Efficiency and Effectiveness: The PPDA is likely to include provisions aimed at streamlining and improving
the efficiency of the procurement process. Clear guidelines and standardized procedures contribute to effective
and timely execution of procurement activities.
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Capacity Building: Enacting the PPDA may include provisions for capacity building within procuring entities.
This involves training procurement officials, introducing modern procurement practices, and ensuring that the
workforce has the necessary skills to carry out procurement activities effectively.
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Legal Compliance: The PPDA ensures that public procurement activities are in compliance with national laws
and regulations. This legal framework provides a basis for resolving disputes and ensures that public
procurement is conducted within the boundaries of the law.
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Reduction of Corruption Risks: A well-structured procurement framework can help minimize the risks of
corruption. By enforcing strict rules and procedures, the PPDA is expected to reduce opportunities for bribery,
fraud, and other corrupt practices in the procurement process.
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SCOPE OF PUBLIC PROCUREMENT AND ASSET DISPOSAL ACT 2015
The scope of the Public Procurement and Asset Disposal Act 2015 in Kenya typically covers the following key
areas:
 Procurement Processes: The Act establishes the procedures and guidelines for the procurement of goods,
works, and services by public entities. It outlines the different procurement methods, such as open
tendering, restricted tendering, direct procurement, and competitive negotiation.
 Public Entities: The Act applies to various public entities, including government ministries, departments,
agencies, county governments, and other public institutions that use public funds for procurement.
 Procurement Procedures: It sets out the steps and processes that public entities must follow when
procuring goods, works, or services. This includes advertising tenders, pre-qualification of suppliers,
evaluation criteria, and contract award procedures.
 Disposal of Public Assets: The Act also addresses the disposal of public assets. It provides guidelines on
the proper procedures for the disposal of assets that are no longer needed by public entities.
 Ethical Standards: The Act emphasizes ethical standards in public procurement, including measures to
prevent corruption, conflict of interest, and other unethical practices. It establishes mechanisms for
monitoring and enforcing compliance with these standards
 Review Mechanisms: The Act may include provisions for dispute resolution mechanisms and review
procedures to address any concerns or grievances related to the procurement process.
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SCOPE OF PUBLIC PROCUREMENT AND DISPOSAL REGIULATIONS IN KENYA
The regulatory framework related to public procurement and disposal is generally based on the Public
Procurement and Asset Disposal Act of 2015. Additionally, the Public Procurement and Asset Disposal
Regulations, 2020, were enacted to provide detailed procedures and guidelines for the implementation of the
Act.
The Public Procurement and Asset Disposal Regulations, 2020, generally cover various aspects of the
procurement and disposal processes in Kenya. Some key areas within the scope of these regulations include:
 Procurement Methods: The regulations typically outline various procurement methods, including open
tendering, restricted tendering, direct procurement, and competitive negotiation. They provide guidance on
when and how each method should be applied.
 Procurement Planning: There are provisions related to procurement planning, which involve the
identification and prioritization of procurement needs by public entities.
 Pre-Qualification of Suppliers: The regulations may specify the procedures for pre-qualifying suppliers or
contractors, ensuring that only qualified entities participate in certain procurement processes.
 Bid Documents and Evaluation Criteria: Detailed guidelines for the preparation of bid documents, as well
as criteria for the evaluation of bids, are typically included. This aims to ensure fairness, transparency, and
competitiveness in the procurement process.
 Contract Award: Procedures for awarding contracts, including the announcement of successful bidders and
the signing of contracts, are usually addressed in the regulations.
 Ethical Standards and Conflict of Interest: The regulations are likely to emphasize ethical standards and
measures to prevent conflicts of interest, corruption, and other unethical practices in the procurement
process.
 Disposal of Public Assets: The regulations may cover the disposal of public assets, outlining the
procedures for selling or disposing of assets that are no longer needed by public entities.
The necessity for public procurement law and also clearly defined procurement system arises from the fact
that, unlike the private sector, public procurement is a business within a national and political system, whose
pillars of strength are integrity, fairness, accountability, competition, transparency, national interest,
promotion of local industry and economic development, in addition to economy.
The procurement system affects many aspects of society including: -
 The procuring entities, which have needs for material support to fulfil their mandated missions
 The business community of actual or potential suppliers, contractors and consultants who satisfy the
procuring entities identified needs
 The general public which is more likely to feel satisfied when they know that expenditures by the
procuring entities made through public procurement system realise value for money
 The professional associations, academic entities and public interest groups, which have
 important concerns and views on how public institutions are managed and perform and
 Development partners
(iv) SIGNIFICANCE OF PUBLIC PROCUREMENT

 The importance of procurement stems in part from its central role in budget implementation; in its role in
achieving value for money through optimized resource application; and its roles in achieving and
maintaining aggregate fiscal discipline through the implementation of a robust commitment control
system.
 The mechanism by which the government delivers services to the public is by way of procurement.
Whether this is the procurement of drugs and medical supplies and the distribution of such to the district
hospitals, or the procurement of primary school textbooks and other instructional materials
 to meet the basic education programme objectives. The success in the delivery of services is
predicated on the efficient allocation of resources and the timely delivery of such services.
 Procurement also provides important linkages to the Private Sector. It can promote expansion of the
private sector by the way of expanding commercial opportunities and emphasis on fair competition.
 It further promotes balanced development through equitable distribution of resources in addition to
creating employment. Economic development emanates from improved infrastructure and public
utilities.it promotes production by stimulating demand in the economy.
(v) GOALS OF THE GOVERNMENT AND PROCUREMENT OBJECTIVES It is government

policy that funds budgeted and approved by parliament for the purpose of procurement are spent on the
intended purposes. This applies both to development and recurrent expenditures. It is also government
policy to allow open competition for procurement without discrimination in a transparent, fair and
accountable manner to ensure achievement of value for money in all procurement. Government also
expects public procurement to contribute to the national economic growth and poverty reduction in line
with the national development goals. Public procurement plays an important role in the Kenyan
economy. The total volume of public procurement in 2003-2004 was established at 3.64 billion USD
or 9% of the GDP (Independent procurement review Kenya May 2005). Although the exact figure is not
known 9% of the GDP is a very significant amount and can make a big impact to development if
well used. Government policy, among other things, seeks to achieve economic growth and poverty
reduction and also show tangible improvements in the delivery of services to the people of Kenya. Each
of these objectives shall only be achievable if public procurement in Kenya is substantially improved.
It warrants a point of focus of public sector activity
Public procurement seeks to achieve the following objectives:
1. To maximize economy and efficiency;
2. To promote competition and ensure that competitors are treated fairly;
3. To promote the integrity and fairness of these procedures;
4. To increase transparency and accountability;
5. To increase public confidence in the procurement system; and
To facilitate the promotion of loc
PRINCIPLES OF PROCUREMENT
1. ACCOUNTABILITY
Effective mechanisms must be in place in order to enable Chief Officers and Chief Executive
Officers to discharge their personal responsibility on issues of procurement risk and expenditure.
2. COMPETITIVE SUPPLY
Public procurement must be carried out by competitive process unless specifically justified in
accordance with this Law or Government policy.
3. CONSISTENCY
Procurement policy shall be similar and consistent across the public sector.
4. EFFECTIVENESS
Public sector entities should maximise the contribution to the commercial, regulatory and socio-
economic goals of Government in a balanced manner appropriate to the procurement requirement.
5. VALUE FOR MONEY
The procurement processes should be carried out to achieve the most advantageous combination of cost,
quality and sustainability over the life cycle of the project.
6. FAIR-DEALING
Suppliers should be treated fairly and without unfair discrimination, including protection of commercial
confidentiality where required.
7. INTEGRATION
Procurement policy should pay due regard to its impact on the Cabinet's other
economic and social policies.
8. INTEGRITY
There shall be no corruption or collusion with suppliers or other persons involved in a procurement
project.
9. INFORMED DECISION-MAKING
Public sector entities are required to base decisions on accurate information and are required to monitor
obligations to ensure that they are being met.
10. LEGALITY
Public sector entities shall conform to legal requirements.
11. RESPONSIVENESS
Public sector entities should endeavour to meet the aspirations, expectations and needs of the community
served by the procurement.
12. TRANSPARENCY
Public sector entities should ensure that there is openness and clarity in the conduct of the procurement
policy including in the carrying out of all actions and decisions.
2. ESTABLISHMENT OF REQUIREMENTS AND PLANNING
ORIGIN OF PROCUREMENT NEEDS OF A PROJECT
The origin of procurement needs for a project typically arises during the project planning and initiation
phases. Procurement needs are driven by the requirements of the project, and they stem from various
sources related to the project's objectives, scope, and goals. Here are some key factors that contribute to
the origin of procurement needs in a project:
i. Project Objectives and Scope: The overall objectives and scope of the project define what needs to be
accomplished. The specific goals and deliverables outlined in the project scope document can drive the
identification of goods, services, or works that need to be procured to achieve those objectives.
ii. Project Planning: During the project planning phase, project managers and relevant stakeholders assess the
requirements for successful project execution. This includes identifying the resources, expertise, and
materials necessary to complete the project. These assessments contribute to the determination of
procurement needs.
iii. Feasibility Studies: Feasibility studies are conducted to assess the viability and potential challenges of a
project. These studies often identify resource requirements and may highlight the need for external
procurement to meet certain project objectives.
iv. Market Analysis: Understanding the market conditions and availability of goods and services is crucial.
Project planners may conduct market analysis to identify potential suppliers, assess costs, and determine the
feasibility of procuring specific items or services.
v. Risk Management: The identification of risks during project planning can lead to the recognition of
procurement needs. For instance, if a project involves specialized tasks or technologies, the project team may
decide to procure certain services or expertise to mitigate risks associated with in-house capabilities.
vi. Regulatory Requirements: Compliance with regulations and standards may necessitate specific procurement
actions. Certain projects may require adherence to industry regulations or legal requirements, influencing the
need to procure specific products or services.
vii. Resource Gaps: Project teams may identify gaps in internal resources, skills, or capacities that cannot be
fulfilled internally. Procuring external resources may be necessary to bridge these gaps and ensure successful
project implementation.
viii. Emergent Needs: As a project progresses, unforeseen circumstances or changes in project requirements may
lead to emergent needs for additional goods or services. Procurement plans may need to be adjusted to
accommodate these changes.
TYPES OF NEEDS OF A PROJECT IN PROJECT PROCUREMENT
In the context of project procurement, various needs arise throughout the project life cycle. These needs can
be categorized into different types, each requiring specific procurement actions to fulfill. Here are
common types of needs in project procurement:
Goods and Materials:
Description: Physical items, products, or materials required for the project.

Procurement Action: Procuring goods often involves purchasing raw materials, equipment, or any tangible
items necessary for project execution.
Services:
Description: Expertise, skills, or labor required to perform specific tasks or activities.

Procurement Action: Hiring external service providers, consultants, or contractors to deliver specialized
services needed for the project.
Works/Construction:
Description: Construction or infrastructure projects that involve building or altering physical structures.
Procurement Action: Engaging construction companies or contractors to carry out the building or civil
engineering aspects of the project.
Consulting and Professional Services:
Description: Specialized knowledge, advice, or consulting services required for project planning, design, or
management.
Procurement Action: Procuring the services of consultants, architects, engineers, or other professionals with
expertise relevant to the project.
Technology and Software:
Description: Information technology solutions, software applications, or hardware required for project
implementation.
Procurement Action: Purchasing or licensing technology solutions, software, or hardware to meet the
project's technological requirements.
Training and Capacity Building:
Description: Developing the skills and capabilities of project team members or end-users.
Procurement Action: Procuring training services or materials to enhance the knowledge and skills of project
stakeholders.
Logistics and Transportation:
Description: Movement of goods, equipment, or personnel to and from project sites.

Procurement Action: Engaging logistics and transportation services to ensure the efficient movement of
resources.
Facilities and Infrastructure:
Description: Physical spaces or facilities needed for project activities.

Procurement Action: Renting or leasing facilities, offices, or venues required for project operations.
Research and Development:
Description: Conducting research or developing new products or processes as part of the project.
Procurement Action: Procuring research services, equipment, or resources for the development phase.
Legal and Regulatory Compliance:
Description: Ensuring compliance with legal and regulatory requirements relevant to the project.
Procurement Action: Engaging legal services or consultants to navigate and comply with applicable laws
and regulations.
Identifying and understanding these various types of needs is a critical step in the procurement planning
process. The procurement strategy and methods selected will depend on the nature of the needs and the
overall project objectives
Examples of Project Requirements
To gain a clear understanding of the project requirements, looking at a few examples can help. Here are the
prominent examples.
 Business Requirement: The project should provide a mobile app that allows customers to browse and
purchase products from the company's online store.
 Stakeholder Requirement: The project should provide an easy-to-use interface that allows users to
quickly find the information they need and complete tasks with minimal effort.
 Solution Requirement: The project should provide an e-commerce platform that integrates with the
company's existing inventory and order management systems.
 Functional Requirement: The project should allow customers to search for products by name, category,
and price range.
 Non-Functional Requirement: The project should be able to handle a large volume of concurrent users
and transactions without slowing down or crashing.
 Design Requirement: The project should have a modern and visually appealing interface that is
consistent with the company's branding.
 Technology Requirement: The project should be developed using the latest web development
technologies and frameworks, such as React or Angular.
 Data Requirement: The project should collect and store customer data, including name, address, and
purchase history, in a secure and GDPR-compliant manner
Purpose of specifying materials
An organization wishes to buy materials is expected to specify their material requirements to the supplier.
Therefore; material specification serves the following purposes:
 Communicates to the suppliers what the buyer wishes to be supplied with in terms of materials,
works or services.
 Informs the criteria of evaluating suppliers since they‟ll all quote for the same thing requested.
 Helps a buyer avoid wasting time in dealing with goods which do not meet his/her needs.
 Indicates when materials are required.
Features of a good materials specification
These include:
 Should be easy to interpret and understand

 Should not be complex or rigid but simple to use.
 Should be fit for use and reliable.
 Should be cost-effective (not expensive)
 Should not conflict with standards.
Methods of materials specification

There are various methods used by buyers in an organization, and they include;
 Sample
 Technical drawing
 Grade
 Chemical analysis
 Color
 Brand name
Sample method
Commonly used to specify materials of textile nature. Part of the materials is taken to act as a
sample to the supplier who will compare it with what they offer in order to determine the
appropriate materials to deliver.
Technical drawing method
Commonly used in technical engineering fields i.e. construction, carpentry, automotive etc. The
required goods are specified using drawings or illustrations of the goods required.
Because of their technical nature, it may be difficult to explain or describe such goods/ items and
for that reason, this method is more appropriate.
Grade method
Commonly used to specify materials like cereals and cash crops. It specifies materials in terms of
their level of quality i.e. grade 1, 2, 3 …
Chemical Analysis method
This is used in pharmaceutical and chemical industries. This method emphasizes on ingredients/
constituents which form the product like drugs.
Colour methody
Colours are used to specify materials which could not properly be described because of their
nature and size. This method is commonly used in electrical & electronic industry and to sone
extent, the chemical industry e.g. paints.
Brand Name method
Used to specify materials which belong to some products of a company already in existence which
are in high circulation and are well known.
A name is given to a product though it has nothing to do with the product, but since the products
belong to a group of other products which are in high circulation, it will be accepted.
IMPORTANCE/PURPOSE/FUNCTIONS OF SPECIFICATION
1. It provides clear instructions on the intent, performance and components of a good or service
2. It can reference the quality and standards which should be applied.
3. Materials and manufacturers’ products can be clearly defined.
4. The requirements for installation, testing and handover can be identified.
5. Classification in the specification can be used to support handover and running of the asset.
6. The drawing or model does not need to be overloaded with detailed information, which can
sometimes be difficult to identify.
7. It can be used to support the costing of a project: not only the materials and products but also the
performance and workmanship
8. The specification forms part of the contractual documents, along with the drawings, and therefore
can help minimize purchasing project risk and provide support should there be any legal disputes.
9. It supports the interpretation of the client brief and gives the client assurance that the asset which
they commissioned is being delivered.
It is not only essential for the acquisition phase but also used as part of the soft landing process,
subsequent asset management and the lifecycle plan
Parties involved in preparing specification for project requirement
The process of preparing specifications for a project requirement typically involves collaboration among
various stakeholders. The key parties involved in this process may include:
Project Stakeholders:
Project Owner/Clients: The individuals or organizations that initiate the project. They provide input
regarding their needs, expectations, and desired outcomes.
End Users: The people who will ultimately use the product or service. Their input is crucial for
understanding user requirements and preferences.
Project Managers:
Project Manager: Oversees the entire project and ensures that the specifications align with the overall project
goals. Coordinates communication among various stakeholders.
Business Analysts:
Business Analysts: Analyze and document the business needs and requirements. They act as a bridge
between business stakeholders and the development team.
Subject Matter Experts (SMEs):
Domain Experts: Individuals with expertise in the specific industry or subject matter related to the project.
Their knowledge helps in defining detailed requirements and specifications.
Technical Experts:
System Architects: Design the overall system architecture based on the project requirements.
Developers/Programmers: Provide technical input and insights into the specifications, ensuring feasibility
and adherence to technical standards.
Quality Assurance (QA) Team:
Testers: Contribute to the specification process by identifying testing requirements and quality standards that
need to be met.
Regulatory and Compliance Experts:
Legal and Compliance Teams: Ensure that the project specifications comply with relevant laws, regulations,
and industry standards.
Communication Facilitators:
Communication Specialists: Facilitate effective communication among the various parties involved in the
specification process.
Documentation Team:
Technical Writers: Assist in documenting the specifications in a clear and understandable manner for all
stakeholders.
Vendor/Supplier Representatives:
Suppliers or Vendors: If external products or services are involved, representatives from these entities may
provide input on specifications related to their offerings.
Finance Representatives:
Financial Analysts: Provide input on budgetary constraints, cost estimates, and financial considerations
related to the project.
Human Resources (HR) Representatives:
HR Specialists: Contribute to specifications related to team structure, roles, and any HR-related
considerations.
Steps Involved in the Project Requirements Process
Here are the important steps that can make it easier for you to identify the project requirements.
Step 1: Make a List of Stakeholders and Discuss the Project
The first step to getting clarity on what are project requirements includes identifying the important
stakeholders in the project. It may include organizational leaders, clients, sponsoring organizations, end-
users, customers, and more.
Once you have a complete list of all the stakeholders involves, you need to fix a meeting and discuss the
project with them. It will enable you to understand the different requirements and views of the
stakeholders. Summing up everything will enable you to get a clear and comprehensive picture of the
project requirements.
Step 2: Define the Audience
The next step is to define the end-users of the product. To develop the project requirements, it is
important to know who will be using it. It will enable you to tailor the products to their specific needs.
Try to understand the audience inside out. Develop personas and gain insights into the demographics,
likes, preferences, and knowledge of the end-users. The core aim is to identify the typical characteristics
of the target audience.
Step 3: Work with the Development Team and Other Critical Players
If you are responsible for creating the project requirements, it is important to work in close association
with the product development team. You will also have to collaborate with the product managers, QA
analysts, and other critical players in the project. They can significantly contribute towards finalizing the
requirements of the projects effectively.
Step 4: Determine the Scope of the Project
In the next step, you need to determine the project’s scope. It involves identifying all that is to be
included in the project. Make sure to list down all the important elements. Starting from the expected
timeline to the stages involved, you must determine everything.
Step 5: Categorize Requirements
Want to carry out the project in an organized manner? Well, in that case, you will have to categorize the
project requirements. Basically, the two categories are functional and non-functional. However, you are
free to include additional categories, such as business and technical. Try to evaluate the requirements and
identify which category they belong to. It helps streamline your operations and increases the efficiency
of the project.
Step 6: Keep Things Simple
When you are writing the project requirements, it is important to keep all things very simple and easy to
understand. Avoid making the requirements overly complex. They must be very straightforward and
clear. It helps in avoiding any kind of confusion and ensures that everyone involved in the project is able
to understand the requirements.
Step 7: Draw a Connection Between Each Requirement and the Purpose of Software
Once you have written down all the project requirements, you need to go through them again. Make sure
that each requirement is directly linked with the main purpose of the project. The end goal of everything
is to ensure optimum satisfaction of the end-users and clients. So, ensure that everything is directed
towards achieving the specific goal.
Step 8: Use Clear, Precise Language
Documenting the project requirements is an important part of project management. During the
documentation process, make sure to use precise and clear language. Ambiguous language can increase
the chances of mishaps due to the lack of specificity or clarity. So, make sure to avoid using such type of
language.
Step 9: Create a Software Requirements Specification
In the development process, the software requirements specification (SRS) is a vital document. It offers a
complete summary of the projects and the important components involved. The essential elements
included in the document are the main purpose, the scope, user needs, personas, and necessary
definitions. It serves as a guiding document that assists the stakeholders in understanding what is
expected from the project.
Step 10: Track Requirements
Once the project requirements are documented, it is vital to keep track of all the requirements. Tracking
the requirements will enable you to understand whether you are on the right path or not. At this stage,
you can make use of a project management tool to manage the requirements effectively. Keeping track of
the requirements can also provide you with a complete view of the process and enable the team members
to identify their roles in different steps.
Step 11: Document All Changes
It is quite common that things may not go as planned during a project. As your work on the project, the
requirements may change, and new requirements may emerge. So, make sure to document all the
changing requirements of the project. Now that you have a clear idea of the steps involved, it is time to
follow them and handle your projects efficiently.
What are Project Requirements?
The project requirements definition can vary. Different stakeholders define it in various ways. In simple
words, project requirement refers to all that needs to be done for the completion of a particular project. It
can also be stated as a capability or condition that must be present in a service, product, or result for the
optimum satisfaction of a business need.
Why are Project Requirements Important?
Now that you are aware of what are project requirements, it is important to understand their importance.
Basically, project requirements are the what, why, and how of the project. It provides you with a clear
idea about the objectives, approach, and motivations of the project.
Here is a quick look at why the project requirements are important in the project management process:
 Project requirements offer the team members a complete understanding of the specific objectives
and goals of the project.
 It allows the team members to determine the scope, resources, budget, and timescale of the project.
 It helps in avoiding potential conflicts among the stakeholders.
 It provides a baseline for effective measurement of the progress of the project.
Developing requirements not only ensure the success of the project but also delights the clients. Going
through the PMP course objectives can highlight the importance of project requirements even better.
Types of Project Requirements
Here are the prominent types of project requirements:
1. Business Requirements
Business requirements in project requirements refer to the specific needs and objectives of the business
or organization that the project aims to address or fulfill. They are a subset of the overall project
requirements and provide a detailed description of what the project needs to deliver to meet the
business's needs.
Business requirements are critical for ensuring that the project meets the needs of the business and aligns
with its overall strategy and goals.
They serve as a basis for the project's scope and objectives and provide a roadmap for the project's
development. Business requirements typically form a part of the project requirements documentation and
are used by the project team throughout the project's lifecycle to ensure that the project meets the
business's needs and objectives.
2. Stakeholder Requirements
Stakeholder requirements in project requirements refer to the specific needs and expectations of the
stakeholders who are involved or affected by the project. Stakeholders can include customers, end-users,
project sponsors, project team members, regulatory authorities, and other groups or individuals who have
a vested interest in the project's success.
Stakeholder requirements are critical for ensuring that the project meets the needs and expectations of all
stakeholders involved. They serve as a basis for the project's scope and objectives and provide a roadmap
for the project's development.
3. Solution Requirements
Solution requirements provide an idea of the specific functions, features, and characteristics that the
product or service must have to meet the stakeholder and business requirements. It is further divided into
functional and non-functional requirements.
 Functional: Functional requirements outline the desired behavior of the product.

 Non-functional Requirements: On the other hand, the non-functional requirements cover the
environmental qualities or conditions essential for the effectiveness of products.
Solution requirements are critical for ensuring that the project is developed according to the business and
stakeholder requirements. They serve as a basis for the project's design and development, providing a
roadmap for the technical and functional aspects of the project.
Solution requirements are typically documented in the project requirements document and are used by
the project team to guide the project's development throughout its lifecycle.
How to Identify Project Requirements?

Identifying what are project requirements in project management is an important step. To collect all the
requirements, you will have to discuss it with your entire team and document the observations.
Moreover, you will also have to review the entire project as a team.
Below we have listed out the best techniques that can be beneficial for you. Let’s dive in:
1. Brainstorm
One of the best ways to identify project requirements is to brainstorm. Try to carry out external and
internal research to collect as many ideas as possible. It will enable you to come up with several
questions relating to the project at hand. Moreover, you can also arrange a meeting with your team
members and engage in group brainstorming. As a result, you will be able to create a long requirements
list.
2. Take Input from the Project Charter
The project charter provides a complete description of the roadmap of the project. You can review this
document and get valuable inputs for the development of the requirements. It will make it easier to
ensure that all your requirements are in line with the project objectives. Moreover, it allows you to stay
within the project scope.
3. Interview Stakeholders
Another simple yet effective way of collecting project requirements is to interview your important
stakeholders. Try to ask questions relating to the functionality or critical features of the product. Talk to
several stakeholders of the projects to reach a valid conclusion.
4. Send Questionnaires
If you are not able to interview your stakeholders, you can consider sending them your queries. In this
technique, the stakeholders will have to answer a number of questions relating to the project's needs.
Make sure to include as many questions as you can to gain a comprehensive idea of the project
requirements.
5. Perform a Gap Analysis
A gap analysis is basically a technique in which you will have to compare the current state with the
future or desired state. All you must do is to identify the potential gaps or the areas that require
significant improvement. It will help you understand what more can be included in project requirements.
6. Observe End-Users
Another effective way of identifying your project requirements is to simply observe the end-users of the
project. It will enable you to understand their preferences and behaviors better.
7. Review Requirements with Stakeholders
Once you have completed writing the requirements, you will have to review them with the important
stakeholders. It ensures that everyone involved in the project is on the same page and agrees with the
direction of the project. After reviewing the project requirements, you may proceed to finalizing them.
How to Document Project Requirements?

When you have finalized the project requirements, you can document them. Make sure to document them
in a readable format. Moreover, ensure that it can be easily shared to make it accessible to all the team
members. Well, you may find several formats to document the requirements.
However, spreadsheets prove to be the most common and easy option. Documentation is vital because it
helps in maintaining a record of everything that is to be done for the successful completion of the
project.
Here are a few benefits of documenting requirements:
1. Clear Project Expectations
If project requirements are not documented, it can give rise to ambiguity among the team members. On
the other hand, documentation helps in laying out the expectations of the project in a crystal-clear
manner. It ensures that all the stakeholders and team members are aware of the deliverables of the
project.
2. Improved Communication and Alignment
By documenting project requirements, you can improve communication among your team members and
enhance alignment. It can help in increasing the visibility and awareness of the project objectives and
vision. To advance your communication and alignment skills, enrolling in an online PRINCE2
certifications course will boost your industry-agnostic project management skills.
Tips for Writing Project Requirements
When it comes to writing project requirements, you must keep it in mind to retain simplicity as much as
possible. It needs to be concise, straightforward, and tailored to the target audience.
Here are a few tips that can help you write project requirements in the best possible way.
1. Engage End-Users
Before you start writing project requirements, think of talking to the end-users. It will enable you to
understand their point of view and identify user requirements better.
2. Be Concise and Clear
To make the requirements look more appealing, you may think of using complex or technical terms.
However, not all the team members and stakeholders will be able to understand them. So, refrain from
using complex terms. Instead, consider using plain and simple language that is easy to understand. Try to
write requirements to the point. But make sure not to be so specific that it limits the creativity of the
team members. Also, ensure that there is a strong link between the requirements and the main objective
of the project.
3. Leverage High-Fidelity Tools
Want to make the project requirements more interesting for the stakeholders and team members? In that
case, you can think of using tools such as models, visual prototypes, and mockups. They can portray a
clear picture of the requirements.
4. Be Flexible
As discussed above, project requirements in project management may change over time. So, while
writing requirements, you need to keep this fact in mind and be accordingly flexible to change. Make
sure to leave sufficient space to adjust the changes in the project requirements later.
5. Develop a Process
If you want to maintain consistency, developing a systematic process can be a great idea. Try to design a
process that easily accommodates requirement proposals, agreement of the team members, approval of
change management, and version control. It can help in minimizing costly delays.
6. Ensure Completeness
Make sure that project requirements are written in such a way that it sounds complete. Incomplete or
haphazard requirements can be very confusing and may give rise to costly mistakes in the project.
PROCUREMENT PLANNING
A Procurement Plan is a document that sets out the intended strategy for how procurement will be carried
out before any significant procurement actions are performed. A Procurement Plan defines the products,
services and works that you will obtain from external suppliers. A good Procurement Plan will go one step
further by describing the process you will go through to appoint those suppliers contractually
The accounting officer should prepare an annual procurement and asset disposal plan which is
realistic in the required format within the approved budget prior to commencement of each
financial year as part of the annual budget preparation process.Any procurement of items in excess of
a reasonable consumption of the procuring entity amounts to an offence.
5.1.1 Major Contents of a Procurement Plan

 Detailed description of the goods, works or services required
 A schedule of planned delivery, implementation or completion dates for all requirements
 An indication in which procurements can be consolidated into a single purchase e.g. common user
items
 Estimated cost of each purchase , funds and sources of funds
 Appropriate procurement and disposal method and certain Percentages relating to preference and
reservation schemes for each procurement requirements
 Estimate of the value of each procurement package of goods, works, consultancies and services and the
source of funding, if different from other packages;
 Source of funding;
Indication of items or sections of the services, consultancies or works that can be financed
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• Justification of whether the procurement in annual or multiyear procurement arrangement

• Methods of packaging / unit of issue / purchase.
5.1.2 Steps Involved in Procurement Planning
• Identification of requirements- receiving of procurement requirements/ requisitions from the users
• Preparation of the procurement package– determining the actual requirements to be purchased based on
requisitions and available resources
• Market survey- analysis of the supply market to determine the prevailing or future market conditions that
would impact on the acquisition of the requirements in terms of price, delivery, availability etc.
• Procurement scheduling- this involves determination of when the procurement should be initiated and
completed to satisfy the organization needs
• Selecting appropriate procurement method- this involves determining the best way to obtain the required
items e.g. tendering, request for proposals, quotation, etc.
• Preparing the plan- this involves developing the plan which once authorized will be used to guide
procurement activities.
When to use a Procurement Plan
It is advisable to create a Procurement Plan whenever you want to purchase items from suppliers. Using the
Procurement Plan template, you can define the procurement requirements, identify potential suppliers, contract
those suppliers and manage them to ensure delivery. Project Procurement Planning is critical to the success of any
project. This Procurement Plan template helps you to perform these steps quickly and easily.
Importance a Procurement Plan
 It lists all requirements expected to be procured over a period of time.

 From it the procurement schedule is developed, which establishes the timelines for carrying out each step in
the procurement process up to contract award and the fulfillment of the requirement.
 It allows for the consolidation of similar requirements under one contract or the division of a requirement
into several contract packages for economies of scale.
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 From the number of requirements on the procurement plan, the procuring entity can determine beforehand
any need for additional staffing, including external assistance for the purpose of completing all procurement
requirements 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 departments and adjust the procurement plan accordingly.
 It enhances the transparency and predictability of the procurement process.
TYPES OF PROCUREMENT PLANS
There are two types of procurement plan:
1. Consolidated procurement plan

2. Individual procurement plan..
Consolidated procurement plans
Consolidated procurement plans are often developed for the whole organization, but depending on the structure
and level of decentralization these may be developed at the corporate, divisional, country office or business unit
level – or even at a number of these levels.
Individual procurement plan
Once a requisition or project plan is received determining an actual requirement, the procurement officer is then
responsible for developing the individual procurement plan. The scope of the individual procurement plan will
depend on the complexity of the requirement. While it is good practice to always make a plan, in the case of low
risk/low spend requirements the plan should be simple, but should include an overview of the necessary steps of
the process and associated timeline. At the other end of the scale, managing the procurement of an extremely
high risk/high spend requirement is in fact project management and should entail a thorough and comprehensive
planning process.
KEY STEPS IN THE PROCUREMENT PLANNING PROCESS
The steps entail;

1. Requisition Step
 Verify that necessary specifications have been provided.
 Establish evaluation criteria. Write clear, concise definitions for each criterion to facilitate a
good understanding of its meaning.
 Develop a detailed, mathematically sound scoring plan that explains how proposals will be evaluated, and
provides specific meaning of the scoring methodology. (For example, if a certain criteria is worth X points, a
description should follow of what the points mean.)
 Determine if pre-solicitation conference will be used.
 Develop a change request management plan.
 Develop a vendor payment plan.
 Prepare solicitation package.
 Utilize standard solicitation documents;
 Review by procurement team and, with final approval of the RFP by the responsible approval authority,
send solicitation to the respective Donor or Approval Board for review and approval
2. Solicitation - Selection Step

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 Issue the Request for Proposal document (RFP) via advertisement or through selective tendering.
 Answer questions received from vendors in a public forum.
 If necessary, prepare for vendor product demonstrations, or oral presentations.

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 Form an Evaluation Team.

 Receive and evaluate Technical Proposals (by Evaluation Team)
 The Evaluation Team Should:
1. Gather the facts,
2. Develop objectives (min-max positions);
3. Seller minimum willingness to accept,
4. Buyer maximum willingness to pay.
5. Evaluate each vendors competitive position,
6. Define your strategy and tactics,
7. Perform a complete cost analysis,
 Receive and evaluate financial proposals using scoring method to select Best Value.
 Make selection recommendation to the responsible Procurement Officer.
 Procurement Officer reviews recommendation and drafts contract then forwards to the respective
Donor or relevant authority for review and approval.
 Agency awards and signs contract, then issues procurement order once the requisite approval is
obtained.
3. Contract Administration Step

The purpose of the Contract Administration Step is to ensure that the contractor (vendor) and the products or
services delivered comply with the contract requirements. Each project should be assigned a Contract
Administrator, who will perform the following functions:
 Interpret specifications.
 Ensure that quality of the product or service is maintained
 Manage product warranties.
 Manage sub-contractors (if required by the contract).
 Direct change management:
8. Administrative changes,
9. Budgetary changes,
10. Contract modification (if necessary) and associated change order (get proper approvals),
11. Manage smaller, incidental contracts for work associated with the project.
 Resolve contract disputes:
12. Part of the work may be accepted, or
13. All of the work may be rejected, or
14. Work may be accepted with provisions for corrections in the future.
 Completion of the project:
15. Ensure that all project requirements are complete per contract,
16. Product is technologically out of date (contract language should guarantee current technology),

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 Terminate the contract:

17. Default of contract:
1. Contractor fails to perform any provision of the contract including:
 Failure to deliver by scheduled date,
 Failure to make progress (endangers performance of the contract).
18. Termination for Convenience (e.g., project canceled)
19. Document contract problems and file formal vendor complaint with Agency
Procurement Office, e.g., liquidated damages, opportunity cost, etc. (if necessary).
 Manage contract risk associated with the project.
4. Contract Closeout Step

 Verify product and services meet acceptance criteria.
 Complete fiscal activities:
2. Approve final payment (notify appropriate accounts payable office),
3. Update project and activity records,
4. Close procurement order (notify appropriate procurement office),
5. Update contract file.
 Archive contract file (include completed Procurement Plan with Project Plan).

CHALLENGES FACED IN PROJECT PROCUREMENT PLANNING
Here are some common challenges faced in project procurement planning:
.
Unclear Project Requirements:
Lack of clarity in project requirements can lead to difficulties in defining the procurement needs accurately.
Unclear project specifications may result in the wrong products or services being procured, leading to project
delays or failures.
Incomplete Stakeholder Involvement:
Failure to involve all relevant stakeholders in the procurement planning process can result in overlooking
critical requirements or preferences. It's essential to include project managers, end-users, and procurement
professionals to gather comprehensive input.
Limited Procurement Expertise:
Inadequate knowledge and experience in procurement among project team members can hinder the ability to
make informed decisions. Organizations may need to invest in training or seek external expertise to navigate
complex procurement processes effectively.
Market Dynamics:
Rapid changes in market conditions, such as fluctuations in prices, availability of resources, or shifts in supplier
capabilities, can impact procurement planning. Continuous monitoring and adaptation to market dynamics are
crucial for successful procurement.
Complying with legal and regulatory requirements, especially in highly regulated industries, can be
challenging. Failure to adhere to laws and regulations may lead to legal consequences, contract disputes, or
project interruptions.
Risk Management:
Identifying and managing risks associated with procurement, such as supplier reliability, financial stability, or
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geopolitical factors, is critical. Failure to address potential risks can lead to project delays, cost overruns, or
quality issues.
Budget Constraints:
Limited budget availability can restrict the options available for procurement. Balancing cost considerations
with the need for quality and reliability requires careful planning and negotiation with suppliers.
Technology and Innovation:
Keeping up with advancements in technology and industry best practices is essential for effective procurement.
Failure to leverage innovative solutions may result in outdated processes and missed opportunities for
efficiency improvements.
Communication Challenges:
Poor communication between project stakeholders, including the project team and suppliers, can lead to
misunderstandings, delays, or conflicts. Establishing clear communication channels and protocols is crucial for
successful procurement planning.
Supplier Relationship Management:
Building and maintaining positive relationships with suppliers is essential for successful procurement.
Challenges may arise if there are disputes, lack of transparency, or difficulties in managing multiple suppliers
TOPIC 3 GENERAL PROCUREMENT RULES AND PROCEDURES

Definition
Procurement - the acquisition by purchase, rental, lease, hire purchase, license, tenancy, franchise, or
by any other contractual means of any type of works,assets, services or goods including livestock or
any combination and includes advisory, planning and processing in the supply chain system.
Public procurement is the acquisition of goods and/ or services on behalf of a public authority, such
as a government agency
Public procurement refers to procurement by public entities (institutions) Procuring Entities are any
Public Entity making a procurement to which the Act and the Regulations apply. They include
anybody that uses public assets in any form of contractual undertaking, including public private
partnerships, companies owned by public entities to carry out functions otherwise performed by the
public entities and anybody in which the Government has a controlling interest.
Public entities include;
• The national government or any organ or department of the national government
• A county government or any organ or department of a county government
• The Judiciary and the courts
• The Commissions established under the Constitution
• The Independent Offices established under the Constitution
• A state corporation within the meaning of the State Corporations Act
• The Central Bank of Kenya established under the Constitution
• A public school within the meaning of the Basic Education Act, 2013
• A public university within the meaning of the Universities Act, 2012;
• A city or urban area established under the Urban Areas and Cities Act, 2011;
• A company owned byDownloaded
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stephen kimeu (stekimeu@gmail.com)
• A constituency established under the Constitution;
• A Kenyan diplomatic mission under the state
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department responsible for foreign affairs;
OBJECTIVES OF PUBLIC PROCUREMENT

Government policy, among other things, seeks to achieve economic growth and poverty reduction
and also show tangible improvements in the delivery of services to the people of Kenya. Each of
these objectives shall only be achievable if public procurement in Kenya is substantially
improved. It warrants a point of focus of public sector activity
Public procurement seeks to achieve the following objectives:
❖ To maximize economy and efficiency;
❖ To promote competition and ensure that competitors are treated fairly;
❖ To promote the integrity and fairness of these procedures;
❖ To increase transparency and accountability;
❖ To increase public confidence in the procurement system; and
❖ To facilitate the promotion of local industry and economic development.

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1.2 DISTINCTIVE CHARACTERISTICS OF PUBLIC PROCUREMENT Various

differences exist between procurement in the public sector and the private/ business sector as
outlined in the table below.
public procurement private procurement

❖ Financed by private funds
❖ Financed by public funds (main (owners contributions, profits or
source is taxation) private loans)
❖ Involves large scale expenditure with ❖ Relatively low expenditure

a lot of financial implications
❖ commercial or profit motives
❖ Based on socio economic objectives
❖ less complicated procedures
❖ A lot of bureaucracy /red involved
tapes/lengthy procedures involved
❖ Sourcing is predominantly
❖ Sourcing is predominantly competitive through single sourcing
through open tendering
❖ Accountable to top management
❖ Subject to various levels of
accountability and probity
❖ Subject only to internal policies
❖ Subject to legal framework and
regulations ❖ High levels of professionalism
involved Immune from external
❖ Highly politicized- a lot of vested interference
interests involved

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PRINCIPLES OF PUBLIC PROCUREMENT
The following procurement principles should guide the discussions and decisions pertaining to
procurement practice in the public sector
• The national values and principles provided for under the constitution
• Equality and freedom from discrimination
• Affirmative action programmes
• Integrity
• Principles of sound Public Finance Management;
• The values and principles of public service
• Separation of authority
• Principles governing the procurement profession, ethics and international norms;
• Maximization of value for money;
• Promotion of local industry, sustainable development and protection of the environment;
• Promotion of citizen contractors
• Economy and efficiency in the delivery of service delivery of service
• Transparency accountability and documentation

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Basic Principles of Public Procurement
Public procurement principles are the foundation of public procurement and should be addressed in the
public procurement rules. They govern the management of public procurement, and also set the
framework for a code of conduct for public procurement practitioners and all other officials directly or
indirectly associated with the public procurement process.
Transparency, integrity, economy, openness, fairness, competition and accountability are some of the
fundamental principles of public procurement. They are briefly discussed below.
Transparency
Transparency in public procurement is important. Information on the public procurement process must be
made available to all public procurement stakeholders: contractors, suppliers, service providers, and the
public at large, unless there are valid and legal reasons for keeping certain information confidential. .
Integrity
In public procurement integrity is twofold. There is the integrity of the procurement process, and that of
public procurement practitioners.
 Integrity of the Public Procurement Process
Integrity is essentially reliability. Bidders, and all other stakeholders, must be able to rely on any
information disseminated by the procuring entity, formally or informally. These criteria should remain
unchanged unless there is need to modify them.
 Integrity of Public Procurement Practitioners
Public servants involved in the public procurement process should, at all times, be perceived as honest,
trustworthy, responsible and reliable.
Economy
Synonymous with efficiency, value for money, and commercially reasonable price, the principle of
economy emphasizes the need to manage public funds with care and due diligence so that prices paid for
goods, services and works are acceptable and represent good value for the public funds expended on
them..
Openness
Public procurement requirements should be open to all qualified organizations and individuals. The public
should also have access to information pertaining to public procurement requirements. Access to public
procurement information is not absolute.
Fairness
There are different interpretations of fairness in public procurement, To achieve fairness in the public
procurement process:

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 Decision–making and actions must be unbiased, and no preferential treatment should be extended
to individuals or organizations given that public procurement activities are undertaken with
public funds.
 All offers must be considered on the basis of their compliance with the stipulations of the
solicitation documents, and offers should not be rejected for reasons other than those specifically
stated in the solicitation documents and the procurement rules..
 Suppliers, contractors or service providers should have the right to challenge the procurement
process whenever they feel they were unfairly treated .
Competition
The public procurement process should not be manipulated for the benefit of any organization or
individual. all eligible organizations and individuals should be allowed to participate by submitting offers
in response to a specific requirement for which they are qualified.

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Accountability
Accountability in public procurement means that anyone involved in the procurement process is
responsible for their actions and decisions with respect to the public procurement process.
RISKS IN PUBLIC PROCUREMENT
Public procurement involves the acquisition of goods, services, or works by government entities.
Like any complex process, it comes with various risks that can impact the successful and efficient
execution of projects. Some common risks associated with public procurement include
Corruption and Fraud:
The risk of corruption and fraudulent activities is a significant concern in public procurement.
Bribes, kickbacks, and other forms of corruption can compromise the fairness and transparency of
the procurement process.
Lack of Competition:
Limited competition can lead to inflated prices and reduced value for money. When there are few
qualified suppliers or contractors, the procuring entity may not receive competitive bids, resulting in
higher costs.
Inadequate Planning:
Poorly planned procurement processes may lead to delays, increased costs, and suboptimal project
outcomes. Inadequate planning can result in unclear specifications, budget overruns, and failure to
meet project objectives.
Bid Rigging and Collusion:
Suppliers or contractors may engage in bid rigging or collusion, where they coordinate their bids to
manipulate the procurement process. This can lead to anti-competitive practices and higher prices.
Political Interference:
Political influence can affect procurement decisions, leading to biased supplier selection and the
awarding of contracts based on political connections rather than merit.
Inadequate Risk Management:
Failure to identify, assess, and manage risks throughout the procurement process can result in
unexpected challenges, delays, and increased costs.
Quality and Performance Risks:
Choosing suppliers solely based on price without considering quality may result in substandard
goods, services, or works. Poor performance by suppliers can lead to project delays and additional
expenses.
Non-compliance with procurement laws and regulations can result in legal challenges, contract
disputes, and project delays. Keeping abreast of and adhering to legal requirements is crucial.
Budget Overruns:
Inaccurate budgeting and cost estimation can lead to budget overruns, impacting the financial
sustainability of the project and potentially causing delays in project implementation.
Incomplete or Inaccurate Information:
Insufficient or inaccurate information during the procurement planning phase can lead to the
selection of inappropriate suppliers or contractors, causing project setbacks.
Supplier Reliability and Financial Stability:
The financial stability and reliability of selected suppliers or contractors may pose a risk. If a
supplier experiences financial difficulties, it could impact the timely delivery of goods or services.

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Changes in Market Conditions:

Fluctuations in market conditions, such as changes in commodity prices or currency exchange rates,
can affect the cost and availability of goods and services.
Technology and System Risks:
Risks associated with the use of technology in procurement, such as cybersecurity threats, system
failures, or inadequate e-procurement platforms, may compromise the integrity of the procurement
process.
Effective risk management practices, transparency, adherence to ethical standards, and robust
oversight mechanisms are essential to mitigate these risks and ensure the integrity of public
procurement processes.
Managing risks in the public procurement of goods, services and infrastructure

Representing approximately 12% of GDP across OECD countries, public procurement is an
important pillar of public service delivery. However, successful public procurement is threatened by
risks in areas as diverse as compliance, sustainability, and operations. Governments can address
these challenges by ;
 identifying, assessing, treating, and monitoring risks throughout the procurement process. To
do so, they use general tools such as risk registers and risk matrices, as well as more targeted
measures aimed at specific challenges, such as supply chain risks.
 The procurement of complex goods, services and infrastructure involves different and often
more consequential risks linked to market structures, the size and length of contracts, and the
interconnected nature of decision making. In addressing this broad array of risks, the
development of a national risk management strategy is a crucial step to ensure a co-ordinated
and consistent approach.
TYPES OF PUBLIC PROCUREMENT SYSTEMS IN KENYA
In Kenya, public procurement is governed by the Public Procurement and Asset Disposal Act, 2015,
which establishes the legal framework for procurement processes in the country. The procurement
systems in Kenya can be categorized into various types, with different methods employed for acquiring
goods, services, and works. The main types of public procurement systems in Kenya include:
.
Open Tendering:
This is the most common procurement method where the procuring entity invites tenders from all
interested and qualified suppliers, contractors, or service providers.
The procurement opportunity is publicly advertised, allowing a wide range of suppliers to
participate.
Open tendering promotes competition and transparency in the procurement process.
Restricted Tendering:
In restricted tendering, the procuring entity invites tenders from a pre-qualified list of suppliers,
contractors, or service providers.

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The pre-qualification process is conducted before the procurement opportunity is advertised,

limiting participation to qualified and experienced entities.
Direct Procurement:
Also known as single-source procurement or sole sourcing, direct procurement involves the
selection of a specific supplier, contractor, or service provider without competitive bidding.
It is used in specific circumstances, such as emergencies or when only one supplier is capable of
providing the required goods, services, or works.
Request for Quotations (RFQ):
RFQ is a procurement method suitable for low-value goods, services, or works.

Procuring entities request price quotations from a selected number of suppliers, and the contract is
awarded to the supplier offering the best terms.
Request for Proposals (RFP):
RFP is commonly used for complex projects or services where technical expertise and innovation
are crucial.
The procuring entity invites proposals from interested suppliers, and the evaluation process
considers both technical and financial aspects.
Framework Agreements:
Framework agreements establish a long-term relationship between a procuring entity and one or
more suppliers.
They are suitable for repetitive or ongoing procurements, and terms and conditions are pre-
negotiated, streamlining the subsequent procurement process.
Electronic Procurement (e-Procurement):
Kenya has embraced electronic procurement methods to enhance efficiency, reduce corruption, and
improve transparency.
Online platforms are used for advertising procurement opportunities, submitting bids, and managing
the entire procurement process electronically.
Reverse Auctions:
In reverse auctions, suppliers compete to offer the lowest price for a particular item or service.
The bidding process involves suppliers successively lowering their prices until the lowest bid is
accepted.

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3. PROCUREMENT OF WORKS
Procurement involves every activity involved in obtaining the goods and services a company needs to
support its daily operations, including sourcing, negotiating terms, purchasing items, receiving and
inspecting goods as necessary and keeping records of all the steps in the process.
Why Is Procurement Important in Business?
Procurement is an important step in understanding supply chains, because it helps a company find reliable
suppliers that can provide competitively priced goods and services that match the company’s needs.
That’s the case whether the company is seeking raw materials for manufacturing, a marketing services
provider or new office supplies.
For example, if a company needs a new supplier to provide an ongoing service for an indefinite period of
time — such as an email security solution — the procurement process helps the company choose the
supplier that best meets all of the business’s requirements at a reasonable price. It enables the business to
avoid wasting time, money and valuable resources dealing with an inadequate supplier.
Minimizing cost is one important aspect of improving your procurement processes. But it’s also vital to
identify suppliers that provide the quality of goods and services that the company needs and have the
capacity to deliver reliably and a track record of doing so.
Types of Procurement
Procurement can be categorized in several ways. It can be classified as direct or indirect procurement,
depending on how the company will use the items being procured. It can also be categorized as goods or
services procurement depending on the items that are being procured.
 Direct procurement refers to obtaining anything that’s required to produce an end- product. For
a manufacturing company, this includes raw materials and components. For a retailer, it includes
any items purchased from a wholesaler for resale to customers.
 Indirect procurement typically involves purchases of items that are essential for day-today
operations but don’t directly contribute to the company’s bottom line. This can include anything
from office supplies and furniture to advertising campaigns, consulting services and equipment
maintenance.
 Goods procurement largely refers to the procurement of physical items, but it can also include
items like software subscriptions. Effective goods procurement generally relies on

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good supply chain management practices. It may include both direct and indirect procurement.
 Services procurement focuses on procuring people-based services. Depending on the company,
this may include hiring individual contractors, contingent labor, law firms or on- site security
services. It may include both direct and indirect procurement.
How Procurement Works

The procurement process generally involves a number of steps. The business identifies particular goods
and/or services that it needs, sources the suppliers that will help the company reach its business
objectives, negotiates terms and costs and then purchases and receives the relevant items.
A small company may have just one person handling procurement of all goods and services. Larger
companies may have a team of people specialized in dealing with different suppliers or supporting
specific internal business groups. For some items, the team may need to gather input from several
different business groups in order to determine the company’s overall requirements.
It’s important to remember that procurement doesn’t consist of a series of isolated acts — it’s an ongoing
process. For example, businesses generally aim to establish relationships with key suppliers to help obtain
the best service and lowest possible costs, which ultimately translate into higher profit margins.
Companies may also need to conduct regular quality assurance checks and performance analysis to make
sure suppliers consistently meet expectations.
Steps in the Procurement Process
Procurement processes vary greatly depending on each company’s structure and needs, but generally
include the following nine core steps:
3. Identify which goods and services the company needs.
First, a business must identify its requirements for a specific item or a service. This may be a new item
that the company hasn’t previously purchased, a restock of existing goods or a subscription renewal. This
step typically involves delving into the nitty-gritty details of what the business needs, such as the precise
technical specifications, materials, part numbers or service characteristics. At this stage, it’s a good idea
to consult all business departments affected by the purchasing decision to ensure the procured items
accurately reflect the needs of each department.
4. Submit purchase request.
When an employee or business group needs to procure a significant quantity of new supplies or services,
they make a formal purchase request (also known as a purchase requisition). A purchase request notifies
the company that a need exists, usually via department managers, purchasing staff

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or the financial team, as well as specifications such as price, time frame needed, quantity and other
important things for the purchasing team to keep in mind. The department overseeing the purchase can
then approve or deny the purchase request. If approved, the procurement team can proceed with selecting
a vendor and making the purchase.
5. Assess and select vendors.
With a clear list of requirements and an approved purchase request, now is the time to find the best
vendor and submit a request for quote (RFQ) – this is what the purchasing team sends to potential
suppliers in order to receive a quote – it is important to be as detailed as possible so you can compare
apples to apples. Vendor assessment should focus not only on cost but also on reputation, speed, quality
and reliability. Many companies consider ethics and social responsibility as well, since procurement is
often intertwined with corporate identity. A retailer that prides itself on sustainability would stand to
benefit from partnering with environmentally responsible suppliers, for instance.
5. Negotiate price and terms.
A common best practice is to get at least three quotes from suppliers before making a decision. Examine
each quote carefully and negotiate where possible. If you need to walk away from a deal, be sure that you
have concrete alternative options. Once you’ve agreed on final terms, be sure to get them in writing.
6. Create a purchase order.
Fill out a purchase order (PO) and send it to the supplier. The PO should be sufficiently detailed to
identify the exact services or goods needed and to enable the supplier to fill the order.
7. Receive and inspect the delivered goods.
Carefully examine deliveries for any errors or damage. Make sure everything is delivered as specified in
the PO and that the quality meets or exceeds expectations.
8. Conduct three-way matching.
Accounts payable should conduct three-way matching by comparing the purchase order, order receipt or
packing list and invoice. The goal is to ensure the goods or services received match the purchase order
and to prevent payment for unauthorized or inaccurate invoices. Highlight any discrepancies between the
three documents and resolve issues before arranging payment.

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9. Approve the invoice and arrange payment.
If the three-way match is accurate, approve and pay the invoice. Businesses should strive to have a
consistent invoice payment process through accounts payable that checks that payments match the invoice
amount and due date. A standardized process can help make sure invoices are always paid on time, which
can prevent late fees and build good relationships with suppliers.
10. Recordkeeping.
It’s important to maintain records for the entire procurement process, from purchase requests to price
negotiations, invoices, receipts and everything in between. These records may be useful for multiple
reasons. They help the company reorder goods at the right price in the future, as well as assist with
auditing processes and calculating taxes. Clear, accurate records can also help resolve any potential
disputes.
Stages of Procurement
The nine major steps of the procurement process can also be thought of in three distinct stages: the
sourcing stage, the purchasing stage and the receiving stage.
 Sourcing stage: This covers the initial steps in which the business identifies its needs, creates a
purchase request and assesses vendors. Even after the initial sourcing steps are complete, it’s a
good practice to build a strong relationship with suppliers. They can establish grounds for
suppliers to learn from partners, improve products and processes and develop trust.
 Purchasing stage: This stage includes negotiating terms, creating orders and receiving and
inspecting goods and services.
 Payment stage: Accounts payable conducts three-way matching to ensure order and invoice
accuracy. The invoice can then be approved and the payment is arranged. Records of all invoices,
orders and payments should be kept and carefully maintained.
Procurement Life Cycle
Organizations commonly think of steps in the procurement process as a life cycle. This perspective
provides a reminder that all the tasks and stages in the procurement process overlap and rely on each other
and that the process is continuous. A carefully thought-out procurement life cycle also recognizes the
integration between the process and the business as a whole, including the need to

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align with existing company rules and procedures covering areas such as budgeting. The process is not
always linear, and sometimes adjustments need to be made to account for a dynamic digital supply chain
with shifting suppliers, availabilities and costs.
Three Components of Procurement
Three key components work together to make the procurement process happen: people, process and
paperwork.
 People: People generally are responsible for initiating or authorizing every step of the
procurement process. In addition to procurement specialists, the people involved include other
stakeholders, such as accounts payable and the business groups that request the goods and
services. The number of people involved often depends on the value of the goods and services;
more stakeholders may be involved in specifying and approving high-value purchases.
 Process: An effective procurement process can help a company succeed by keeping costs down
and ensuring supplies arrive when the business needs them. A well-designed and methodical
process helps to promote accuracy and timeliness because every person involved knows exactly
what they need to accomplish and how long they have to complete the tasks. In contrast, a
disorganized procurement process results in inefficiencies and potentially costly errors.
Overpayments, for example, can impact the bottom line, while late payments negatively affect
relationships with suppliers.
 Paperwork: It’s important to maintain records for every stage of the procurement process and
ensure they are easily accessible. These records act as a store of organizational knowledge about
payment terms and supplier performance, helping the business maintain an efficient procurement
process — even if the procurement staff changes over time. In the case of an audit or a dispute, a
business must be easily able to follow the paper or electronic trail through each stage of the
procurement process.
Procurement, Purchasing and Supply Chain: What’s the Difference?
The terms procurement, purchasing, sourcing and supply chain are often used interchangeably. However,
there are important distinctions between them.
 Procurement vs. purchasing: If procurement involves purchasing, you might be wondering:

What’s the difference between purchasing and procurement? The answer is that purchasing is
essentially transactional, focusing on managing specific orders to meet company needs.
Procurement is a much broader and more complex set of processes,

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including establishing and maintaining supplier relationships. Another way to think about the
difference between purchasing and procurement is that procurement takes a proactive approach
that starts with analyzing the company’s needs, whereas purchasing is a reactive approach —
simply focusing on obtaining what the company has already decided it needs.
 Procurement vs. sourcing: Sourcing, like purchasing, is only part of the overall procurement
process. Sourcing is an early stage of the procurement cycle. It encompasses activities such as
identifying and assessing potential suppliers of goods or services, negotiating terms and selecting
the vendors that best meet the company’s needs.
 Procurement vs. supply chain: Procurement covers one aspect of supply chain management.
Procurement includes sourcing, obtaining and paying for goods and services. Supply chain
management also covers the logistics involved in obtaining goods, such as shipping and
warehouse management, as well as transforming the procured goods into products and
distributing them to customers.
Principles of Procurement
In public-sector organizations, the procurement process is generally similar to the process in private-
sector organizations — but with a few important differences. Because the people involved handle public
funds, they generally must follow rigorous principles during the procurement process. These principles
can be regarded as an ethical code of conduct that holds public servants accountable for their purchases.
Some of the principles may also be beneficial to private-sector organizations.
The principles vary somewhat depending on the organization. Here are seven of the most common
procurement principles:
1. Value for money: The organization must manage funds efficiently and economically when
procuring goods and services. This may include conducting cost-benefit analyses and risk
assessments. It’s worth noting that low cost does not necessarily equate to greater value;
characteristics such as quality and durability also factor into determining whether the purchase
represents value for money.
2. Fairness: Procurement should not provide preferential treatment to individuals or suppliers. All
bids should be assessed objectively, based on how well they meet the organization’s needs.
3. Competition: Organizations should seek competitive bids from multiple suppliers, unless there
are specific reasons not to do so, such as a sole-source provider where the good or service is only
available from a single vendor.
4. Efficiency: Procurement processes must be carried out efficiently to help maximize value and
avoid delays.

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5. Transparency: Organizations should make relevant procurement information available to

everyone, including the public as well as suppliers. Information should be kept confidential only
when there are legal or other valid reasons to do so.
6. Integrity: Those who practice public procurement should always strive to be perceived as
trustworthy, reliable, honest and responsible. Funds must be used for their intended purpose and
in the public interest.
7. Accountability: People involved in the procurement process are accountable for their actions
and decisions. They are required to report procurement activities accurately, including any
errors.
Procurement & Finance

In many companies, procurement and finance teams operate as separate departments. Historically, they
have sometimes been at odds for one major reason: Procurement spends money, while finance focuses on
profitability, which sometimes means finding ways to spend less.
However, a strategic partnership between the two groups can benefit the business as a whole, partly
because each group can provide unique insights into the business’s operations. For example, a well-run
procurement team may have a deep understanding of how carefully sourced goods and services can help
business groups maximize profitability. This helps the finance group get a better overall picture of
company spending and how it affects the bottom line. Integrated supply chain management software that
can connect information from across the business, including finance, is an important tool to bridge the
traditional divide and help teams work together to advance business objectives. Supply chain management
software can also help you track progress toward goals by providing the information you need for key
performance indicators (KPIs) in a simple-to- understand format for your procurement team.

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5. PROCUREMENT OF CONSULTANCY SERVICES
WHAT IS CONSULTANCY PROCUREMENT?

Consultancy procurement is the process of contracting an outside firm to provide consulting services. Its
main purpose is to help an organization obtain expert advice or services to help solve a specific problem.
Often, an organization would hire consultants when it does not have the internal resources to address a
particular issue. For example, a company may seek out a consulting firm to help them improve their
manufacturing process. In this case, the consulting firm would provide advice and recommendations
based on their expertise in the field.
Consulting can also be used to supplement existing staff or to fill a temporary need. For instance, a
company may hire a consulting firm to help with data analysis during peak demand periods.
Obviously, consultancy procurement is a sub-category of procurement activities centered on consulting

services. But let’s take a step back.
Procurement can be segregated into two elements: direct procurement and indirect procurement.
WHAT IS DIRECT AND INDIRECT PROCUREMENT?

Direct procurement refers to purchasing any item that contributes to the production. It can be parts,
components and goods such as raw materials that are utilized by the company’s operations. For example,
wood, nails, concrete, and other construction materials are utilized as raw materials for home
construction. Similarly, raw food items sold in retail stores are utilized as raw materials in the restaurant
industry.
To earn revenue, companies that sell tangible goods to consumers or other businesses, use direct
procurement. Businesses such as software services, whose final result is intangible and for which no raw
materials are used in production, are an exception.
Indirect Procurement, on the other hand, is when a company acquires goods or services that are not used
in the production of a final product. Instead, they are used in the day-to-day operations of the business.
Examples of indirect procurement include office supplies, janitorial services, and consulting services.
In a nutshell,
Direct procurement is focused on acquiring goods or services that are used to produce a final product.
Indirect procurement is focused on acquiring goods or services that keep the business running on a day-
to-day basis.

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Consultancy procurement is a sub-set of indirect procurement, often folded into the professional services
category with marketing, executive search and legal. Now that we are clear on the definitions, let’s have a
look at what makes consultancy procurement so special.
THE CONSULTING PROCUREMENT PROCESS

The consultancy procurement process can be lengthy and complicated, involving many different steps and
stakeholders. However, there are some basic principles that all organizations should keep in mind when
procuring consulting services.
Too many businesses that want to hire consultants don’t realize how complicated the procurement system
can be. At first glance, it seems like a simple process that ends when the order is placed. But consulting
isn’t that simple. Signing a contract and assuming everything will go as planned doesn’t take into account
how flexible consulting and intellectual services in general are.
In order for procurement to be successful, it should be a long-term process that goes beyond the moment
the contract is signed. Thus, let us look at the consulting procurement process in detail.
1. AFTER THE REQUEST FOR PROPOSAL

Do not cut ties with consultants you did not choose to work with. Instead, tell them why you decided to
go in a different direction. Be honest about the proposal’s pros and cons and how it could have been
better suited to your needs.
This step doesn’t take much work on your part. But for the consultants you didn’t choose, you give them
valuable information about what you want and how they can compete for future proposals and
opportunities like yours.
If consultants are willing to listen, they can use these lessons to improve their chances of getting similar
jobs in the future. Because you never really know. You might need a consultant again in the future, so
keeping in touch with more than one can be good for both you and the consultant.
2. CHANGE MANAGEMENT
No matter how hard you try, building and keeping relationships with consultants during the execution of a
project is not as easy as you think. A number of changes will happen during the project that you didn’t
plan for in the proposal or contract. A few of these changes could be:
 As needs become clear, new tasks may be added, and deliverables that are impossible or hard to
reach may be dropped.

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 Organizations are always changing, and both sides may have to plan for a change in staff that
needs to be adjusted and perhaps trained.
 Before a project starts, everything is just like a guessing game. As the real length of the project
becomes clear, you may need to change the pace.
 There may be changes to the budget, project mergers, project freezes, or any number of other
things that could affect how the project is done.
Change management is needed to keep these changes from throwing the project off track. By keeping a
log of all changes as they happen, you can make changes to the business environment in time, before they
become dangerous.
3. MIDDLE OF THE PROJECT ASSIGNMENT

Set a target date for yourself and your consultants to meet in the middle of the project as soon as possible.
This is an excellent time to go over the initial goals and get back on track to meet them on time.
As you work on a project, it’s easy to get caught up in the small details that won’t change the project’s
overall success. With a Mid-Project assessment, you and your team can make sure that these inevitable
side projects don’t put the project’s timeline and success at risk.
The Mid-Project assessment should be a significant event for all parties involved. Separate it from regular
operational project reviews, which should take place in smaller groups and on a regular basis.
4. CLOSING THE PROJECT

When the project is completed, it is time to conduct a thorough evaluation. You should compare your
final results to your initial goals, which will help you understand and plan for the adjustments that are still
needed to reach your ultimate goal.
You can also evaluate your relationship with your consultants at this time, as well as whether they
delivered on their initial promise. Consider commercial quality, delivery quality, posture, talent &
expertise, and ROI as it relates to the project when evaluating your provider.
5. GIVING & RECEIVING FEEDBACK

Nobody is perfect, and no project or professional relationship is. The project closure is an opportunity for
you to provide feedback to your project suppliers on the results, relationship dynamics, and any other
aspects you discussed in your project closure review above.

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Giving feedback helps your consultants improve their business by better understanding client expectations
and identifying potential blind spots. Constructive feedback will also reveal relationship issues that can be
addressed in a future collaboration with you or other clients.
You can use the same information because it helps you better understand how the consultant will move
through your project. As a result, you will make suppliers more competitive, which will increase the
chances of good things happening. By making your purchasing process better, you can help gather
information about the market and its different segments.
Lastly, you can learn just as much as your consultant from feedback about the project. Hearing from your
partner about the relationship and its successes and failures can help you figure out what you can do
better in the future, which will lead to better project implementation in the long run. Just asking for
feedback will show that you care about good practices, being open, and being truthful.
WHAT YOU NEED TO KNOW WHEN PURCHASING CONSULTING SERVICES

When looking for the best consulting firm to solve a specific problem, it is critical to consider both the
problem and the type of consulting firm that would be best suited to solve it.
Moreover, it goes without saying that everyone wants to hire the best consulting service providers.
However, your idea of the best consulting partner may differ from that of your competitors. You must
create your criteria based on the needs and goals of your project.
When you hire a consultant, you are not simply purchasing a product or service. You are paying for the
consultant’s expertise and knowledge. So, when it comes to buying consulting services, there are four
important things to keep in mind.
5. INTANGIBILITY
The first thing to keep in mind is intangibility, which makes it hard to know right away what you want to
evaluate or how you’d define the RFP. Writing a Request for Proposal (RFP) is hard because you have to
think about a lot of different things.
Buying consulting services is not the same as buying a table. When you buy a table, even if it’s a different
size, made of a different material, or a different color. It still is just a table, right?
So, when buying these kinds of products, it’s easy to compare the proposals on both the technical and
business sides. But when you buy consulting services, it’s possible that they will be very different from
what you’ve had before.

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And everything you’d expect to see in an RFP, from the overall goals to the deliverables, schedule, team
members, and so on, will be very different. So, almost nothing can be used again! You will have to start
from scratch.
6. IMPACT
Next up, is the impact. When you buy consulting services, you expect something fruitful to come out of
it. Maybe you’re trying to solve a problem with a consultant who is an expert in that area.
Or maybe you’re trying to improve your business process or build up the efficiency of your team.
Whether it’s in the top line or the bottom line, you simply want something substantial to happen, right?
This means that employees, stakeholders, and just about everyone else will be greatly impacted at some
point. So, there is a change management part that needs to be added right at the start of buying the
consulting service.
If you don’t, you might hurt the chances of success for the project you want to start!
7. NEGOTIATION
The next important aspect is the negotiation. People often use their ability to negotiate and their ability to
compare in our everyday life. For instance, if someone wants to buy a table, they will bargain with the
seller over the price.
To be successful in their bargain, they will look at the price of the table they are interested in and
compare it to the prices of other tables of the same kind.
However, when it comes to consulting, it’s like comparing apples to oranges. That’s because you’re not
just comparing the service; you’re also comparing what’s inside, how they work, and what methods
they’ll use.
This makes it different because when you buy a physical product, you don’t care how it was made or
anything else. But when you buy a consulting project, almost everything matters.
8. TRUE VALUE
Last but certainly not the least, is the true value when purchasing consulting services. Many procurement
professionals believe that when buying consulting services, you should focus your efforts on trying to
negotiate and cutting down your costs.

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But the reality is, whenever you purchase something intangible, whether consulting or not, you are
purchasing something that cannot be counted or measured. It could be legal, marketing, or another type of
intangible service.
The scope is the part where you actually save money. That’s because you are purchasing time and
expertise from skilled consultants, regardless of the size of your project. So, anything you include in your
scope will define how much time, experience, and what type of consulting firm you’ll need to complete
the task, and that’s how your fee will be calculated as well.

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6. GLOBAL PROCUREMENT
Global procurement is a key aspect of modern business, but what exactly does it entail and why is it so
crucial? In today’s globalized world, companies need to be able to source goods and services from all
over the world in order to stay competitive. But with the ever-increasing complexity of supply chains,
navigating this process can be challenging. That’s where global procurement comes in – a strategic
approach that enables businesses to manage their sourcing activities on an international scale. From
reducing costs and mitigating risks to improving quality and increasing innovation, there are many
reasons why global procurement plays such an important role in today’s economy.
What is global procurement?
Global procurement is the practice of purchasing goods and services from suppliers around the world.
This allows companies to save on costs and increase their competitiveness. By buying in bulk, businesses
can get discounts that they wouldn’t be able to get from individual suppliers. Additionally, global
procurement can help companies build relationships with new suppliers and tap into new markets.
The benefits of global procurement are numerous, but there are a few key reasons why it’s so important
for businesses. One reason is that it can help companies reduce their overall costs. For example, if a
company purchases an item from a foreign supplier, it may be cheaper than if the company were to
purchase the same item from an American supplier. Another benefit of global procurement is that it
allows companies to expand their operations into new markets. By purchasing goods and services from
overseas suppliers, companies can reach customers who may not be able to afford to buy products or
services in their local market.
There are also some drawbacks to global procurement. One problem is currency fluctuations. If the value
of one country’s currency decreases against another country’s currency, then purchasing goods from
overseas may become more expensive for a business. Additionally, sometimes international suppliers
don’t have access to the same quality or quantity of products as domestic suppliers do. In these cases,
businesses may have to pay more for inferior products.

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What are the benefits of using global procurement?
The benefits of using global procurement include the following:
20. Reduced Costs and Time to Market: When procurement is done globally, it can reduce the costs
and time to market for a product or service. This is because there is greater competition among suppliers,
which leads to lower prices and faster delivery times.
21. Improved Quality: When products or services are purchased through global channels, it is more
likely that they will be of high quality. This is because there are many independent checks and reviews
that take place before a product or service is brought to market. This ensures that any flaws in the product
or service are identified and rectified as quickly as possible.
22. Increased Cooperation among Suppliers: Through global procurement, businesses can forge
stronger relationships with their suppliers. This allows them to share best practices and cooperate on
projects that would be difficult or impossible to accomplish if each supplier operated
independently.
23. Increased Innovation: By working with many different suppliers, businesses can explore new ideas
and technologies more easily. This enables them to stay ahead of their competitors and develop new
products and services that are unique and innovative
How can you use global procurement in your business?
Global procurement is the process of buying goods or services from a supplier located in a different
country than where the purchasing organization is located. It can be used to save money, increase
efficiency and improve communication between organizations. Global procurement can also help reduce
environmental impact and support local businesses.
There are several benefits to using global procurement in your business:
6. Reduced Costs. By purchasing goods or services from a supplier in a different country, you may be
able to save on transportation costs, customs duties and other taxes. Additionally, by buying items from
multiple suppliers, you may be able to get better prices and quality products.
7. Increased Efficiency. When procurements are made across multiple countries, it can lead to greater
coordination and cooperation between buyers and sellers. This can result in decreased processing
times, improved delivery accuracy and reduced shipping costs.

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8. Improved Communication & Coordination. By working with suppliers outside of your own
jurisdiction, you can break down communication barriers and build stronger relationships with suppliers
around the world. This can allow for smoother transactions and increased trust between buyers and
sellers.
9. Reduced Environmental Impact. Purchasing goods from overseas sources often means that products
are produced using fewer hazardous materials or using alternative forms of production that do not involve
environmentally harmful practices such as deforestation or pollution creation . Furthermore, purchasing
items from foreign suppliers helps promote international trade which benefits both the purchaser’s
company as well as the supplier’s nation economically speaking
TYPES OF GLOBAL PROCUREMENT
Main Types of Procurement

There are three main types of procurement activities: direct procurement, indirect procurement, and
services procurement.
1. Direct procurement: Direct procurement involves the direct purchase of raw goods, machinery,
and wholesale goods that directly contribute to the company’s end product. The key stakeholders
in direct procurement processes are procurement officers and contracted suppliers.
2. Indirect procurement: Indirect procurement involves the purchasing of goods like office
supplies. These goods don’t directly affect the company’s end product or bottom line, but they
support the day-to-day management of the business. A small company may task office managers
with indirect procurement processes while large corporations may employ a facilities
management company to manage those purchases.
3. Services procurement: This type of procurement can involve hiring temporary staffers, leasing
software, and bringing in short-term vendors to work at an event or seminar.
Procurement vs. Purchasing: What’s the Difference?

Some people use the terms "purchasing" and "procurement" interchangeably, but the terms are not quite
synonyms. Purchasing is an important transactional step in the procurement life cycle. It slots in alongside
other elements like vendor relationships and sourcing the best prices. In other words, the key difference
between procurement and purchasing is that purchasing represents one link in the larger procurement
chain.

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Managing the 4 Pillars of Global Procurement
Organizations with a global presence face multiple challenges when attempting to streamline their
international procurement. Managing the “4 pillars” of global procurement – people, process, technology,
and supply chain – is crucial for ensuring a global approach to standardizing technology infrastructure for
the enterprise.
For example, logistics must be carefully managed to ensure consistent delivery of required technologies
to each location. But customs inspections, missing paperwork, and local regulatory requirements can often
lead to delayed product deliveries. Similarly, locating a reliable supplier in a foreign country can be an
extremely challenging endeavor, particularly for growing companies that are simultaneously opening new
facilities in multiple regions of the world.
Growth strategies also influence global procurement policies. Mergers and acquisitions can strain supply
chains and lead to the creation of a complicated web of vendors that need to be efficiently managed. As a
result of M&A activities, companies often purchase redundant technologies, stray from corporate
technology standards, pay inflated prices for goods and services, and fail to capitalize on opportunities to
better control costs in each location.
Instead, organizations can work with a trusted resource for managing global procurement, which becomes
particularly difficult when you are branching out into several locations around the world. But when
managing international procurement, it still boils down to leveraging people, process, technology, and
your supply chain.
What’s the difference between global procurement and international procurement?

EXPERT ANSWERS:
1."Global" is a word that is used to refer to issues and concerns of the entire world while "international" is
a term that is used to refer to issues and concerns of two or more countries. 2."International" has a smaller
scope encompassing only two or more countries while "global" has a much larger scope
which includes the whole world. 3.Although they are sometimes used interchangeably,
"global" means "all-encompassing and worldwide" while "international" means "foreign
or multinational." 4.Global companies have offices and branches as well as investments in other
countries while

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international companies export their products and import the products of the country with which they
have international trade relations but hold no investments in each other's economies."
Global Procurement: The Risks and Benefits to the Supply Chain
In the modern supply chain, global procurement of raw materials, components and manufacturing is the
norm rather than the exception. Over the last few decades, businesses have increasingly cultivated
relationships with third-party suppliers outside of their own country. The production of goods integral to
international trade is spread across a global supply chain that involves multiple factories in multiple
countries.
The rise of global sourcing leads to new supply chain management challenges that can change daily or
hourly. Today, it means activating manufacturing partners early to anticipate shortages and demand
spikes before they happen. Tomorrow, it could mean being able to scale down production if demand
shifts. That type of agility is difficult to achieve, so supply chain leaders need to be aware of
circumstances around the globe. Looking at global procurement through a strategic lens leads to smarter
decisions in the last mile of global procurement. It also means strategic sourcing and working with
redundancies in supply; all, of course, while keeping costs down. Today’s supply chain leaders must
create a procurement process that includes contingencies for logistics and raw material suppliers. Any
procurement professional needs to factor tariffs, embargoes, and trade wars into their global procurement
plan.
While the COVID-19 pandemic has highlighted the importance of effective supply chain management to
keep global commerce moving, it has also accelerated the wide adoption of best practices that are integral
to a sustainable supply chain. As we’ve seen from supply chain leaders like Apple and Amazon, focusing
on global procurement provides a significant competitive advantage over companies that limit
procurement to domestic production.
What is global procurement for supply chains?
Global procurement is one of the most important responsibilities of managing a supply chain. It is
integral to a supply chain that truly spans the world. This is different from international
procurement , which focuses on the purchasing and managing a cross-border supply chain between
just two countries. For example, if a car manufacturer in Michigan sources floor mats from Canada but
manufactures the rest of its components domestically, that is an international supply chain. On

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the other hand, if the automaker sources brakes from China, engine parts from Japan, and partial
assembly in Mexico, this is global procurement; a complex supply chain with a global focus.
That global focus is key to realizing a product margin that drives success for the organization. Global
procurement is vital to supply chain management because it enables companies to maximize operational
efficiency and realize healthy margins that allow more profit and investment into growth – in short
procurement drives the total value of the end to end supply chain (not just piece price) To create a global
procurement process, supply chain managers must consider a myriad of factors.
For example, strategic sourcing decisions weigh logistical costs and transport time against raw material
quality and pricing to develop the ideal procurement strategy. This strategy must be consistent and
supportive of the manufacturing operational strategy and the end to end supply chain strategy. Because of
the possibility of supply chain disruption, procurement leaders must also establish alternate sourcing and
logistics options. We’ve seen the delays and risks associated with significant supply chain disruption in
2020, and procurement teams are viewing risk differently as the world slowly manages the health crisis.
Developing a global sourcing strategy means unifying a company’s risk factors, operational requirements,
and sales goals with the latest technology. Complex business problems require modern technology.
Today’s supply chain professionals can’t build and monitor a global supply chain using only
spreadsheets. Innovative global procurement processes are made possible
with emerging such as artificial intelligence (AI) and big data.
Supply chain managers will need to use that technology to monitor all the moving parts. This can include
weather forecasts, the movement of container ships, the efficiency of warehouse
operations, and inventory levels. Big data can help create demand and other predictive
analytics. For supply chain leaders, leveraging modern cloud technology leads to better decision- making
and harnessing the power of tech is the secret to driving better margins.
What to understand about procuring supply chain components from global sources
To meet the rising demand accelerated by increased ecommerce and shifting consumer spending
behaviors, large companies are diversifying and optimizing procurement strategies beyond domestic
providers. Global sourcing of raw materials and products are top of mind as a solution to facilitate boosts
in supply and production. But this comes with its own risks.
When a trade barrier goes up in one country or a natural disaster takes a supplier offline, the agile supply
chain manager can utilize another supplier relationship to meet the demand. Global supply chain
management keeps manufacturing and delivery on track and on time.

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Global supply chains also strengthen trade relationships between countries that exchange raw materials in
high volumes. If a large part of a country’s economy depends on trade, that can be a source of positive
pressure against volatile government action that could lead to a trade embargo. Cross-border supply
chains are one factor that incentivizes governments to maintain friendly relationships, reduce tensions,
and generate tax revenue.
Responsible global sourcing also allows procurement professionals to source the best quality raw material
at the lowest price and highest operational efficiency. This creates the best total value to the enterprise.
Global supply chain management can take advantage of skilled regional workforces as well, which can
help drive product innovation and delivery. This type of global purchasing strategy can give your
company a competitive advantage. Leveraging the workforces of global trade partners has significant
macroeconomic benefits as well: the global supply chain lifts wages of workers in low-wage countries.
What supply chain managers need to consider for global supply chain procurement
A successful supply chain manager is always thinking several steps ahead to assess the risk of multiple
variables at once. The complexity and solutions-oriented work is what makes the field of supply chain
management both exciting and demanding, and it’s one of the reasons that capable supply chain
professionals are in such high demand in the labor market.
To create a value chain using global sourcing, you must build a resilient supply chain. Supply chain risk
is a top priority for many companies, particularly as the past year has delivered an object lesson in the
chaos created by supply chain disruptions. In fact, concern about the risks to global
supply chains has led to a reduction in global in the past decade.
A key consideration of supply chain professionals who specialize in global procurement is building an
agile supply chain with low-risk vendor relationships. Some of the most important factors to consider in
creating a supply chain strategy for global procurement include:
 Develop the capability in the supply chain to manage risk. Creating “produce to
demand” and agile capabilities in key partners is the most cost effective method to reduce risk.
The first question is how to create the capability to deliver reliable supply in any situation.
Inventory should be the last resort of protection, to avoid inaccurate forecasts.
 Source components and products from reliable suppliers. Building supplier
capability is a vital element of all sourcing work. Beyond this agility and reliability
work, using various suppliers, sourcing a raw material or finished product from different
regions can build a solid competitive advantage. When your value chain is too reliant on
one country or area, your company is more susceptible to supply chain disruption and
risks interrupting
order fulfillment and customer expectations.

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Build supplier partnerships and relationships. The Pandemic reminded us that the supply chain is only a
is essential for any supply chain, but visibility into all elements of your supply chain is both more challengi
Employ end-to-end supply chain management. End-to-end supply chain planning

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7. NEGOTIATION IN PROCUREMENT
Negotiating with suppliers is a large part of any procurement role; and it can also be the most difficult.
An Introduction to Negotiating
Negotiating is the process that procurement professionals go through to create favourable terms as part of
a new supplier contract. This can involve negotiating different terms with an existing supplier when a
contract is renewed, or discussing terms from scratch with a brand new vendor.
Negotiations are typically used to determine the fairest price and payment terms, delivery and production
time, quality standards and more. The negotiations need to consider the best option for both supplier and
buyer, rather than just aiming to get the cheapest possible price, as this will help to build stronger
relationships with long term suppliers.
To ensure everything you set out to achieve is covered in negations with suppliers, it is important to set
objectives prior to entering into negotiations.
Setting Objectives for Negotiation
There are a number of factors that need to be considered when defining the objectives of a negotiation
with a supplier. These may include but aren’t limited to:
 cost
 value for money
 delivery time
 payment conditions
 after-care and maintenance terms
 quality standards
 lifetime costs each product/service
 importance of each product/service to your business
One of the first things you should do when preparing for negotiation is create a list of which factors are
the most important. This will give you some scope to then decide which factors can be compromised on
and which are not open to compromise.
When considering the important factors, think about what your preferred outcome would be, realistically.
What price/payment conditions/quality/etc. would you agree on? And what is the very least you will
accept based on what you think the supplier is likely to offer?

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It is important to remember that the agreed terms should hold some benefit for both sides of the
arrangement. A cheap price may be favourable short term, but accepting a slightly higher price or changes
to other terms will help to reinforce the long term relationship if you intend to use the supplier
again/continuously.
Steps To Negotiating Successfully
When you negotiate, do you use a system? Do you haphazardly jump into a negotiation without any
planning or thought for what you might do if you hit roadblocks? In order to negotiate successfully, good
negotiators prepare before a negotiation.
The information that follows outlines seven steps you can use to negotiate successfully.
1. Gather Background Information:
 When gathering background information, include the style, values, ethnicity, culture,
demographics (younger negotiators on/using twitter, facebook, Linkedin, and their way of
communicating, versus those that are slower to use these mediums) and other information that’s
pertinent to that particular negotiation session.
2. Assess your arsenal of negotiation tactics and strategies:
 The more you’re aware of how to use the appropriate tactic with the appropriate strategy, applied
at the appropriate time, the more options you’ll have and be able to execute during the
negotiation.
3. Create Your Negotiation Plan:
 Consider the overall strategy you’ll use for the negotiation. Break strategies into tactics. Assess
possible strategies the other negotiator might employ. Take into consideration the use of red
herrings (Note: Red herrings are items that have little to no value to you that you position as
having value, but items that possess real value to the other negotiator). Also consider how you
might apply pressure to points (leverage) throughout the negotiation.
4. Engage in the Negotiation Process:
 Observe body language and mannerisms. This can be done in person, via the phone, and in
writing (e-mail, etc.). Note the style in which the other person negotiates (i.e. friendly (let’s get
along), reserved (I’m not quite sure how this is going to go and I’m apprehensive), hostile (I’ll
show you mine, if you show me yours – the only way for me to win is for you to lose – I’m in the
driver’s seat; it’s my way or the highway).

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5. Closing the Negotiation:
 Be on high alert for the conclusion of what you think is an agreement, serving as the next phase
of the negotiation; in some cultures, this is a common practice. If you’re unsure of the other
negotiators sincerity, put deliverables into phases of the negotiation.
6. Conduct a Postmortem:
 Dissect the negotiation. Assess what went right – What could have been improved upon – What
you learned from that negotiator about negotiation styles – What lessons should be taken forth
into other negotiations – What went wrong – Why did it go wrong – What could you have done
differently – What prevented you from using a better tactic/strategy to allow you to gain control
of the negotiation).
7. Create Negotiation Archive:
 Create an archive of your negotiations and store them in a repository. Set up keywords to cross-
reference sections, tactics, and strategies in your negotiation write-ups, to be used for the
extraction of quick ideas and serve as a resource, for future negotiations.
The Negotiation Tips Are
 When negotiating, seek advantages that allow you to exploit your strength, but don’t disparage
the other negotiator in your enthusiasm to obtain victory.
 When a negotiation outcome is less than expected, learn from the experience. Commit to getting
better. Increase your knowledge of how to use the right tactic, with the right strategy(s), aligned
with the right situation.
 Make sure you observe and control your biases when assessing the person with whom you’ll be
negotiating
Principles of Negotiation to Boost Your Bargaining Skills in Business Situations
How to use the principles behind negotiation ethics to create win-win agreements for you and your
bargaining counterpart
Knowing the norms of ethics and negotiation can be useful whether you’re negotiating for yourself or on
behalf of someone else. Each ethical case you come up against will have its own twists and nuances, but
there are a few principles that negotiators should keep in mind while at the bargaining table.

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By asking yourself the following questions, you can illuminate the boundaries between right and wrong at
the negotiation table and in the process discover your own ethical standards:
Principle 1. Reciprocity:
Would I want others to treat me or someone close to me this way?
Principle 2. Publicity:
Would I be comfortable if my actions were fully and fairly described in the newspaper?
Principle 3. Trusted friend:
Would I be comfortable telling my best friend, spouse, or children what I am doing?
Principle 4. Universality:
Would I advise anyone else in my situation to act this way?
Principle 5. Legacy:
Does this action reflect how I want to be known and remembered?
Doing the right thing sometimes means that we must accept a known cost. But in the long run, doing the
wrong thing may be even more costly.
Negotiations
A common way that parties deal with conflict is via negotiation. Negotiation is a process whereby two or
more parties work toward an agreement. There are five phases of negotiation, which are described below.
The Five Phases of Negotiation

Phase 1: Investigation
The first step in negotiation is the investigation, or information gathering stage. This is a key stage that is
often ignored. Surprisingly, the first place to begin is with yourself: What are your goals for the
negotiation? What do you want to achieve? What would you concede? What would you absolutely not
concede?

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During the negotiation, you’ll inevitably be faced with making choices. It’s best to know what you want,
so that in the heat of the moment you’re able to make the best decision. For example, if you’ll be
negotiating for a new job, ask yourself, “What do I value most? Is it the salary level? Working with
coworkers whom I like? Working at a prestigious company? Working in a certain geographic area? Do I
want a company that will groom me for future positions or do I want to change jobs often in pursuit of
new challenges?”
Phase 2: Determine Your BATNA
One important part of the investigation and planning phase is to determine your BATNA, which is an
acronym that stands for the “best alternative to a negotiated agreement.”
Thinking through your BATNA is important to helping you decide whether to accept an offer you receive
during the negotiation. You need to know what your alternatives are. If you have various alternatives, you
can look at the proposed deal more critically. Could you get a better outcome than the proposed deal?
Your BATNA will help you reject an unfavorable deal. On the other hand, if the deal is better than
another outcome you could get (that is, better than your BATNA), then you should accept it.
Think about it in common sense terms: When you know your opponent is desperate for a deal, you can
demand much more. If it looks like they have a lot of other options outside the negotiation, you’ll be more
likely to make concessions.
Once you’ve gotten a clear understanding of your own goals, investigate the person you’ll be negotiating
with. What does that person (or company) want? Put yourself in the other party’s shoes. What alternatives
could they have? For example, in the job negotiations, the other side wants a good employee at a fair
price. That may lead you to do research on salary levels: What is the pay rate for the position you’re
seeking? What is the culture of the company?
BATNA Best Practices
1. Brainstorm a list of alternatives that you might conceivably take if the negotiation doesn’t lead to
a favorable outcome for you.
2. Improve on some of the more promising ideas and convert them into actionable alternatives.
3. Identify the most beneficial alternative to be kept in reserve as a fall-back during the
negotiation.
4. Remember that your BATNA may evolve over time, so keep revising it to make sure it is still
accurate.

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5. Don’t reveal your BATNA to the other party. If your BATNA turns out to be worse than what the
other party expected, their offer may go down, as PointCast learned in the opening case.
Phase 3: Presentation
The third phase of negotiation is presentation. In this phase, you assemble the information you’ve
gathered in a way that supports your position. In a job hiring or salary negotiation situation, for instance,
you can present facts that show what you’ve contributed to the organization in the past (or in a previous
position), which in turn demonstrates your value. Perhaps you created a blog that brought attention to
your company or got donations or funding for a charity. Perhaps you’re a team player who brings out the
best in a group.
Phase 4: Bargaining
During the bargaining phase, each party discusses their goals and seeks to get an agreement. A natural
part of this process is making concessions, namely, giving up one thing to get something else in return.
Making a concession is not a sign of weakness—parties expect to give up some of their goals. Rather,
concessions demonstrate cooperativeness and help move the negotiation toward its conclusion. Making
concessions is particularly important in tense union-management disputes, which can get bogged down by
old issues. Making a concession shows forward movement and process, and it allays concerns about
rigidity or closed-mindedness. What would a typical concession be? Concessions are often in the areas of
money, time, resources, responsibilities, or autonomy. When negotiating for the purchase of products, for
example, you might agree to pay a higher price in exchange for getting the products sooner. Alternatively,
you could ask to pay a lower price in exchange for giving the manufacturer more time or flexibility in
when they deliver the product.
One key to the bargaining phase is to ask questions. Don’t simply take a statement such as “we can’t do
that” at face value. Rather, try to find out why the party has that constraint. Let’s take a look at an
example. Say that you’re a retailer and you want to buy patio furniture from a manufacturer. You want to
have the sets in time for spring sales. During the negotiations, your goal is to get the lowest price with the
earliest delivery date. The manufacturer, of course, wants to get the highest price with the longest lead
time before delivery. As negotiations stall, you evaluate your options to decide what’s more important: a
slightly lower price or a slightly longer delivery date? You do a quick calculation. The manufacturer has
offered to deliver the products by April 30, but you know that some of your customers make their patio
furniture selection early in the spring, and missing those early sales could cost you $1 million. So, you
suggest that you can accept the April 30 delivery date if the manufacturer will agree to drop the price by
$1 million.

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“I appreciate the offer,” the manufacturer replies, “but I can’t accommodate such a large price cut.”
Instead of leaving it at that, you ask, “I’m surprised that a 2-month delivery would be so costly to you.
Tell me more about your manufacturing process so that I can understand why you can’t manufacture the
products in that time frame.”
“Manufacturing the products in that time frame is not the problem,” the manufacturer replies, “but getting
them shipped from Asia is what’s expensive for us.”
When you hear that, a light bulb goes off. You know that your firm has favorable contracts with shipping
companies because of the high volume of business the firm gives them. You make the following
counteroffer: “Why don’t we agree that my company will arrange and pay for the shipper, and you agree
to have the products ready to ship on March 30 for $10.5 million instead of $11 million?” The
manufacturer accepts the offer—the biggest expense and constraint (the shipping) has been lifted. You, in
turn, have saved money as well (Malhotra & Bazerman, 2007).
Phase 5: Closure
Closure is an important part of negotiations. At the close of a negotiation, you and the other party have
either come to an agreement on the terms, or one party has decided that the final offer is unacceptable and
therefore must be walked away from. Most negotiators assume that if their best offer has been rejected,
there’s nothing left to do. You made your best offer and that’s the best you can do. The savviest of
negotiators, however, see the rejection as an opportunity to learn. “What would it have taken for us to
reach an agreement?”
Sometimes at the end of negotiations, it’s clear why a deal was not reached. But if you’re confused about
why a deal did not happen, consider making a follow-up call. Even though you may not win the deal back
in the end, you might learn something that’s useful for future negotiations. What’s more, the other party
may be more willing to disclose the information if they don’t think you’re in a “selling” mode.
Negotiation Strategies
Distributive Approach
The distributive view of negotiation is the traditional fixed-pie approach. That is, negotiators see the
situation as a pie that they have to divide between them. Each tries to get more of the pie and “win.” For
example, managers may compete over shares of a budget. If marketing gets a 10% increase in its budget,
another department such as R&D will need to decrease its budget by 10% to offset the marketing
increase. Focusing on a fixed pie is a common mistake in negotiation, because this view limits the
creative solutions possible.

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Integrative Approach
A newer, more creative approach to negotiation is called the integrative approach. In this approach, both
parties look for ways to integrate their goals under a larger umbrella. That is, they look for ways to
expand the pie, so that each party gets more. This is also called a win–win approach. The first step of the
integrative approach is to enter the negotiation from a cooperative rather than an adversarial stance. The
second step is all about listening. Listening develops trust as each party learns what the other wants and
everyone involved arrives at a mutual understanding. Then, all parties can explore ways to achieve the
individual goals. The general idea is, “If we put our heads together, we can find a solution that addresses
everybody’s needs.” Unfortunately, integrative outcomes are not the norm. A summary of 32 experiments
on negotiations found that although they could have resulted in integrated outcomes, only 20% did so.One
key factor related to finding integrated solutions is the experience of the negotiators who were able to
reach them.
Avoiding Common Mistakes in Negotiations
(i) Failing to Negotiate/Accepting the First Offer

(ii) Letting Your Ego Get in the Way
(iii) Having Unrealistic Expectations
(iv) Getting Overly Emotional
(v) Letting Past Negative Outcomes Affect the Present Ones
(vi) When All Else Fails: Third-Party Negotiations
Alternative Dispute Resolution
Alternative Dispute Resolution (ADR) includes mediation, arbitration, and other ways of resolving
conflicts with the help of a specially trained, neutral third party without the need for a formal trial or
hearing.
Mediation
In mediation, an outside third party (the mediator) enters the situation with the goal of assisting the parties
in reaching an agreement. The mediator can facilitate, suggest, and recommend. The mediator works with
both parties to reach a solution but does not represent either side. Rather, the mediator’s role is to help the
parties share feelings, air and verify facts, exchange perceptions, and work toward agreements.

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Arbitration
In contrast to mediation, in which parties work with the mediator to arrive at a solution, in
arbitration the parties submit the dispute to the third-party arbitrator. It is the arbitrator who makes the
final decision. The arbitrator is a neutral third party, but the decision made by the arbitrator is final (the
decision is called the “award”). Awards are made in writing and are binding to the parties involved in the
case. Arbitration is often used in union-management grievance conflicts.
Arbitration-Mediation
It is common to see mediation followed by arbitration. An alternative technique is to follow the

arbitration with mediation. The format of this conflict resolution approach is to have both sides formally
make their cases before an arbitrator. The arbitrator then makes a decision and places it in a sealed
envelope. Following this, the two parties work through mediation. If they are unable to reach an
agreement on their own, the arbitration decisions become binding. Researchers using this technique found
that it led to voluntary agreements between the two parties 71% of the time versus 50% for mediation
followed by arbitration.

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8. CONTRACT MANAGEMENT AND PAYMENT
Contract management is the process of managing agreements, from their creation to their
execution by the chosen party and the eventual termination of the contract.
Key activities involve performance analysis against the contract terms to maximize operational and
financial performance and to identify and mitigate financial and reputational risk through non-
compliance with contract terms.
Why is Contract Management Important?
Contract management is an important task for a business team. A solution to streamline contract writing,
processing, and storage allows businesses to meet legal and regulatory requirements with ease.
It minimizes risk, protects both companies' interests, and can be a good resource in decision- making
and resolving disputes.
Having well-documented contracts that are executed quickly reduces costs and streamlines the contract
process while promoting positive vendor relationships.
Software solutions can automate certain actions in the management process, saving a company time
and money.
What is a Contract Lifecycle Management (CLM) Process?

Initiation
This step involves identifying the need for a contract between two parties. In this discovery phase,
the scope of the agreement is established.
Authoring
The contract is drafted based on the terms and conditions defined by each business involved in the
agreement.
Process and Workflow
With an initial draft version in place, each party must examine the details of the contract. This stage of
the contract lifecycle will often involve internal collaboration with various departments.
Business operations, accounts payable, and legal may need to confirm that the agreement is sound
separately.

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Negotiation
After a thorough review, one or both parties may need to make edits to the contract. All
differences must be addressed before a final document can be approved.
Approval
This stage in the lifecycle process of a contract can be where things slow down. Large companies with
multiple stakeholders with varying access and authority can make the approval process complex.
Execution
After both parties approve the final contract, it is signed to put it into effect. Increasingly, these
signatures are electronic through a service like DocuSign.
Ongoing Management
Contracts are monitored for performance and to ensure both parties are meeting obligations. This
information is valuable when it is time to consider contract renewal or amendment.
How Contract Management Works

Managing Service Delivery
This ensures that products are delivered as and when they are ordered.
Managing the Relationship

It involves strengthening the contact between vendor and purchaser to improve communication
throughout the contract management process.
Managing the Contract

The ongoing administration that ensures the day-to-day procurement activities follow what is detailed
in the agreement.
Seeking Improvements
Amendments and alterations are pursued within a procurement environment to improve
efficiencies and increase profits.
Ongoing Assessment
Procurement activities are assessed continuously to ensure that contracts are honored and that all
purchasing processes have been followed.

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Managing Change
As part of a long-term procurement relationship, the changes in activities, requirements, or
products must be noted and handled effectively.
Managing Renewal or Termination

When a contract is due for renewal, contract management allows for taking proactive steps to
understand whether the contract should be renewed as is, re-negotiated, or terminated based on future
business needs, commercial attractiveness, and previous performance by the supplier.
Challenges of Non-Automated Contract Management
Lack of Visibility
Not being able to see the details of every active contract leads to unintended auto-renewals at
unfavorable terms.
It can also lead to poor performance where one or both parties must comply with regulations or contract
terms.
Inefficient Processes
Business processes that lack automation create an environment where manual intervention is
required to push the process forward through each step.
The contract lifecycle process tends only to stall if diligence is maintained. An automated system is a
second security level to back up busy contract professionals.
Human Error
Human errors due to data entry mistakes or misplaced documents are minimized when a
centralized, cloud-based system is used to maintain contracts.
Manual Contract Renewal and Revisions
The manual renewal and renegotiation of contacts can be labor-heavy. A digitized system prevents
timely reminders to review terms and allows renegotiation to remain unhurried and based on
actionable data like contract performance.

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Limited Communication
Contract partners may tend to limit communication over the lifecycle of a contract. The regular
reminders and task completion assignments that a contract management software solution provides will
encourage open communication between parties.
This could limit contract disputes and misunderstandings. Better supplier relationships will result.
Contract management best practices

Standardize contract creation
Use a set of terms, conditions, and legal language that applies to many contracts.
Set contract management KPIs

Make your goals transparent to the entire business.
Track contract approval time

This allows an organization the advantage of:
 Receiving contracted goods and services sooner

 Ensuring a quicker move toward a positive relationship
 Creating an easier process for seizing later opportunities
Set automated reminders

Alert essential parties to review the document. This eliminates the risk of missing certain
addresses in group emails.
Review financial metrics

Dedicate part of the business’ regular contract management reviews to analyzing financial
metrics.
Conduct regular compliance reviews

This responsibility is necessary to protect the company against the risk of legal, industry, and
external regulations.
What Are the Stages of the Contract Lifecycle?
The six stages of a contract lifecycle are:
1. Contract creation
2. Negotiation and collaboration
3. Review and approval
4. Administration and execution

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5. Ongoing management and renewal

6. Reporting and tracking
Steps one to three occur before the contract is signed (pre-signature) and four to six occur post-
signature.
Pre-signature activities involve everything from creating the contract to signing on the dotted line.
Post-signature activities occur after the contract is signed and continue until it’s either renewed or
terminated.
1. Contract Creation
The first stage in the contract lifecycle is no surprise: creation.
After you get a verbal agreement, the next step is to get it in writing. Think of it like the planning process
of a hike — this is that initial text you send to figure out which friend you can rope in to go with you.
In many cases, you’ll be working off a template for the contract, but it still requires careful
attention to personalize the contract for each agreement.
Trigger events for contract creation include:
 Verbal agreements
 New contract requests or intake requests
 Contract amendments
 Contract renewals
 Contract cancellations
When you’re creating a contract, it’s important to make sure it covers all the relevant information about the
agreement.
Here are the basics:
 Services each party will receive or provide

 Start dates
 Pricing
 Projected milestones and expectations
 Contingencies
Luckily, you don’t always need to come up with a contract from scratch. Contract management
platforms use intake forms to standardize and record details, then you can easily trigger contract

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creation requests using details provided ahead of time. It’s like putting your destination and
preferred time of arrival into Google Maps and letting it do all the route planning for you.
2. Contract Negotiation and Collaboration
Contract negotiation is one of the most important steps in the contract lifecycle.
Once the first version of a contract has been delivered, the work has just begun. There's a period of
negotiation between the involved parties. This back-and-forth process is called redlining, and it typically
occurs in Word and is most often sent via email.
One of the pitfalls of negotiating contracts over email is that not everyone is working from the correct
version. It’s like printing out a trail map for your hike versus saving it on your phone. Technically, it
could lead to the same result, but printing it out doesn’t account for changes that may occur in the
meantime.
A contract management platform is like your trusty maps app. Contract management platforms ensure
that:
 Contracts are easy to search and find, so you’re not stuck fishing through drives just to hope
that you find the correct version.
 The right people can access the right information using contract sharing and
permissions.
 The contract is always updated to the latest version.
 Records are kept of all changes using an audit trail.
 Version control tools can facilitate redlining and prevent changes from being lost or
overwritten.
These features give you access to a contract at each stage, so the right users have full visibility into the
negotiation process.
3. Contract Review and Approval
After wrangling your hiking buddy into an outdoor adventure and planning the details, you’ll get their
final approval on which trail you’re taking and who’s providing the snacks.
The same goes for your contract. Now, you send it up the approval chain for each internal party to
review. These approval chains typically include managers, officers, and other stakeholders. The types
of roles and number of people who are looped in for approval will vary widely depending on the
organization.
This is a stage where many contracts get stuck in limbo — delays occur as people lose track of the
contract, especially if late-stage edits occur.

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4. Contract Administration and Execution
After all that planning, here’s where your hiking buddy agrees to the trek.
Once a contract’s been approved, it’s time to finally put pen to paper. Although many team members
are involved in contract review and approval, there’s typically only one person from each party who
needs to sign on the dotted line.
5. Ongoing Contract Management and Renewal
Contract management doesn’t stop once you’ve signed on the dotted line — it also involves
administration with a contract repository. An easy-to-access repository makes documents easy to search
and find with just a few keywords. It’s like hiking with a hydration pack instead of a glass of water.
Ongoing contract management is when you fulfill the obligations of your agreement up until the option
or desire to renew. This includes tasks like:
 Keeping track of contract milestones

 Ensuring obligations are met after the contract is signed
 Tracking changes or amendments to your contract
 Executing periodic audits to ensure your contracts are compliant
The moment of truth comes once you’ve finished your hike. You’ll likely be in your car with your
friend, debriefing about the experience. Was the walk too steep? Was the scenery worth it?
Depending on whether your hike delivered, they’ll either agree to try a different trail with you in the
future, or decide that a different activity is more their speed.
For contracts, it’s the same. By the agreed-upon dates, you’ll have to decide if a contract should be
renewed or terminated. This step is incredibly important — renewing a contract isn’t always beneficial
to either party.
This stage of contract management typically includes:
 Sending reminder alerts when key contract dates approach

 Deciding whether to continue or terminate a contract
If you’re looking to renew a contract, contract management software can set reminders to give you plenty
of time to refine goals, expectations, and rates for the new contract. If you decide to terminate the
contract, you’ll need to carefully review any responsibilities in the original contract before doing so.

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6. Contract Reporting and Tracking
Instead of shuffling through pages at your desk, Contract Safe software helps you find what you’re
looking for, whether it’s a document or a specific section, with just a few keywords.
Four components of contract planning and management

There are four key components in contract management:
1. risk analysis
2. commercial
3. suppliers and contract and
4. reporting
These four components are shown in the following figure and provide a context for contract planning and
management at the individual procurement activity level.
Figure: Contract planning and management framework

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The figure shows the four components of contract planning and management (procurement
activity):
 Risk analysis
o Contract risk segmentation analysis
o Proximity to core analysis
 Commercial
o Benefits tracking
o Financial management
o Pricing reviews
o Financial risk
 Suppliers and contract
o Contract management plan
o Supplier relationship management
o Transaction management
o Variation

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 Reporting
o Key performance indicators
o Reporting frequency
o Reporting hierarchy
This guide further explores these four components to assist procurement practitioners perform
effective contract planning and management.
The following table provides a list of tools and templates available to assist contract planning and
management:
Contract components and relevant tools
Contents Contract Contract management

planning
Risk analysis Highly General consideration to be given to
relevant risks and criticality.
Defining the level of risk – contract risk
segmentation tool Highly
relevant
Defining criticality to business
Finance Highly Relevant where applicable
relevant
Benefits tracking (qualitative and Relevant where applicable
quantitative) Highly
Pricing reviews relevant Highly relevant
Financial risk
Highly
relevant
Insurance checklist Highly

relevant
Suppliers and contract Highly Relevant where applicable
relevant
Contract management plan (short or long) Relevant where applicable
Highly
RACI (responsible, accountable, relevant Relevant where applicable
consulted, informed)
Highly Relevant where applicable
Record management relevant
Governance checklist Highly

relevant
Transition in and out

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Contents Contract Contract management

planning
Highly
relevant
Reporting Highly Relevant where applicable
relevant
Performance management - KPI and Highly relevant
supplier performance scorecard Highly
relevant Relevant where applicable
Data collection
Highly
Reporting relevant
Customer satisfaction survey Highly

relevant
Risk analysis
Each procurement activity carries its own level of complexity and risk. As noted previously, each
individual procurement can be positioned in one of four contract planning and management segments:
 transactional;
 critical to the business;
 high risk; and
 strategic.
Different contract management process, tools and templates apply depending on the segment in which
the procurement activity resides.
Tools: The interactive Contract risk segmentation tool and the Defining criticality to business
assessment tool help contract managers allocate procurement activity to a segment based on the level of
risk. It can also be used to monitor risks over the life of a long-term contract (three+ years), particularly
contracts of a strategic nature.
Value can be added to the contract planning and management phase by considering the areas of focus
listed in the following table.

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Areas of focus under each risk quadrant
Risk level Focus Supply profile Considerations

Operational Transactional Provide goods and services Apply good management practice.
excellence deemed both low risk and Use basic standard form contracts.
low operational
significance. However,
spend volume can be such
that a degree of operational
governance is required.
Critical to Performance Provide goods and services Develop and apply a short-form
business and value integral to operations. contract management plan (CMP) to
However, risk of failure is add rigour to process oversight and
unlikely and no major monitoring of supplier performance.
disruptions would occur.
High risk Risk Provide goods and services Assess whether there are
management with high risk of failure yet opportunities to migrate all or
would have low operational elements of the supply arrangements
significance to the to a lower risk segment. Develop a long
organisation if the form CMP and subject supplier to
arrangement fails. regular performance monitoring to drive
supplier performance.
Strategic Strategic alignment
Integral to operation of the Review risk treatment strategies with
business, failure of the the intent of migrating risks to a lower
arrangement would result in level. Where possible investigate major disruption tose
to be applied.subject supplier to regular performance monitoring to drive supplier p
Commercial
Benefits tracking
Benefits tracking is relevant to both contract planning and contract management. It is about
defining your contract objectives and how they will be assessed and measured in relation to value-
for-money outcomes.
In the procurement planning phase, it is about using a consistent methodology over the life of the contract
to report on all benefits, both quantitative (e.g. prices, transaction costs, response times) and qualitative
(e.g. non-financial key performance indicators).

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Benchmarking of financial and service scope/quality should be considered to ensure the contract remains
competitive and aligned with evolving market conditions. It also supports the decision- making process
for extending a contract or carrying out a new procurement process.
In the contract management phase, it is about carrying out benefits tracking (price monitoring and
compilation of other quantitative and qualitative data) at regular intervals and aligning the review
periods with key milestones.
Financial management
Financial management/monitoring should be considered in both contract planning and

management.
Contract planning
 rates, e.g. services/products are consistent with contract rates;

 rebates/volume discounts being received;
 early payment discounts; and
 opportunities to gain discounts if the volume is significantly above the agreed contract
volume specification.
Contract management
 submitting invoices in accordance with contract and/or supplier management plans, e.g.
fortnightly, monthly, by deliverable;
 processing invoices with respect to completion of work in full and to the required quality;
 processing invoices in accordance with the organisation’s accounts payable and complying
with the Government’s commitment to avoid submitting late payments to suppliers; and
 monitoring supplier costs on a regular basis.
If applicable, the final payment of an expiring contract should ideally be retained until the
supplier has completed contract obligations in full, e.g. any outstanding issues have been
resolved.
Note: This should only be done in accordance with contract terms and conditions.
The Financial tracking checklist helps you manage and monitor financial components. Pricing
reviews
Most contracts include a price per unit of measure. Where contracts include a reference to price review,
the contract manager should ensure that pricing reviews are conducted in accordance with terms and
conditions and identified at contract execution.

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The following is a list of some market forces, which could impact the contract price and value
throughout its life:
 labour market index;

 consumer price index;
 utility pricing;
 exchange rates used in the contract; and
 legislative/ regulatory requirements.
Contract managers should seek financial advice to validate price review estimates.
Financial risk
You can also derive value from a contract when risks are mitigated and minimised into lower risk
segments, i.e. ‘critical to business’ to ‘transactional’. Managing financial risks is an important value
driver, particularly for supply arrangements in the ‘strategic’ and ‘high risk’ segments. It is recommended
that a regular review be conducted to assess the supplier’s financial viability throughout the life of the
contract financial risks and their mitigation.
Ensuring that suppliers maintain appropriate insurance is one way to manage risk exposure.
Contract managers should:
 capture and monitor information regarding supplier certificates of currency, including values
and expiry dates and ensure that certificates are at or above the insured amounts;
 monitor certificates to ensure their currency;
 request updated certificates from the supplier at a minimum of 4 to 6 weeks prior to expiry
of existing certificates;
 where the contract is proposing capping of liabilities, include this in the contract segmentation
analysis tool as it changes the level of risk associated with the contract; and
 ensure certificates of currency are stored appropriately.
Some examples of certificates of currency include:
 product liability;
 public liability;
 professional indemnity;
 workers compensation; and
 bank guarantees.
The Contract insurance checklist records insurance provisions and currency.

Suppliers and contract
Contract management plan

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The objective of a contract management plan (CMP) is to identify and address the key areas associated
with managing the contract and achieving specified objectives. It summarises key components of the
contract, translating the contract terms and conditions into a practical guide that defines the overall
approach for contract management.
There are two versions of the CMP template.
 the CMP – short form provides a basic level of management for critical to business
segments where the contract management risk is low.
 the CMP – long form provides a detailed contract management plan for contracts
identified as high risk and strategic in the contract management segments.
A CMP can add value by outlining:
 contract objectives and outcomes;

 roles, responsibilities and obligations of the parties and their agents;
 how the contract performance management and reporting (KPIs) will be managed;
 how benefits will be tracked and reported;
 reporting and communication protocols and purpose;
 the financial management approach, including supplier health check;
 the framework for managing variations, changes to program, slippage;
 contract governance requirements;
 issue management and process; and
 negotiation strategies to improve on specification outcomes.
These CMP templates can be modified and adapted to suit particular relationships with suppliers
including:
 single supplier/single service/goods;

 panel of suppliers providing the same goods/services;
 single supplier with multiple contracts for goods and services in the same broad category
e.g. software or computer hardware or freight; and
 single supplier with multiple contracts for goods and services in differing categories (e.g.
computing agency labour, hardware, warehousing and logistics).
Supplier relationship management
Good relationship management establishes clear lines of communication and responsibilities

between the organisation and the supplier.
Key aspects of relationship management include:
In contract planning:
 building strategic relationships between the key stakeholders in the organisation and
suppliers to drive contract performance;

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 identifying and building on mutual benefits; and

 establishing operational relationships between the organisation and suppliers to
coordinate day-to-day operational components of the contract.
In contract management:
 management to management relationships to alert and mitigate issues that arise during the life of
the contract and
 embedding open communication to ensure both parties can provide feedback to drive
continuous improvement.
The Responsible, accountable, consulted, informed (RACI) template identifies roles and
responsibilities related to the CMP – long form.
The Contract governance checklist covers the key steps in supplier and contract management.
Transition management
Where applicable, in contract planning, you should consider transition in and out processes with a clear
program of actions and a communications strategy for both suppliers and users of the goods/services.
The Transition in and Transition out checklist highlights matters for consideration in the
transition process.
Variations
A variation to contract is a mutually agreed amendment to vary the obligations set out in a contract
for goods and services. There are many reasons to vary an existing contract. For example, changes in
technology, resources, needs of the organisation, market conditions, etc. Variations can generally be
categorised as either administrative or financial:
 administrative variations are changes that do not affect the financial details of the contract, e.g.
changes to the billing process, delivery address, personnel assigned to the contract, sequencing
of work, performance management and monitoring processes, etc.; and
 Financial variations alter the financial details of the contract, e.g. changes to the price/cost,
quantity, nature of the deliverables and terms of the contract (which increase the value).
When addressing variations to contract, ensure that you:
 manage variations or changes to the contract in accordance with the terms and conditions of the
contract;
 justify the variation based on documented evidence essential to the delivery of the
goods/services;

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 do not change the original intent or general scope of the contract;

 consider whether the additional requirements would be better managed under a new
contractual arrangement;
 satisfy the core procurement principles; value for money, probity, scalability and
accountability;
 put appropriate contract management procedures in place to minimise the need for further
variations;
 confirm that sufficient funds are available;
 have the variation endorsed and signed by both parties to ensure there is a common
understanding of the required changes; and
 approve and report any changes to contract terms and conditions through the formal
channels.
When there are multiple variations to a contract, consideration should be given to:
 whether the contract planning strategy framework needs improvement to minimise the need
for further variations;
 escalating the issue of project management oversight and appropriate capability through the
governance reporting arrangements established by your organisation; and
 whether to approach the market again should there be a significant shift in the scope of the
procurement.
Approving variations
A variation to contract needs appropriate approval. Administrative variations are generally approved
by the contract manager whereas financial variations require approval by a financial delegate.
For variations to state purchase contracts or a sole entity purchase contracts, refer to the Guide to
aggregated purchasing demand.
Reporting variations
Where an individual variation takes the contract value over $100,000 or any variations to
contracts over $100 000, it should be disclosed on the contract publishing system.
Pre-approved variables
Some contractual arrangements have agreed pricing formulas for goods/services that allows for price
fluctuation. If the pricing formula was approved through the procurement process, variations are
limited to the scale agreed in the contract. The contract is to be appropriately monitored to ensure value
for money is maintained throughout the life of the contract.

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Reporting
Performance management
Performance management is a critical element in all contracts to assess whether a supplier is

meeting their obligations under contract.
Developing performance measures is an integral part of the contract planning phase and should be
included in the contract terms and conditions. The level of performance management is scalable
however, maintaining consistency in recording information is important.
For strategic and high risk contracts, the contract can be divided into two categories:
(i) service level agreement (SLA) and

(ii) key performance indicators (KPI).
The SLA is a formal negotiated agreement between two parties that sits underneath the contract of
appointment. It sets out minimum performance levels required under the contract.
KPIs are metrics used to quantify the performance of the supplier and monitor adherence to the SLA on
a predetermined frequency. When set correctly, KPIs give an early indication of when the supplier is
struggling to reach the agreed level of service.
The KPI and supplier performance scorecard helps build KPIs and can also be used to develop
specification/quote/tender documents and to enhance the CMP.
Supplier behaviour is influenced by the performance measures adopted. Keep KPIs to a minimum—a
few targeted, measurable KPIs are better than many unmeasurable KPIs. Performance measures
should strike a balance between supporting performance management activities without incurring
unnecessary costs.
Key considerations in relation to performance measures include:
 is the intended measure clearly understood by both parties;

 do the measures focus on contract performance against contract deliverables and intended value;
 can the measure be objectively assessed;
 do the measures encourage performance improvement over the life of the contract;
 is the performance regime cost effective to administer for the organisation and the
supplier; and
 does contract performance against the measures provide the basis for identifying
underperformance and provide grounds for remedial action and/or penalty payments.

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Reporting process
Where relevant, the contract should include provisions for ongoing monitoring and assessment. For
example, how often to report contract performance (monthly, quarterly, annually or aligned with a
contractual milestone) and how to carry out performance assessment.
An organisation may assess performance using their own qualitative and quantitative data sources
such as an organisational level customer satisfaction survey.
The Supplier customer satisfaction survey can be used to survey stakeholders and customers to gain
feedback on supplier performance.
The supplier may carry out a self-assessment and report to the organisation. While this does not provide
an objective view, it may still offer a method for monitoring performance where the contractor has
customer feedback and data embedded in their own systems.
Scalability in reporting
The following figure provides an example of the contract management reporting structure and shows
the scalability that can be applied depending on the requirements and complexity of the contract and
organisational requirements.
The figure shows the scalability framework for reporting.
 Executive:
o Comprises:
o Business head
o Category manager (support)
o Executive dashboard:
o Supplier / contract status
o High level risk management
o Escalated issues
o Key financials
o Key performance
o Strategic Alignment
o Value alignment
 Management:
o Comprise:
o Senior category manager
o Contract manager
o Business senior manager
o Reporting:
o Category view and trend perspective
o Supplier view – risk management, escalated issues, variation control, Innovation
o Value achievement and maximisation
o Quarterly / bi-annual review

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 Operation:
o Comprise:
o Natural owner
o Contract manager (support)
o Reporting:
o Contract view – KPI view, issue log
o Financials – spend, savings, budget
o Review as required
Operational reports have a historical perspective.

Strategic reports have a forward perspective.
Issues management
Logging, managing and reporting issues is a vital function when managing a contract. An issue, if not
addressed immediately, can have serious repercussions.
The Supplier scorecard issues log is an important tool in identifying and responding to issues.
Operational reporting
Operational reporting is the foundation for contract management reporting of procurement activities. It
includes detailed performance against agreed KPIs and SLAs and other information identified as
relevant by the contract manager and operations personnel.
Management reporting
Management level reporting provides information to support decision-making at the management level
and includes key supplier and contract information for strategic, high risk to the organisation and critical
to business contracts, including contract status, financials, performance data, escalated issues and risks.
Executive reporting
Executive level reporting provides information to support decision-making at the most senior level
where key project performance is integral with organisational program delivery, program budget
allocation, organisational governance, capability reviews, effective risk, and financial management.

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What Is Procurement Contract Management?
Procurement contract managers ensure companies obtain the goods they need.
Procurement contracts play a huge role in the business world , especially in the sale of goods and services.
Sometimes called "purchasing contracts," procurement contracts legally bind the buyer and seller in a transaction
and protect them both. As a result, procurement contract management also plays a large role in companies and
organizations. Usually, companies will assign this job to a contract management agency, project manager, or lawyer
skilled in procurement contract management.
If not completed correctly, procurement contracts can cause deals to fall through, leading your company to miss
out on the materials they need for a project. Or, if your company is the seller, they can lose out on a sale.
What Does a Procurement Contract Manager Do?
Procurement contract managers finalize deals between the company they work for and other companies. Typically,
these managers are skilled in business, project management, and law. They often work with vendors, suppliers, and
the upper management of their companies or organizations.
Contract managers must know the differences between procurement and purchasing. Purchasing refers to the actual
act of buying goods and services, while procurement refers to the process of finding a vendor and negotiating the
price.
Procurement Contract Responsibilities
 Finds and vets potential project vendors and negotiates the cost of goods.
 Formalizes the procurement contract either alone or with the help of lawyers.
 Monitors the transaction to ensure all parties uphold their ends of the contract.
 Works with engineers and managers to determine what goods are needed for
specific projects.
 Maintains documentation of all acquisitions.
 Oversees the flow of goods and services throughout the company so they arrive at
their destination.
Where Do Procurement Contract Managers Work?
Procurement contract managers work at various kinds of companies. Any business that needs to acquire goods or services
Depending on the company's size, the procurement contract department could be large or quite small, or the company mig

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Purchasing, Procurement, and Contracts Careers
When obtaining an entry-level job in purchasing, procurement, and contracts, you may seek a job as a contract asso
Mid-level jobs include procurement contract manager and purchasing manager. High-level jobs include purchasing
Purchasing Managers, Buyers, and Purchasing Agents
Workers in this field oversee the purchasing of goods and services by companies and public organizations. They may
Lawyers
Lawyers in the procurement industry typically work for companies or public organizations to ensure all procurement con
Cost Estimators
Cost estimators work in several industries such as construction, manufacturing, and engineering. They
analyze data to determine how much projects will cost in terms of labor and materials. They often
work with project managers and purchasing professionals. Like procurement contract managers, cost
estimators maintain documentation of acquisitions.
PRINCIPLES OF CONTRACTS
 Obligations Law
THINGS TO REMEMBER IN CONTRACTS LAW
First, what are these five things we are talking about? They are:
(1) obligatory force of obligations arising from contracts;
(2) relativity of contracts;
(3) consensuality of contracts;
(4) autonomy of contracts; and
(5) mutuality of contracts.
These are the five general principles governing contracts.

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[1] OBLIGATORY FORCE
Obligations arising from contracts have the force of law between the contracting parties and should
be complied with in good faith. This one is actually under the law on obligations.
Obligations either arise from law or contracts and they are juridical necessities. In other words, they have
to be complied with. It follows that, under the law, obligations arising from contracts and those arising
from law are viewed as having the same binding effect. They are necessities the compliance with which
may be enforced in court and noncompliance with the same has legal consequences.
Under this principle of obligatory force, it can also be said that contracts are the law and, as a result,
courts must enforce them between the contracting parties. Also, courts cannot make a contract or a
stipulation if there is none.
[2] RELATIVITY OF CONTRACTS
Not all people can be harmed or benefited by a contract. As a rule, only the parties are affected. Of
course, when rights under a contract are assignable and assigned as such, the assignee may be harmed or
affected. The same goes for heirs of a contracting party who has died.
Contracts take effect only between the parties, their assigns and heirs, except in case where the rights
and obligations arising from the contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property he received from the decedent.
If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment
provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit
or interest of a person is not sufficient. The contracting parties must have clearly and deliberately
conferred a favor upon a third person.
In contracts creating real rights, third persons who come into possession of the object of the
contract are bound thereby, subject to the provisions of the Mortgage Law and the Land
Registration Laws. (n)

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Creditors are protected in cases of contracts intended to defraud them.
Any third person who induces another to violate his contract shall be liable for damages to the other
contracting party.
No one may contract in the name of another without being authorized by the latter, or unless he has by
law a right to represent him.
A contract entered into in the name of another by one who has no authority or legal representation, or
who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by
the person on whose behalf it has been executed, before it is revoked by the other contracting party.
[3] CONSENSUALITY OF CONTRACTS
Contracts, as a general rule, are perfected by the meeting of the minds of the contracting parties. They are
obligatory in any form (oral or written) as long as parties have agreed to undertake their obligations under
the contract. The clue is "meeting of the minds."
A contract is a meeting of minds between two persons whereby one binds himself, with respect to the
other, to give something or to render some service.
Contracts are perfected by mere consent, and from that moment the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage and law.
Real contracts, such as deposit, pledge and commodatum, are not perfected until the delivery of the
object of the obligation.

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[4] AUTONOMY OF CONTRACTS
Contracting parties are the kings and queens of their own kingdom which is the contract. They are
allowed to stipulate anything as long as not contrary to certain limitations.
The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.
Innominate contracts shall be regulated by the stipulations of the parties.

[5] MUTUALITY OF CONTRACTS
The terms to remember here are "mutual" and "unilateral." Contracts are agreed upon by mutual consent.
Therefore, their compliance or validity must also be mutual. There are also instances when
extinguishment of an obligation arising from contract can be terminated as long as such termination is
mutual (not unilateral). In fact, a party cannot unilaterally give up or modify what is incumbent upon
him under the contract.
The contract must bind both contracting parties; its validity or compliance cannot be left to the will of
one of them.
The determination of the performance may be left to a third person, whose decision shall not be binding
until it has been made known to both contracting parties.
The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall
decide what is equitable under the circumstances.
Essential Elements of A Contract

Know the essential elements of a contract for it to be legally binding. If one or more of these
elements are missing, the contract may be void or unenforceable.
For a contract to be valid and recognized by the common law, it must include certain elements— offer,
acceptance, consideration, intention to create legal relations, authority and capacity, and
certainty. Without these elements, a contract is not legally binding and may not be enforced by the
courts.

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However, it is important to note that not all legal contracts need to be in writing in order to be valid.
For example, an oral contract between two parties is still legally binding as long as all of the required
elements are present. Whether written contract or verbal contract, all bilateral contracts must include
the essential elements to be valid and enforceable by contract law. Keep reading to learn more!
Offer
For there to be a contract, there must first be an offer by one party and an acceptance by the other. An
offer is a key element because without it, there can be no contract. It is a promise by one party to enter
into a bargain contingent on the performance of another party. It involves someone who desires certain
goods, services, or other performance and someone who can fulfill the responsibility of providing it.
The offer must be clear and definite, and it must be communicated to the other party. The offeree must
then accept the contract terms of the offer, which can be done explicitly or implicitly. If the offeree
accepts the offer, a binding contract exists, and that contract will be enforced by common law.
An offer is a definite statement of the terms of an agreement that the offeror is willing to be bound by. It
must be unambiguous and made to create a legally binding contract. To illustrate, an offer to sell a car for
$500 is an offer that, if accepted, will create a binding contract.
The offeror can make the offer to the offeree directly or indirectly. An offer made indirectly, such as
an advertisement, is known as an “invitation to treat”. This type of offer is not legally binding
because the advertisement is not a definite offer to sell the car for $500, but rather an invitation for
the offeree to make an offer.
For there to be a binding contract, the offeree must accept the offer. An invitation to treat, on the other
hand, is not an offer. It is simply an invitation to negotiate and is not legally binding. An offer exists
when it reaches the requesting party, and it can be revoked, altered, or terminated before acceptance.

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Acceptance
Acceptance is the agreement to the specific conditions of an offer. It must be unequivocal and must
correspond with the contract terms of the offer, denoting that the offeree cannot change the terms of the
offer. The offeree can either accept the offer explicitly or implicitly.
Communication with the offeror should always be maintained, and it is important to know that a
counteroffer might be recognized as a termination of an offer, or in other words, if an offer is modified,
it is no longer the same offer.
An acceptance can be expressed or implied. An express acceptance is an affirmative statement by the
offeree that they accept the terms of the offer. An implied acceptance is when the offeree takes some
action that indicates their acceptance of the offer.
Words or actions can be used to accept an offer. It can be done in different possible forms: conditional
acceptance (if the offeree accepts the offer subject to certain conditions, which must be fulfilled before
the bilateral contract is formed), acceptance by action (by performing the actions specified in the offer),
and option agreement (when the offeree pays for the offeror to keep the offer open for a certain time).
Consideration
Consideration is what each party to the contract gives up, or promises to do, to form the contract. It can
be something of value, such as money, goods, services, or property. For instance, consider an
employment contract between an employer (promisor) and employee (promisee). The employer offers the
employee a job, and the employee accepts the offer. In this case, the employer's consideration is the job
(and paying the employee), and the employee's consideration is their promise to work for the employer.
But it can also be something detrimental to the promisee, such as a forbearance from doing something
they have a right to do. For example, if someone stops you from smoking in your own home, that is a
consideration.
Consideration does not have to be a financial investment. In most cases, the courts will not assess the
adequacy of the consideration. The parties are free to enter into a bad bargain. Classically,

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the courts have rules that a “mere peppercorn” can count as consideration. An exception is sometimes
made, however, in the case of employee non-compete agreements, where the courts may consider the
adequacy of the consideration.
Intention to create legal relations

To be legally binding, a contract must show an intention to create legal relations. This can be shown by
the use of formal language, such as “I agree to…” or “This contract is binding on the parties”.
However, intent need not be formalized. It can be inferred from the conduct of the parties. The reason
why intent is important is because it demonstrates the seriousness of the parties’ intention to accept
both the benefits and the obligations of the agreement.
If one side does not agree to every condition, there is no binding agreement, which is to say that an
agreement should be accepted as a whole, considering every specific term. To give an example, if you
sign a contract to buy a house and the seller does not agree to one of the terms, there is no contract. The
lack of this element might result in the contract being voided. A standard entire agreement clause states
that a written contract contains the complete terms, and any prior statements, written or oral, are
superseded.
Authority and capacity

Contract law judges the circumstances for a party to contract. Each party to the contract must have the
legal capacity to enter into the mutual assent. This indicates that they must be of legal age and have the
mental capacity to understand the terms of the contract. If one party does not have the capacity to enter
into the contract, the legal document may be void.
A contract is only valid if all of these elements of a valid contract are present. If one element is
missing, the contract may be void or unenforceable.
Certainty
To be enforceable, a contract must include certain terms, and the ability to fulfill the essential terms
of an agreement must be guaranteed. These terms must be clear and unambiguous.

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There are two essential terms in any agreement: the first one is consideration or price to a bargain
(something of value given in exchange for something else of value), and price to be paid for the
promised obligation (the service to be delivered, the product to be sold, and so on).
If any of these terms are missing, the contract may be void. For example, if you agree to buy a car for
$500, but there is no mention of what kind of car it is, the contract is void because the essential terms
are missing. The same goes if you agree to sell your car for $500, but there is no mention of what kind
of car it is.
The courts may not enforce a contract if the terms are too vague or uncertain. To give you an idea, if
the contract is for the sale of goods, but the parties do not agree on what “goods” are, then the
contract is too uncertain to be enforced.

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9. WAREHOUSING OPERATIONS AND DISTRIBUTIONS
A warehouse can simply be defined as a planned space usually a large commercial building for handling
and storage of goods. Therefore, warehousing refers to all the processes involved in the storage and
handling of goods in such a planned space. The goods commonly found in warehouses include;
machinery spare parts, building materials, finished agricultural goods, furniture and electronics. Some of
the activities that take place in a warehouse include receiving goods, offloading goods, forklifting
goods and stacking the goods. The coordination of all the activities is what warehousing entails.
Distribution on the other hand is the process of making the goods available for consumption by business
users and final consumers. A combination of warehousing involves the acquisition of goods from
manufactures, storage of the goods and availing the goods to the consumers.
Distribution business model
A business model is the plan that is formally made to ensure a business is steered towards profitability. In
the distribution business, it is also important to come up with a business plan that will clearly list out the
range of costs and the expected revenues. This will create a sense of direction for the business. There are
four major steps that can be followed in coming up with a distribution business model;
(i) The first involves establishing the market needs which will determine the types of
distribution services to offer. Also to be determined are the modes of distribution;
such as the choice of transport for example using railway transport for bulky goods or
air transport for perishable goods and specialized services such as transport of
hazardous goods and wide loads using appropriate vehicles.
(ii) The second step is researching and understanding the cost structure. This should
come from all the costs involved such as the equipment, licensing and staff expenses.
A full understanding of the cost structure is essential in setting the right prices that
will bring profits.
(iii) The third step involves setting pricing structures and establishing appropriate
payment methods for the consumers. It is advisable to offer a variety of payment
methods for the consumers such as cash, checks, and credit card for their
convenience. Terms of payment should also be determined such as the incentives for
prompt payments, grace period for early buyers and penalties for late payments.
(iv) The fourth step will involve gaining economies of scale in the market to keep up with
competition and increase profitability. Economies of scale are an integral part of any
distribution business mode. This will involve increasing the magnitude of your
services, geographical cover and assets such as distribution

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vehicles. Such growth of the business creates reliability within the services and gives
you power to steadily increase prices which improve the profitability of the
distribution.
Potential warehousing issues
Some of the potential issues likely to arise in warehousing can be;
1. Theft: Cases of both internal and external theft can occur. To curb this vice, CCTVs can be
strategically set up along with other security measures such as armed guards and inspection of all
those leaving the warehouse premise. Barcode or RFID tracking can be a smaller step that will
help curb loss.
2. Damage: The manner in which goods are handled especially those that are fragile can cause
damages. Employee training and coming up with better handling procedures can help reduce
these damages. FIFO allocation can ensure each case is in the warehouse for the shortest time
possible, and least prone to damage.
3. Accidents: Accidents can also occur in the warehouse, both minor and fatal. The facility has to
meet the safety standards and the staff motivated to prevent accidents in the warehouse. Making
sure heavy items are low and easy for picking can minimize the most frequent injuries due to
product movement.
4. Wrong quantities: Receiving low quantities of goods than the order can cause stock outage
which affects sales negatively. On the other hand, too much stock increases storage costs.
Systems should be in place to ensure accurate quantities are received at the warehouse and alert
management when running low.
Importance of perpetual inventory
The ability to track goods through inventory management is essential for the survival of any business.
Accurate inventory information can help reduce waste, meet customer expectations, maximize profits and
anticipate future customer needs.
Formerly, inventory involved conducting a physical count of goods in a warehouse and reconciling the
numbers with figures on paper. Such a physical stock count would be done periodically with the
inventory figures updated at such times. This was known as the periodic inventory system since it was
done periodically though some businesses still apply it currently. But a new system, perpetual inventory
management which uses the inventory management software allows for real time updating of inventory
count has since replaced the old system. The inventory management system updates the data
automatically using the information fed to the database which enables the system to track every change.
Advances in the inventory management software has also enabled its integration into other business
systems which makes perpetual inventory a more powerful and practical option for businesses. Perpetual
inventory is therefore important in the following ways;

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By relying on automated processes through the use of bar-code scanners for real time updates, perpetual
inventory increases the accuracy of data. The automated process eliminates the possibility of human error
which was common in the periodic inventory system. This provides a business with the real situation of
inventory at any moment.
The perpetual inventory system also improves the effectiveness and efficiency of warehouse
management. Providing information such as the most restocked item and goods that are always ordered
together is vital information for the organization and maintenance of the warehouse. The integration of
the inventory management software with other business systems makes it easier for the warehousing
processes to be coordinated with the whole business as an organization.
The ability of the perpetual inventory management system to produce reports anytime makes it easier for
businesses to have instant access into the inventory database. Such information enables quick responses to
changes in demand and distribution environment.
The core benefit of the perpetual inventory management software is the ability to integrate with other
business systems such as the financial and accounting systems. Such integration provides for accurate and
comprehensive reports about the business making analysis of such data easy and quick. For example,
integrating the inventory management software with the marketing department enables the marketing
team to quickly determine the most selling products and where more marketing efforts are needed.
Goals for warehousing and distribution
The warehousing and distribution business environment is very demanding and the stiff competition gives
no room for mistakes. It is therefore important to come up with aim for goals that will propel the business
forward. Such goals can include;
 Providing customers with outstanding services in storage and transportation of their goods in a
manner that enhances the organization’s rapport. Customer feedback and complaints have to be
attended to promptly to meet this goal.
 Reduction of distribution and warehousing costs to minimize expenses and increase profitability
for the business. This can be achieved through the application of the latest technology and use of
best transport means in the distribution processes that minimize both resource use and damages to
goods.
 Continuous improvement through service quality assessment that determine the areas to make
improvements by seeking ways to reduce costs, eliminate inefficiencies and improve on the
quality of customer service.
 Maximizing on the use of warehouse equipment and staff; this should ensure that the available
equipment and staff are adequately utilized to avoid costs of hiring more or poor service.

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Types of Warehouses
Warehouse activities in logistics may vary depending on types of Warehouse Basically, we will be
comparing and discussing on three types of warehouse:
 Distribution warehouses
 Production warehouses
 Contract warehouses
Distribution Warehouses
A warehouse in which various products from suppliers or third party vendors are accumulated or stored
for delivery to different customers or organisations is called a distribution warehouse. It is only acting as
a medium of storage or collection between two parties.
Production Warehouses
Whereas a production warehouse can be defined as, storage of raw materials, semi-finished goods and
finished goods for a production facility/company. It plays a very important role in boosting the sales and
reputation of the production firm by keeping the right products, maintaining the right inventory level and
reducing the lead time in delivering the products to customers.
Contract Warehouses
Contract warehouse, you can see the term contract, which means getting into a legal agreement. In this
company outsources its warehouse function to the third party to handle the activities falling under that
function. A contract warehouse handles multiple orders and deliveries from different customers
simultaneously.”
List of Warehouse Activities
Warehouses could have different activities according to product specification, customer requirements and
service levels ordered. The complexity of the warehouse activities depends mainly on:
 the number and variety of items to be handled

 the amount of daily workload to be done
 the number, the nature and the variety of processes necessary to fulfil the needs and
demands of the customers and suppliers.”

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In general, warehouse activity consists of receiving, put away, storage, packing and shipping. Receiving
is an operation that involves the assignment of trucks to dock and the scheduling and execution of
unloading Activities. Put away is the activity of placing a product or material that has been purchased in
the warehouse. This activity including material handling activities verifying the location of the product
material and the placement of the product. Storage is the movement of material from the unloading area
to its designated place. Order Picking is order preparation. It is regarded as the main and labour-
intensive activity of warehouses. Shipping is an activity that involves scheduling and assignment of
trucks to docks the orders, packing after picking and the loading of trucks. However, we did not include
other warehouse activities such as replenishment (transfer of products from the reserve storage to the
picking area.
Each of these five activities can be divided into several sub-activities.
1. Receiving: operations that involve the assignment of trucks to docks, the scheduling and
execution of unloading activities
2. Storing: material’s movement from unloading area to its designated place in inventory
3. Order Picking: the process of obtaining the right amount of the right products for a set of
customer orders. This is the main and the most labour- intensive activity of warehouses
4. Shipping: execution of packing and truck’s loading after picking, involving also the
assignment of trucks to docks
5. Delivery: the transit time for transportation from the warehouse to the customer.
Essential Processes for Warehouse Management

What is warehouse management?
Warehouse management refers to the oversight of operations in a warehouse. This includes receiving,
tracking, and storing inventory, as well as training staff, managing shipping, workload planning, and
monitoring the movement of goods.
What is a warehouse management system?
A warehouse management system (WMS) is software designed to optimize operational processes in a

warehouse. By implementing a WMS you have full visibility into real-time inventory levels and storage,
staff productivity, demand forecasting, and order fulfillment workflows within a warehouse.
Warehouse management systems are important as they eliminate manual processes and guesswork and
instead streamline processes that save time and provide a more accurate snapshot of what’s going on
inside a facility without needing to conduct continuous warehouse audits.

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This information helps warehouse managers identify areas of improvement and track progress to drive
optimizations throughout the supply chain, from when inventory hits the loading docks to when it’s
shipped out to its next destination.
Warehouse management software provides the tools to drive strategic big picture improvements as well as
those to monitor the day-to-day. What a management team sees in the warehouse management system
will be different from a picker or packer who relies on the system to know what to pick or pack next on
the warehouse floor.
Each warehouse management system may have different functionality deployed depending on the
business it serves (e.g., what a direct-to-consumer e-commerce seller needs isn’t the same as a large brick
and mortar store chain).
Essential warehouse management processes
Warehouse management is one facet of supply chain management. It affects retail order fulfillment,
storage, inventory management, shipping, and distribution. Having an all-in-one solution lets you see
what’s happening across different functions of the warehouse in real-time such as inventory being
received, orders being packed, shipments being labeled, and any other movement of goods.
1. Inventory tracking
Inventory tracking is monitoring stock levels so you know which SKUs you have in your warehouse and
the exact locations in which you store them, or if they are in transit from a manufacturer or en route to a
store.
Inventory management lets you know how much product is ready to be shipped if a customer ordered an
item now, as well as when you should order more based on projected volume.
As you grow, you will likely turn inventory over quicker, expand into new locations, and increase your
product lines. This makes inventory accuracy and tracking all the more important.
2. Picking and packing
Picking and packing are two core functions performed in a warehouse. A warehouse management system
should generate pick lists for each picker to retrieve items in the most efficient way. This may include
zone picking, wave picking, or batch picking.
For each new order, the picker will receive a packing slip of the items ordered and storage locations at the
warehouse. The picker will collect the ordered products from their respective locations.

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Once an order is picked, it is handed off to a packer, who is responsible for securely placing the items in a
box or poly mailer, adding in any needed packing materials, and putting a shipping label on it.
3. Receiving and stowing
Any warehousing operation must be able to receive inventory or freight from trucks at loading docks and
then stow them away in a storage location. A warehouse management system will need to be able to scan
in each new box received with the inventory quantities it has.
Then, it will be brought to its short-term or long-term inventory storage location, where it will be scanned
again. Warehouse management software should provide clear instructions for each user so they know how
to receive, unpack, retrieve, pick, pack, and ship inventory.
4. Shipping
Based on the delivery options and shipping services you offer to customers, shipping carriers will pick up
orders from the warehouse to ship packages to their next destination.
Once the order ships, your warehouse management system should be able to automatically send e-
commerce order tracking information back to your store so your customers can track their shipments.
5. Reporting
A warehouse management system should provide out-of-the-box operational and inventory reports across
the warehouse. This may include accuracy in fulfilling orders (total miss-picks, miss-packs, etc.), total
orders fulfilled by the hour to measure the efficiency of staff, orders shipped on time, and much more.
There are also reports relating to people’s operations including inventory forecasting to understand labor
management and staffing needs. With a warehouse management tracking system you can quickly find out
which employees have completed safety training, and those who have licenses and certifications to
operate certain equipment, and other regulatory requirements you must meet to operate a safe warehouse.
Warehouse Management Problems and How to Fix Them
Warehouse management is commonly associated with six basic tenets: accuracy, cost control,
efficiency, cleanliness, safety and security, but the underlying processes are complex and dynamic,
presenting major problems for warehouse managers across

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industries. Distributors have to deal with trade-offs due to resource limitations, leading to under
performance in key functional areas.
Warehouse managers face the challenge of maximizing performance while balancing trade- offs
under uncertain conditions.
Redundant Processes
Traditionally, warehouse employees have been likely to handle a product several times due to the
nature of the warehousing process. This tendency lingers on in current practices. A notable redundant
process in warehouses is where warehouse workers pass the same ticket through multiple hands.
While necessary in some instances, such redundant procedures are time-consuming and increase the
cost of labor. Using barcode technology streamlines the warehousing process, removing redundant
processes while maximizing resource utilization. Automated systems are evolving fast, a trend that
compels warehouse managers to maintain up-to-date systems to achieve the desired results.
Poor Facility Layout
Efficient use of space is a critical success factor in warehousing. Inadequate storage space and
inefficient use of available storage are common problems in warehouses with poor facility layout.
Poorly configured warehouses are a major cause for worry for managers because of the inherent
potential for negative impacts on profits.
The optimal layout factors both the floor space and the vertical space available for use. In addition to
maximizing the use of space, a good layout maximizes the use of equipment and labor, accessibility to
all items and the security of all items. Using forklifts that reach the roof of the warehouse allows
for a configuration that maximizes both the horizontal and vertical space.
The complementary solution is to ensure that the highest-selling inventory is easily accessible by
placing it at the most accessible point.
Seasonality in Demand
Fluctuations in demand pose serious challenges for warehouse managers. The dip in sales due to the
recent global financial crisis resulted in major cost problems for warehouses due to increased
inventory levels. Although it did not affect all industries alike, the problem highlights the challenge of
fluctuations in demand due to forces outside the control of the warehouse.

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Managing seasonality in demand requires timely and accurate information about manufacturing,
retailing and the industry. Information gaps between the warehouse and other relevant entities or the
industry limit the ability of the distributor to monitor and respond to changes in demand effectively.
It is necessary for warehouses to use timely and accurate information in planning and forecasting
demand as well as in providing supply chain visibility.
Rearranging the products to match changes in demand helps minimize the negative impacts of
seasonal demand. Such a rearrangement involves correct positioning of the items by placing the
products with high demand during the current season at the front of the picking aisle and at the
correct height.
Dealing with seasonality in demand, however, goes beyond just layout and picking. The problem also
requires proper management of transportation networks and strategic sourcing of transportation
services. These long-term solutions build a lasting capability with strategic value for the distributor.
High Labor Costs
Warehouse managers strive to increase productivity while minimizing labor costs in a labor- intensive
environment. Inbound Logistics estimates that labor constitutes about 65% of the operating budgets of
most warehouses. A typical warehouse uses expensive equipment and employs a large labor force,
presenting a challenge that is for the most part unique to warehousing operations.
The staff ranges from cleaners and packers to managers and administrative personnel. Attempts to
reduce the cost of labor should take into consideration the impacts of the move on other costs. The
two major strategies for addressing labor-related problems include maximizing available labor and
replacing labor with automated systems.
Developing the right mix of expertise through workforce planning helps managers hone the skills
necessary for successful labor force practices. A combination of the right skills and motivation, through
practices such as excellent working conditions, training and flexible hours, enhances employee
productivity and the performance of the warehouse.
Inaccurate Inventory
Accuracy and efficiency in handling inventory in warehousing go hand in hand. Inaccurate inventory
causes problems such as maintaining improper stock levels and buildups of obsolete inventory.
Picking problems also arise when pickers rely on inaccurate information, leading to inefficient
processes. Other costs of inaccurate stock information

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include increased expenses, lost revenue and low productivity. Automation is a key factor in
solving accuracy-related problems.
Automated systems offer real-time, accurate information about stock levels and composition. The
technology employed in managing inventory in a warehouse is critical to success because the value of the
automated system is just as good as the quality of the system itself. A low-quality system retains
some of the risks associated with inaccurate inventory. A careful and informed selection process reduces
the risk of procuring an automation system that does not meet the needs of the warehouse.
Warehouses face increasingly dynamic environments as remote events in the global supply chain
become more relevant to local business environments. The desirable approach when dealing with the
challenges that arise due to new developments is to use inexpensive solutions that offer sustainable
best practices. Warehouse managers should monitor and track changes in the business environment
and adopt responsive solutions.
Common warehouse problems such as redundant processes, poor facility layout, seasonality in
demand, high labor costs and inaccurate inventory information require robust systems that keep
managers informed about changes and gaps that require attention.

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10. STRATEGIC PROCUREMENT
Strategic procurement involves identifying key areas of spend within the business and identifying
ways of adding value through procurement processes. This can be achieved by analyzing the
company’s purchasing needs and current spend, creating a procurement strategy and selecting and
negotiating with suppliers. It also includes activities such as category management.
Strategic procurement process

 Needs analysis.
Understanding what types of goods and services the company needs to purchase
 Spend analysis.
Analyzing existing spend by sourcing data from suppliers as well as from within the
organization
 Supply market analysis.
Researching the supplier market to identify suppliers able to meet different needs
 Procurement strategy creation.
Determining the company’s supplier requirements, selection process, procurement
policies and strategic objectives, and setting these out in a procurement strategy
 Supplier selection.
Undertaking a Request for Quote (RFQ), Request for Information (RFI) or Request for
Proposal (RFP) exercise with shortlisted suppliers to evaluate their suitability for the
company’s requirements
 Negotiation.
Negotiating with chosen suppliers and awarding contracts
Category management
Another component of strategic procurement is category management, which involves segmenting the
organization’s spend on goods and services across different categories, such as IT, HR, office
management and travel and entertainment (T&E). A category manager may be appointed for each
category in order to focus narrowly on optimizing specific areas of purchasing, including carrying out
market analysis, managing supplier relationships and ensuring that appropriate purchasing decisions are
made.

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What is a procurement strategy?
Steps to develop procurement strategy

In an increasingly competitive market, a procurement strategy is used to pay close attention to the
operational performance of a business. Establishing one allows businesses to identify areas that are
often overlooked in order to reduce costs.
Here is a complete guide to what a procurement strategy is and how to develop one in 8 steps.
What is a procurement strategy?

Definition
In business, the term procurement refers to the act of acquiring or purchasing services or goods on a
large scale.
A procurement strategy details how a business should deal with its procurement process. This
provides an overview of all of the steps that are involved in procurement and can be used as a roadmap
for the way a business conducts its procurement activity.
A procurement strategy framework helps businesses choose:
 suppliers,
 products or services,
 methods and procedures that are going to be used during exchanges with suppliers. An
effective procurement strategy should include:
 a strategy statement: these are the objectives of your strategy,

 the desired results: these are the deliverables you expect,
 a timeframe: these are deadlines that you must meet,
 a tactical plan: this explains how your strategy will be implemented,
 key performance indicators: these are business metrics that are used to evaluate the
procurement process,
 dedicated tools: these are the tools that can be used to study the internal and external
environment of your business in order to set up a relevant procurement strategy.
Types of procurement strategies

Since most companies purchase or acquire goods or services from suppliers, here are a few types of
procurement strategies that are commonly found in business:
 risk management

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 supplier optimisation
 green purchasing
 vendor development
 global sourcing
Procurement strategy matrix

The Kraljic Matrix is a popular method used when setting up a procurement strategy. It is used to
classify and analyse the purchasing portfolio of a company.
According to Peter Kraljic, a purchasing strategy depends on two key factors:
 The strategic importance of purchasing: volume of expenditure, Total Cost of

Ownership (TCO), profitability, differentiation and value-added for the company and
the sales process.
 The complexity of the supply market: monopoly or oligopoly, entry barriers,

technological evolution, logistics cost or complexity etc.
This principle is illustrated with a chart that can be used to prioritise purchases and sort them into four
main categories.
 Non-critical items
 Leverage items
 Bottleneck items
 Strategic items
How to develop a procurement strategy
Here are eight steps that you should implement when developing your procurement strategy. Please
keep in mind that these steps should be adapted to your procedures. And, you should implement
additional actions or sub-steps according to your needs.
1. Analyse expenditure
When setting up a procurement strategy, the first step that you should consider is analysing your current
expenditure. This will provide you with insight into your current spending habits in order to identify
areas that are often overlooked and where you can cut costs.
Moreover, this information will serve as the foundation of your procurement strategy and will allow
you to have a clear idea of what you should expect from your future supplier.

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2. Identify needs
Next, one or more members of your company (e.g. the procurement team) must
identify and formulate a need for products or services.
This need must be analysed and confronted with the requirements of your procurement process. This a
key factor that you must consider when choosing suppliers in order to guarantee cost savings.
3. Study the market

Once you have identified your needs, you must now have an overview of current market
conditions with an external analysis.
To study the market efficiently, here are a few methodologies that you can choose from:
 Porter’s five forces can be used to understand the competitiveness of your business
environment and identify your strategy's potential profitability,
 a PESTEL analysis helps you to identify the main external opportunities and
threats in your market,
 a SWOT analysis combines external and internal analysis to summarise your
Strengths, Weaknesses, Opportunities and Threats.
However, you must keep in mind that market conditions may change frequently depending on the type
of industry you are in. Therefore, it is recommended to make sure that the information that you collect
is frequently updated and stays up-to-date over time.
4. Set realistic objectives

Now that you have identified your needs and completed an external analysis of your market, the next
step is to set your objectives.
The information that you have collected in the previous steps will allow you to identify the needs
of your procurement strategy which can then be ranked according to their level of importance.
5. Implement procurement guidelines

Once you have studied your market and set your objectives, you must now create a list of
practices that you can implement to improve your current procurement process.
It is recommended to review your current procurement guidelines and adapt it to the current needs
of your business that you have identified in the previous steps.
If you start a new procurement guidelines from scratch, there is a chance that you miss out on some
key aspects that can be overlooked.

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Ideally, procurement guidelines are used by everyone involved in the procurement process, as it lists
solutions to possible challenges.
6. Use a dedicated tool

A procurement process involves multiple steps that must be followed with precision in order to avoid
mistakes that could result in delays or late payments. This can be a difficult task to manage as it is time-
consuming.
However, with a dedicated tool, you will be able to improve employee productivity and reduce errors
by eliminating manual data entry and associated inefficiencies.
With an enterprise management software such as NetSuite, businesses of all sizes can set up and manage
procurement procedures in an easy-to-use interface.
This can save employees time, reduce errors and lower costs by channelling purchases to
approved suppliers and pre-negotiated contracts.
Another alternative is Smart by GEP, a cloud-based procurement software designed to prevent supply
chain disruptions by monitoring expenditure, supplier contracts and savings.
Zycus is another popular tool used by businesses of all sizes. Its intuitive platform improves
communication and workflows with suppliers and offers a plethora of features
including eProcurement, eInvoicing, inventory management and dynamic discounting.
7. Set up and execute the procurement strategy

The following step is used to identify the desired goals of your procurement strategy and the
strategies that will be used to achieve them.
It is recommended to use SMART goals when setting up your procurement strategy:
 Specific,
 Measurable,
 Attainable,
 Relevant,
 Time-based.
Then, once you have implemented your procurement strategy, you will be able to spend more time
focusing on how you can improve supplier relationship and the strategic part of procurement instead
of focusing on administrative tasks that may take up a lot of time.

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8. Tailor the strategy to your needs

Once you have created and implemented your procurement strategy, the final step is
to track and measure its progress and identify areas that could be improved in the future. This will
require the participation of other departments that are involved in the process such as HR, production,
administration, sales or finance for example.
Main benefits of strategic sourcing

As the four best practices of strategic sources illustrate above, strategic sourcing expands the
procurement division’s influence away from the traditional clerical, back-office function into a more
strategic role.
Five main benefits of strategic sourcing:
1. Increased cost savings
As mentioned, strategic sourcing considers the total cost of ownership (TCO), which leads to more
significant long-term cost savings for your organization. These savings have a direct, positive impact
on financial profitability, as opposed to sales revenue, which is reduced by commissions, overhead
costs and costs of gold sold, among other expenditures.
2. Increased efficiency & innovation
Strategic sourcing can pre-qualify suppliers for future initiatives, which shortens sourcing timelines. In
addition, fostering collaborative supplier relationships will provide opportunities to innovate.
Also, by removing manual activities in favor of automation, and introducing sourcing standards across
the organization, an organization gains a systematic approach to selecting the optimal supplier.
3. Market & supplier intelligence
Reviewing and analyzing the company’s procurement through market research informs strategic
business decisions. It also helps procurement teams identify the most significant risk
factors. This may lead procurement teams to diversify their suppliers’ locations and implement
contingency strategies.
4. Improved compliance
Strategic sourcing allows procurement to find suppliers whose values and practices align with their
company’s goals. Compliance is necessary, not strategic. But, strategic sourcing extends to ensuring
suppliers meet compliance and regulatory guidelines to help protect your organization’s brand equity.
5. Stronger relationships with suppliers
Working closely with suppliers should develop nurturing, meaningful relationships with both parties
looking out for each other. This is a more desirable (and profitable) state than is customary with the
traditional, transactional procurement model. Stronger relationships with suppliers usually pave the
way for more favorable contractual terms.

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Strategic Procurement vs. Operational Procurement

If strategic procurement is for upstream, operational procurement is for downstream processes.
Downstream processes are related to the product or service's actual order or service (P2P or purchase-to-
pay). Thus, it involves transactional and repetitive tasks that take time but carry low strategic
significance.
Digitization of downstream procurement helps provide consistency and accuracy to these

repetitive tasks while improving productivity and compliance.
Which Procurement Activities Comprise Strategic Procurement
Organizations undergo massive operational and strategic changes with strategic procurement to drive
value, simplification, and ease. Later, this translates to upgrading the procurement processes and
making them more attractive for stakeholders.
Following are the key players of strategic procurement:
01 Procurement Strategy
A long-term plan to ensure cost-effective purchases of goods and services from competitive
suppliers at the agreed quality, time, and terms.
02 Category Management
It means clustering your spend into areas with the same supplier markets. Such categorization helps you
analyze the costs and dissect your needs for uncovering savings, risk management, and other
opportunities.

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03 Strategic Sourcing
In short, it's analyzing the organization's spending patterns to find and select the best suppliers that
align with your business goals. Thus, ensuring efficiency throughout the supply chain.
04 Contract Management
It's integral to procurement as it lays the foundation of a company's relationships with its suppliers.
As the name suggests, with contract management, companies manage the contract creation, analysis,
implementation, and follow-up to reduce overall cost and improve their performance.
05 Supplier Management
This activity takes into account the management of relationships between a company and its suppliers.
This significant step helps companies foster a deeper collaboration with their suppliers and build an
ecosystem that leads towards the larger organizational goal.
Data and Analytics Form the Core of Strategic Procurement
In the journey towards intelligent procurement, data and analytics are foundational to any procurement
function. This foundation enables procurement professionals to get easy, secure, and quick access to
data that was siloed and stored in disparate data sets across the organization and draw meaningful
insights.
Data Management
The process of gathering, organizing, assessing, and maintaining all the data generated by a procurement
organization to make this data accessible, accurate, analyzable, and thus, actionable.
Procurement Analytics
In simple terms, advanced analytics make the diverse procurement data useful by cleaning, enriching,
and transforming the data into meaningful insights that aids companies in decision- making.

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Strategic Procurement Enablers
Data, analysis, and insights are just one part of the story; the way you prioritize, plan, and execute
initiatives makes the real difference. To tap into procurement innovation and expertise, companies must
make use of specific procurement enablers to improve and reinforce each step of the aforementioned
strategic procurement activities. These are:
Digital Solutions and Tools
A cloud-based solution that offers an intuitive and user-friendly interface to make every step of your
strategic procurement efforts easier, smarter, and sustainable.
Organizational Capabilities and Culture
Enabling value while considering the organization's culture to follow the right kind of processes,
practices, and decisions.
Process, Governance, and Initiatives Management
To make sure you connect the right initiative to the right task and the right people. Thus, helping you
complete tasks on time and visualize the progress all along.
Importance of Strategic Procurement
We often hear that procurement deserves a seat at the table; it does, but if procurement for you is only
about doing tactical work that does not contribute to the organizational objectives, it doesn't deserve that
seat.
It's important for procurement to turn strategic to become a part of the solution that moves the entire
organization forward.
Goals of Strategic Procurement
The goals of procurement functions in an organization are usually the same, but what sets
strategic procurement apart is the way it leverages procurement insights from spend data,
suppliers, and markets to identify new scopes of long-term value creation.
However, the strategic goals might differ from organization to organization; in order to
understand the impact of strategic procurement, understanding its major goals is essential.

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Following are the major objectives of strategic procurement:
 Cost reduction: Cost savings has always been on the agenda of CPOs, but now, more
than ever, stakeholders want to implement advanced analytics and technology to support
these efforts. Strategic procurement acts as a sledgehammer against unnecessary and
maverick spending, optimizes costs, and uncovers saving opportunities like negotiating
better rates with suppliers, bulk purchasing, etcetera.
 Risk management: In procurement, risks are littered all along the way; from inaccurate
analysis, delays, data errors, non-compliance, and poor vendor choice in terms of factors like
quality and capacity issues, the list seems endless. Luckily, a little planning, attention, and
technology are all you need to sail through these risks and curb them from unfolding into a
bigger problem.
 Execution speed and insights: Cost optimization and risk mitigation have long been the leading
value drivers for procurement. However, as we look into the future, speed of execution and
insights are set to dethrone them. As the technology slowly and steadily seeps into the
procurement functions, insights into the markets, suppliers, and buying behaviors will
increasingly be used for value creation and staying competitive in the market.
 Managing supplier base to capture negotiated savings and drive value: Procurement owns
and overlooks the supplier relationships. This significant position lets procurement negotiate
favorable payment terms with the suppliers and maintain quality relationships with them. Covid
and the unprecedented supply chain disruptions were a hard lesson for many businesses about
how imperative it's to have relationships with dependable suppliers who can deliver quality
goods on schedule. Hence, more so than ever before, finding reliable suppliers and maintaining
relationships with them has become a key procurement goal.
 Procurement innovation: According to a recent Accenture Strategy research, 76% of the
business leaders believed current business models would be unrecognizable in the next five
years. These numbers point towards the importance of innovation and the certainty of positive
outcomes it can bring. Still, many procurement executives who perceive innovation as risky
and not as a strategic priority increase the likelihood of falling behind their competitors.
Procurement as a function is poised to empower and
support organizational growth through innovation. With access to tools like negotiations,

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procurement can shape suppliers' terms, conditions, and compensation to influence

business outcomes. However, it's also true that too many companies fail to move in this
direction because they either find it hard to start or over-think about it. Strategic
procurement can make the stride towards innovation easier by leveraging data,
measuring and analyzing the progress, and implementing suggestions, all while
learning along the way to deliver long-term, agile, and innovation-based procurement.
 Sustainability: In the current climate-change landscape, customers pressure companies

to keep a check on unethical behaviors and expect them to take action against climate
risks. If a company fails to match up to these sustainability expectations, it might result
in trust erosion that can soon affect the overall value. Going green is the need of the
hour,
Procurement Strategy Framework
The procurement strategy should always be documented, which may include the
following elements:
 Strategy document: Basis and rationale for the strategy
 Objectives and timeframe: Description of goals and deadlines
 Plan: How to implement the strategy with measures and allocation of responsibilities
 KPIs/OKRs: Metrics to evaluate the progress and process
 Analysis and supporting data: Spend analysis, TCO, SWOT analysis, etc.

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The Seven Most Important Strategic Procurement KPIs
In procurement, there's a saying, "what you cannot measure, you cannot control"; holds true as ever
and for every other function as well. Process improvement is only possible when you are consistently
tracking the outcomes.
Even though key performance indicators are unique to every company, we share a list of strategic
procurement metrics or KPIs that are most commonly used to monitor how the various procurement
functions are performing.
Here are the 7 most important KPI (key performance indicators) for strategic procurement:
1. KPIs Related to Cost and Savings
These KPIs focus on keeping the cost down and being smarter with spending.
Cost development
 Track change in cost over time and the effect of savings.
Savings
 Identify a percentage of actual savings year over year. To get the true saving figures, do
not forget to take into account reasons for unavoidable cost increase like inflation,
energy, etc.
Cost reduction
 Cost Reduction = Actual Purchasing Price – Last Price Paid. The quest for cost reduction
makes negotiating better prices for products and services, process optimization, and
automation a regular practice for procurement.

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Cost avoidance
 This metric helps avoid extraneous future costs and is often referred to as "soft saving"
KPI as opposed to the "hard saving" cost reduction KPI. Examples of cost avoidance are
entering into long-term contracts to avoid future price fluctuations or investing in new
technology to eliminate spending into compensation costs now and in the future.
Purchase price variance
 Purchase Price Variance (PPV) = (Actual Price – Standard Price) x Actual Quantity of
units purchased. Hence, PPV measures a procurement organization's effectiveness in
meeting cost savings goals. A positive variance in PPV means the price paid to buy an
item is higher than the budgeted range and is hence considered bad. While a negative
variance of PPV is favourable and desirable.

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11. ETHICS, INTEGRITY AND PROFESSIONALISM IN PROCUREMENT

MANAGEMENT
Ethics in Procurement Management
Ethics in procurement management is important, particularly because of your relationship with suppliers
and vendors, typically to finish a job or a project. There can be many ethical issues in procurement
management that arise, but one of them is always dealing with your vendors and suppliers fairly and
honestly, and never giving one preference over the other or treating them in a biased fashion.
Avoiding bias can often be hard to do when you want to keep costs low and you’re running on a tight
schedule. Read on to learn more about ethics in procurement management and how to handle specific
situations that may come up.
Fundamentals of Ethics and the Pillars of Procurement

In general, there are six principles of ethics that hold true, no matter what field you work in, from sales
and procurement to the healthcare field. These six principles include
(i) non-maleficence,
(ii) justice,
(iii) truth-telling,
(iv) promise-keeping,
(v) beneficence, and
(vi) autonomy.
In healthcare specifically, justice is often split up into two types, for seven layers of ethics.
There are also five pillars of procurement, two of which ethics play an integral part in. These are:
 Equity
 Accountability and reporting
 Value for money
 Open and effective competition
 Ethics and fair dealing
While it’s obvious that ethics in procurement management are prevalent in two of these five pillars, it is
often important that those who work in procurement act ethically throughout. What are some issues that
may come up that would be unethical?
Unethical Situations in Procurement

If you’re trying to work on great procurement supplier relationship management, you may want to pull
out all the stops to ensure that the relationship stays positive. However, situations may develop

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that can be uncomfortable and even unethical. Some examples of what you shouldn’t do when it comes to
ethics in procurement management include:
 Accepting gifts from a supplier. Even if it’s around the holidays, you shouldn’t accept gifts
from a supplier. It should always be a completely professional relationship.
 Having a conflict of interest. If you or a close family member or friend has something to
gain from using that particular supplier, then that is a conflict of interest.
 Sharing confidential information. Never share information with a supplier that they should
not have access to.
 Treating suppliers differently. Your suppliers should always be treated the same.
To try to ensure that you avoid ethical problems, you should consider implementing some measures that
avoid the above mistakes.
Working Toward Standards and Ethics in Procurement Management
As the procurement manager, you may be able to purchase and install procurement software that can help
you organize tasks more efficiently so that the bidding process, as well as other procurement
processes, are more streamlined, transparent, and fair.
Keeping tasks organized can protect against costly mistakes. Another action you can take is to have an
official ethics policy at the company that all employees can understand and follow. Another idea is to
have an official ethics training. While this may be a little costly, it’s well worth it to have everyone on the
same page, including upper-level management.
Another item to consider is asking your suppliers to agree to your ethics policy as part of your supplier
on-boarding process.
Other actions that can help include a process with checks and balances in place so that no one gets
wrongly accused, but yet everyone falls under the same process should there be a question about an error
in judgment. Some companies also employ semi-annual or annual audits to ensure everything is running
like a well-oiled machine when it comes to ethics in procurement management.
Ethical Procurement: Some Scenarios to Consider

The ground rules for good ethics in procurement are simple enough. Practice integrity, avoid conflicts of
interest and personal enrichment, treat suppliers equally and fairly, and comply with legal and other
obligations.
Quite simply, the overriding principle is “do the right things.” However, simple is not the same as easy.
One of the challenges of ethical procurement is to know how to make it into a practical reality that people
can apply consistently.

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For example, how would you deal with the following situations in procurement?
 You are responsible for the procurement of janitorial supplies for your mid-sized company. A
potential supplier sends you its catalogue together with a gift of an expensive-looking ballpoint
pen with the supplier’s logo on it.
 You have agreed to a two-year supply contract with a small, foreign supplier, but a drop in
demand for your own company’s products is seriously depressing its profitability. Another
supplier guarantees lower supply prices that would re-establish the margins your company needs
to meet its objectives. That would mean breaking the contract with the first supplier without just
cause. Legal action by that supplier would be unlikely, because of its small size.
 Your Italian company is negotiating the supply of aerospace products to a government in Asia.
Your contacts in that government insist that in return for a successful negotiation, your company
buys goods/services from a supplier in the Asian country.
 Your Kenyan company is competing with the Italian company above for the same contract. The
government client insists on the same conditions. Will your Kenyan company’s procurement
policy differ from that of your Italian competitor, and if so, how?
Procurement Ethics: Shocks, Horrors, Scandals and More

It may seem strange that procurement, often viewed as an unexciting part of an enterprise, can be
embroiled in events and situations that make world headlines. Ethics—or lack of them—is often at the
heart of the discussion. From the deaths of garment factory workers earning pittances to corruption and
kickbacks in defense contracts, procurement can be a hotbed of horror stories and scandals.
Immoral or illegal practices can include:

Bribery: Unethical buyers may make payments in cash or in-kind to individuals or their friends, family,
or partners to buy their support for a supplier or a contract negotiation. Bribes can occur before, during, or
after (kickbacks) award of a contract.
Coercion: Threats made against or pressure put on individuals with the same objective as bribery
– to gain support for a supplier or contract negotiation. The difference is that whereas bribery aims to
motivate individuals with what they can gain, coercion aims to motivate through the fear of what they
might suffer or lose.
Extortion: Asking for a bribe or similar illicit payment. The request may or may not be accompanied by a
menace.
Favouritism: Also known as nepotism, in which individuals give undue preference or negotiating
advantage to a supplier who is a friend or part of the same family.
Illegal sourcing: Suppliers offer goods or services misrepresented or produced illegally or immorally,
whether because of the materials in use (such as the substitution of horsemeat for beef) or the labour
conditions in which production occurs (notably in the garment industry). Stolen and black-market
supplies are further examples.

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Traffic of influence: The exchange of a contract award (or support for the award) for a favour or
preferential treatment by the other party or another individual or organisation.
Bribery in Procurement: What Happened at Smith & Wesson?

As bribery is one of the more common forms of unethical or even fraudulent procurement practices, it’s
worth examining a case study to understand how it typically occurs. Perhaps more importantly, the
following case also highlights the consequences of what some may see as merely ‘greasing the wheels of
business’ are increasing in seriousness.
Between 2007 and 2010, during attempts to win firearms supply contracts with law enforcement and
military agencies in Indonesia, Turkey, Pakistan, Bangladesh, Nepal, and Turkey, gun maker Smith &
Wesson’s sales employees allegedly embarked upon a spate of unethical transactions, via third-party
representatives, with foreign officials.
The Smith & Wesson employees authorised, offered, and paid financial rewards and gifts to government
officials in the aforementioned countries, to the value of some $11,000. In return, the officials tried to
influence the procurement decisions of the various agencies to secure the contracts for Smith & Wesson.
What’s Interesting About this Case?

In an earlier time (although not so very far back in the past), it would have been unheard of for a company
to be taken to task in its home country for greasing palms overseas. The Smith & Wesson case served as a
wakeup call to enterprises in the United States, highlighting the change in government attitudes toward
ethical business practices.
What’s also interesting is that apart from the Pakistan deal, which went through and netted just over
$100,00 for Smith & Wesson, none of the other contract deals was successful.
In the end, this unethical sales initiative turned out to be an $11,000 gamble that cost the jobs of the entire
Smith & Wesson international sales team. It also exposed the company to $2 million in fines levied by US
federal regulators—not to mention doing untold damage to Smith & Wesson’s reputation. The company
neither admitted nor denied any wrongdoing—probably a moot point, as it paid the fines and has seen its
name tarnished by association with the incident.

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What Can We Learn from Smith & Wesson’s Misfortune?

Sadly, this story centres on how a company harmed itself by engaging in unethical sales (as opposed to
procurement) practices, primarily because it’s not known what happened to those on the other side of the
negotiating table. What is known, though, is that corrupt officials received bribes and that those who paid
them received no benefits.
Aside from the Pakistan deal, Smith & Wesson won none of the contracts concerned, and the
perpetrators (if that’s what they were) lost their jobs and their professional credibility.
Given that in Indonesia, for example, business bribery is commonplace (despite the efforts of a
governmental anti-corruption agency), one must wonder if Smith & Wesson’s salespeople were the
corrupters in the incident, or rather, were the corrupted parties.
Despite being a sales-focused story, the moral does hold relevance to procurement. It highlights how
tolerance for unethical business practices has diminished in recent years, even when a national economy
(in this case, the United States) stands to gain from international supply contracts. Imagine the
ramifications in a reversal of the Smith & Wesson situation if a company procures products or services
unethically overseas at the expense of local suppliers, and receives exposure for having done so.
The Impact of Poor Procurement Ethics

The immediate reaction to the idea of unsatisfactory procurement ethics is that it will be damaging for
public relations if those ethics become known. In this information-rich and communication- enabled age,
bad press can spread rapidly—as confirmed by the Smith & Wesson case study.
Consumers and other members of society wield considerable power in the form of associations, forums,
and networks, whether online or offline. They know how to use that power to punish enterprises and
organisations they consider offenders. Sanctions can include boycotting purchases of a company’s
products or services, or voting governments out of power.
However, this is only part of the picture. Even if an organisation is able to hide unethical procurement
activities, it lays itself open to other problems. The first being one of management.

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For example:
 If senior management does not know about the lack of ethics or takes no action, then it is
inherently inept.
 If senior management condones or actively supports unethical behaviour, it is corrupt. The
second is the efficiency of the procurement process and the effect on overall organisational
performance. If personal gain, rather than value to the organisation, is the driver behind procurement,
profitability suffers.
A third problem is rogue procurement. Having seen the example set by others, non-procurement staff may
initiate procurement efforts of their own, which are, in turn, likely to suffer from inefficiency, reduced
value to the organisation, unethical behaviour, or any combination of these.
Who Judges Whether Procurement is Ethical or Unethical?

Some organisations rise to the challenge and produce a procurement ethics manual. These documents can
vary in length. Some are succinct web pages, while others are detailed handbooks that explain not only
the principles to be observed, but also give examples of how and how not to conduct procurement
ethically.
The guide made available online by the United Nations is a case in point, and interesting background
reading for anyone who wants to dig deeper into the subject.
“No matter how hard policy-makers try, they will never specify in law, code, regulation, rule, or other
written requirement everything that a procurement officer needs to know regarding what is allowed or
appropriate and what is prohibited or shunned. It is necessary for procurement officers to understand
what the law or rule is intended to accomplish.”
Depending on countries, cultures, customs, and even industries, definitions of what is ethical or unethical
in procurement may vary. Practices that some parties might define as corrupt, may be taken for granted by
others and considered a normal part of doing business. The aerospace and defense sector is an example.
Some public sector buyers ask foreign suppliers to in-turn award contracts (“offset contracts”) to local or
national companies.
One consequence of offset contracts, which buyers often desire, is to improve the balance of payments
between the two countries concerned.

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Role Models Start at the Top

Procurement ethics, like many other aspects of management, are top-down. The example set by senior
management, its attitude, and its behavior strongly influence employees further down the pecking order.
Senior managers have to demonstrate fairness and transparency to encourage the visibility of the same
qualities in procurement executives and teams. Procurement ethics have to be on display.
If ethical standards are applied, but hidden, suspicious among stakeholders (internal customers and
suppliers, for example) can still arise if decisions do not match their hopes or expectations.
That does not relieve the procurement staff of its responsibility to “do the right thing.” Nor does it
guarantee that the right thing to do will be apparent. The example-scenario earlier in this article about
breaking a contract with a supplier came from a real-life case.
Instructed by a senior executive, the procurement executive terminated the contract with the first supplier.
The financial prejudice to that supplier was probably severe and possibly fatal. Termination of the deal,
however, meant valuable fiscal breathing space for the buying company. Sometimes there is no easy
answer, even from the top.
The Supplier’s Point of View

There is an assumption sometimes that the villains in a procurement scandal must include the supplier.
After all, if people involved in procurement are corrupt, there must be a corruptor, and suppliers can make
good scapegoats.
Many suppliers, though, have their own written rules for employees about how to conduct sales activities
and contract negotiation and management with public sector clients in particular.

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Procurement teams would also do well to remember that suppliers that have behaved ethically and won
business honestly, also need to be paid in a timely way. Otherwise, motivation for upholding ethical
standards can dwindle, and there may be fewer surviving ethical suppliers with which to do business.
Detecting Potential Procurement Ethics Problems
Identifying and understanding the problem is essential for anyone intending to put solutions in place.
Telltale signs that something is amiss can fall into the following categories:
 Excessive secrecy: This can range from missing files and records to resistance to audits and
reluctance to delegate or run competitive tenders.
 Suspect procedures: Normal procedures are ignored, or appropriate checks and balances are
missing – for example, the same person approves an order and payment for that order, or only one
person approves contracts.
 Inappropriate life or work styles: Buyers’ lifestyles may be out of keeping with their level in an
organisation, they may have an unusually high number of meetings with a supplier, be entertained
to an excessive level by that supplier, or a combination of any of these.
While the above three red flags are relatively easy to spot, and telegraph issues of procurement ethics,
their apparent absence does not necessarily mean that all is well in your company’s procurement
practices.
Ethics Issues Can Be Harder to Detect in Larger Organisations

In a larger organisation, practices that include bribery, coercion, extortion, nepotism, and other unethical
procurement methods may be conducted with significant sophistication, including any number of
smokescreens and diversions to keep them invisible from scrutiny, and hence profitable for the
perpetrators.
Sometimes such a scheme will only come to light when somebody decides to blow the whistle, so any
complaint of unethical procurement practices, especially when made by someone from within a winning
company in a procurement deal, should be taken seriously and investigated.
Some Possible Signs of Suspicious Procurement Practices

In the absence of any complaint, you will need to keep your eyes open for some of the less obvious red
flags, which may indicate unethical procurement deals. These warning signs include:
The splitting of large contracts into many small packages – This is sometimes done to minimise
visibility and reduce scrutiny of what may seem trivial, unimportant transactions
High prices or substandard service levels – Either of these issues might indicate that bribery is taking
place and receiving financial support. For example, perpetrators might overprice products or services to
cover the cost of bribes, or skimp on quality to increase profits, which are then used to subsidise bribes.

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Suspicious bidding patterns – If you notice many similarities in the details of competing bids against a
request for tender, it could be evidence of a collusive bidding ring.
Sometimes a company will work with others—perhaps its subsidiaries or carefully set-up fake companies
—to ensure it wins a sales contract at a favourable rate. However, the effort involved in preparing several
“fake” offers can result in telltale copying of details and unlikely similarities between supposedly
competitive bids.
The Dangers of Decentralized Procurement

As supply chains lengthen and become increasingly globalized, decentralized purchasing is a growing
trend.
If your organisation or enterprise allows department heads or even other staff outside of the procurement
team to make purchases, you will need to exercise even more keen vigilance to guard against unethical
transactions.
After all, these professionals might not have the same degree of training and understanding of what is
“ethical” from a procurement perspective, as those for whom purchasing is a core competency. As
mentioned earlier in this article, non-procurement people might have heard stories of the perks afforded to
individuals involved in deal-brokering, and be under the misconception that such benefits are acceptable.
Correcting and Avoiding Procurement Ethics Problems

A written procurement ethics policy remains the starting point for raising and maintaining standards in an
organisation. Employees at all levels involved in procurement need to know what is expected of them,
and a written policy helps resolve any arguments. There are also further conditions if such a policy is to
be effective:
 The policy must be as clear and as concise as possible, while still offering sufficient guidance.
That means covering general principles and stating specific rules as appropriate. Employees need
clear instructions that will let them determine immediately, for instance, if a gift of a ballpoint
pen is acceptable because it is below a defined value (perhaps $5), or if the recipient should
refuse it because it could constitute an attempt to influence procurement.
 Senior management must endorse the policy and act according to it.
 Employees and stakeholders must be able to easily see and understand the policy. A dedicated
webpage on the organisation’s website is one outlet. Systematic inclusion in the annual report is
another.
 The policy should receive regular reviews and improvements. New laws and new public opinions
will continue to impinge on an organisation’s ethics in procurement.
 Training in applying the policy should be provided, with refresher training at suitable intervals.

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Auditing an organisation’s ethics then shows how well the organisation performs both generally and in
specific contract negotiations and awards. Audits also help to deter unethical procurement behaviour in
the future.
Finally, a clear and valid reporting procedure must exist for employees to report actual and suspected
cases of unethical practices or to obtain guidance about dealing with particular situations involving
procurement ethics.
Th e B en e f i t s O f E thi c al P r oc ur e m en t
Ethical procurement policies provide clear guidance for sourcing supplies and establishing internal and
external relationships essential for daily operations and long-term growth. Today, more companies realise
that providing a high-quality product or service is not enough to gain a market advantage.
What is ethical procurement?
Ethical procurement is a company’s code of conduct that drives everything from hiring and training talent
to sourcing cost-effective supplies from socially responsible vendors. Guided by these principles,
companies proactively eliminate unethical practices throughout the supply chain. In short, this honour
code provides a clear pathway to meet exceedingly rigorous societal expectations.
How does a code of conduct in the procurement process benefit businesses?
A recent study reveals that 82 percent of workers report they “would prefer to be paid less and work for a
company with ethical business practices than receive higher pay at a company with questionable ethics.”
The research further found that one-third of employed UK workers left a job for ethical reasons. Hiring
workers with shared ethical values strengthens workplace policy. Employee morale and brand loyalty also
improve.
Enhanced compliance reduces legal risk for businesses
Eliminating unethical behaviours improves compliance in the supply chain. Unethical workplace
violations, such as corruption or vendor favouritism, expose companies to legal challenges.
Defending a bad-faith lawsuit could cost a company tens or hundreds of thousands of pounds. Ethical
supply management also reduces supply costs, as well as the excessive shrink in the manufacturing,
inventory and delivery processes. Purchasing policies that mitigate risks enhance regulatory compliance.
And, these policies work in conjunction with internal policy compliance that enhances internal
workflow efficiency and quality control.
Ethics drive operational efficiency, productivity and financial performance
Building brand loyalty that results in repeat purchases is the goal of every business. Capturing that loyalty
demands giving consumers what they expect and deserve.

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Consumer surveys demonstrate the importance of transparency and brand loyalty. Seventy-six percent of
shoppers say they will refuse to buy from businesses that do not share their ethical standards.
Furthermore, almost three-quarters of consumers (74%) say that they purchase products from businesses
with shared values.
Ethical procurement is essential for brand loyalty
While maintaining a solid reputation is vital for business success, implementing ethical procurement
delivers significant financial rewards as well.
By proactively managing the supply chain, ethical sourcing and manufacturing processes become more
efficient and offer potential cost transformation. Environmentally responsible purchasing has been proven
to increase net income and reduce overhead costs by more than 10 percent.
Ethical and Legal Practice
Ethics is a branch of philosophy that deals with right and wrong. It is a system of principles and rules of
conduct recognized and accepted by a specific group or culture. Bioethics covers a broad set of possible
topics such as ethical standards and moral problems created by the practice of medicine, ethical issues in
neuroscience, protection of research participants, privacy issues raised by genome sequencing, and
research with children.
Clinical ethics is a discipline or methodology for considering the ethical implications of medical
technologies, policies, and treatments, with special attention to determining what ought to be done (or not
done) in the delivery of healthcare (Brock & Mastroianni, 2013).
Law is the set of enforced rules under which a society is governed. Laws can be created either through
legislation, which is called statutory law, or by opinions written by judges in court cases, which is called
case law (Center for Bioethics, n.d.).
The law establishes the rules that define a person’s rights and obligations. Law also sets out penalties for
those who violate these rules. Laws are changed frequently to reflect societal needs. In every society laws
often have a strong moral standard (Porter, 2001). Two of the most common types of potential legal
actions against healthcare providers for injuries resulting from healthcare involve lack of informed
consent and violation of the standard of care (Brock & Mastroianni, 2013).

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Nursing Code of Ethics
Ethical practice guidelines have been around since the early days of nursing. An ethical pledge for nurses
—a modified version of the Hippocratic Oath called the Nightingale Pledge—was developed by Lystra
Gretter in 1893. The first code of ethics for nurses was suggested by the American Nurses Association in
1926 and adopted in 1950 (Lyons, 2011).
For generations, nurses have taken seriously their Code of Ethics and their role as those who “promotes,
advocates for, and strives to protect the health, safety and rights of the patient.” The American Nurses
Association maintains the current code of ethics for the nursing profession, called A Code of Ethics for
Nurses with Interpretive Statements. Last modified in 2001, it contains nine provisions, which detail “the
ethical obligations and duties of every individual who enters the nursing profession (ANA, 2001). The
code is currently under revision, with the revised code of ethics expected in late 2014.
Codes of ethics are broadly written and are not meant to serve as a blueprint for ethical decision making.
They are intended to provide a reminder of standards of conduct: that the nurse has a duty to keep
confidentiality, maintain competence, and safeguard patients from unethical practice (Lyons, 2011).
The Language of Bioethics
The language of biomedical ethics is applied across all practice settings, and four basic principles are
commonly accepted by bioethicists. These principles include
(1) autonomy,
(2) beneficence,
(3) nonmaleficence, and
(4) justice.
In health fields, veracity and fidelity are also spoken of as ethical principles but they are not part of the
foundational ethical principles identified by bioethicists.
The Principle of Autonomy: Personal Freedom
Autonomy is an American value. We espouse great respect for individual rights and equate freedom with
autonomy. Our system of law supports autonomy and, as a corollary, upholds the right of individuals to
make decisions about their own healthcare.

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Respect for autonomy requires that patients be told the truth about their condition and informed about the
risk and benefits of treatment. Under the law, they are permitted to refuse treatment even if the best and
most reliable information indicates that treatment would be beneficial, unless their action may have a
negative impact on the well-being of another individual. These conflicts can set the stage for ethical
dilemmas.
The concept of autonomy has evolved from paternalistic physicians who held ethical decision- making
authority, to patients empowered to participate in making decisions about their own care, to patients
heavily armed with Internet resources who seek to prevail in any decision making. This transition of
authority has been slower to evolve in the geriatric population but, as the baby boomers age they are
asserting this evolving standard of independence. Autonomy, however, does not negate responsibility.
Healthcare at its foundation is a partnership between the provider and the recipient of care. Each owes the
other responsibility and respect.
The Principle of Beneficence: Kindness
Beneficence is the act of being kind. The beneficent practitioner provides care that is in the best interest
of the patient. The actions of the healthcare provider are designed to bring about a positive good.
Beneficence always raises the question of subjective and objective determinations of benefit versus harm.
A beneficent decision can only be objective if the same decision were made regardless of who was
making it.
Traditionally the ethical decision making process and the ultimate decision were the purview of the
physician. This is no longer the case; the patient and other healthcare providers, according to their
specific expertise, are central to the decision-making process (Valente, 2000).
The Principle of Nonmaleficence: Do No Harm
Nonmaleficence means doing no harm. Providers must ask themselves whether their actions may harm
the patient either by omission or commission. The guiding principle of primum non nocere, “first of all,
do no harm,” is based in the Hippocratic Oath. Actions or practices of a healthcare provider are “right” as
long as they are in the interest of the patient and avoid negative consequences.
Florence Nightingale spoke of nonmaleficence more than 150 years ago when she reminded us that “the
very first requirement in a hospital is that it should do the sick no harm”—and proceeded to set up
systems and practices that are still being used today to enhance the quality and safety of patient care
(Hughes, 2008).
Patients with terminal illnesses are often concerned that technology will maintain their life beyond their
wishes; thus, healthcare providers are challenged to improve care during this end stage of

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life. Patients may even choose to hasten death if options are available (Phipps et al., 2003). The right of
the individual to choose to “die with dignity” is the ultimate manifestation of autonomy, but it is difficult
for healthcare providers to accept death when there may still be viable options.
Here we see the principle of nonmaleficence conflicting with the principle of autonomy as the healthcare
providers desire to be beneficent or, at the least, cause no harm. The active choice to hasten death versus
the seemingly passive choice of allowing death to occur requires that we provide patients with all the
information necessary to make an informed choice about courses of action available to them.
A complicating factor in end-of-life decisions is patients’ concern that, even if they make their wishes
clear (eg, through an advance directive), their family members or surrogates will not be able to carry out
their desires and permit death to occur (Phipps et al., 2003). Treating against the wishes of the patient can
potentially result in mental anguish and subsequent harm.
The Principle of Justice: Equity and Fairness
Justice speaks to equity and fairness in treatment. Hippocrates related ethical principles to the individual
relationship between the physician and the patient. Ethical theory today must extend beyond individuals
to the institutional and societal realms (Gabard & Martin, 2003).
Principles of Justice
 An equal share
 According to need
 According to effort
 According to contribution
 According to merit
 According to free market exchanges
Justice may be seen as having two types: distributive and comparative. Distributive justice
addresses the degree to which healthcare services are distributed equitably throughout society. Within the
logic of distributive justice, we should treat similar cases similarly, but how can we determine if cases are
indeed similar? Beauchamp and Childress (2001) identify six material principles that must be considered,
while recognizing that there is little likelihood all six principles could be satisfied at the same time.
Looking at the principles of justice as they relate to the delivery of care, it is apparent that they do conflict
in many circumstances; for example, a real-life system that attempts to provide an equal share to each
person is distributing resources that are not without limit. When good patient care

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demands more than the system has allocated, there may be a need for adjustments within the marketplace.
Comparative justice determines how healthcare is delivered at the individual level. It looks at disparate
treatment of patients on the basis of age, disability, gender, race, ethnicity, and religion. Of particular
interest currently are the disparities that occur because of age. In 1975 Singer related bias as a result of
age to gender and race discrimination and referred to the practice as ageism (Gabard & Martin,
2003). In a society where equal access to healthcare does not exist, there is a continuing concern about the
distribution of resources, particularly as the population ages and the demand for services increases.
The first wave of baby boomers is signing up for Medicare now, and the health spending projections for
the next decade are significant (Keehan et al., 2008). Thorpe and Howard (2006) found that there has
been an increase in medication use of 11.5% in the past decade just for the medical management of
metabolic syndrome, an age-associated complex of diseases. McWilliams and colleagues (2007) found
that Medicare beneficiaries who were previously uninsured, and who enrolled in Medicare at age 65, may
have greater morbidity, requiring more intensive and costlier care, than they would have had they been
previously insured. The cost to the system of low levels of care is extensive. Recognizing the number of
uninsured Americans who will ultimately come into the Medicare program with potentially greater
morbidity, it appears that the demands of justice in the healthcare system will continue to increase.
Equitable allocation of resources is an ever-increasing challenge as technology improves and lives are
extended through natural and mechanical means. All of these factors place greater stress on an already
inefficient and overburdened healthcare system and results in more difficult ethical decisions about
workforce allocation and equitable distribution of financial resources.
The Principle of Veracity: Truthfulness
Veracity is not a foundational bioethical principle and is granted just a passing mention in most ethics
texts. It is at its core an element of respect for persons (Gabard, 2003). Veracity is antithetical to the
concept of medical paternalism, which assumes patients need to know only what their physicians choose
to reveal. Obviously there has been a dramatic change in attitudes toward veracity because it forms the
basis for the autonomy expected by patients today. Informed consent, for example, is the ability to
exercise autonomy with knowledge.
Decisions about withholding information involve a conflict between veracity and deception. There are
times when the legal system and professional ethics agree that deception is legitimate and legal.
Therapeutic privilege is invoked when the healthcare team makes the decision to withhold information
believed to be detrimental to the patient. Such privilege is by its nature subject to challenge.

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The Principle of Fidelity: Loyalty
Fidelity is faithfulness, or loyalty. It speaks to the special relationship developed between patients and
their healthcare provider. Each owes the other loyalty; although the greater burden is on the medical
provider, increasingly the patient must assume some of the responsibility (Beauchamp & Childress,
2001). Fidelity often results in a dilemma, because a commitment made to a patient may not result in the
best outcome for that patient. At the root of fidelity is the importance of keeping a promise, or being true
to your word. Individuals see this differently. Some are able to justify the importance of the promise at
almost any cost, and others are able to set aside the promise if an action could be detrimental to the
patient.

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PROJECT PROCUREMENT MANAGEMENT

Procurement is the act of obtaining goods, supplies, and/or services.

3. Administer (or control) procurements

(i) Plan procurements

 What are your contract requirements for outside purchases?

 Do you have the required delivery dates?

 Do you want a fixed price contract or cost-reimbursable?

 What about legal terms and conditions that must be met?

 Will you release a request for proposal (RFP)?

 Do you have a preferred supplier?

 Will it be based on price if all contract requirements are met?

 Vendor selection criteria

 Documented make-or-buy decisions

 Change request forms or process documentation

(iii) The project manager’s role

SCOPE OF PUBLIC PROCUREMENT AND DISPOSAL REGIULATIONS IN KENYA

(iv) SIGNIFICANCE OF PUBLIC PROCUREMENT

(v) GOALS OF THE GOVERNMENT AND PROCUREMENT OBJECTIVES It is government

5. VALUE FOR MONEY

Public sector entities shall conform to legal requirements.

Goods and Materials:

Description: Physical items, products, or materials required for the project.

Description: Expertise, skills, or labor required to perform specific tasks or activities.

Consulting and Professional Services:

Technology and Software:

Training and Capacity Building:

Logistics and Transportation:

Description: Movement of goods, equipment, or personnel to and from project sites.

Facilities and Infrastructure:

Description: Physical spaces or facilities needed for project activities.

Research and Development:

Legal and Regulatory Compliance:

Features of a good materials specification

 Should be easy to interpret and understand

Methods of materials specification

Technical drawing method

Chemical Analysis method

Brand Name method

Parties involved in preparing specification for project requirement

Step 1: Make a List of Stakeholders and Discuss the Project

Step 2: Define the Audience

Step 4: Determine the Scope of the Project

Step 5: Categorize Requirements

Step 6: Keep Things Simple

Step 8: Use Clear, Precise Language

Step 9: Create a Software Requirements Specification

Step 10: Track Requirements

Step 11: Document All Changes

What are Project Requirements?

Why are Project Requirements Important?

Types of Project Requirements

Here are the prominent types of project requirements:

 Functional: Functional requirements outline the desired behavior of the product.

How to Identify Project Requirements?

2. Take Input from the Project Charter

5. Perform a Gap Analysis

7. Review Requirements with Stakeholders

How to Document Project Requirements?

1. Clear Project Expectations

2. Improved Communication and Alignment

Tips for Writing Project Requirements

2. Be Concise and Clear

3. Leverage High-Fidelity Tools