CHAPTER SIX: CONDUCT MARKET SURVEY

Unit of learning code: BUS/CU/SC/CR/06/5/A

Related Unit of Competency in Occupational Standard: conduct market survey

6.1 Introduction to the unit of learning

This unit specifies the competencies required to conduct market survey. It involves,
identifying organization’s needs, collecting market data, weighing supplier alternatives
and conducting buyer /supplier negotiation. This applies in the Supply Chain
Management Sector.

6.2 Summary of Learning Outcomes

Identify organizations needs

Collect Market Data / Information

Weigh Supplier Alternatives

Conduct Buyer/ Supplier Negotiation

6.2.1 Learning outcome: 1 Identify organizations needs

6.2.1.1 Introduction to learning outcome
This learning outcome specifies the competencies required in Requisitions from
user departments, recording of requisitions, development of specification and
verification of specifications.

6.2.1.2 Performance standards

Requisitions from user departments are received as per the SOPs

Requisitions are recorded as per the SOPs

Specifications are established as per the requisition.

Specifications are verified as per organization policy

6.2.1.3 Information Sheet

Definition of market survey terms
A market is a place where goods and services are bought and sold. It can as well be
defined as large groups of buyers and sellers of wide classes of goods, such as the
consumer goods market, the equipment market and so on. Further, market is the general
economic conditions relating to the supply of goods and services applying at a particular
time
Market survey assists the procurement and supply chain management professionals
comprehend the trend in supply market, how the supply markets functions, the level of
completion and strategic suppliers in a given supply market. The finding of this survey
assists the procuring entity to enhance and review the approach and review the strategy
and the tendering process and match their behavior in order to realize value for money,
reduction in costs or enhanced service.

This survey is conducted to assist in procurement planning by establishing the existing

supply market structure, behaviors, hindrances to joining of supply market, the ethical
consideration, the value obtained by the buyer in the market and ecological consideration

Open the link provided below and make additional notes on market survey;

https://www.cips.org/knowledge/procurement-topics-and-skills/understand-need by CIPs

Requisitions from user departments

A requisition refers to the process of formally requesting a service or item, typically

using a purchase requisition form or other standardized document. The requisition
process is a standardized way of keeping track of and accounting for all requisitions made
within a business.

Purchase requisitions are a document used when an employee needs to make a purchase
or an order request on behalf of their company. It is a document that is used to inform
department managers or the purchasing officer of the decision so that the purchasing
department can start the purchasing process. The finance team will also use this
document to coordinate reporting procedures with the accounting department as well. The
procurement needs can be communicated though purchase requisition. Other ways of
communicating the same include;

Phone

Word of mouth

Computer generated method e.g. through ERP.

A standard purchase requisition or SOW is used most often for routine, noncomplex
items that are increasingly being transmitted through online requisitioning systems
linking users with purchasing. An online requisition system is an internal system
designed primarily to save time through efficient communication and tracking of
material requests. Users should use these systems only if they require purchasing
involvement. It is possible that users have access to other systems that will allow them to
purchase an item directly from a supplier such as corporate procurement card. In that ease
requisitions forwarded to purchasing are unnecessary.

There are wide differences across organizations in the quality and use of electronic
purchase requisition systems. A system that simply requires users to submit to purchasing
what they require for electronic transmission is similar to electronic mail. This type of
system provides little added value except to speed the request to purchasing. Conversely,
one system was so complex that users were afraid to use it

Figure 85: Purchase Requisition

Requisition no.

Cost center name:

Cost center no.

Monthly Budgeted Amount Item Budgeted Quantity Price per Total

Budgeted Description purchased item amount
requested

Total:

Requisitioned by: Date……

………
 Approved by: Date……
……..

Open the link provided below and make short notes on the importance of purchase
requisition

https://www.zoho.com/expense/guides/what-is-purchase-requisition.html -by Expense

management
6.5 Purchase Requisition Flow
For routine, off the shelf items, the requisition may contain all the information that
purchasing requires. However, for technically complex or nonstandard items, Purchasing
may require additional information or specifications with the requisition. Examples of
such specifications include the grade of material method of manufacture and detailed
measurements and tolerance.
Purchasing may send an acknowledgment of the receipt of the purchase
requisition to the requestor. This acknowledgment often takes the form of a confirming
order requisition. The acknowledgement may be a separate form notifying the user that
purchasing has received and is processing the requisition, or it may be a copy of the
original requisition. The confirmation verifies the accuracy of the user’s material request

Development of Specification

A specification has been defined as:

Statement of need to be fulfilled by the acquisition of external sources.

It is the attribute of the organization requirements.

It is the process of defining the need.

It defines what the purchaser wants to buy and, consequently, what the supplier is
required to provide

Activity

Click the link provided below and read more on more definition of procurement
specifications

https://www.buyingfor.vic.gov.au/specification-writing-goods-and-services-procurement-
guide by Victoria

Characteristics/qualities of good specifications

State the requirement clearly, concisely and logically in functional and

performance terms unless specific technical requirements are needed;

For goods, state what the item will be used for;

Contain enough information for offerors to decide and cost the goods or services
they will offer and at what level of quality;

Permit offered goods or services to be evaluated against defined criteria by

examination, trial, test or documentation;
 State the criteria for acceptance of goods or services by examination, trial, test or
documentation;

Provide equal opportunity for all potential suppliers to offer goods or services
which satisfies the needs of the user, including goods or services incorporating
alternative solutions;

Form the fundamental basis of the contract between buyer and seller;

Not over-specify requirements; and

Not contain features that directly or indirectly discriminate against any suppliers

The purpose of specifications

Indicate fitness for purpose or use: quality is linked to product satisfaction and
dissatisfaction, with satisfaction relating to superior performance or features and
dissatisfaction to deficiencies or defects in a product or service

Communicate the requirements of a user or purchaser to the supplier: it clearly

states the requirements of a particular product

Compare what is actually supplied with the requirements in terms of purpose,

quality and performance stated in the specification i.e. is used for evaluation of
bids received from potential suppliers

Provide evidence, in the event of a dispute, of what the purchaser required and
what the supplier agreed to provide.

Advantages of using specifications

The process of drawing up specifications is a useful discipline

If items are to be purchased from more than one source, the use of conformance
specifications may be essential to ensure uniformity

Specifications provide useful criteria for measuring the quality and acceptability
of purchases once delivered Specifications provide evidence, in the event of a
dispute, as to what the purchaser required

Disadvantages of using specifications

Detailed specification is an expensive and time consuming process

 The costs of inspection and quality control are greater for complex specifications
than if simple specification is used

Specifications can become too firmly embedded

Specifications can create a temptation to over-specify, adding cost and increasing

stock variation and proliferation

https://www.youtube.com/watch?v=ow4oOhsxuPk by P& S Buddy

Types of specification

There are two types of specification i.e.

Conformance specification

The buyer details exactly what the required product, part or material must consist of. The
supplier is not aware of the purpose of the product but simply needs to conform to
detailed requirements from the buyer.

Types of conformance specifications

Technical or design specifications

Design specifications spell out in detail the materials to be used, their sizes, shapes, and
tolerances, exact physical and chemical characteristics, and how the item is to be
fabricated. They provide a completely defined item capable of manufacture by a
competent manufacturer. They also describe test procedures to be used to verify that all
stated requirements have been met. The specification must meet the requirements of
many departments in the firm: Engineering's concern for technical adequacy, Marketing's
concern with consumer acceptance, Manufacturing's concern for ease of production, and
Purchasing's concern for availability and economy. As would be expected, design
specifications often use commercial standards and other standard specifications.

Since design specifications frequently are the basis of competitive bidding,

they must communicate what is needed without need for further clarification. Thus,
critical dimensions must be spelled out in detail, and all necessary quality requirements
must be fully described. Concomitantly the specification must avoid imposing
unnecessary conditions that would disqualify an otherwise acceptable product because it
fails to meet a nonessential condition. The design specification must convey a complete
and accurate understanding of what is required. The same word or expression is subject
to different interpretations by different people. The supplier will interpret the
specification to its own advantage.

A specification essentially is the means of transferring knowledge between minds. Each

mind will test the words of a specification against its own experience. If the design
specification is ambiguous, the ambiguity will be construed against. Blueprints and
engineering drawings are included under the heading of design specifications. Blueprints
and drawings should include a statement of function.

When design specifications control performance under a purchase order or a contract,

there is a presumption that the specifications are adequate for the purposes intended and
that, if followed, the desired outcome will be obtained. There is an implied warranty that
the specifications are Adequate. Thus, the supplier who produces under the customer's
specification is not responsible for the suitability or acceptability of the resulting product.
However, if the supplier knows (or perhaps from experience should know) that the
desired product cannot be obtained, it cannot make a useless thing and expect to be paid
for it. If the supplier knows (or should have known) that the specification is defective, it
is obligated to notify the customer of the defect. The supplier discharges this
obligation by making the defect known to the customer.

As might be expected, design specifications must be reviewed periodically and updated.

Unfortunately, the use of design specifications tends to complicate purchase order
administration (follow-up and expediting) and may increase costs, delay delivery result in
delivery of obsolete items, and sharply increase inventory carrying costs. The use of
design specifications may create a costly storage and distribution system for items that
are not generally commercially available.
Advantages

The purchasing organization avoids having to purchase on a sole-source basis.

Savings can be enjoyed by avoiding sole-source situations.

The purchasing organization avoids paying premium prices on branded goods.

Design specifications facilitate the corporate standardization program, and many

savings are enjoyed through such a program.

They can solve the problem of "no supplier can design it," if true.

Disadvantages

Design specifications are expensive to develop. Both time and human resources
are required.

The purchaser is responsible for the adequacy of the specification and the buying
firm may use obsolete technology.

The use of design specifications may deny the purchaser the latest advances in
both technical development and manufacturing processes.

Using a design specification for material that is very similar to an item covered by
a commercial standard may result in higher unit prices. Further, the item covered
by the design specification will tend to be less readily available.

Purchase through the use of design specifications tends to complicate the

purchase order administration function. Late delivery of unique items is much
more common than it is for standard ones.

The purchaser usually assumes the inventory responsibility for such unique items.

The use of design specifications restricts competition to one approach or concept.

As we have seen, competition of concepts resulting from use of a performance
specification may lead to significant financial and time saving
 Specification by brand

The use of a brand name is the simplest way to describe what to purchase. A brand name is used
by a manufacturer to distinguish a product and to aid in its promotion. Brand names ensure that
the goodwill developed in satisfied customers is credited to the product. Such goodwill requires
that the manufacturer provide consistent quality. Using a brand name description implies a
reliance on the integrity and the reputation of the manufacturer. When purchasing by brand
name, the purchaser has every right to expect that follow-on purchases of the brand name will
possess the same quality as the original.

Normally the expression “or equal” should be used immediately following a brand name to
facilitate competition. When using an "or equal" after a brand name, it is desirable to set forth
those salient physical, functional, or other characteristics of the referenced product that
are essential to the purchaser's needs. The term or equal means that any proposed item should be
able to perform the function to the same level of satisfaction as does the specified brand.

Although the use of brand names simplifies the procurement process, it tends to be expensive.
Even when competition is introduced through the use of the "or equal" provision, higher prices
tend to result than when several of the alternative descriptions of the item are employed. Brand-
name products generally are sold at higher prices than unbranded products of similar quality.
There are several advantages and disadvantages in specifying brand names.

Advantages

Describing the desired item is simple for the requiring department.

Purchasing by brand name is relatively simple.

Brand-name products tend to be more readily available than unbranded items.

The use of a brand-name purchase description may be the most efficient

method of obtaining a desired level of quality or skill when this level of
quality cannot be defined easily.

The branded item may be advertised so widely and successfully as to aid in

promotion of the product in which it will be incorporated.

Inspection of brand-name items is relatively simple.

Testing of an item may be impractical. The purchaser may avoid such testing
by relying on the brand-name manufacturer's quality standards and test
reports.
 The purchaser is assured that the manufacturer will stand behind his or her
brand-name product.

Disadvantages

Brand-name products usually cost more.

Using brand-name products may mean that the purchaser is not taking
advantage of improvements introduced by competitors of the brand-name
manufacturer.

The use of the "or equal" provision may mean that items are purchased from a
variety of manufacturers. Since each manufacturer exercises its own quality
control, the quality variation probably will be larger than if the item were
purchased from one source only or purchased by detailed specification. When
commonality of items from purchase to purchase is essential, the use of "or
equal" is not desirable.

Specification by sample

The need to develop a purchase description sometimes is avoided through the use of samples.
Prospective suppliers are invited to match or duplicate the buyer's sample. Such an approach may
be appropriate when special, no repetitive items are to be purchased and quality requirements are
not a significant factor.

Advantage

Use of samples is a very simple method of communicating what is required.

It is almost mandatory when purchasing materials requiring a specific color, feel, finish,
or look, such as painted printed surfaces, fabric, style, film, packaging, signs, letterhead
stationery, and the like.

Disadvantages

Detailed tests and inspections may be required to determine that the furnished item meets
the sample.

The inspection on a requirement such as color may be very subjective.

No definite standards are established either for record-keeping purposes or as the basis of
future purchases.
 If the sample is exactly reproduced, all performance warranty responsibilities shift to the
buyer as the supplier has performed as per the instructions from the buyer.

Specification by market grade

Specification by standards

Recurring needs for a consistent level of quality have led industry and government to develop
standard specifications for many items. Standard specifications include commercial standards,
country specifications, and international specifications. Such standard specifications contain
descriptions of the quality of materials and the quality of workmanship to be used in
manufacturing the item. Testing procedures are included to ensure that those quality standards
are met.

Testing procedures are included to ensure that those quality standards are met.

Advantages

The use of standard specifications greatly facilitates communications. The requirer,

purchaser, and supplier all know what is needed.

The cost of developing a design specification is avoided.

The use of standard specifications results in wider competition and lower prices.

The use of standard specifications facilitates the firm's standardization program, resulting
in savings in purchase price, inspection, materials handling, and inventory carrying costs.

Standardized items tend to be more readily available.

Designs developed by professional societies are often state of the art and thoroughly
tested.

Disadvantages

Standard specifications may be dated. Accordingly, the buyer may not be taking
advantage of the latest technology.

The specification may call for inputs or processes that are difficult or expensive to
achieve.

Testing costs might be higher than with brand-name products, as there is less
performance history.
 As with samples, responsibility for the suitability of the purchased item rests with the
purchaser. Normally, the supplier who produces under a specification cited in a purchase
order is not responsible for ensuring that the item will satisfy the customer's need. (With
a performance specification, this responsibility is shifted to the supplier)

Performance/functional specification

Here, the purchaser informs the supplier of the use to which the purchased item is to be put. This
method is particularly applicable to the purchase of items about which the buyer has little
technical knowledge. According CIPS, this specification should include

The functionality, performance, capabilities, outputs or outcomes to be achieved, within

specified tolerances

The key process inputs which will contribute to performance

The operating environment and conditions in which the performance is to be achieved

(and extreme or unusual conditions in which it is not expected)

How the product is required to interface with other elements of the process

Required quality levels (including any relevant standards)

Required health and safety levels and controls

Required environmental performance levels and controls

Criteria and methods to be used to measure whether the desired function, performance or
outcomes have been achieved

Advantages

Performance specifications are relatively easy to prepare.

Their use tends to avail the purchaser of the latest technology.

Using performance specifications ensures that the purchaser obtains the specified
(desired) level of quality.

When several already designed, developed, and produced items can meet the
performance specification, the depth of competition is enhanced and purchase costs are
reduced.

Performance specifications allow a greater degree of innovation by suppliers. Under

performance specifications, the supplier assumes the responsibility of providing a product
suitable to the purchaser's need.
 Disadvantages

Marginal suppliers look for loopholes in specifications. Care and effort must be taken to
screen potential suppliers to ensure that only reputable ones are asked to submit
proposals. The use of performance specifications is restricted by purchasing's ability to
select capable and ethical suppliers-the kind who do not look for loopholes.

Competition tends to be reduced when the performance specification requires potential

suppliers to perform considerable engineering in preparation for submitting a bid or
proposal. Reduced competition may result in higher prices.

Some principles of specification writing

These and other principles are as follows:

If something is not specified it is unlikely to be provided – the corollary is that all

requirements should be stated in the specification before awarding the contract.

Every requirement increases the price – all specifications should therefore be subjected to
rigorous value analysis

The shorter the specification, the less time it takes to prepare it – the expenditure in staff
time devoted to the preparation of a specification can be high. This can be significantly
lower when the length of a specification and the time taken in its preparation is reduced

The specification is equally binding on both the purchaser and the vendor – omissions,
incorrect information or imprecision in a specification can be cited by the vendor in any
dispute with the purchaser.

Specifications, should, so far as possible, be presented in performance terms rather than

as a detailed design – this is particularly applicable to items about which the purchaser
has little expert knowledge

Specifications should, whenever possible be ‘open’, not closed- Open specifications are
written so that the stated requirements can be met by more than one supplier. By making
the requirements sufficiently flexible to be met by several suppliers, competition is
encouraged and prices reduced.

Watch the video below and make additional short notes on conformance and functional
specifications

https://www.youtube.com/watch?v=ow4oOhsxuPk by P& S Buddy

Content of specification

Table 12: Content of Specification

ITEM CONTENT

Identification Title, reference number, authority, designation,

issue number and date

Circulation Distribution list of the specification

Contents List of parts, clauses, illustrations and annexes

Foreword Reasons for writing the specification

Introduction Summary of the business need and technical

aspects of objectives

Scope Range of objectives and content

Definitions Terms used with special meanings in the text

Main body of the specification Requirements, guidance and methods

Annexes Additional detailed technical information and

examples

Index Alphabetical index

Bibliography Details of internal and external standards and

publications referred to in the specification

Adapted from CIPS

Difference between conformance and performance specification

The differences between the two specifications can be summarized using the table below;

Table 13: Difference between conformance and performance specifications

Performance specification Conformance specification

Focus on output Focus on input

Sets out results to be achieved Gives specific methods, processes and

materials
Addresses the ‘what’ not ‘how’ May identify specific manufacturer or
components

Gives supplier the flexibility to present Ties supplier to set details

solutions that the buyer may not have
considered

General process of developing the specifications

Stage 1: Planning and analysis

The foundation of a good specification is in the planning and analyses which are undertaken
before writing begins. Key people who can help such as purchasing staff, technical officers,
project officers and managers and end users need to be involved. Planning and analysis will
provide a better understanding of the requirement(s) and may reveal alternative solutions.

Planning and analysis are particularly important when developing complex requirements. These
may take some time to define, perhaps even years in the case of major equipment. The accuracy
and detail of the definition is likely to improve as information is gathered and assimilated.

Define the requirement(s) and then approach industry to see what is available to meet the
department’s/agency’s needs. If industry is approached too early in the development process,
there is the risk of deciding the solution to the problem before the requirement(s) is fully defined.

In some cases potential solutions may be discovered and explored which may allow refinement
of needs. Think in terms of the performance required or the functions to be performed. In other
cases, however, solutions may not be readily available or there could be the danger in stating a
solution up front that may restrict offers of alternative solutions. In this situation, a full
explanation of the issue or problem is needed.

Breaking down the requirement(s) in terms of function and performance will better define the
need. Defining the requirement(s) in terms of the lowest level functions or sub components
should also help to discover conflicts and inconsistencies within the requirement(s). Alternative
solutions, too, may be revealed in the process.

Value analysis could be used to highlight and explore possible solutions. It is a complex cost
analysis technique that requires expertise for its successful use. In simple terms, value analysis
looks for the optimum way of using materials, designs, equipment etc. to meet a (functional)
requirement while providing savings over the life of the equipment or at the initial purchase
stage. The technique is particularly useful in identifying potential, innovative solutions.

Step 2: Consultation and information gathering

Valuable information and advice relating to the requirement can be obtained by discussing it
with purchasing officers, technical officers and other users of similar goods or services within
the department/agency. Purchasing officers should be involved from the start of the process (that
is, the information gathering and design stages).

Other sources of information include:

Other departments or agencies (including Federal and Local Governments);

Industry - either industry associations or particular companies (ensure that industry does
not assume pre-offer negotiations);

Educational institutions, for example, universities and TAFE Institutes;

Country standards;

Industrial Supplies Office Ltd (ISO Queensland) which can assist in identifying and
evaluating appropriate local industry capabilities; and

Other users of the goods or services.

Step 3: writing specifications

Use simple, clear language without jargon (to minimize misinterpretation).

Define terms, symbols and acronyms (include a “Glossary of Terms”).

Be concise.

Do not explain the same requirement in more than one section.

Define each aspect of the requirement in one or two paragraphs where possible.

Adopt a user-friendly format.

Number the sections and paragraphs.

Seek feedback from someone unfamiliar with the requirement.

Discuss the draft and refine it.

There are no fixed rules on formats and structures because each specification reflects a different
requirement or need. A specification should list the functional, performance and technical
characteristics separately.

Step 4: verification of specifications and obtaining approval

After writing the specification, ask a colleague who is unfamiliar with the requirement to critique
it from a potential supplier’s view. The specifications need to be confirmed that they match with
industry or company’s policy. The area of verification may include;

Its intention to comply with all relevant laws, regulations, standards, codes of practice
and best practice benchmarks

Its aspirations for environmental sourcing and manufacture

Its aspirations for corporate social responsibility and ethical trading

Sourcing policies

Quality, cost and pricing policies

Try to identify improvements by considering:

Readability,

Simplicity of meaning,

Clarity, and

Logic.

Seek approval from the appropriate financial or purchasing delegates in the department/agency
after vetting the specification but before issuing it.

Step 5: issuing the specifications

The specification should be included as part of the “Invitation to Offer” document. The
“Invitation to Offer” should target suppliers that are capable of meeting the specification by
direct approach (after market analysis) or through advertising in newspapers, websites and
industry magazines, etc.

Step 6: managing amendments to the specifications

Should a need arise to amend the specification during the “Invitation to Offer” process, the
amendment should be authorized by the project manager. The amended specification should be
noted in the project files and all offerors or potential offerors must be given a reasonable
opportunity to offer to the new specification

Step 7: Revising and storing the specification

The specification should be reviewed at the end of the purchasing activity to ensure that it
effectively defined the goods or services that were actually bought. If areas for improvement are
identified, revise the specification with the benefit of hindsight.
When the review of the specification has been completed and if it relates to goods or services
that are likely to be purchased frequently, keep it on file. Before each purchase, review the
specification to ensure that it reflects your department’s/agency’s needs at that time.
Alternatively, institute a program to review specifications on a regular basis.

6.2.1.4 Learning Activities

Visit your department and check the requisition that have already been raised and try to
develop one for the purchase of computer

Visit the procurement department in your organization and go through the procurement
records and list types of specification used in that institution

6.2.1.5 Self-assessment
What is specification?

What are examples of conformance specification?

You have been assigned the responsibility of writing a specification. What are the
sequential steps you will follow?

A firm has been purchasing the routine items without any formal specification. How will
this firm benefit by using specifications?

Apart from purchase requisition, how else can a firm communicate its business needs

Responses

What is specification?

It is the description of business requirements or the statement of the attributes of the

business requirements

What are examples of conformance specification?

Design or technical specifications

Sample specifications

Standard specifications

Specifications by brand or business name

Specification by chemical components

You have been assigned the responsibility of writing a specification. What are the
sequential steps you will follow?

Stage 1: Planning and analysis

Step 2: Consultation and information gathering

Step 3: writing specifications

Step 4: verification of specifications and obtaining approval

Step 5: issuing the specifications

Step 6: managing amendments to the specifications

Step 7: Revising and storing the specifications

A firm has been purchasing the routine items without any formal specification. How will
this firm benefit by using specifications?

Indicate fitness for purpose or use: quality is linked to product satisfaction and
dissatisfaction, with satisfaction relating to superior performance or features and
dissatisfaction to deficiencies or defects in a product or service

Communicate the requirements of a user or purchaser to the supplier: it clearly states the
requirements of a particular product

Compare what is actually supplied with the requirements in terms of purpose, quality and
performance stated in the specification i.e. is used for evaluation of bids received from
potential suppliers

Provide evidence, in the event of a dispute, of what the purchaser required and what the
supplier agreed to provide.

Apart from written purchase specification, how else can a firm communicate its business
needs

Use of samples

Use of brands

Communicating orally
6.2.1.6 Tools, Equipment, Supplies and Materials
Stationery

Manila paper

Mark pen

Ruler

Pens

Pencils

Classroom and classroom resources

Computers

Functional procurement department

Trainer/ instructor
6.2.1.7 References
Baily, P., Farmer, D., Jessop, D., & Jones, D. (2005). Purchasing Principles and Management.
Hampshire: Pearson Education Limited.

Benton, W. C. (2007). Purchasing and Supply Management. Routledge London.

Demirbas, A. (2010). Waste management, waste resource facilities and waste conversion
processes. Energy Conversion and Management, 52(2011), 1280–1287.

EMC. (2006). Environmental Management and Co-ordination (Waste Management)

Regulations. Nairobi Kenya: Government printers.

EMCA. (1999). ENVIRONMENTAL MANAGEMENT AND CO-ORDINATION ACT, 1999 (ACT

NO 8 OF 1999). Nairobi, Kenya: Governement printers.

Lysons, K., & Farrington, B. (2016). Procurement and Supply Chain Management (ninth ed.).
Harlow CM20 2JE: Pearson Education Limited.

OBICCI, P. A. (2017). CRITICAL SUCCESS FACTORS FOR PUBLIC ASSETS DISPOSAL IN

ORGANIZATIONS: A STUDY OF MINISTRY OF PUBLIC SERVICE. KAMPALA, UGANDA:
UNPUBLISHED PROJECT.

PPADA. (2015). Public procurement and disposal act 2015. Nairobi Kenya: Government
printers.

PPADR. (2020). THE PUBLIC PROCUREMENT AND ASSET DISPOSAL REGULATIONS.

Nairobi, Kenya: Governement printers.

Public health act. (2012). PUBLIC HEALTH ACT CHAPTER 242. Nairobi, Kenya: Governement
printers.

Schindler, P. S. (2019). Business research methods (13 ed.). McGraw-Hill/ Irwin.

Weele, A. V. (2004). Purchasing and Supply Chain Management. New Delhi: PVT publishers.

WILLIAMS, P. T. (2005). Waste Treatment and Disposal . West Sussex;England : John Wiley
& Sons Ltd.

World Health Organization. (2014). Safe management of wastes from health-care activities.
Geneva: Unpublished document.
6.2.2 Learning outcome: 2 Collect Market Data /Information
6.2.2.1 Introduction learning outcome
This learning outcome specifies the competencies required in identifying the supplier
availability, availability of the product in the market, price of the product, terms and conditions
and distance between the supplier and organization.

6.2.2.2 Performance standards

Availability of suppliers is established as per the specification

Availability of the product in the market is established as per the specification.

The price of the product is established as per the supplier.

The terms and conditions are established based on the supplier.

The distance between the supplier and organization is examined as per the organization’s
needs.

6.2.2.3 Information Sheet

Definition of terms

Price: refers to what must be given up by the buyer in order to obtain something offered by the
seller. Price is the amount of money expected, required, or given in payment for something. Can
also be defined as a value that will purchase a finite quantity, weight, or other measure of a good
or service. Price is that which is given up in an exchange to acquire a good or service. Can also
be defined as the amount of money that has to be paid to acquire a given product

Terms and terms: They are also referred as contractual terms. They make up the body of
contract body. They are what might be thought of as core or main contract. They detail the rules
that apply to fulfilling a particular contract and that form an integral part of that contract.

Local sourcing: typically denotes the sourcing, purchasing or procurement of food, ingredients
and other consumable products from within a specific radius (distance) from where they will be
used or sourced, or from a given geographical area

Global sourcing: It is defined as commercial transaction between buyer and seller located in
different countries It can also be defined as buying outside the firms country of manufacture in
such a way that does not coordinate requirements among worldwide business units of a single
firm

Sources of information on supplier availability

The buyer’s own database of existing and past suppliers-this is a pool of data that has
been maintained by procuring entity from all the supplier the entity has interacted with
including the nature of requirements obtained from them. It can hard copy on files on
data in organization portal. This data can act as source of supplier information in case of
subsequent procurement

Formal requests for information (RFI) - This is done through formal way of informing
supplier of existing procurement opportunity and allowing them to bid and then taken
through process of selection to arrive at most responsive suppliers. This is normally done
through an invitation to tender

The marketing communications of potential suppliers-this information is obtained from

use of suppliers’ catalogues or even sales representative

Internet search-involves use of various search engine such as google

Online market exchanges, auction sites and supplier/buyer forums- use of online
platforms such as e-sourcing, e-market place (online platform where buyer and supplier
meet to transact) and attestations

Published listings of suppliers- the listing could be gotten from government agencies such
as treasury or public procurement regulatory authority or even suppliers’ associations

Trade/industry press and specialist procurement journals

Trade fairs, exhibitions and conferences- this where various countries or individuals meet
in designated places to show case the products and services they offer

Informal networking and information exchange with colleagues and other purchasing
professionals

Read more on the link provided below and male short notes on primary and secondary sources of
supplier availability information

https://procurementmanagement.pressbooks.com/chapter/sourcing-information/ by Press books

Sources of products
The sources of products can be broadly categorized in to two;

Local sourcing

Global sourcing

Local sourcing
This refers to acquisition of goods, works and services within the country’s demarcation e.g. a
firm based in Kenya acquiring its input within Kenya.

Benefits of local sourcing

Investment in local community, employment, skills etc (plus reputational and brand
benefits)

Accessibility for supplier development and contract management (eg site visits)

Supplier knowledge of local market, sustainability issues, regulatory standards etc.

Reduced transport, payment, cultural risks and costs

Short supply chain eg supporting just in time philosophy, fewer environmental impacts of
transport

Avoids ‘evils’ of globalization such eroding of such as eroding of native culture, religion
etc

Drawbacks of local sourcing

Materials, skills or capabilities may not be available locally (or may be more costly)

Ethical and reputational risks of close social ties with suppliers, common spheres etc

Smaller suppliers: no economies of scale (higher costs), greater dependency issues

Local sourcing policy may make local suppliers complacent/un-competitive

Public sector: not allowed to discriminate on basis of geography

Public sector: may not offer ‘value for money’

Global sourcing
The world has exponentially grown into one big borderless village due to improve speed and
communication. The internet has accelerated the trend to global supply, making it easier for
source selection and reducing communication problems.

Motives/reasons for Global sourcing

Unavailability of items domestically: The first and oldest reason for international trade
has been that domestic sources were not available.

Cost/price benefits: The ability of an offshore supplier to deliver product or service at a

lower overall cost than domestic suppliers. Cost differentials between countries arise
possibly because of lower labour rates, different productivity levels, willingness to accept
a lower profit margin, exchange rate differences, lower-cost inputs for materials and
government subsidies.

Government pressures: It makes good economic and political sense to consider the
alternatives of buying from suppliers in customer countries. Many multinational firms
also accept that they have a social responsibility to buy products from suppliers in nations
in which they operate plants, as a means of developing those nations. Additionally, many
nations insist as a condition of sale of a major product to their country that the seller must
agree to buy a specified value of goods in that country.

Quality: While the quality level of the international sources generally is no higher than
from domestic suppliers, on some items it is more consistent. This is due to several
factors, such as newer, better capital equipment; better quality control systems; and
perhaps the offshore supplier’s success in motivating its workforce to accept
responsibility for doing it right the first time (the zero-defects concept).

Access to product and process technology: Gaining access to the most current
technology leaves many companies with little choice except to pursue worldwide
sourcing.

Access to the only source available: Economic recessions, mergers and government
environmental regulations often result in suppliers exiting certain lines of business due to
higher costs, loss of business volume, or both. A loss of supplier capability and
availability often leave domestic buyers with no viable supply alternative except
international sources.

React to buying patterns of competitors: This is probably the least mentioned reason
for worldwide sourcing because most firms do not want to admit that they are reacting to
the practices of competitors. Imitating the action of competitors is the ‘fashion and fear’
motive. A buyer may try to duplicate the factors that provide an advantage to a
 competitor, which may mean sourcing from the same suppliers or regions of the world
that a competitor uses.

Market penetration-the desire to enter new market can be greatly facilitated by procuring
goods and services in the target market

Rise of counter purchasing-under counter purchasing agreement a company exporting to

a different country may be required to purchase materials from organizations in that
country

Challenges of Global sourcing

Source location and evaluation: The key to effective supply is selecting responsive and
responsible suppliers. Internationally, this is sometimes difficult as obtaining relevant
evaluation data is both expensive and time-consuming.

Lead-time and delivery: Improvements in transportation and communications have

reduced the lead-time for international procurement. However, there are four areas where
the buyer should anticipate additional lead time:

Establishing credit for first-time international buyers often involves obtaining a letter of
credit.

Even with improvements in transportation, the buyer may still experience delays,
particularly with inland carriers in the foreign country.

Delays in customs are also possible.

The time goods are in port, for both outbound and arriving, also depends on the number
of ships in line for unloading and hours of port operations.

Political and labor problems: Depending on the country in which the supplier is located,
the risk of supply interruption due to governmental problems, e.g., change in government
or trade disputes — may be quite high.

Expediting: Because of distance, expediting an offshore firm’s production/shipment is

more difficult.

Hidden costs: When comparing an offshore with a domestic source, it is easy to ignore
some of the costs in the offshore procurement. Examples include foreign exchange
premiums, finance charges, foreign taxes, import tariffs, extra safety stock due to longer
lead times, business travel, marine insurance, customs documentation charges, needs for
translator, etc. The buyers must compare total cost of ownership before opting for an
international supplier

Currency fluctuations: Most significant world exchange rates float freely and sometimes
change rather rapidly due to economic, political and psychological factors, making the
prices significantly higher or lower than at the time the agreement was originally signed.

Payment methods: The method of payment often differs substantially in international

buying than in domestic buying.

Quality: Misunderstandings in the quality specifications and interpretations of drawings

and specifications can be quite costly due to distances and lead times involved.

Warranties and claims: In the event of rejection for quality reasons, return and
replacement of items is complex and time-consuming due to distances and transportation
costs.

Tariffs and duties: The buyer must know which tariff schedule(s) applies and how the
duties are computed. The cost of non-compliance with import regulations can be
staggering.

Administration costs: Global supply requires additional documentation, mainly for duty
and customs, logistics activities, payment and financial charges.

Legal issues: If potential legal problems are a risk in domestic buying, they are several
times greater in international buying. Buyers must also consider carefully the laws under
which an international contract is governed.

Logistics and transportation: The trend towards integrated logistics on the domestic
side is mirrored by a similar move in global supply. Global buyers must deal with more
complex shipping terms than domestic buyers with respect to shipping costs, risks and
responsibilities of buyer, seller and shipper.

Language: Different language, dialects or terminology may result in miscommunication.

Words mean different thing in different cultures. Difficulties arise in connection with
interpretation with domestic contracts is much increased in international contracts.

Communications: Global supply can involve problems with communication. These

relate to time zone differences, working days and problems with the communication
network itself.

Cultural and social customs: The nature and customs of individuals and business
organizations from different cultures can raise a surprising number of obstacles to
successful business relations. Problems caused by cultural misunderstandings can lead to
 higher supply chain costs, e.g., pace of negotiation, relationship, time orientation, values
and decision-making style.

Ethics: Are transaction bribes or facilitating payments allowed in the foreign countries?
What is considered ethical in one culture may not be ethical in another. The intention of
filling commitments, the implications of giftgiving and even the legal systems differ
widely. Ethical issues also include those of buying from overseas suppliers that operate
sweatshops, employing child labour and offering barely subsistence-level pay.

Resistance to change from an established, routine procedure or shifting from a long-

standing supplier, are also major barriers. Buyers are sometimes reluctant to shift
business from domestic sources to unknown foreign sources. Home market nationalism
can still be an issue.

Click the link below for more information on global sourcing

https://procurementmanagement.pressbooks.com/chapter/global-sourcing/ by Press books

Prices of products

A price is the quantity of payment or compensation given by one party to another in return for
one unit of goods or services.

What is the right price for the buyer?

A price which the buyer can afford

A price which appears fair and reasonable, or represents value for money

A price which gives the buyer a cost or quality advantage

A price which reflects sound procurement practice

What is the right price for the supplier?

A price which ‘the market will bear’

A price which allows the seller to win business, in competition with other suppliers

A price which allows the seller at least to cover its costs, and ideally to make a healthy
profit

Ways in which the buyer may influence the price of materials

Purchasing in large quantities to attract large quantity discounts

 Timing of purchases- buying during slack/ low demand periods

Quality considerations- specifying standard quality products/avoid over specified/ unique

items

Annual rebate based contracts depending on the volume of business in a financial

year(amount someone is paid back after a certain duration of time after buying specified
quantity)

Prompt payment to attract cash discounts

Negotiation to influence price

forward buying(buying quantity in excess to demand to counter future price rise)

Formation of consortia

Sources of Information Regarding Prices of Materials in the Market

Quotations from prospective suppliers

Suppliers catalogues and price lists

Experts in specialized fields such as engineering

Price trends of competing brands and other substitutes in the market

Manufacturer’s guidelines on the value of the product

Trade associations and institutions such as chamber of commerce

Government departments concerned with legislations and control of prices

Ways in which the buyer may influence the price of materials

Purchasing in large quantities to attract large quantity discounts

Timing of purchases- buying during slack/ low demand periods

Quality considerations- specifying standard quality products/avoid over specified/ unique

items

Annual rebate based contracts depending on the volume of business in a financial year
(amount someone is paid back after a certain duration of time after buying specified
quantity)
 Prompt payment to attract cash discounts

Negotiation to influence price

forward buying (buying quantity in excess to demand to counter future price rise)

Formation of consortia: consortia is when buyers with similar needs come together and
make an order as single entity

Components of Suppliers Quoted Price

The cost of raw materials used to manufacture the goods

The cost of labor

Overhead costs e.g. rent, lighting, energy etc.

Transportation cost incurred by the supplier

The promotion/ cost of selling effort involved

Profit/margin to be enjoyed by the supplier

Factors that may cause variation in prices between suppliers

Differences in quantity discounts offered

Differences in terms of payments time considerations- offering of seasonal discounts

during slack trading periods

Differences in quality of products offered

Annual rebates based on the volume of business

Distribution considerations- distance and transportation costs

Buyer supplier relationships

Factors to Consider in Buying Capital Equipment

Apart from the mode of purchase, finance and the investment made, Lysons, K (2000, p. 323)
argued that the factors to be considered should include the following:

Purpose: what is the prime purpose of the equipment?

 Flexibility: How versatile is the equipment.97

Standardization: is the equipment compatible with any already installed, thus reducing
the cost of holding spares?

Life: This usually refers to the period before the equipment will have to be written off
due to depreciation or obsolescence. It is, however, not necessarily linked to the total life
span if it is intended to dispose of the asset before it is obsolete or unusable.

Reliability

Durability

Product quality

Cost of operation: Costs of fuel, power and maintenance.

(9) Cost of installation

Cost of maintenance

Miscellaneous

Life cycle costing (Terotechnology) is an important aspect of capital expenditure.

Factors that may influence price of materials

Availability of materials in the market

Level of demand for the materials

Government policies and regulations on prices

Customers perceived quality and value of the products

Prices of competing brands and alternative products

Agreements and collusive practices among suppliers

Cost of manufacturing the products

Pricing Strategies
The strategies can be grouped into three broad categories;

Marginal /cost based pricing

 Competition based pricing

Customer-based pricing

Marginal /cost based pricing

Mark-up pricing: It is favored by businesses with many products because it is simple to

calculate. The profit level you want for the business is expressed in a percentage. This
percentage is added to the per unit cost to set product price. Mark-up pricing is common
in retail business because it offers so many types of products and purchases goods from
many vendors.

Cost-plus pricing: works well if you don’t know your production costs. This method is
very similar to mark-up pricing. The big difference between mark-up pricing and cost-
plus pricing is that both buyer and seller settle on the profit figure or percentage,
accepting that the cost of production is an unknown. If you produce custom order
products for other firms or individuals, a cost-plus pricing method could reduce your risk.
Rather than take a risk on input costs increasing during the project, you could use a cost-
plus pricing agreement

Planned profit pricing: This method ensures you will earn a total profit for the business. It
differs from the first two types of cost based pricing as they focused on a per unit price.
Planned profit pricing combines per unit costs with output projections to calculate
product price. Break-even analysis is used to calculate planned profit pricing. Planned
profit pricing is suited to manufacturing businesses. A manufacturer often has the ability
to increase or lower production depending upon the demand or profit available.

Competition based pricing

Market pricing method: It aims to make your product comparable to competitors. Scout
out competitors and find out what they charge for similar products. This type of pricing
works well if you make standard products.

Market penetration pricing: To improve your market penetration you need to select a
price that will lure customers away from the competition. This type of pricing intends to
improve market share or penetrate the market. To motivate customers to notice your
product and to make a purchase decision you likely will need to lower the price

Market share pricing: You need to select a price that will attract and hold as many
customers as possible. Most businesses would adopt market share pricing after market
penetration is achieved. Market share happens when you sell large volumes of product
into a market.
 Skimming pricing; involves charging relative higher prices for a period of time especially
new products and gradually reducing the price as competition sets in

Customer-based pricing

Prestige pricing: Prestige oriented consumers believe a higher price means higher quality,
while bargain seekers will only be happy with lower prices. Does your price reflect your
product image?

Promotional pricing: It uses lower prices to catch the attention of busy consumers.

Segment pricing: Segmentation slices a market into definable groups. Rather than pricing
for one group, you could design a range of prices that would appeal to several or all the
groups.

Bundle pricing: Slow moving inventory can get a boost when packaged in a group of
popular items. Bargain seekers will be drawn to product bundles that offer good value.

Diversionary pricing; legitimate business practice where a low price is stated for one or
more services (emphasized in promotion) to give an illusion that all prices are low. An
example is an ice cream manufacturer who offers freezers at a very low purchase price
but only on condition their products can be stored in them

Click on the link provided and read more on price analysis

https://www.thomasnet.com/articles/engineering-consulting/price-cost-analysis/by Thomas

Buyer-supplier terms and condition

Terms and conditions are the back bone of any contract. They inform the content of the contract
and the consequences of nonperformance of the contract

There are two types terms i.e.

Implied terms- Implied terms are words or provisions that a court assumes were intended
to be included in a contract. Examples of implied terms include

The person selling the goods has to have the legal right to sell them

If you’re selling goods by description, e.g. From a catalogue or newspaper advert, then
the actual goods have to correspond to that description
 The goods must be of “satisfactory quality” – that is, they should meet the standard that a
reasonable person would regard as “satisfactory”

The goods are fit for that purpose.

The bulk order has to be of the same quality as the sample

Express terms- that is they are expressly or specifically stated, either orally or in writing.
Examples of express terms in a contract include

What the supplier want to supply (subject matter)

Required standard or quality

Price to paid by buyer with details of payment dates, installments payments etc

The delivery dates

Mechanisms of measuring, inspecting

Damages payables in event of breach of contract

Means of dispute resolutions i.e. Arbitration, mediation, litigation etc

Exclusion clause

6.2.2.4 Learning Activities

Visit your procurement department or any nearby government procurement offices.
Check the procurement contract in their files and make a list of terms and condition in
those contracts

Visit the procurement department in your organization and find out how market survey is
conducted and the tools used in conducting it

Visit any manufacturing firms near your institution and establish how both local sourcing
and global sourcing is done but do this only after seeking permission from the
organization

6.2.2.5 Self-assessment
You have been appointed as a buyer in a blue chip company which deals with
manufacturing and most of its input is acquired from other countries. What are some of
the challenges you likely to face while carrying out your duty

Distinguish between express terms and implied terms as used procurement contract
 Describe how an organization can influence the prices of the inputs when acquiring them
from suppliers

A firm is in process of identifying supplier for the inputs of new product they have just
developed. What are the sources of this information that you would advise the firm to
consider?

Responses
You have been appointed as a buyer in a blue chip company which deals with
manufacturing and most of its input is acquired from other countries. What are some of
the challenges you likely to face while carrying out your duty

Source location and evaluation: The key to effective supply is selecting responsive and
responsible suppliers. Internationally, this is sometimes difficult as obtaining relevant
evaluation data is both expensive and time-consuming.

Lead-time and delivery: Improvements in transportation and communications have

reduced the lead-time for international procurement. However, there are four areas where
the buyer should anticipate additional lead time:

Establishing credit for first-time international buyers often involves obtaining a letter of
credit.

Even with improvements in transportation, the buyer may still experience delays,
particularly with inland carriers in the foreign country.

Delays in customs are also possible.

The time goods are in port, for both outbound and arriving, also depends on the number
of ships in line for unloading and hours of port operations.

Political and labor problems: Depending on the country in which the supplier is located,
the risk of supply interruption due to governmental problems, e.g., change in government
or trade disputes — may be quite high.

Expediting: Because of distance, expediting an offshore firm’s production/shipment is

more difficult.

Hidden costs: When comparing an offshore with a domestic source, it is easy to ignore
some of the costs in the offshore procurement. Examples include foreign exchange
premiums, finance charges, foreign taxes, import tariffs, extra safety stock due to longer
lead times, business travel, marine insurance, customs documentation charges, needs for
translator, etc. The buyers must compare total cost of ownership before opting for an
international supplier

Currency fluctuations: Most significant world exchange rates float freely and sometimes
change rather rapidly due to economic, political and psychological factors, making the
prices significantly higher or lower than at the time the agreement was originally signed.

Payment methods: The method of payment often differs substantially in international

buying than in domestic buying.

Quality: Misunderstandings in the quality specifications and interpretations of drawings

and specifications can be quite costly due to distances and lead times involved.

Warranties and claims: In the event of rejection for quality reasons, return and
replacement of items is complex and time-consuming due to distances and transportation
costs.

Tariffs and duties: The buyer must know which tariff schedule(s) applies and how the
duties are computed. The cost of non-compliance with import regulations can be
staggering.

Administration costs: Global supply requires additional documentation, mainly for duty
and customs, logistics activities, payment and financial charges.

Legal issues: If potential legal problems are a risk in domestic buying, they are several
times greater in international buying. Buyers must also consider carefully the laws under
which an international contract is governed.

Logistics and transportation: The trend towards integrated logistics on the domestic
side is mirrored by a similar move in global supply. Global buyers must deal with more
complex shipping terms than domestic buyers with respect to shipping costs, risks and
responsibilities of buyer, seller and shipper.

Language: Different language, dialects or terminology may result in miscommunication.

Words mean different thing in different cultures. Difficulties arise in connection with
interpretation with domestic contracts is much increased in international contracts.

Communications: Global supply can involve problems with communication. These

relate to time zone differences, working days and problems with the communication
network itself.

Cultural and social customs: The nature and customs of individuals and business
organizations from different cultures can raise a surprising number of obstacles to
successful business relations. Problems caused by cultural misunderstandings can lead to
higher supply chain costs, e.g., pace of negotiation, relationship, time orientation, values
and decision-making style.

Ethics: Are transaction bribes or facilitating payments allowed in the foreign countries?
What is considered ethical in one culture may not be ethical in another. The intention of
filling commitments, the implications of giftgiving and even the legal systems differ
widely. Ethical issues also include those of buying from overseas suppliers that operate
sweatshops, employing child labour and offering barely subsistence-level pay.

Resistance to change from an established, routine procedure or shifting from a long-

standing supplier, are also major barriers. Buyers are sometimes reluctant to shift
business from domestic sources to unknown foreign sources. Home market nationalism
can still be an issue.

Distinguish between express terms and implied terms as used procurement contract

Express contract are clearly stated in a contract in written form or orally while implied
are the terms the court assumes to exist by virtue of law

Describe how an organization can influence the prices of the inputs when acquiring them
from suppliers

Paying promptly to benefit from cash discount

Buying in bulk to enjoy economies of scale like quantity discount

Establishing long term relationships with suppliers

Formation of buying consortia

Engage in forward buying, buying in large quantities when prices are very low

A firm is in process of identifying supplier for the inputs of new product they have just
developed. What are the sources of this information that you would advise the firm to
consider?

The buyer’s own database of existing and past suppliers

Formal requests for information (RFI)

The marketing communications of potential suppliers

Internet search-involves use of various search engine such as google

Online market exchanges, auction sites and supplier/buyer forums-

Published listings of suppliers

 Trade/industry press and specialist procurement journals

Trade fairs, exhibitions and conferences

Informal networking and information exchange with colleagues and other purchasing
professionals

6.2.2.6 Tools, Equipment, Supplies and Materials

Stationery

Manila paper

Mark pen

Ruler

Pens

Pencils

Classroom and classroom resources

Computers

Functional procurement department

Trainer/ instructor

6.2.2.7 References
Baily, P., Farmer, D., Jessop, D., & Jones, D. (2005). Purchasing Principles and Management.
Hampshire: Pearson Education Limited.

Benton, W. C. (2007). Purchasing and Supply Management. Routledge London.

Demirbas, A. (2010). Waste management, waste resource facilities and waste conversion
processes. Energy Conversion and Management, 52(2011), 1280–1287.

EMC. (2006). Environmental Management and Co-ordination (Waste Management)

Regulations. Nairobi Kenya: Government printers.

EMCA. (1999). ENVIRONMENTAL MANAGEMENT AND CO-ORDINATION ACT, 1999 (ACT

NO 8 OF 1999). Nairobi, Kenya: Governement printers.

Lysons, K., & Farrington, B. (2016). Procurement and Supply Chain Management (ninth ed.).
Harlow CM20 2JE: Pearson Education Limited.
OBICCI, P. A. (2017). CRITICAL SUCCESS FACTORS FOR PUBLIC ASSETS DISPOSAL IN
ORGANIZATIONS: A STUDY OF MINISTRY OF PUBLIC SERVICE. KAMPALA, UGANDA:
UNPUBLISHED PROJECT.

PPADA. (2015). Public procurement and disposal act 2015. Nairobi Kenya: Government
printers.

PPADR. (2020). THE PUBLIC PROCUREMENT AND ASSET DISPOSAL REGULATIONS.

Nairobi, Kenya: Governement printers.

Public health act. (2012). PUBLIC HEALTH ACT CHAPTER 242. Nairobi, Kenya: Governement
printers.

Schindler, P. S. (2019). Business research methods (13 ed.). McGraw-Hill/ Irwin.

Weele, A. V. (2004). Purchasing and Supply Chain Management. New Delhi: PVT publishers.

WILLIAMS, P. T. (2005). Waste Treatment and Disposal . West Sussex;England : John Wiley
& Sons Ltd.

World Health Organization. (2014). Safe management of wastes from health-care activities.
Geneva: Unpublished document.

6.2.3 Learning outcome: 3 Weigh Supplier Alternatives

6.2.3.1 Introduction to the learning outcome
This learning outcome specifies the competencies required in analyzing market data and supplier
selection.

6.2.3.2 Performance standards

Market Data is analyzed as per the SOPs

The best alternative is selected as per the specifications

6.2.3.3 Information Sheet

Supply market: This is where the suppliers are normally sourced. It is geographical region
where suppliers for specific input are found.

Data; facts and statistics collected together for reference or analysis. Data are a set of values of
qualitative or quantitative variables about one or more persons or objects
Data analysis: Data analysis includes the reduction of cumulative data by the creation of
summaries (descriptive variable statistics), the looking for patterns by the search for relationships
among variables and the application of statistical techniques (Schindler, 2019).

Supplier evaluation

Supplier evaluation is an assessment of supplier both qualitatively and quantitatively to come

with register of most responsive suppliers that the firm will continuously be engaging.

The type of evaluation required to determine suppliers’ capability however varies with:

1) The nature,

2) Complexity; and

3) The total value for the purchase to be made.

Supply evaluation criteria

These are qualitative or quantitative metrics or indicators that are used to assess suppliers in
order to come up with a list of most responsive suppliers

Supply market data analysis

Involves using business intelligence to analyze the supply chain environment and make
appropriate decisions and recommendations. Collecting the data is just the first part of the
research and analysis job. To effectively represent and communicate the market conditions, the
Procurement function may employ a number of different data representation tools to portray and
explain the current situation and potential suppliers. Analysis of market conditions as an aspect
of business intelligence is useful for the following reasons:

Forecasting the long-term demand for the product

Forecasting the price trends

Indicates what alternative goods and supply sources are available

Guides on the security of supply sources

Provides information related to pay trends, commodity prices, and political factors.

Pre-Selection Evaluation

This type of evaluation is aimed at obtaining information about the prospective supplier to
determine his suitability to meet the buyer’s requirement if selected. Potential sources can be
evaluated only by judgment of their capabilities. Pre-selection evaluation may generally involve
the following considerations:
1) Supplier’s Registration Form

As a pre-requisite, most suppliers seeking to do business with another organisation are expected
to pass through a formality by completing a registration form made available by the buying
company.

The type of information usually required from such suppliers are details like name of company,
address, type of business or products, financial capabilities, and a host of other information that
will enable the buying company determine the suitability or otherwise of the potential source.

2) Product Testing

In some cases, special request is made for the samples of the product advertised or intended to be
supplied for preliminary testing. If these products are used for certain period by the company and
are found suitable for the purpose for which they are needed, the supplier can be considered.

3) Plant Visits

On-the-spot surveys of facilities and personnel by the technical and commercial representatives
of the purchaser are often carried out to evaluate potential suppliers-although sometimes it may
possible to eliminate this on the basis of a supplier’s reputation, as obtained from word – of –
mouth and published information.

4) Financial Condition

This is an important factor in evaluating capability of a potential supplier. This type of evaluation
places more emphasis on the solvency of the supplier over and above other requirements.

Financially strong firms are usually, although not always, managerially strong also, hence they
generally make good suppliers. Analysis of balance sheets and profit and loss statements can be
of immense benefit in the evaluation of vendor’s financial condition.

5) Management

It becomes necessary at times to have insight of the potential supplier’s management quality of
his organisation, in terms of personnel, plant maintenance, staff wages and welfare package.

This is because, if an organisation is well managed, cases like high labour turnover rate,
industrial unrest which are capable of affecting supplier’s product quality, delivery performance
and service will be completely eliminated or reduced to the barest minimum.

Post-Selection Evaluation of Supplier

When suppliers are finally selected and have been allowed to perform over a period, it is
necessary that their performances are evaluated for the purpose of determining their respective
capability in terms of quality, price, delivery and service.

1) Categorical Plan

Under this plan, personnel from various departments of the buying company maintain informal
evaluation records. The individuals involved traditionally include personnel from purchasing,
engineering, quality, accounting, and receiving. For each major supplier, each evaluator prepares
a list of performance factors, which each supplier is evaluated against. After the factors are
weighted for relative importance, each supplier is then assigned an overall group evaluation,
usually expressed in simple categorical terms, such as “preferred”, “adequate”, “unsatisfactory”.

This simple qualitative plan is easy to administer and has been reported by many firms to be very
effective.

2) The Weighted Point Plan

This plan involves giving weight to every performance factor to be evaluated and oftentimes,
various aspects of quality, service, delivery and price are given weights.

For example in one circumstance, quality might be weighted 30 percent, service 25, and price 40
percent. In another, quality could be raised to 45 percent, and price reduced to 20 percent.

The weight selected in any specific situation represents the buyer’s judgments about the relative
importance of each factor.

The Cost – Ration Plan

This involves the use of management tools or techniques such as standard cost, average cost,
weighted average cost, etc. to determine or evaluate the performance of each supplier. This type
of evaluation is based mainly on the price and cost of rejects or non-performance by the supplier.

All the three of the evaluation plans discussed – categorical, weighted-point, and cost-ration –
involve varying degree of subjectivity and guesswork.

Factors in Supplier’s Selection

The primary concern of the purchasing department is to successfully identify and secure the

services of those suppliers that will help realise both objectives of the purchasing department and

the overall company’s objectives. Hence when selecting a supplier, the buyer is attempting to
find a company or companies which will meet its needs. Those needs usually include reliability
in quality and service terms, while the relevant pricing is competitive. The benefit of accurate
supplier selection can therefore include such factors as reliability, quality, delivery, performance,

reputation and continuity of supplies. Great care must be taken over the selection of every

supplier: short cuts in this area will lead to inefficiency and loss of profitability in the long run.

The supplier’s selection decision is based on the following factors, all of which must be carefully

researched and analyzed by the purchasing department.

1) Assurance of Supply

Reliability of supply is becoming increasingly important to both buyers and suppliers.

Hence,suppliers who suffer recurring shortages themselves must be used with great care,
regardless of

Their other desirable capabilities. Suppliers who have assured, long-term source for their raw
materials and component parts should be favoured and developed.

2) Size of Supplier

Some purchasing authorities theorize that the size of an order should correlate with the size of
supplier – receiving the order.

3) The Number of Suppliers

The number of suppliers to be selected for a particular line of products or group of items is

another important factor that must be given careful consideration. Selecting one supplier for a
particular product, no matter how reliable the source could be proves unwise in the long run.

Similarly, selecting too many suppliers for an individual material may result in the buyer’s

inability to fully tap the resources of these suppliers.

4) Developing New Source of Supply

In some cases a buyer is not able to select but must create a satisfactory supplier. If existing

suppliers cannot satisfy a company’s needs, a logical alternative is to create a supplier that can.

Encouragement of this nature may involve setting-up or equipping such local producer
financially and materially up to the level expected by the buyer.

5) Conflict of Interest

In selecting suppliers, buyers must be aware of conflicts of interest. A conflict of interest exists
when buyers must divide their loyalty between the firm, which employs them, and another firm.
6) The Policy of the Buying Firm

A company’s policy may for example favour reciprocity, single or multiple sourcing. In

purchasing, suppliers who patronize the buying company are given priority when it comes to
selection of suppliers. Some companies makes it a matter of policy to reward indirectly, those
customers that buy from them regularly and are found capable of performing certain jobs for the
company.

7) Ethical Consideration

Buyers should keep themselves as free as is humanly possible from unethical influences in their
choices of suppliers. Gift from suppliers which are intended to influence buying decisions have
no place in a professional purchasing department. In most cases, commercial bribery is a
criminal offense.

8) Dishonest Suppliers.

Dishonest sellers exist in the industrial world just as they do in the consumer world. Purchasing
personnel should be wary of dishonest suppliers and endeavour to avoid them. Their aim is to
swindle the buying company.

9) Local Sources It is always desirable to patronize suppliers located within the buyers’
immediate environment. This will help to promote good relationship between the local
community and the company. It is only when materials in question are not available at the
expected quantum that buying from distant source can be justified.

10) Government Policy

For the purpose of controlling foreign exchanges, government may for example, impose

restrictions on importations of certain goods thereby preventing the sourcing of the goods in
foreign supply markets. In such cases, the buyer’s range of sourcing is limited to the local
market.

11) Others factors, which for obvious reasons may be taken into account in supplier’s selection,
can be listed as follows:

Relative price of goods and services supplied by the supplier, compared with his
competitors.

Delivery dates, methods and cost delivery. In many instances, the delivery element is
more important than price, provided the prices are within the boundaries of the main
competitors.
 Supplier’s reputation, especially within the industry or trade.

History of labour relations at the supplier’s end.

Financial solvency of the suppliers;

Legal constraint, e.g. patent law.

The Nature of Expediting Work

Expediting is a planned, proactive task. As a concept, expediting is a purchasing

responsibility/task of attempting to speed up delivery as the buyer’s timing requirements undergo
unexpected changes. More concisely, to expedite (a term that is used rather loosely in industry)
involves actions to achieve an earlier delivery than originally planned. To de-expedite is indeed
the opposite and this is to attempt to delay delivery beyond the original schedule delivery time.
Expression such as hastening, progress chasing, and urging are sometimes used to describe the
process of attempting to ensure that delayed supply of materials does not cause problems for the
buying organization. These expressions often indicate that process is seen as a reactive one,
where a problem of lateness arises, and work then begins to try to save the situation.

Ideally, the relationship between the selling and buying organisations is one of mutual trust and
respect, and liaison, rather than expediting.

Elements of Expediting

The following elements are involved in expediting work i.e., the specific issues inherent in the
follow-up job:

1) First, it is necessary to secure an acceptance of the purchase order by the supplier so also a
promise of delivery

2) A proper record must be kept of due delivery dates and these records must be updated as and
when deliveries arrive.

3) A review should be made of outstanding orders at regular intervals.

4) Communication should be made with suppliers as and when required. This can be through e-
mail, telex message, phone calls, personal visits, etc.

Expediting Procedures

One very important matter relating to expediting is that all suppliers should be given strict
instructions to inform the buying company as soon as some trouble is noticed about fulfilling
delivery dates. If the suppliers can be trusted to do this, expediting becomes easier. A simple
procedure, which can be followed as follows:

Two copies of the purchase order are sent to the supplier and one copy to the expeditor.

The expeditor files the purchase order, vendor-wise, in a current file. This file is checked
every week.

If the acknowledgement copy has not been received back within ten days, the expeditor
should do the following:

He should check back with the buyer if there has been any development in regard to the
order; (for example, the supplier may have written that the term of agreement requires
revision).

If nothing has been heard from the supplier, he should send him a routine reminder.

If within a week after the first reminder no acknowledgement has arrived, a letter should
be sent, preferably by name to the official concerned in the supplier’s company. If this
fails, a telegram and a telephone call respectively should be the means of communication.

Though the supplier has not formally accepted the order, he may have started supplies. In
law, this is a proof of acceptance. The expeditor should check with the stores on this
matter.

4. The expeditor will consult the file every week and take such action as is necessary for follow
up.

5. When a delivery has been effected, the receipt section will send him a copy of the materials
receipt note. The expeditor will make the relevant entries in the order copy. As soon as the order
has been fulfilled, the copy of the order is removed from the file.

Characteristic of Good Expeditor

The work of an expeditor calls for considerable foresight, good judgment, initiative and
intelligence to ensure that the right degree of attention is given to the various types of orders. A
good expeditor must therefore have the following characteristics.

An expeditor must be a good communicator. An expeditor must be skilled at transferring

information in a language that can be easily understood.

An efficient expeditor must be resourceful.

 An expeditor must be a progressive individual, in other words, he must be capable of
gingering up and building up pressure on the supplier.

Time consciousness and alertness is another characteristic. A good expeditor will know
when to take strong action and how.

Expediting is not a routine function carried out by clerks. A supplier does not often have the
courage to be honest and gives reports which do not commit him but which can be interpreted as
encouraging by a buyer. A clever expeditor can see through such reports and distinguish the
genuine from the misleading report.

Attributes of a Good Supplier

Attributes which might be regarded as desirable for a typical relationship. These include:

Delivery on time

Provide consistent quality

Gives a good price

Has a stable background

Provides a good service backup

Provides a good stock service

Does what he/she says they will do

Provides technical advice

TOOLS FOR MARKET ENVIROMENT ANALYSIS

To clearly communicate the market conditions a number of tools are used. These tools include;

Michael porter five forces

SWOT analysis

STEEPLE

Porter’s five forces

Porter’s five forces model helps to identify an organization's competitive advantage, by pointing
up those forces affecting the organization in the environment in which it operates. The five
forces:

Figure 87 Porter's Five Forces

Bargaining Power of suppliers

Supply industry dominated by a few firms

The suppliers have proprietary product differences

There is the possibility of suppliers integrating forward if they do not obtain the prices, and
hence the margins, they seek;

The supplier’s customers and their long-term future are of little importance to the supplier.

High switching for the buyer from one supplier to another such as cost of retendering, damage
cost, cost of compatibility

Highly differentiated product that no any other supplier is offering

Bargaining power of buyers

Dominated by few buyers;

Low switching costs. In this case, the switching costs might include the need to change
the final product specification to accept a different input or the adoption of a new
ordering and payments system.

Buyers are aware of alternative producer prices

The buyer earns low profits. In this situation, they will try to extract low prices for their
inputs.

Products are undifferentiated. This enables the buyer to focus on price as the important
buying criterion

where there is a threat of backward integration by the buyer if satisfactory

Prices or suppliers cannot be obtained.

Threat potential new entrants

Entrance can affect the profitability of the industry in two ways:

Reducing prices either as an entry strategy or as a consequence of increased industry capacity.
There is also the danger that a price war may break out as rivals try to recover share or push out
the new rival.

Increasing costs of participation of incumbents through forcing product quality improvements,

greater promotion or enhanced distribution.

Reducing economies of scale available to incumbents by forcing them to produce at lower

volumes due to loss of market share.

Porter suggests that the strength of the treat of market entry depends on the availability of
barriers to entry against the entrant. These are:

Economies of scale.

Product differentiation.

Capital requirements.

Switching costs.

Access to distribution channels.

Cost advantages independent of Scale.

Government policy.

Threat of substitutes

The threats of substitute products and services. For example, aluminum is replacing traditional
tin-plate in beverage container industry. Factors influencing this include the following:

Relative performance of substitutes

Relative price of substitutes

Higher perceived values of substitutes

Ease of buyers switching

Buyer propensity to substitute

Degree of rivalry

Higher levels of competition create more options for buyers. Factors include the following:

Diversity of rivals
 Product/service differentiation

Industry growth rate

Fixed costs/value added

Number of competitors

Extra capacity in large increments

Acquisition trends

Exit barriers

Switching costs

Relative size of competitors

SWOT analysis

An analysis that examines strengths, weaknesses, opportunities and threats (SWOT) can provide
insight even with limited data into a supply market or a potential supplier. As a strategic
planning tool, the goal is to minimize weakness and threats, and exploits strengths and
opportunities.

Strength and weakness are internal characteristics of an organization while opportunities and
threats are external characteristics of an organization

SWOT analysis (strength, weakness, opportunities and threat) is a strategic tool designed to
appraise the overall state of an organization and indicate areas of concern and areas of
improvement

Figure 88: SWOT Analysis

Strength

What advantages does supplier have over competitors?

What unique resources does supplier have access to?

What resources does supplier have at lower cost over the others?

What are strengths of suppliers as perceived by the market especially existing customer?

Weakness
What aspect of the supplier performance could be improved?

What managerial, operational, technological or financial limitations that constrain the activities
of the supplier

What are weaknesses of suppliers as perceived by the market especially existing customer?

Opportunities

Is the potential for doing business with our organization a significant opportunity for this
supplier?

What changes in technology is supplier exploiting, could supplier exploit in order to improve
performance

What favorable trends are visible in the supply market from which the supplier could benefit?

Threats

How well the supplier is placed to respond to competitive pressure from other suppliers

How well is supplier placed to cope with technological advances?

Can the supplier cope with increasing levels of environmental regulations?

Does supplier have significant problems with cash flow?

PESTLE

Figure 89: PESTLE

Political factors

Government stability

Employment and operational law

 Government leadership

Trade restrictions or reforms

Tax regulations

Corruption level

Bureaucracy level

Stability of neighbors

Economic factors

Inflation

Taxes and duties

Finance and credit

Working practices

Exchange rates

Cost of living

GDP and GNP

Globalization

Unemployment level,

Labour cost trends

Social factors

Age distribution

Population growth rate

Employment levels

Income statistics

Education and career trends

Religious beliefs

Cultural and social convections

 Social mobility

Historical issues

Technological factor

Automation

Improved quality of parts and end product

Significant cost saving

Use of outsourcing

R&D

Production efficiency

Intellectual property

Knowledge management systems

Rate of change

Legal factors

Employment laws

Intellectual property

Contracts laws

Consumer protection

Trade unions

Legal enforcement

Type of law

Environmental factors

Natural resources

Global warming

Waste disposal/recycling

Sustainable source of energy

 Threats from natural causes

infrastructure

Click on the link provided and read more on supply market data analysis

https://procurementmanagement.pressbooks.com/chapter/tools-for-supply-market-analysis/ by
Press books

Supplier selection

Supplier selection is the process by which firms identify, evaluate, and contract with suppliers.

The main objective of supplier selection process is to reduce purchase risk, maximize overall
value to the purchaser, and develop closeness and long-term relationships between buyers and
suppliers.

Supplier selection process

Develop plan or strategy

This involves deciding on tendering method to be adopted. The include;

Open tendering

Restricted tendering

Negotiated tendering

Serial tendering

Prepare invitation to tender (ITT)

This is will be used to inform supplier of available procurement opportunities

Should contain full information to allow supplier understand the need and send suitable
response (refer to content of ITT)

Send the ITT

To enhance fairness and transparency at this stage, ensure that:

ITT is sent to all suppliers at same time

All suppliers are provided with exactly same document

Receiving of bids
 At this stage the organization receives the responses to ITT. The responses are known as
bids

These bids will be received in the form indicated in ITT i.e. softcopy or hard copy by
when and where are supposed to be dropped

Opening and evaluation of bids

Opening is done before suppliers or their representatives. Evaluation is done in four stages

Preliminary evaluation

Technical evaluation

Financial evaluation

Due diligence/post supplier evaluation

Cross functional team reviews and evaluates the bid to ensure fairness and fit for purpose in all
areas

Award of contract/debriefing

Winning supplier is awarded the contract through letter or email. It is good to have back up from
evaluation like supplier ranked no. 2 just in case the winner declines. Once the winner has
accepted the unsuccessful suppliers are debriefed through email or letter on why their bids were
not considered

Contract management

This involves evaluation of contract performance against the criteria set in ITT. This stage
reduces the risk by detecting defects or performance issues earlier

Supplier selection criteria

Process and design capabilities: Suppliers should have up-to-date and capable products,
as well as process technologies to produce the material needed. Because different
manufacturing and service processes have various strengths and weaknesses, the buying
organisation must be aware of these characteristics upfront. When the buying
organisation expects suppliers to perform component design and production, it should
also assess the supplier’s design capability. One way to reduce the time required to
develop new products is to use qualified suppliers that are able to perform product design
activities.

Quality and reliability: Quality levels of the procurement item should be a very
important factor in supplier selection. Product quality should consistently meet specified
requirements since it can directly affect the quality of the finished goods. Besides reliable
quality levels, reliability also refers to other supplier characteristics. For example, is the
supplier’s delivery lead-time reliable? Otherwise, production may have to be interrupted
due to shortage of material.

Cost: While unit price of the material is not typically the sole criterion in supplier
selection, total cost of ownership is an important factor. Total cost of ownership includes
the unit price of the material, payment terms, cash discount, ordering cost, carrying cost,
logistics costs, maintenance costs, and other more qualitative costs that may not be easy
to assess.

Service: Suppliers must be able to back up their products by providing good services
when needed. For example, when product information or warranty service is needed,
suppliers must respond on a timely basis.

Capacity: The organisation may also need to consider whether the supplier has the
capacity to fill orders to meet requirements and the ability to fill large orders if needed.

Location: Geographical location is another important factor in supplier selection, as it

impacts delivery lead time, transportation, and logistics costs. Some organizations require
their suppliers to be located within a certain distance from their facilities.

Management capability: Assessing a potential supplier’s management capability is a

complicated, but important step. The different aspects of management capability include
management’s commitment to continuous process and quality improvement, its overall
professional ability and experience, its ability to maintain positive relationships with its
workforce and its willingness to develop a closer working relationship with the buyer.

Financial condition and cost structure: An assessment of a potential partner’s financial

condition usually occurs during the evaluation process. Evaluation teams will typically
evaluate the different financial ratios that determine whether a supplier can invest in
resources, pay its suppliers and its workforce, and continue to meet its debt and financial
obligations. These elements are important in determining whether the supplier will
continue to be a reliable source of supply, and that supply will not be disrupted.

Planning and control system: Planning and control systems include those systems that
release, schedule and control the flow of work within an organisation and also with
outside parties. The sophistication of such systems can have a major impact on supply
chain performance. For example, how easy to use is a supplier’s ordering system, and
what is the normal order cycle time? Placing orders with a supplier should be easy, quick
and effective. Delivery lead time should be short, so that small lot sizes can be ordered on
a more frequent basis to reduce inventory holding costs.
 Environmental regulation compliance: The 1990s brought about a renewed awareness
of the impact that industry has on the environment. As a result, a supplier’s ability to
comply with environmental regulations is becoming an important criterion for supply
chain alliances. This includes, but is not limited to, the proper disposal of hazardous
waste.

Willingness to share technologies and information: With the current trend that favors
outsourcing to exploit suppliers’ capabilities and to focus on core competencies, it is vital
that organizations seek suppliers that are willing to share their technologies and
information. Suppliers can assist in new product design and development through early
supplier involvement to ensure cost-effective design choices, develop alternative
conceptual solutions, select the best components and technologies, and help in design
assessment. By increasing the involvement of the supplier in the design process, the
buyer is free to focus more attention on core competencies.

Longer-term relationship potential: In some cases, an organisation may be looking to

develop a long-term relationship with a potential supplier. This is particularly true if the
supplier is in the ‘critical’ quadrant, and the category of spend is high volume and critical
to the organization’s business. This approach requires that the parties share their mutual
goals, establish metrics to guide the relationship and develop a series of ongoing
discussions on how issues and conflicts can be resolved in a mutually beneficial manner.
These relationships may also involve joint cost-savings projects and new product-
development efforts.

Supplier selection scorecards: During the selection stage, sometimes organizations need
a structured way to evaluate alternative suppliers. This can be particularly hard when the
criteria include not just quantitative measures (such as costs and on time delivery rates)
but other, more qualitative factors, such as management stability or trustworthiness. A
supplier selection scorecard may be used as a decision support tool. The evaluation team
will assign a weight to the different categories and develop a numerical score for each
supplier in each category, thereby developing a final performance score.

Other supplier selection criteria

Table 14: Supplier Selection Criteria

Purchasing and Purchasing Purchasing And Carter 10C’S

Supply Chain Principles And Supply
Management Management Management
(LYSONS AND (BAILY, (DOBLER AND
FARRINGTON) FARMER, BURT)
JESSOP AND
 JONES)

Personal attitudes Task variables, Results of Competency

such as quality, preliminary
service and price survey

Adequacy and care Financial stability Financial stability Capacity

of production
equipment

Means of controlling Good Good Consistency

quality management management

Housekeeping Results of site Results of site Control

visits visits

Competence of Ability to support Quality of service Cost

technical staff electronic data
interchange

Competence of Just in time Just in time Commitment

management capabilities capabilities

Cash

Clean

Culture

communication

Click on the link provided below and open the journal provided. Read and make additional
notes on supplier selection process and supplier selection criteria

https://www.researchgate.net/publication/
285400617_Analyzing_Supplier_Selection_with_Lean_Philosophy_A_Review/figures?lo=1 by
Kshirsagar etal. 2015

6.2.3.4 Learning activities

Visit the procurement department within your institution and check on supplier
evaluation details then prepare a list of supplier selection criteria used
 Visit any government procurement offices near you, seek permission from the relevant
authority and check report on sequential steps followed in supplier selection

6.2.3.5 Self-assessment
A firm is to conduct market survey, what are the macro economic factors likely to hinder
this exercise

A procurement officer has consulted you on supplier evaluation. Which 10Cs’ will you
advise the person to consider?

A manager made a comment ‘That supplier is more powerful than us, we need to
consider a different strategy in our negotiation’. What factors did the manager consider to
refer the supplier as more powerful?

Which questions will you consider when analyzing the organization strength?

Responses

A firm is to conduct market survey, what are the macro economic factors likely to hinder
this exercise

Inflation

Taxes and duties

Finance and credit

Working practices

Exchange rates

Cost of living

GDP and GNP

Globalization

Unemployment level,

Labour cost trends

A procurement officer has consulted you on supplier evaluation. Which 10Cs’ will you
advise the person to consider?
 Competency of the supplier to undertake the task required

Capacity of the supplier to meet the purchaser’s total needs

Commitment to the supplier to the customer in the term of quality, cost driving and
service

Control system in relation to inventory, cost, budgets, people and information

Cash resources and financial stability ensuring that the selected supplier is financially
sound and is able to continue in business into the foreseeable future

Cost commensurate with quality and services

Consistency the ability of the supplier to deliver consistently and, where possible,
improve levels of quality and service.

Culture

Clean-i.e environment

Communication –the role of information technology

A manager made a comment ‘That supplier is more powerful than us, we need to
consider a different strategy in our negotiation’. What factors did the manager consider to
refer the supplier as more powerful?

Supply industry dominated by a few firms

The suppliers have proprietary product differences

There is the possibility of suppliers integrating forward if they do not obtain the prices, and
hence the margins, they seek;

The supplier’s customers and their long-term future are of little importance to the supplier.

High switching for the buyer from one supplier to another such as cost of retendering, damage
cost, cost of compatibility

Highly differentiated product that no any other supplier is offering

Which questions will you consider when analyzing the organization strength?

What advantages does supplier have over competitors?

What unique resources does supplier have access to?

What resources does supplier have at lower cost over the others?

What are strengths of suppliers as perceived by the market especially existing customer?
6.2.3.6 Tools, Equipment, Supplies and Materials
Stationery

Manila paper

Mark pen

Ruler

Pens

Pencils

Classroom and classroom resources

Computers

Functional procurement department

Trainer/ instructor

6.2.3.7 References

Baily, P., Farmer, D., Jessop, D., & Jones, D. (2005). Purchasing Principles and Management.
Hampshire: Pearson Education Limited.

Benton, W. C. (2007). Purchasing and Supply Management. Routledge London.

Lysons, K., & Farrington, B. (2016). Procurement and Supply Chain Management (ninth ed.).
Harlow CM20 2JE: Pearson Education Limited.

OBICCI, P. A. (2017). Critical success factors for public assets disposal in organizations: a
study of ministry of public service. Kampala, uganda: unpublished project.

Schindler, P. S. (2019). Business research methods (13 ed.). McGraw-Hill/ Irwin.

Weele, A. V. (2004). Purchasing and Supply Chain Management. New Delhi: PVT publishers.

6.2.4 Learning outcome: 4 Conduct Buyer/ Supplier Negotiation

6.2.4.1 Introduction
This learning outcome specifies the competencies required in planning for negotiation,
conducting negotiation and executing.

6.2.4.2 Performance standards

Buyer /supplier negotiation is Planned as per the organizations needs

Buyer /supplier negotiation is Conducted as per the SOPs

Buyer /supplier agreement is executed

6.2.4.3 Information Sheet

Definition of Terms

Negotiation: Motivated process of information exchange between or among individuals, groups,

organizations, communities, societies; etc. with the goal of reaching agreement about a given
joint or reciprocal acts

The ability to reach a desired outcome through discussion and compromise

A formal process that occurs when parties are trying to find a mutually acceptable solution to a
complex conflict

Any form of verbal communication where parties to a conflict of interest discuss the form of any
joint action which they might take to manage a dispute between them.

Objectives of Negotiation

To reach agreements on deals by building consensus

To resolve conflicts and misunderstanding on terms of purchase and sale

To promote communication and exchange of ideas between the seller and the buyer

To provide an opportunity for the parties to express their interests in purchase

transactions

To create negotiated rather than imposed outcomes in purchase transactions.

To create commitment to obligations in purchase contracts

To improve / guarantee quality of goods or services delivered.

When to Negotiate
In most cases purchasing orders are concluded on the basis of quotations received. Negotiations
with the vendor will quite often follow after he has submitted his quotation, but sometimes
negotiations take place as the first step in the purchasing deal. Negotiation is required when
changes in the scope of a contract, call for changes in initial pricing and terms and conditions.

Instances when the buyer and seller may consider negotiating:

Variations in the quality being purchased.

Changes in drawings and specifications.

Change in transportation, packaging or delivery point.

When supplies or services can be obtained from only one source. That it when
competitive bidding is impractical

When no acceptable quotations are received from the responding vendors.

Price or other items and conditions of the contract, relating to large volumes of a large
value, especially of scarce commodities where the contract relates to a long period.

When it is not practicable to draw up detailed specification and descriptions for certain
service or supplies and these are required to be orally explained or clarified.

Aspects/issues for negotiation

The quality of the goods

The price/cost of the goods

Terms and conditions of the contract

The time of delivery- lead time

Additional/ after sales services

Terms of payment

Situations where negotiation is not necessary

When loss of everything one has is a possibility

When one is at a maximum capacity

When it would be unethical to meet the other party’s demands

 When there is no interest in achieving an outcome

Nothing to gain in negotiating

When the time available to negotiate is less than you would require to negotiate the way
you would want to.

When you cannot trust the other party

The party cannot be trusted to implement the agreed solution

When waiting can improve the overall position

When one has not prepared adequately for the negotiation

Factors in negotiation

Negotiator-in negotiation buyers and sales people are individuals usually acting as
representatives of their respective organization.

The negotiation situation- relates to the strength and weakness of participants in the
negotiation.

Time- Time is a vital consideration.

Planning for negotiation

This stage is referred as pre-negotiation stage (Lysons & Farrington, 2016) which is equivalent
to planning preparation stage by CIPS (read the link provided under activity). During this stage
the following activities are undertaken

Appointment of the negotiating team

The venue – suppliers/ buyers or neutral premises

Assessing ones strength relative to that of the seller

Collection and analysis of relevant data relating to costs, sales, production, quality etc.

Setting of objectives

Allocation of roles – spokesperson, recorder, experts to provide support

Selection of tactics and strategies to be adopted

Conduct of mock/trial negotiation

Conducting negotiation
In this stage, the following activities takes place;

Introduction- exchanging of niceties and identity of negotiators

Setting the agenda

Setting the procedures and rules for negotiation

Making of proposals and offers

Use of negotiation tactics and ploys to bargain

Recording of minutes and proceedings

The Actual Negotiation

The actual negotiation involves a four phase face-to-face negotiations and specifically the
processes include:

1) Fact Finding

During the initial meeting with the potential supplier, the professional negotiator and the
negotiating team limit discussions to face-finding. The important consideration is that during the
face-finding session, the buyer and the supplier should attempt to analyse each other’s point of
view. The buying and selling representatives should disclose their interests – not their positions.

2) The Recess

While it may not be necessary to call for a recess in negotiation relative to small procurement, in
major negotiations, it would be good strategy to call for recess after the face-finding session, to
enable both teams to evaluate the facts and analyse the issues, assess the negotiating ability of
the opposite team and, if needed, revise the issues. The duration of the recess depends on the
circumstance and the issues involved.

3) Narrowing the Difference

When the formal negotiations reconvene, the negotiator defines each issue, states the facts, and
attempts to convince the supplier’s representatives(s) that the negotiator moves on to the next
issue. During this phase of the negotiating process, problem solving and compromise are used to
find creative solutions where both parties win. If a satisfactory agreement cannot be reached, the
negotiating team has the choice of adjourning (an attractive alternative for buyer if another
supplier is in the wings) or moving on to hard bargaining.

4) Hard Bargaining
Hard bargaining session is the last resort and this involves the use of take – it – or – leave – it
tactics. Its use is limited to one –time or adversarial situation where long-term collaborative
relationships are not objective.

The Post-Negotiation Phase

The primary activity of the post-negotiation phase is implementation. Successful negotiation is

complete until what has been agreed is implemented. Only very ordinary or value free
negotiators will pay insufficient attention to his aspect of the work. An effective negotiator
would therefore need to take a number of necessary actions.

Firstly, skilled negotiators need to confirm with other party a clear understanding of what has
been agreed.

Secondly, they also specify who is to do what, and by when, not only as between them and

other party but also in their organization.

The post – negotiation phase:

Produce the first draft agreement. This involves reporting in your own version what has
been agreed, developing such agreement and sending your draft to the party for his
comments and agreement

Ensure the commitment of people in your organisation to making the agreement work

Prepare official contract in line with the agreement

Remember no negotiation is successful until what has been negotiated is done.

Find time to evaluate performance, first, in negotiation, and secondly in, implementation.

Implementation of successful negotiation has the consequence of positively influencing the

behaviour of both parties in future negotiations especially where purchasing transaction involves
long-standing partners in the supply and demand market.

Negotiation Postures

Negotiators must be skilled at watching for, understanding and interpreting body language. No
matter what people say, how they really feel can often be picked up from their body positions
and gestures during the negotiations. You may consider that the other party is being honest and
open, but this may not be true. You may equally feel the other side is happy; this also may not be
the case. Therefore, as a negotiator, you must watch for the body language.
Execution of supplier agreement

The following activities takes place during this stage;

Confirming the terms and conditions agreed upon

Drafting the purchase contract

Clarifying any issue relating to the contract

Formal placing of the purchase contract with the supplier

Follow up of the purchase contract to be performed

Setting the purchase contract price

CIPS has the also the key stages involved in negotiation process as outlined below;

Planning and preparation- pre-negotiation and conceptualization

Information Gathering

Determining the BATNA (Best Alternative To a Negotiated Agreement)

Presentation- making Proposals and offers to the other party

Bargaining- debate or dialogue between the parties

Closure- completion of agreements and drafting of contracts

Follow up- review of the outcome

Importance of BATNA in negotiation

It helps to set the limits in negotiations in terms of interests

It also acts as a motivator – key focus and driving force behind successful negotiation

Helps to make decision on whether or not accept a negotiated agreement

It helps to increase the negotiating power - helps to identify options outside of

negotiations

Acts as a safety net- provider a fallback position where an agreement is not reached

Read more on these stages on the link provided below;

https://www.cips.org/knowledge/procurement-topics-and-skills/strategy-policy/negotiation/ by
CIPS
6.2.4.4 Learning Activities
Visit the procurement department within an organization and check on how they plan for
negotiation then write short report on your finding.

Conduct a mock negotiation with your colleagues, following the above three steps

6.2.4.5 Self-Assessment
Which one of the following is an element of buyer supplier negotiations?

Venue

Employees

Policies

Rules.

You have been appointed as a procurement officer to negotiate with the suppliers on
behalf of the organization. What are the three factors you will consider during
negotiation?

You have been appointed to spear head negotiation process. How will you prepare for the
event?

Why is it important to establish BATNA in a negotiation process?

Responses

Which one of the following is an element of buyer supplier negotiations?

Venue

Employees

Policies

Rules.

You have been appointed as a procurement officer to negotiate with the suppliers on
behalf of the organization. What are the three factors you will consider during
negotiation?

The negotiator
 The negotiating situations

Time

You have been appointed to spear head negotiation process. How will you prepare for the
event

Appointment of the negotiating team

The venue – suppliers/ buyers or neutral premises

Assessing ones strength relative to that of the seller

Collection and analysis of relevant data relating to costs, sales, production, quality etc.

Setting of objectives

Allocation of roles – spokesperson, recorder, experts to provide support

Selection of tactics and strategies to be adopted

Conduct of mock/trial negotiation

Why is it important to establish BATNA in a negotiation process

It helps to set the limits in negotiations in terms of interests

It also acts as a motivator – key focus and driving force behind successful negotiation

Helps to make decision on whether or not accept a negotiated agreement

It helps to increase the negotiating power - helps to identify options outside of

negotiations

Acts as a safety net- provider a fallback position where an agreement is not reached

6.2.4.6 Tools, Equipment, Supplies and Materials

Stationery

Manila paper

Mark pen

Ruler

Pens
 Pencils

Classroom and classroom resources

Computers

Functional procurement department

Trainer/ instructor

6.2.4.7 References
Baily, P., Farmer, D., Jessop, D., & Jones, D. (2005). Purchasing Principles and Management.
Hampshire: Pearson Education Limited.

Benton, W. C. (2007). Purchasing and Supply Management. Routledge London.

Demirbas, A. (2010). Waste management, waste resource facilities and waste conversion
processes. Energy Conversion and Management, 52(2011), 1280–1287.

EMC. (2006). Environmental Management and Co-ordination (Waste Management)

Regulations. Nairobi Kenya: Government printers.

EMCA. (1999). ENVIRONMENTAL MANAGEMENT AND CO-ORDINATION ACT, 1999 (ACT

NO 8 OF 1999). Nairobi, Kenya: Governement printers.

Lysons, K., & Farrington, B. (2016). Procurement and Supply Chain Management (ninth ed.).
Harlow CM20 2JE: Pearson Education Limited.

OBICCI, P. A. (2017). CRITICAL SUCCESS FACTORS FOR PUBLIC ASSETS DISPOSAL IN

ORGANIZATIONS: A STUDY OF MINISTRY OF PUBLIC SERVICE. KAMPALA, UGANDA:
UNPUBLISHED PROJECT.

PPADA. (2015). Public procurement and disposal act 2015. Nairobi Kenya: Government
printers.

PPADR. (2020). THE PUBLIC PROCUREMENT AND ASSET DISPOSAL REGULATIONS.

Nairobi, Kenya: Governement printers.

Public health act. (2012). PUBLIC HEALTH ACT CHAPTER 242. Nairobi, Kenya: Governement
printers.

Schindler, P. S. (2019). Business research methods (13 ed.). McGraw-Hill/ Irwin.

Weele, A. V. (2004). Purchasing and Supply Chain Management. New Delhi: PVT publishers.
WILLIAMS, P. T. (2005). Waste Treatment and Disposal . West Sussex;England : John Wiley
& Sons Ltd.

World Health Organization. (2014). Safe management of wastes from health-care activities.
Geneva: Unpublished document.

https://www.nou.edu.ng/sites/default/files/2017-03/ENT%20324.pdf