procurement final ppt

8/3/2019 Procurement Final Ppt

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Procurement

Management


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Introduction

In many organizations, cost effectivepurchasing and supply chain managementis a matter of survival as purchased goodsand services account for up to 80% of

(sales) revenue. Mistakes made in thisarea can be costly, cause delays and canaffect the quality of goods or servicessupplied to your customers. Our training

has been designed to provide anunderstanding of the basic principles ofpurchasing and how to conduct thepurchasing.


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Defining Procurement

Procurement is the sourcing andpurchasing of goods and services for

business use


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Procurement

Procurement is one of the most important

function for all types of Businesses i.e small

scale, medium scale or large scale.

It provides support to all user departments of the

organization.

Basic principle of procurement is effectiveness &

economical

Without the successful procurement at some

stage it is impossible to achieve results from

business


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Background of Procurement

Public vs. Private Buying

Accountability

Responsiveness

Professionalism

Transparency

Competition

Appeal Rights


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Overcoming of OperationalConstraints

Lack of procurement planning

Long lead time of planning process

Lack of procurement involvement in

project planning

Insufficient information & records

Institutional gaps Tied aid

Rigid attitude


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Procurement Principles

Buying the right quality

Buying the right quantity

Buying at the right priceBuying from the right source

Buying at the right time & place


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Right Quality

First and foremost, quality must be properly defined. No

general description of the character of the material or

desired attributes will be sufficient, like 'high quality' or

'poor or low quality', etc. The definition must be in greater

detail and this must be described in the purchase order.

This description then becomes the essence of the purchase

order. Significant elements like, dimension, physical,

chemical and other properties, suitability and purpose must

all be clearly stated.


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Right Quantity

This is also one of the basic considerations. It has a special

meaning in this context, that is to say, what quantity

should be purchased at a time. Since quantity is a

mathematical measure, there have been many attempts to

determine the optimum quantity which is most economical.

Besides this, there are many other considerations which

have to be taken into account.


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Right Price

Price is not just one of the terms and conditions of thepurchase order, but is an important economic consideration

which is a guiding factor. A most common equation used in

this connection is:

Quality /Value = Price

This is not just a mathematical formula, but expresses an

axiomatic truth that value varies in direct proportion to

quality and inversely to the price paid. But where quality is

defined in a specification, it is a constant and the

comparison of value can be made in terms of price alone. It

follows, therefore, that the lower the price, the greater the

value.


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Right SourceSource selection is also an important factor. Besides the

factors mentioned earlier, reliability and timely delivery

have to be seriously reckoned with. Actually, there are four

stages of source selection:

Survey stage

Enquiry stage

Negotiation stage

Experience stage.

In purchasing, the starting point is the recognition of the

need for a material or a product. Though the exact

specifications mayor may not be fixed, its general natureand purpose are known. What is available in the market?

Who makes such a product? Or, who can make it or supply

it most economically or satisfactorily? All these questions

must be answered before a supply order is placed.


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Right Time

Right time implies that in order to be effective, purchases

should be made, in such a way that stores and materials

are made available in time when needed, it being

purchasing department's duty to see that the delivery

schedule is honoured. As such, timing is an important

element in every purchase order, except when such

purchases are made for stock purposes. Even then, in order

to get some price advantage when some seasonal

purchases are resorted to, timing plays its due role.


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Right Place

Right place means right place of delivery. Every purchase

contract, in addition to time of delivery, must clearly state

the place of delivery and such other terms like free delivery

or ex-factory delivery. Generally, F.O.B. (Free on Board),

F.O.R. (Free on Rail), CLF. (Cost, insurance and freight)

paid terms are part of the price agreement.


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Fundamental Objectives ofProcurement

To maintain continuity of supply to support productionschedule.

In doing so, minimum investment in stores and materialsinventory must be ensured, consistent with safety andeconomy.

Duplication of purchases, wastes, obsolescence and costlydelays must be avoided.

Proper quality standards based on suitability criteria mustbe maintained.

Material must be procured at lowest possible cost,consistent with quality and service requirements.

It must maintain, in so far as materials costs areconcerned, companys competitive position in the market


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Scope & Limitations

As procurement is a supportive function so it

requires approvals/ authorizations (formal/

informal). Mostly it is expressed throughpurchase requisition. Some time it is expressed

through manufacturing quota. Generally in Govt.

Departments purchasing is governed by annual

budgets


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Centralized Purchasing

In centralized purchasing allpurchasing responsibility is delegatedto a person or department. This

system of purchasing is known ascentralized buying.


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Advantages of centralized buying

Better Control

Specialization

Performance improvement

Non- Influenced/ Non- Dominated


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Disadvantages of centralizedbuying

Inefficiencies (Greater Lead Time)

Involves so many process steps


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Source of Supply & SupplierSelection

Past experience with the supplier

Interview with salesman

Technical & Descriptive catalogues

Trade Directories & Trade Journals

Visits to trade fairs

Consulting Trade Agencies

Open & Limited Tenders for quotations

Periodical Advertisements in the press


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Purchasing Policy & Procedures

Ascertaining the need and recognition of product

Accurate statement of specifications, character, quality &quantity requirements with full descriptions

Transmissions of purchase requisitions

Negotiation with the possible source of supply. Analysis of proposal, determination of price, availability &

delivery time

Selection of the vendor and placement of the supply order

Expediting and follow-up

Arranging for receipts, inspection, replacement of therejected and defective material and goods etc.

Checking invoices and bill payment

Completion of records and files


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Purchasing Inputs

Purchase Requisitions

Product Specifications

Blueprint

Market Grades

Brand or Trade Names

Commercial Standards

Material Specifications

Performance Characteristics

Resource Limitations


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Purchasing Outputs

Supply Source

Market Conditions

Price Determinations

Discounts Purchase Decisions

Buying Locally or Reciprocal Buying

Delivery Terms

Timing of Purchases Hedging

Buying in Relation to Sales Policy


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An Overview of Procurement Process

Planning of the solicitation process,includes activities as:

Choice of procurement method Specifying requirement Choice contract type Preparation of bidding documents

The going public of the solicitation,includes activities as:

Advertisement of the solicitation Issuance of the bidding document

Management of the received bids,includes activities as:

Opening of bids Evaluation of bids Possibly negotiation with bidder (s) Recommendation of the relevant

authority

Contract award, includes activities as:

Approval of the relevant authority Actual contract award Debriefing

Management of the contract,includes activities as:

Contract performance Contract completion Payment Possibly dispute settlement

Stage 1-Preparation Stage

Stage 2-Advertising Stage

Stage 3- ResponseManagement Stage

Stage 4-Award Stage

Stage 5-ContractManagement Stage

Procurement Environment

The Environment in which procurementproceedings take place


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Regulated Processes ofProcurement

(Followed by PPPRA 2004)


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Procedure & Work Flow Indent Scrutiny

Issuance of Tender Enquiry/Release of Press Tender Tender Opening by committee

Preparation of Comparative Statement and Minutes by Tender Opening Committee

Evaluation of Bids by committee (Technical Evaluation Committee / Financial

Evaluation Committee)

Vetting of Technical Evaluation Committees Recommendations by Head of Indenting

Department

Fund Confirmation By Finance Deptt.

Preparation of Executive Summaries

Expenditure Approval (By Directors Committee or Managing Director)

Issuance of Letter of Intent

Preparation Of Draft Contract

Submission of Contract / Performance Bond by the Supplier

Vetting of Contract by Indenting Department Pakistan National Shipping Corporation/Standing Freight Committee in case of C&F

Prices (Foreign Purchase)

Approval from State Bank of Pakistan in case of Cash Foreign Exchange Funding

(Foreign Purchase)

Confirmation Of Authenticity Of Performance Guarantees

Letter of Credit

Signing of Contract


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Categories of Purchasing

Local Purchasing

Foreign Purchasing


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Local Purchasing

Any material & services which isprocured from local market or of whichpayment is made in the local currency

is called local purchase


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Foreign Purchasing (Imports)

Any material & services which isprocured from foreign market or ofwhich payment is made in foreign

currency is called Foreign purchase.


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Modes of Procurement

Press Tendering

Limited Competition

Proprietary/ Single SourceSpot Purchase

Pre-Qualification of Bidders


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Instructions to Bidders This Section of the Bidding Documents should provide the

information necessary for bidders to prepare responsivebids, in accordance with the requirements of the Employer.It should also give information on bid submission, openingand evaluation, and on the award of Contract.

Matters governing the performance of the Contractor,payments under the Contract, or matters affecting the

risks, rights, and obligations of the parties under theContract are not normally included in this Section, butrather under Section IV, General Conditions of Contract(GCC), and/or Section V, Special Conditions of Contract(SCC). If duplication of a subject is inevitable in thedifferent sections of the documents, care must be exercisedto avoid contradictions between clauses dealing with thesame matter.

These Instructions to Bidders shall not be part of theContract and shall cease to have effect once the Contract issigned.


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Instructions to Bidders contd..

A. General 1. Scope of Bid 2. Source of Funds 3. Fraud and Corruption

4. Eligible Bidders 5. Qualifications of the Bidder 6. One Bid per Bidder 7. Cost of Bidding 8. Site VisitB. Bidding Documents 9. Contents of Bidding Documents 10. Clarification of Bidding Documents


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11. Amendment of Bidding DocumentsC. Preparation of Bids 12. Language of Bid 13. Documents Comprising the Bid 14. Bid Prices

15. Currencies of Bid and Payment 16. Bid Validity 17. Bid Security and Bid-Securing Declaration 18. Alternative Proposals by Bidders 19. Format and Signing of Bid

D. Submission of Bids 20. Submission, Sealing and Marking of Bids


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21. Deadline for Sub-mission of Bids

22. Late Bids

23. Withdrawal, Substitution and Modification ofBids

E. Bid Opening and Evaluation 24. Bid Opening

25. Confidentiality

26. Clarification of Bids

27. Examination of Bids and Determination ofResponsiveness

28. Correction of Errors


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29. Currency for Bid Evaluation 30. Evaluation and Comparison of Bids 31. Preference for Domestic BiddersF. Award of Contract 32. Award Criteria

33. Employers Right to Accept any Bid and to Rejectany or all Bids

34. Notification of Award and Signing of Agreement 35. Performance Security 36. Advance Payment and Security

37. Adjudicator


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General Conditions of Contract

The General Conditions of Contract (GCC), read in conjunctionwith the Special Conditions of Contract and other documentslisted therein, should be a complete document expressing fairlythe rights and obligations of both parties.

The form of General Conditions of Contract that follows has beendeveloped on the basis of considerable international experience inthe drafting and management of contracts, bearing in mind atrend in the construction industry towards simpler, morestraightforward language.

The form can be used directly for smaller admeasurementscontracts and, with the modifications noted in the footnotes, it canbe adapted for lump sum contracts.

The use of standard General Conditions of Contract for building

and civil works in a country shall promote comprehensiveness ofcoverage, general acceptability of its provisions, savings in costand time in Bid preparation and review, and the development of asolid background of legal case histories.


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General Conditions of Contract contd

A. General 1. Definitions 2. Interpretation 3. Language and Law 4. Project Managers Decisions

5. Delegation 6. Communications 7. Subcontracting 8. Other Contractors 9. Personnel

10. Employers and Contractors Risks 11. Employers Risks 12. Contractors Risks


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Conditions of Contract contd

13. Insurance 14. Site Investigation Reports 15. Queries about the Special Conditions of Contract 16. Contractor to Construct the Works 17. The Works to Be Completed by the Intended Completion Date 18. Approval by the Project Manager 19. Safety 20. Discoveries 21. Possession of the Site 22. Access to the Site 23. Instructions 24. Disputes 25. Procedure for Disputes 26. Replacement of Adjudicator


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B. Time Control

27. Program

28. Extension of the Intended Completion

Date 29. Acceleration

30. Delays Ordered by the Project

Manager 31. Management Meetings

32. Early Warning


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C. Quality Control

33. Identifying Defects

34. Tests35. Correction of Defects

36. Uncorrected Defects


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D. Cost Control 37. Bill of Quantities 38. Changes in the Quantities 39. Variations 40. Payments for Variations

41. Cash Flow Forecasts 42. Payment Certificates 43. Payments 44. Compensation Events

45. Tax 46. Currencies 47. Price Adjustment 48. Retention

49. LiquidatedDamages

50. Bonus 51. Advance Payment

52. Securities 53. Day-works 54. Cost of Repairs


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E. Finishing the Contract 55. Completion 56. Taking Over 57. Final Account 58. Operating and Maintenance Manuals

59. Termination 60. Payment upon Termination 61. Property 62. Release from Performance