NCPS121

ELEMENTS OF PURCHASING AND SUPPLIES MANAGEMENT.

COURSE OUTLINE
1 Concepts of purchasing
 Meaning of purchasing and supplies
 Functions of the purchasing department
 Roles of the purchasing officer
 Classification of purchases
 Types of organizational buyers
2 Specification of purchases
 Meaning of purchases specification
 Methods of specification
 Contents of a specification
 Factors to consider when writing specification for goods and services.
 Advantages of specifying goods
3 Purchasing Process
 Stages of the purchasing process
 Documents used in the purchasing process
 Importance of documentation in the purchasing process
4 Purchasing function
 Meaning of the purchasing function
 Importance of purchasing function in the organization structure
 Relationship between purchasing and other departments
 Purchasing models;
 Centralized purchasing
 Decentralized purchasing
5 Supplier sourcing and Evaluation
 Supplier sourcing options
 Supplier evaluation
 Advantages and disadvantages of each sourcing option.
6 Developments in purchasing
 Electronic purchasing
 Green purchasing
 Purchasing ethics

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 CHAPTER ONE
INTRODUCTION
DEFINITION OF PURCHASING / PROCUREMENT
According to Kenneth Lysons (2003), the classic definition of purchasing is “To obtain materials
of the right quality in the right quantity from the right source, delivered to the right place at the
right price”. This introduces the concept of the “five rights” in purchasing
This definition has however been criticized because of the following reasons:
The term “right” is situational, each organisation defines right differently
What is “right” changes over time as the environment changes

• WHERE AS
PPDA Act, 2003, defines procurement as the acquisition by; purchase, rental, lease, hire
purchase, license, tenancy, franchise or any other contractual means of any types of works,
services or supplies of any combination.

Procurement relates to the function of purchasing inputs used in the firm’s value chain
including raw materials, supplies and other consumable items as well as assets such as
machinery.
Supplier management is defined as the aspect of procurement concerned with rationalizing the
supplier base and selecting, coordinating, appraising the performance of and developing the
potential of suppliers.
Principles of Public Procurement
• - Accountability - Integrity
• - Competitive Supply - Fair-dealing
• - Consistency - Legality
• - Effectiveness & Efficiency
• - Informed decision-making
• - Transparency - Responsiveness
OBJECTIVES OF PURCHASING FUNCTION

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Every function in an organization aim at achieving organizational objective that attain its
intended mission and vision statement. A well known objective of purchasing is; To obtain
materials of right quality, in the right quantity, from the right source, delivered at the right
place and at the right price. In broad they include;
1 To supply the organization with steady flow of materials and services to meet its needs.
2 To ensure continuity of supply by maintaining effective relationships with existing
sources and develop other sources of supply either as an alternative or to meet
emerging or planned needs.
3 To buy efficiently and wisely, obtain by ethical means the best value for every money
spent.
4 To manage inventory so as to give the best possible service to users at the lowest cost.
5 To maintain a sound cooperative relationship with other departments, providing
information and advice as necessary to ensure the effective operation of the
organization as the whole.
6 To develop staff policies, procedures and organization to ensure the achievement of set
objectives.
7 To select the best suppliers in the market.
8 Help generate the effective development of new products.
9 Protect the company’s cost structure.
10 Maintain the correct quality/value balance
11 Monitor supply market trends.
12 Negotiate effectively in order to work with suppliers who will seek mutual benefit
through economically superior performance.

FUNCTIONS OF THE PURCHASING DEPARTMENT

1 Reduction of all direct material costs; This is done using measures of introducing new
suppliers, competitive tendering, looking for substitute materials and so on. This will
improve the profit margin of the organization.
2 Reduction of net capital employed in the organization; Using lower payment terms to
suppliers, reduction of pipeline inventories, Just in time agreements with suppliers
3 Reduction in quality cost; To make sure that the department selects suppliers who have
their products well under control and possess a sound quality system and policy in
place.
4 Product standardization; This can be achieved by lowering the number of suppliers,
reducing product variety, to reduce on dependence on certain suppliers, better use of
competitive bidding and reducing stock.
5 Contribution to product design and innovation; Many suppliers offer free advice to
their customers with a view of creating strong relationship. And these buyers use it to
come up with new products.
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 6 Stock reduction; Through careful scheduling of deliveries or special arrangements with
the supplier, purchasing can regulate stock levels hence proper utilization of capital
employed.
7 Increasing flexibility; Companies advocate to implement flexible manufacturing
systems, like JIT which is important to suppliers secure short lead time and keep
inventory in entire supply chain at a minimum leading to reduction in transaction costs.
8 Fostering purchase synergy; Every purchasing function is accountable to the firms’
profits and losses.
9 Used both in central and local government; The Public procurement and Disposal of
Assets Act 2003(PPDA) has set standards which the central and local government follow
upon acquiring assets and their disposal.

CLASSIFICATION OF PURCHASES
In general, purchased goods fall in the categories mentioned below;
1 Raw materials; These are materials which have to undergo processing and are
transformed into goods and services to serve the basic needs of people.
2 Supplementary materials; These are materials which may not be absorbed physically
into the end product. They are consumed during the production process. Example
include, petro in car, lubricating oil in machines, cooling water, polishing materials,
industrial gases, and many more.
3 Semi-manufactured products; These are products that have been already processed but
need further processing on a large scale. They surface in finished product. Example
include; Timber, steel plates, rolled wires and plastic foils.
4 Components. These are manufactured goods which need not to undergo additional
physical changes but will be incorporated or built into the product. Example include; an
engine in car, a button on shirt, soda in a bottle and many more.
5 Finished or trade products. These are products which are purchased to be sold by say
retailers, wholesalers, departmental stores, franchiser
6 Investment goods or capital equipment; These are products which are not consumed
immediately but are used to reproduce consumer goods, they include; machines,
vehicle, buildings, computers and many others.
7 Maintenance, repair and operating materials (MRO items); These products are
sometimes called indirect materials or consumables. They mainly keep the organization
running, they include office supplies, cleaning materials, spare and maintenance
materials.

IMPORTANCES OF PURCHASING DEPARTMENT.

1 Purchasing polies can improve sales margins through realizing substantial costs
savings. Every shilling not spent is a shilling extra profit.
2 Suppliers may contribute significantly to company’s innovation processes.

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 3 Through purchasing, quality materials, purchasing contributes to quality of the final
goods and services produced.
4 Through purchasing strategies like outsourcing, a firm is able to reduce on capital
employed, fixed costs and focus on core business activities, increasing
competitiveness.
5 Purchasing helps firms realise their strategies and achieve competitive advantages
over their competitors.

TYPES OF ORGANISATIONAL BUYERS

There are two types of organizational buyers;
(a) Private buyers; These may include individuals and organizations that buy goods,
works and services.
(b) Public buyers; These are purchases done by state agencies to meet the economic
demand. This may include social services. Monitoring and accountability are major
activities to manage public purchases.

SPECIFICATION IN PURCHASING
Specification is stating in details what is required in order to meet the need. Need identification
must be clearly put out for specification to take place. This involves stating the characteristics,
qualities attributes of the needed items. It is an important stage in the purchasing process.
METHODS OF SPECIFICATION
The needed items can be specified in the following ways;
1 Brand name; This specification of purchases according to name that was given to the
product upon manufacturing. Example include, shell, total starbex and on if you are
looking for petrol.
2 Dimensions; This is measuring of goods and services in meters, inches, yards, time,
liters and many more. Use of sizes like small, medium or large. This specification can
be use with in combination with other methods. Example a twenty liter Jerri can of
cooking oil.
3 Physical or chemical properties; This is specification of items using colour, chemical
properties, like percentage of minerals in a product or food content. Example
include; colgate Herbal, coke zero, red and black wine and many more.
4 Market grade; This is a specification of items centering on product grade like maize
(grade 1,1.5, 2 etc),
5 Method; Is specification based on how an item is made. Example; distilled wine and
fermented wine, steamed chicken and fried chicken and many others.
6 Materials; Specification of items based on raw material used to make the product.
Example include; in clothing, cotton, silk, shifone, in chairs leather chair, cloth chair.

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 7 Country of manufacture; Some products are specified by area or country were the
are made. Example Germany cars, katwe made source pans, indian drugs, and many
others.
8 Sketch diagram; Some items are specified by sketches like fashions in buildings,
clothes, furniture shoes and so on.
9 Function/use; Some items are specified depending on their functions such as
washing soap, cooking oil, drinking water, sports shoes and so on.

10 Samples; For some items to be specified well, supplier need to provide sample items
or their packaging. Example, medicine type, colours, cloth material, and so on.

CONTENTS OF SPECIFICATION
 Title of the patent product; Mention the name the product and services
demanded.
 Product description; Mention the main feature of the product and service
needed.
 Product background; Where necessary mention the product or service’s
origin or manufacture.
 Product summary; Mention all the details of product or service.
 Product feature; Mention the service or products characteristics.
 Product function/ use; Mention some of the main uses or purpose of the
product or service.

FACTORS TO CONSIDER WHEN SPECIFYING

1 The price of product or service
2 The quality of the product
3 The quantity of the product
4 The colour of the product
5 The size of the product.
6 The contents used to make the product.
7

ADVANTAGES OF SPECIFICATION
CHALLENGES OF SPECIFICATION

THE PURCHASING PROCESS/PROCEDURE

The purchasing cycle
The purchasing cycle describes the typical stages that characterize the purchasing
process. These stages may not be repeated every time a simple requisition is made

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 like for stationery. It is tiresome for external suppliers to meet orders. Authorization
for every purchase order may not be necessary and in reality low-value orders may
be deemed as to not warrant authorization. The firm needs devise means of
handling such orders.
A typical purchasing transaction would go through the following steps to get
complete;
1 Need identification; This is where a given department (user department)
recognizes the need to use an item or a service. This is followed by a
procurement requisition.
2 Defining the specification; This is a statement that clearly explains what is
required.
3 Authorization/approval; This involves getting the opinion of no objection to buy
and the designed specification from any relevant office. It may be a head of
department, an accounting officer, a financial controller etc.
4 Identification of potential suppliers; This may be through tendering or inviting
offers from supply market. Some of the documents that may be used
include(RFI) Request For Information, (RFQ) Request For Quotation and List of
Requirements.
5 Appraisal and selection of supplier; This involves evaluating the
bids/quotations/proposals from those who responded basing on certain criteria
especially arising from the user specification and desired suppliers specifications.
6 Contract negotiation; The best evaluated supplier may not necessarily give an
offer that completely caters for needs of the buyer. This may therefore call for
discussions between the buyer and the supplier on such issues as quality,
delivery schedule etc.
7 Award/placing orders; After a compromise is reached on the various issues
between the buyer and the supplier, an order is placed say using a local purchase
order or signing of a contract. Extra care must be taken when drafting
contractual terms as these can be central to the final quality of the required
items or points of reference especially during litigation.
8 Delivery and receipt service/product/works; This is the responsibility of the
supplier. The supplier will usually issue an advice note showing acceptance of the
order and conditions under which she/he will supply e.g price, delivery terms,
payment terms etc. When goods are supplied, the supplier issues a delivery note
which shows the goods delivered, quantity, quality. This is checked against the
purchase order to ascertain whether there is no deviation.
9 Payment; Upon successful performance by the supplier, he will submit a tax
invoice against which the buyer will pay. The invoice must be checked against
other documents like the purchase order, deliver note for quality purposes and
auditing purposes.

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 10 Vendor rating/ review of performance; It may be important for the buying firm
to evaluate the performance of suppliers. This will assist the buyer in future in
case a similar need arises. Such information is vital for decision making purposes
within the organization.

Documents used in purchasing process

• Requisition note
• Enquiry or Requests for Quotations (RFQs)
• Quotations
• Purchase order / Local Purchase Order (LPO)
• Goods received note
• Goods return note
• Invoice
• Order acknowledgment note
Elements Of The Purchasing Process
• Clients and Suppliers
• Methods and Procedures
• Personnel and Organisation
• Information Services
• Purchasing Policy and Performance Indicators

BASIC PURCHASING MODELS

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 • There are three basic purchasing models in organisations based
on the choice of whether to perform a task at central or
decentralised level.
• The three alternatives are centralised, decentralised and co-
ordinated purchasing (a combination of these two types)

(a) CENTRALISED PURCHASING

 All purchasing tasks and activities are done at central level by one unit: it could be
known as the Central Purchasing Department (CPD) in some firms.
 All decisions relating to purchasing activities are made at this central place.
 Purchasing will tend to be centralised where items needed at each unit are largely
homogenous. For example, a large firm like Mukwano Group of Companies with several
subsidiaries, each using a lot of stationery and large amounts of fuel

Figure: Centralised Purchasing

Business
Unit

Central
Business Purchasing
Unit Department
(CPD)

Business
Unit
ADVANTAGES OF CENTRALISED PURCHASING

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 • Economies of scale obtained by combining volumes of purchases from all units in the
organisation. This increases the bargaining power of the firm in negotiations and
facilitates relationships with the suppliers.
• Avoidance of price variances between units. This helps in protecting the reputation of
the firm.
• Avoidance of competition between units for materials in short supply
• Better overall stock management and material utilisation because of the fact that it is
easier to exercise control and monitoring of purchasing activities
• Economies of staffing and clerical effort together
• Uniformity in procedures, forms, standards and specifications
• Less administrative costs. It is cheaper to place and process and order of 1 million
shillings than ten each for Shs. 100,000
• Suppliers dealing with a centralised purchasing department have an incentive to
compete for the whole or substantial proportion of firms’ requirements. In an effort to
do this, suppliers will offer better prices, terms and conditions
Dis advantages of Centralized Purchasing
• Bureaucratic procedures. These waste time and resources.
• Dissatisfaction within staff in the organisation as they feel someone is making
decisions for them
• Needs assessment may not be well done since many units have to be considered.
(Some needs may be ignored when they seem minimal yet to that particular
department, it is very vital)
DECENTRALISED PURCHASING
• All purchasing tasks are performed at a decentralised level. Each unit is independent
and handles its own purchasing, that is they source their own suppliers and place their
orders independent of each other.
ADVANTAGES OF DECENTRALISED PURCHASING
• Each unit has better knowledge of what its needs are and will therefore be able to
order to meet these needs
• Flexibility - it is easier to respond to emergency requirements because of shorter
communication lines and greater awareness of the local circumstances
• There are less bureaucratic tendencies. This saves time and resources
DISADVANTAGES
• Co-ordination and controlling the purchasing activities of the different department is
not easy.
• The firm misses out on the advantages associated with bulk purchases
• There is lack of uniformity in the prices requested for by the units from the suppliers.
This does affect the image of the organisation negatively
• High administrative costs
• Conflicts between departments may result from decentralised purchasing

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 • User departments will resort to informal procedures if formal purchasing procedures
are too slow, unreliable or otherwise unsatisfactory
• Decentralisation can result in many activities that involve expenditure and time
without adding value
COORDINATED PURCHASING
Coordinated Purchasing
• Generally speaking, the advantages of one approach are the disadvantages of the
other and vice versa. Thus a combination of both is often used to obtain the benefit
from the best features of each while avoiding the disadvantages of both approaches.
• Co-ordinated purchasing therefore combines the benefits of centralised with those of
decentralised purchasing.
• It involves a lot of managerial involvement to make sure it really works and that the
decentralised model is not taking over. It requires commitment of parties and this is
often the hardest part to achieve.

An illustration of coordinated purchasing

Corporate
Purchasing
Department

Business Unit A Business Unit B Business Unit C

Buying department Buying department Buying Department

SUPPLIER SOURCING AND EVALUATION

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 • Sourcing is the process of identifying, selecting and developing
suppliers.
• It is a key purchasing activity. The aim of sourcing is to find a supplier
who will offer the best service at the most favourable cost.
• When sourcing, it is vital to know the qualities of a good supplier, the
basis on which a supplier will be judged to be good or bad, the sources
of information about suppliers and the sourcing options available.
available.
ATTRIBUTES OF A GOOD SUPPLIER
 Delivers on time.
 Provides consistent quality.
 Gives a good price.
 Is responsive to the needs of customers.
 Keeps promises.
 Provides technical support.
 Keeps the buyer informed on progress.
THE SOURCING PROCESS
The steps on the sourcing process are;
1 Identify the needs of the organization.
2 Decide to whether to meet the need, you have to make or buy.
3 Conducting market research. Buyers should be aware of the present and
potential suppliers by obtaining information from different sources.
4 Identify possible suppliers.
5 Screening suppliers and developing a short list. Potential suppliers who
are likely not to meet organizational needs are eliminated at this stage.
Suppliers are screened on several aspects like size, location and many
more.
6 Sending enquires to request for information the short listed suppliers.
The enquiry may include a questionnaire for the potential supplier to
complete and return to the buyer for analysis.
7 Evaluating / weighing responses. Suppliers are rated according to pre-
determined criteria that reflect the needs of the organization. The major
areas of appraisal are quality, financial, commercial, environmental and
ethical issues.
8 Selecting the supplier. The supplier who best meets the criteria is
selected and placed on the approved list of suppliers. (Approved Vendor
List) or in the supplier database.
9 Negotiating with the supplier; This is done when there are areas that
need more clarification of if the offer can be improved upon.

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 10 Placing the order and delivery of the required items.
11 Post purchase evaluation; The supplier’s performance is evaluated to
determine how well the needs of the buyer have been met. This is
important for future buying decisions.

SOURCING OF INFORMATION ABOUT SUPPLIERS AND MARKET

CONDITION.
1 Sourcing services; A number of agencies will provide information
to buyers about potential sources of supply.
2 Supplier representatives These represent suppliers and provide
useful information to buyers about potential source of supply.
3 Exhibitions; These events may provide the buyers with an
opportunity to compare similar products from different sources.
4 Colleagues; Personnel in other departments within the company
are often knowledgeable about source materials.
5 Other buyers; Communications with fellow professionals in
purchasing field might be useful in discovering new sources.
6 Agents Stockists and distributors might provide comparative
information on different manufactures and their products.
7 Organizations promoting trade; For example Uganda
manufacturers Association, Association for small industries, Uganda
Investiment Association. etc
8 Approved list; Individual organization may maintain lists of
companies that have been assessed and approved.
9 Recorded performance; The purchasing department may maintain
records which may provide information on past performance of the
suppliers who have been used in the past. ( Trade directories, Catalogues,
Publications, Professional associations, Government sources like
ministries, bureaus of statistics, etc )

SOURCING OPTIONS/ Supplier Evaluation

The sourcing option include;
 Whether to make or buy requirements
 Whether to use local or foreign suppliers.
 Whether to use one, two or more than two suppliers.
 Whether to use small or large suppliers.
A MAKE OR BUY DECISIONS
When firms decide to “make”. They have taken the option of
manufacturing their own inputs instead of obtaining them from an external source, which is a

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supplier. On the other hand, when they decide to “buy”, inputs are obtained from sources
external to the organization.
ADVANTAGES ENJOYED WHEN FIRMS MANUFACTURE THEIR OWN IPUTS.
1 It reduces costs.
2 It reduces lead time.
3 Idle resources are utilized.
4 It retains staff, builds experience and Skills.
5 If quantities required are too small and buying them from external parties proves
more expensive.
6 And other confidentiality reasons.
B LOCAL VERSUS FOREIGN SUPPLIERS
Local source involves obtaining supplies from domestic suppliers while foreign/ global/
international sourcing is obtaining supplies from suppliers outside the borders of ones country.
C LARGE VERSUSSMALL SUPPLIERS
Using small suppliers
Using large suppliers
D SINGLE, DUAL SOURCING AND MORE SUPPLIERS.
Single sourcing is obtaining supplies from one supplier while dual sourcing is getting
supplies from two suppliers.
Why single sourcing?
1 Monopoly; The supplier of the particular goods or service may be a monopoly e.g
UMEME, NWSC, etc
2 Less administrative and overhead costs are involved.
3 It is easier to establish co-operation.
4 When orders are very small.
5 Need to obtain volume discounts.
6 Easy communication and scheduling of supply requirements.
7 Standardization is made very easy.
8 E.t.c

For multiple sourcing, more than two suppliers are obtained each providing a
percentage of supplies.
Why multiple sourcing?
1 Avoidance of over dependence on one supplier.
2 Need to increase bargaining power of the buying firm.

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 3 Supply security; Need to spread risks.
4 Need to spread risks.
5 Legal obligations.
6 Required capacity may be higher than one supplier is able to meet.
7 Geographical factors.
8 It can be used as a way of supporting small, local or new suppliers.

SUPPLIER EVALUATION CRITERIA.

The aspects considered when evaluating suppliers are as mentioned below;

 Finance
 Production capacity and facilities.
 Human resources.
 Quality.
 Performance.
 Information technology.
 Organisational culture.
 Environmental and ethical considerations.

DEVELOPMENTS IN PURCHASInG
ELECTRONIC PURCHASInG

E-Purchasing is the use of internet to operate the transactional aspects of

requisitioning, authorizing, ordering, receiving and payment processes for the
required services or products.
OR
E- Procurement refers to the use of computers and other electronic equipments
normally linked by networks to do any or all of the following activities;
 Access data about products available on the market.
 Find out sources of supply and appraise them.
 Make price comparisons.
 Spot buy from auction sites and market exchanges.
 Receive invoices and make payment.

AREAS WHERE E-PROCUREMENT IS APPLIED

1 E-Purchasing/ buying

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 2 Information storage and retrieval; This is the storing of information
electronically and retrieve it when you need it.
3 Electronic data interchange; This is the exchange of information
through sending documents while carrying out transactions such as
reguisitioning orders, purchase order, acknowledgement of orders,
advice note and invoice until the transaction is concluded.
4 Electronic point of sale and bar-coding.
5 Inventory management and control systems.
6 Automated warehousing.
7 Online autioning.
8 Supplier catalogues.
9 E-mail and internet.

ADVANTAGES OF E-PROCUREMENT
1 Reduced costs and prices resulting from better sourcing and more
competitive pressure.
2 Access to new suppliers’ products and services that were previously
unavailable.
3 Impoved processes; This is because less errors are made than paper
work, filling are required and automated work flow ensure that right
document go to the right people at the right time.
4 Shorter cycle times resulting from quicker and effective communication.
5 Fewer staff are required for routine purchasing hence reduced
administrative and transaction costs.
6 New tools such as e-auctioning can attract new suppliers and buyers in
the market.
7 Accountability and audit trails are often better than paper work.
8 Reduced negotiation processes e.g the use of electronic reverse autions.
9 Invoices no longer need to be printed and posted.
10 Less maverick buying (where staff don’t purchase on company’s contract
thereby creating risk of not getting value for money. This becomes due to
more control through buying system rules. For example orders that are
not made through the system can’t be paid for.
11 Payments go straight to the bank.
12 Greater empowerment from the line staff as they can order from their
desktop.
13 Sales orders are received electronically and no longer need to be
rekeyed.

DISADVANTAGES OF E-PROCUEREMENT
1 It encourages transaction purchasing i.e. there is lack of physical contact.

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 2 Information insecurity due to viruses and computer fraud.
3 Loss of buyer- supplier relationships with its associated benefits.
4 It encourages the use of unknown instead of proven suppliers.
5 Some suppliers who can’t afford technology may be left out yet they
could be having quality offers.
6 It is very expensive to acquire computers and getting connected to
internet services.
7 It increases on the level of unemployment.

GREEN PURCHASING.
Green Purchasing refers to the procurement of products and services that have a
reduced effect on human health and the environment when compared with
competing products or services that serve the same purpose. This comparison
can consider raw materials acquisition, production, manufacturing, packaging,
distribution, re-use, operation, maintainance, and disposal of the product or
service. Green purchasing is also known as environmentally preferred purchasing
(EPP), environmentally responsible purchasing, green procurement, affirmative
procurement, eco-procurement, and environmentally responsible purchasing.

ADVANTAGES OF GREEN PURCHASING

1 Reduces costs and improves the environment; E.g Paper and cardboard
taken from the surrounding recycle bins is recycled into new products.
Recycling the material saves tipping fees at the landfill.
2 Strengthens markets for recyclable material; Recycling is more than just
placing certain materials in a special bin. The recycling loop is complete
only when materials that you have separated for recycling are processed
and remanufactured into new products, which are then sold.
3 Promotes use of less-toxic products that protect the health and safety of
people and hence minimize harmful emissions to air, land, water and so
on.
4 Saves Energy by promoting the purchase of energy conserving products.
5 Brand Image; An organization that has gone green is seen as a good
corporate citizen. This increases its image in the eyes of the public.
6 Customer satisfaction; An organization that goes green in response to
customer concerns increases its levels of customer satisfaction, a key
point in customer retention.
7 Reduced Risk: Not only is any company that does not go green risking a
run in with the law by failing to comply with green regulations, which are
multiplying at a high rate.
8 Cost Reduction; Going green doesn’t cost more, most of the time, it saves
money, especially when the new products use less energy, generate less

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 waste, lasts longer and green products work longer than their toxic
counterparts. Going green reduces the following costs;
Hazardous material management costs.
Operational costs.
Repair and replacement costs.
Disposal costs.
Health and safety costs.( Insurance and security costs)
9 Increased Shareholder value: A better brand with happy customers who
keep coming back and drive up sales while costs keep falling results in
significant Return On Investiment and this makes investors happy. Which
is every organizational main goal.
10 Many items look like they are at a good price at point of purchase,
environmentally preferable purchases take into account of a product’s
total life cycle cost. Evaluate total costs expected during the time a
product is owned including, but not limited to, acquisition, extended
warranties, operation, supplies, maintenance, support, disposal cost or
trade-in-value, and expected lifetime compared to other alternatives.
11 Product Total Life Cycle Cost Analysis goes even further as it includes
social, ecologic and economic costs of producing a product-which begins
with raw materials extraction- manufacturing, marketing, transporting
and using the product, and disposing of the product.

TEN STEPS TO GREEN PROCUREMENT

This section outline a ten step process that an organization can use to go green;
1 Commit to being Green; Make Green a corporate policy and create a green routine.
This should come from the top. Specify that green is a top priority, and that
procurements for products and services must have minimum green requirements.
2 Identify and Categorize your Needs; Ask yourself what do you need to buy, what
environmental impacts do each of these products or services have, and do they have
any similarities? Once these question are answered, you can see where you can
make a big impact. And something can be done about it.
3 Develop Green specifications and standards; Make green specifications and
standards for every product you buy. You can insist on a minimum amount of
recycled content and non-chlorinated paper that is easily recyclable.
4 Establish Green Selection Criteria and Their Impact on Award Decisions; Once you
have identified the standards you are going to use for each category, you have to
outline the selection criteria, weight and prioritize them, and figure out how much of
an impact they are going to have on your decision.

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 5 Focus on identifying products and services which are Green; If a supplier isn’t green,
that supplier should not even be invited to bid. Make it a policy that if your not
identified green, you should not be allowed to enter any bid.
6 Always use a life-cycle costing approach; the total environmental impact you are
considering from the harvesting and processing of raw materials through its final
disposal before making a decision. Be sure to include efficiency, waste, recyclability
and material composition into your analysis.
7 Include Green Performance Clauses in Every Contract; Be sure to incorporate clauses
into every contract that allow you to enforce penalties o terminate the contract if
the supplier does not meet the minimum green and sustainability requirements that
they commit to. Include clauses that reward suppliers with bonuses if they exceed
green requirements.
8 Communicate and inform; Once you have policies and practices it’s important that
you communicate them, explain them, and offer your buyers training on the
complex categories that they have to manage on a regular basis so that they can
differentiate the products that are truly green from those that are coated in green
washing.
9 Use Green technology; Use E-procurement, E-sourcing, and other E-systems, run on
energy, efficient, technology, to buy online rather than using many papers that
result into unnecessary destruction of forests to research, contract, and buy
products and services.
10 Make it easy; Design every policy, process, and system develop and deploy in
support of green to be easier to use than the alternatives. People like easy. If you
make purchasing green easy, it will happen naturally.
REASONS FOR ENVIRONMENTAL CONSIDERATION

 Efficient use of raw materials

 Cost saving
 Conservation of the environment
 Health and safety
 Image
 Minimise wastes
 They influence purchases and suppliers
 Diminishing resources
 Intelligent and more demanding customers
 Pressure from the public

OUTSOURCING
• Outsourcing refers to the strategic use of outside resources to perform activities that
were previously (traditionally) handled by internal staff and resources.

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 • It is a management strategy by which major non-core functions are transferred to
specialist, efficient, external providers.
ACTIVITIES THAT CAN BE OUTSOURCED

1) Security 2) Clearing

3) Catering 4) Pay roll management

5) Computers & IT 6) Staff recruitment

7) Training centre management 8) Transport management

9) Warehousing 10) Waste disposal

11) Quality Assurance & Control 12) Records management

DRIVERS OF OUTSOURCING

• Cost

• Quality

• finance

• Core business

• Co-operatives

Cooperation between companies can lead to conflict. In order to avoid such

conflict those activities that are produced by both organizations should be subject
to total outsourcing.

BENEFITS OF OUTSOURCING

• Cost reduction e.g. reduction in wages and salaries

• Cost certainty

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 • This is because the contract price is agreed and under normal
circumstances it should not change.

• Reduced capital requirements i.e. in terms of plant and equipment.

• Specialized contractors are normally more efficient.

• Increased flexibility

• Reduction in staff management problems

• Improved consistence of service provision

• Reduced risks

• Frees management time

• Frees up cash

DISADVANTAGES/RISKS/PROBLEMS OF OUTSOURCING

• Losing of key processes e.g. purchasing

• Losing internal expertise or knowledge of process or activities e.g. compound cleaners.
• Diluted corporate image. The name of the company may be negatively affected.
• Reduced staff morale and ill feeling towards contractors if some staff are retained.
• Reduced security/confidentiality of the organization’s secrets.
• Over dependence on the suppliers.
• High staff turnover
• Lack of supplier flexibility
• Unrealistic expectations of outsourcing providers due to over promising at the
negotiation stage.
• Cost escalation such as; failure to supply, contract management costs, ambiguous
requirements which cost money to clarify etc.
• Lack of management skills to control suppliers.
KEY SUCCESS FACTORS IN OUTSOURCING
• Outsource for the right reasons e.g. cost reduction
• Ask the right questions e.g. when to outsource, how, who and from where?
• Consider all the stakeholders
• Get the right people to involve
• Choose the right relationship
• Negotiate a sound contract
• Use performance incentives and penalties.

david kaweesa@ 0704517925

 • Emphasize and manage the people’s issues
• Understand the vendors/service providers

david kaweesa@ 0704517925