Lesson 2 Procurement Policies, Procedures and Support Tools R1

Chapter 5 –
Procurement policies,
procedures
and support tools
LOGO
14/09/2022
Learning outcomes
Procurement policy & procedures
Procurement process failures
E-commerce, e-business, e-SCM and e-

procurement
The evolution of e-procurement models
Low-value purchases
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Procurement Policy
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Procurement Policy
Policy
A set of
Rules of
Purposes Principles
action
Guiding an
organisation
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Procurement Policy
4 major levels of organisation policy
Executive
policies
Functional
policies
Operating
procedures
Rules and
regulations
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Procurement Policy
4 major levels of organisation policy
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Procurement Policy
What Makes for an Effective Policy?
action
oriented
guide
problem
relevant
solving &
behavior
Effective policy
timely &
concise
current
unambiguous
/well
understood
7
Exemplar Procurement Policy – The
14/09/2022
Crossrail Project
❖Purpose of the Policy
■ provide best affordable value in delivering the
Crossrail project objectives;
■ conducted in a fair, objective and transparent
manner;
■ compliant with the regulatory framework of all
relevant legislation, the CRL governance & audit
framework & delegated levels of authority;
■ use best practice in the application of ethical
standards;
■ are aligned with the CRL vision and values; and
■ adhere wherever appropriate to Government
procurement policies and TFL/GLA Responsible
Procurement Policy
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Exemplar Procurement Policy – The
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Crossrail Project
Key Policy Principles
1.■ General Procurement;

2.■ Supply Chain Management and Engagement;
3.■ Supplier Selection Procedures;
4.■ Contracting Arrangements;
5.■ Risk Allocation;
6.■ Fair Payment Procedures;
7.■ Performance Management.
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Procurement procedures
Example – Questions
❖ Do you think this procurement procedure
example effective? Give some reasons?
❖ Do they enable procurement staff to execute &

managers to control the procurement operations?
❖ Can rejected requests be sent back to

engineering without any reasons?
❖ In your opinion, what are procurement

procedures?
(Monczka Robert M. et al, 2008, p104)10

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Example
(Monczka Robert M. et al, 2008, p104)11

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Example
(Monczka Robert M. et al, 2008, p104) 12

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Definition
PROCEDURE
1. A system of sequential steps or techniques for

getting a task/job done.
2. Operating instructions detailing functional
duties/tasks & a procedure manual = a how-to
manual => enable staff to execute &
managers to control those operations
3. Formal arrangements by means of which
policies linking strategies
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Definition
Procurement procedures:
• serve as a reference guide for purchasing

personnel;
• explain how to accomplish different activities
• clarify or reinforce knowledge about different
topics.
A large purchasing department
• may have hundreds of procedures detailing the

accepted practice for carrying out an activity.
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Why are procurement procedures

essential?
1. Provide consistency and order by documenting the
steps and activities required to perform a task.
2. Set out how procurement departments make their
contribution at key phases of the procurement
cycle
3. Explain how stakeholders and others interact with
the procedures and decision making
4. Support efficient operations and more extensive
and detailed than the policy manual.
5. Specify industry best practices to follow through
benchmarking comparisons with leading firms.
6. Set out serious implications when procurement
procedures are not complied with.
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What Makes for Effective

Procedures?
What Makes for Effective Procedures?
1.Simplifying;
2.A concise, accurate & complete set of
operating instructions;
3.Not specify too many steps or present
unnecessary detail;
4.Encourage timeliness & responsiveness;
5.Need to be periodically reviewed and
evaluated => timely and current [not
outdated] & contribute to rather than
hinder performance.
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What will procurement procedures

set out?
What will procurement procedures set out?
1.Most important content of procurement

procedures
2.Notification of authority to purchase
3.Requests for quotations (RFQs) and
invitations to tender (ITTs)
4.Creating a legally binding contract
5.Contract management phase
6.Operational procedures
7.Proper use of purchasing forms.
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1. Most important content of

procurement procedures
■ The procurement/purchasing cycle/process
■ How procurement will engage in each aspect of

the process
■ The need to deal effectively with intellectual
property rights
■ The process for engaging with the supply
market
■ How to avoid creating a monopoly supply
scenario
■ The need for usage forecasts to be as accurate
as possible
■ How potential suppliers will be pre-qualified

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2. Notification of authority to
purchase
1. ■ Who and how an appropriate requisition will
be initiated or other means to authorize the
purchase
2. ■ Budget approval and appropriate finance
code
3. ■ Issue of bills of material when these are
applicable
4. ■ The management of emergency needs to
purchase and to permit a standard procedure
to be bypassed according to defined rules.
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3. Requests for quotations (RFQs) &

invitations to tender (ITTs)
1. ■ How the value of the purchase will impact on
the methodology to be adopted
2. ■ The content required when RFQs or ITTs are
submitted
3. ■ The methodology to be applied to the
evaluation of RFQs or ITTs to avoid biased
decisions being made
4. ■ How and in what circumstances negotiations
will take place
5. ■ The time lines for decision making
6. ■ How authority to purchase shall be signed off
at this stage
7. ■ How to evaluate risk appropriate to the
purchase.
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4. Creating a legally binding

contract
1. ■ Basic features of standard purchase contract
2. ■ Basic contract principles
3. ■ Essential elements of contract
4. ■ Formal competitive contracting procedures
5. ■ Examples of sample agreements
6. ■ Legal definitions & use of formal contract
clauses
7. ■ How purchase orders created & issued
8. ■ How one-off contracts negotiated & issued
9. ■ Methodology for dealing with order
acknowledgements & implications of accepting
supplier’s sales acknowledgement
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5. Contract management phase

1. ■ Who is accountable for contract management
2. ■ Compliance with contract terms & performance
assessment
3. ■ Involvement of procurement when disputes
arise
4. ■ Acceptance procedures for goods and services
5. ■ Payment processes
6. ■ Contract close-out procedure
7. ■ Feedback of supplier’s performance into a
vendor rating system.
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6. Operational procedures
Procedure • Control of material furnished to suppliers

topics in
the
• Storage of purchasing documents
material
manual of
a Fortune • Process of supplier qualification
500
company • Use of purchasing computerized systems
(to be
continued)
• Analysis of competitive quotations
• Use of single source selection
• Requirements for order pricing and analysis
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6. Operational procedures
Procedure • Procedures for cost analysis

topics in
the
material • Acceptable cost reduction techniques and
manual of documentation
a Fortune
• Intracompany transactions
500
company
• Processing and handling of overshipments
• Supplier acknowledgment of purchase

orders
• Disposition of nonconforming purchased

material
24
7. Proper use of purchasing forms
❖ Proper use of purchasing forms
▪ A description of proper use of each form
▪ Detailed meaning of each information field on the form
▪ A description of proper handling & storage of each
form.
❖ Examples of commonly used purchasing documents &
forms (Monczka et al, 2008, p47, 57, 59)
▪ Purchase requisition/Statement of Work (SoW)
▪ Request for quotation (RFQ)
▪ Request for proposal (RFP)
▪ Purchase order (PO)
▪ Packing list (P/L)
▪ Bill of lading (B/L)
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7. Proper use of purchasing forms

Example
(Monczka et al, 2008, p47) 26

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Reasons for procurement process
failures
1. Unpublished or ill-explained process;
2. Determination by buyer or other influence to
undermine the process;
3. Specification that can only be met by one
supplier;
4. Passing confidential information to a preferred
bidder;
5. Failing to engage in a credible tendering
process;
6. Bias in evaluating tenders;
7. Failure to evaluate all bids in a consistent
manner;
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Reasons for procurement process
failures
8. Engaging in fraudulent practices;
9. False reporting of supplier’s capabilities;
10.Having a personal interest (financial) in the
supplier;
11.Manipulating timescales for submission of
tender and their evaluation;
12.Engaging in selective negotiations;
13.Revealing tender prices to preferred supplier.
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Procurement process failures

CASE STUDY: The Garden Bridge
Design Procurement
https://www.london.gov.uk/sites/default/files/gla_oversight_
committee_-_garden_bridge_report_-_march_2016.pdf
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Procurement policies & procedures
In summary
Policies & => essential
procedures
Danger: become mechanistic & stifle business

initiatives, out of date, require unnecessary
actions, not address current issues or topics
=> reactive procurement
Recommen well-formulated & increasingly revisited and

dation: updated
=> consistent, efficient, effective
=> proactive procurement
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E-commerce, e-business, e-SCM
and e-procurement
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E-commerce vs E-business
E-COMMERCE E-BUSINESS
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E-business development stages
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34 Presented by Phan Vu Ngoc Lan ©

2020 Pearson UK
14/09/2022
Barriers to E-business adoption
Summary analysis of barriers to e-Business

adoption in a Canada Transportation Act review
1.■ cost can prevent any firm from adopting

Internet technology more extensively
2.■ many marine and rail industry participants
already have electronic data transfer and legacy
information systems in place, reducing the
commercial benefits of adopting more accessible
Internet-based systems
3.■ much of the uncertainty about potential
benefits arises from inadequate customer
readiness
4.■ lack of action by all participants in the supply
chain
5.■ interoperability between logistics providers
2020 Pearson UK
14/09/2022
Barriers to E-business adoption
Summary analysis of barriers to e-Business

adoption in a Canada Transportation Act review
6.■ insufficient interoperability also arises from

shipper demands for specific formats and
methods of communication
7.■ inadequate technical skills and training
8.■ security and protecting commercially sensitive
information are also a concern
9.■ organisational culture and traditional practices
in both carrier and partner firms are key factors
to overcome.

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E-supply chain management
(e-SCM)
(805) What is a Digital Supply Chain? - YouTube
37
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E-supply chain management

(e-SCM)
Streamlining & optimising SC by:
Join
industrywide
e-
Set up internal marketplace Implement E-
online SCM across the
procurement value chain.
sys
Max sales
growth at
lowest
possible cost
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Evolution of E-SCM Systems
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SCM Systems
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E-SCM
Procurement benefits
Purchase E-marketplace & trading exchanges
at a => Price transparency & competition
lower
Procurement benefits
cost
Greater B2B marketplaces => discover lower

efficiency prices for expensive things
(impossible by human effort alone)
=> lower overall transaction cost
Form Forecasting, scheduling & planning

strong production data
ties with Sharing product data designs
suppliers
=> Develop supplier collaboration
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E-SCM
Supplier benefits
Commercial Forecasting ability

opportunities => meet and exceed customers’
demands
=> adjust production schedules,
Supplier benefits
manufacturing capacity &

inventory to customers’ buying
patterns
Collaboration Participating in large, active online

marketplaces
=> cost-effectively reach new
customers and increase sales.
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E-procurement definition
Using the
internet
to operate transactional aspects of
services/
products
required
for
Author
Requisition Order Receipt Payment
isation
(The Chartered Institute of Procurement and Supply (CIPS) definition)
43
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E-procurement & P2P process
E- procurement
suite of tools for achieving efficiency in purchasing

transactions by
streamlining the __?__flow process of P2P cycle

(Monczka Robert M. et al, 2008, p44)
Cont
Needs Cont Receipt Pay
ract
Forecasting Clarificatio Sour ract & men
Admi
& Planning n/Requisiti cing Appr Inspecti t&
nistr
on oval on SRM
ation
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E-Procurement
E-procurement tools used to manage

the flow of ?______ by:
• (1) automating the document generation

process
• (2) electronically transmitting purchase
documents to suppliers.
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Examples of popular E-procurement
software
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Examples of popular E-procurement
software

2020 Pearson UK
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Introduction to SAP Ariba Buying
(949) Introduction to SAP Ariba Buying - YouTube

2020 Pearson UK
14/09/2022
E-catalogues
❖ Federal Public Service - eProcurement /

Welcome to e-Procurement
(publicprocurement.be)
❖https://www.publicprocurement.be/en
❖https://ecat.publicprocurement.be/ecat/home.a
ction
❖https://fedweb.belgium.be/fr/contact/web_e-
catalogue
❖https://ecat.publicprocurement.be/ecat/viewCa
taloguesList.action

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How to create catalogs on Ariba
network

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SAP Ariba Simple English Reverse
Auction

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Benefits of electronically generating &

transmitting documents
1. A virtual elimination of paperwork & paperwork
handling
2. A time reduction between need recognition &

release & receipt of an order
3. Improved communication both within the

company & with suppliers
4. A reduction in errors
5. A reduction in overhead costs in the

purchasing area
6. A time reduction by purchasing personnel on
processing PO & invoices => more time on strategic
value-added purchasing
52 activities Presented by Phan Vu Ngoc Lan ©
2020 Pearson UK
14/09/2022
E-commerce, e-business, e-SCM & e-

procurement – Conclusion
Key enabler ability of systems to communicate across
of all the organisational boundaries.
above Ex. E-commerce made possible by XML
Main resultant changes in business procedures,

benefits processes & perspectives
What is a structured computer programming language with

Extensible open standard
Mark-up => allows for easy recognization of data types in
Language multiple formats
(XML)? => can be understood across all standard Internet
technologies.
Benefits of combine applications smoothly
XML
exchange information with trading partners.
2020 Pearson UK
14/09/2022
The evolution of procurement
technologies
E-
procurem
Electronic ent
catalogue
EDI: still s: in use
existing
Fax: still but dying
in SMEs &
Phone: developin
still in g
use, countries
especially
thru
mobile
phones
(Adapted from ISM-India, 2015) 54 Presented by Phan Vu Ngoc Lan ©

2020 Pearson UK
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The evolution of e-procurement
models
Industry
3rd consortia
Level of models
2nd gener : buyer &

1st gener ation supplier
Corpo gener ation tradin led
B2E rate ation tradin g
EDI requis procur tradin g excha
netwo ition ement g excha nges
rks applic portal excha nges
ations s nges
(Adapted from table 5.3)
Level of collaboration
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models

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models (cont)

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Low-value purchases
Delegated order placement to users
Procurement cards
Other methods of dealing with low-value

purchases

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Procurement portfolio management
KRALJIC PORTFOLIO MATRIX
High
Bottleneck Strategic
Kraljic
portfolio
Supply risk
matrix
Non-critical (routine) Leverage
Low Profit impact High

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Delegated order placement to users
placement of
orders by users
within specified
limits and with
approved suppliers
over the Internet.

2020 Pearson UK
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Procurement cards

2020 Pearson UK
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Procurement cards
Similar to credit cards and involve a

provider such as an International
Bank and usually an issuing bank.
When used for low-value purchases

=> enable any user (foreman on a
building site) => make purchases &
provide payments to suppliers.

2020 Pearson UK
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Benefits of procurement cards

■ improvement of • => more orders going through
compliance levels preferred suppliers => better
volume discounts
■ average transaction & • => drop dramatically
order processing costs
• => 10 to 100 times less than for

■ implementation costs an ERP or e-procurement system
• => enable them to invest in their

■ suppliers paid faster business and improve their services
to clients
■ documentation of data • => greater and improved
on accounts, suppliers
and taxes
■ less procurement • => order paperwork and chasing
employee time => allowing more time for
strategic
63
& tacticalPresented
work. by Phan Vu Ngoc Lan ©
2020 Pearson UK
14/09/2022
Procurement cards
Pay attention!
❖ Issue & use of procurement cards
▪ => carefully controlled.
❖ The cardholder responsible for
▪ => protecting procurement card & for all purchases
made using a particular procurement card number.
❖ Physical procurement card & its account number
▪ => NOT shared with/transferred to any other person
to use.
❖ A procurement card internal review => held periodically
to ensure compliance with controls, appropriateness of
purchases:
▪ cards actually in the possession of the authorised
holders
▪ general adherence to specific procurement
procedures. 64 Presented by Phan Vu Ngoc Lan ©
2020 Pearson UK
14/09/2022
Other methods of dealing with low-

value purchases
❖■ Telephone orders
❖■ Petty cash purchases
❖■ Standing orders
❖■ Self-billing
❖■ Blank cheque orders
❖■ Stockless buying

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Homework

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14/09/2022
References
❖https://www.adb.org/sites/default/files/instituti
onal-document/34064/files/e-government-
procurement-handbook.pdf
❖https://citeseerx.ist.psu.edu/viewdoc/download
?doi=10.1.1.100.4300&rep=rep1&type=pdf
❖https://www.oecd-ilibrary.org/sites/6a42497f-
en/index.html?itemId=/content/component/6a
42497f-en
❖http://wiki.doing-
projects.org/index.php/Efficiency_vs._Effective
ness#cite_ref-lecturegoal_2-0

2020 Pearson UK
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Chapter 5 –

Procurement policy & procedures

Procurement process failures

E-commerce, e-business, e-SCM and e-

The evolution of e-procurement models

Key Policy Principles

1.■ General Procurement;

❖ Do they enable procurement staff to execute &

❖ Can rejected requests be sent back to

❖ In your opinion, what are procurement

(Monczka Robert M. et al, 2008, p104)10

(Monczka Robert M. et al, 2008, p104)11

(Monczka Robert M. et al, 2008, p104) 12

1. A system of sequential steps or techniques for

• serve as a reference guide for purchasing

A large purchasing department

• may have hundreds of procedures detailing the

Why are procurement procedures

What Makes for Effective

What will procurement procedures

What will procurement procedures set out?

1.Most important content of procurement

1. Most important content of

■ How procurement will engage in each aspect of

■ How potential suppliers will be pre-qualified

3. Requests for quotations (RFQs) &

4. Creating a legally binding

5. Contract management phase

Procedure • Control of material furnished to suppliers

• Use of single source selection

• Requirements for order pricing and analysis

Procedure • Procedures for cost analysis

• Supplier acknowledgment of purchase

• Disposition of nonconforming purchased

7. Proper use of purchasing forms

(Monczka et al, 2008, p47) 26

Procurement process failures

Danger: become mechanistic & stifle business

Recommen well-formulated & increasingly revisited and

=> proactive procurement

E-business development stages

34 Presented by Phan Vu Ngoc Lan ©

Barriers to E-business adoption

Summary analysis of barriers to e-Business

1.■ cost can prevent any firm from adopting

Barriers to E-business adoption

Summary analysis of barriers to e-Business

6.■ insufficient interoperability also arises from

36 Presented by Phan Vu Ngoc Lan ©

(805) What is a Digital Supply Chain? - YouTube

E-supply chain management

Streamlining & optimising SC by:

Evolution of E-SCM Systems

Greater B2B marketplaces => discover lower

Form Forecasting, scheduling & planning

Commercial Forecasting ability

manufacturing capacity &

Collaboration Participating in large, active online

(The Chartered Institute of Procurement and Supply (CIPS) definition)

E-procurement & P2P process

suite of tools for achieving efficiency in purchasing

streamlining the __?__flow process of P2P cycle

E-procurement tools used to manage

streamlining the ?flow process of P2P cycle