1. What are the objectives of procurement.
(10 marks)
a) Cost Efficiency
Cost efficiency involves acquiring goods and services at the lowest total cost while
maintaining quality and service standards. This objective focuses on strategies such as bulk
purchasing, competitive bidding, and negotiating favorable terms with suppliers.
Organizations analyze total cost ownership, considering not just the purchase price but also
additional expenses like shipping and maintenance. By optimizing procurement practices
and fostering strong supplier relationships, businesses can achieve better pricing and
improved payment terms, enhancing overall value and contributing to financial health and
competitiveness.
b) Quality Assurance
Quality assurance ensures that the goods and services acquired meet specified standards
and requirements. This objective involves selecting suppliers based on their ability to
consistently deliver high-quality products and services. Procurement teams establish clear
specifications and criteria for quality, conducting evaluations and audits to assess supplier
capabilities. By implementing quality control processes and monitoring supplier
performance, organizations can mitigate risks associated with defective or subpar products.
Ensuring quality not only enhances customer satisfaction but also reduces costs related to
returns, repairs, and compliance issues, ultimately contributing to the organization’s
reputation and success.
c) Timely Delivery
Timely delivery ensures that goods and services are received on schedule to meet
production and operational needs. This objective emphasizes effective supply chain
management where procurement teams coordinate closely with suppliers to establish
realistic delivery timelines and monitor progress. By implementing strategies such as just-
in-time ordering, demand forecasting, and inventory management, organizations can
minimize delays and disruptions. Timely delivery enhances operational efficiency, reduces
the risk of stockouts, and supports customer satisfaction by ensuring that products are
available when needed. Ultimately, meeting delivery deadlines is crucial in maintaining
productivity and achieving business objectives.
d) Risk Management
Risk management involves identifying, assessing, and mitigating potential risks associated
with sourcing goods and services. This objective focuses on understanding factors such as
supplier reliability, market volatility, and compliance with regulations. Procurement teams
analyze risks related to supply chain disruptions, price fluctuations, and geopolitical issues
that could impact operations. By developing contingency plans, diversifying suppliers, and
conducting regular audits, organizations can minimize exposure to risks. Effective risk
management not only safeguards procurement processes but also ensures business
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continuity, enhances decision-making, and protects the organization’s reputation and
financial stability.
e) Sustainability and Ethical Sourcing
Sustainability and ethical sourcing focus on acquiring goods and services in an
environmentally responsible and socially equitable manner. This objective involves
evaluating suppliers based on their sustainability practices such as using eco-friendly
materials, reducing waste, and minimizing carbon footprints. Additionally, organizations
prioritize suppliers who adhere to fair labor practices and support local communities. By
integrating sustainability into procurement strategies, companies can reduce their
environmental impact, enhance brand reputation, and meet consumer demand for
responsible practices. Ultimately, sustainable and ethical sourcing fosters long-term
relationships with suppliers and contributes to a more sustainable and equitable global
economy.
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2. Explain the procurement process. (10 marks)
a) Need Identification
Need identification is the initial stage of procurement where a department recognizes the
requirement for goods or services. It involves determining what is needed and why,
ensuring the request aligns with organizational goals, operational demands, and budgets,
preventing unnecessary purchases or delays in essential supplies.
b) Purchase Requisition
The purchase requisition is an internal document created after a need is identified. It details
the required goods or services including specifications, quantities, and budget. The
requisition is submitted for managerial approval, ensuring the request aligns with
organizational priorities and budgetary constraints before moving to the procurement stage.
c) Supplier Identification and Selection
Supplier identification and selection involves finding potential vendors to provide the
needed goods or services. This process includes researching suppliers, issuing Requests for
Quotation (RFQ) or Request for Proposal (RFP), and evaluating vendors based on factors
like price, quality, reliability, and delivery timelines to choose the best fit for organizational
needs.
d) Purchase Order (PO) Creation
PO creation formalizes the procurement process by issuing a document to the selected
supplier. The PO specifies the details of the order including items, quantities, prices,
delivery dates, and terms. Once the supplier accepts the PO, it becomes a legally binding
agreement between both parties.
e) Supplier Agreement
The supplier agreement is the stage where the supplier reviews and confirms the purchase
order (PO), finalizing the terms of the deal. Both parties agree on specifics like price,
delivery schedules, and conditions. This mutual confirmation establishes a legally binding
contract, ensuring compliance with the agreed-upon terms.
f) Receipt of Goods or Services
Receipt of goods or services involves receiving and inspecting the delivered items or
completed services to ensure they meet the purchase order’s specifications. This step
includes quality checks and verifying quantities. Once confirmed, the goods or services are
officially accepted, allowing the procurement process to proceed to invoicing and payment.
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g) Invoice and Payment
In the invoice and payment stage, the supplier submits an invoice for the delivered goods
or services. The organization reviews the invoice, ensuring it matches the purchase order
and delivery records. Once verified, the payment is processed according to the agreed-upon
terms, completing the financial transaction with the supplier.
h) Record Keeping and Review
Record keeping and review ensures that all procurement documents including purchase
orders, invoices, and delivery records are stored for future reference and audits. This stage
allows organizations to track purchasing history, evaluate supplier performance, and
identify areas for improvement, supporting better decision-making and compliance with
internal policies or regulations.
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3. Please explain the documents involved in procurement and purchase and the importance
of these documents. (10 marks)
a) Purchase Requisition
A Purchase Requisition is an internal document generated by a department within an
organization to formally request the purchase of goods or services. It outlines specific
details such as the item description, quantity, estimated cost, and the purpose of the
purchase.
Importance:
This document initiates the procurement process by providing justification for the
requested items, ensuring alignment with the organization’s needs and budget.
Additionally, it serves as a record for tracking requests, facilitating approval workflows,
and enhancing accountability in spending. Ultimately, a purchase requisition helps
streamline procurement while ensuring that all purchases are necessary and well-
documented.
b) Request for Quotation (RFQ)
A RFQ is a document sent by a buyer to potential suppliers inviting them to submit pricing
and terms for specific products or services. The RFQ outlines detailed specifications,
quantities, and any relevant conditions, allowing suppliers to provide accurate and
competitive quotes.
Importance:
This process encourages competitive bidding, helping the buyer to compare options based
on price, quality, and delivery timelines. An RFQ is crucial in making informed purchasing
decisions, ensuring cost-effectiveness, and fostering transparency in supplier selection,
ultimately contributing to effective procurement and better supplier relationships.
c) Purchase Order (PO)
A PO is a formal document issued by a buyer to a supplier, detailing the specifics of a
purchase agreement. It includes essential information such as item descriptions, quantities,
prices, delivery dates, and payment terms.
Importance:
The PO serves as a legally binding contract, providing protection for both parties by clearly
outlining expectations and responsibilities. It helps to prevent misunderstandings and
disputes by establishing a written record of the transaction. Additionally, a PO streamlines
the procurement process, facilitates order tracking, and aids in budget management,
ensuring that purchases align with organizational goals and financial plans.
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d) Contract Agreement
A Contract Agreement is a legally binding document that outlines the terms and conditions
governing a purchase transaction between a buyer and a supplier. It details essential aspects
such as pricing, delivery schedules, payment terms, quality standards, and the
responsibilities of both parties.
Importance:
This agreement serves to protect the interests of both the buyer and supplier by clearly
defining expectations and obligations, thereby minimizing risks associated with
procurement. Additionally, a Contract Agreement can address dispute resolution processes,
penalties for non-compliance, and conditions for termination, ensuring clarity and
accountability throughout the duration of the contract.
e) Invoice
An invoice is a document issued by a seller to request payment from a buyer for goods or
services provided. It typically includes details such as the seller's and buyer's information,
invoice number, date of issue, item descriptions, quantities, unit prices, total amount due,
and payment terms.
Importance:
The invoice serves as a formal request for payment and acts as proof of the transaction. It
is essential for financial record-keeping, helping both parties track expenses and revenue.
Additionally, invoices facilitate the accounts payable and receivable processes, ensuring
timely payments and contributing to effective cash flow management.
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4. What is negotiation and explain the process of selecting supplier (10 marks)
Negotiation is a strategic discussion aimed at reaching an agreement between two or more
parties. It involves the exchange of proposals and counterproposals to resolve differences and
achieve mutually beneficial outcomes. In business contexts, negotiation can involve aspects
like price, terms of service, delivery schedules, and so on.
The Process of Selecting Supplier
a) Identify Requirements
Identifying requirements involves clearly defining an organization’s specific needs for
products or services including quantity, quality, specifications, budget constraints, and
delivery timelines. This clarity helps potential suppliers to tailor their proposals, facilitating
a more effective evaluation and selection process, ultimately leading to successful
negotiations and long-term partnerships.
b) Conduct Market Research
Conducting market research involves gathering information on potential suppliers through
various channels such as online searches, industry contacts, trade shows, and
recommendations. This process helps to identify candidates that meet the organization’s
requirements, allowing for a comprehensive understanding of the available options and
their capabilities in the marketplace.
c) Evaluate Suppliers
Evaluating suppliers involves assessing candidates based on criteria such as experience,
reputation, financial stability, and capacity to deliver. This process may include reviewing
past performance and conducting site visits. Effective evaluation ensures that only the most
suitable suppliers are shortlisted for further consideration in the selection process.
d) Solicit Proposals
Soliciting proposals involves inviting shortlisted suppliers to submit detailed proposals that
outline their offerings including pricing, terms, and how they will meet the organization’s
requirements. This step provides valuable insights into each supplier’s capabilities and
helps in comparing their responses to identify the best fit for the organization.
e) Analyze Proposals
Analyzing proposals involves reviewing the submissions from shortlisted suppliers to
compare key factors such as pricing, quality, delivery timelines, and service levels. This
evaluation helps to identify strengths and weaknesses in each proposal, allowing the
organization to make informed decisions and select the most suitable supplier for their
needs.
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f) Negotiate Terms
Negotiating terms involves engaging in discussions with selected suppliers to finalize
pricing, payment terms, delivery schedules, and service levels. This collaborative process
aims to reach mutually beneficial agreements that satisfy both parties, fostering a positive
relationship and ensuring clarity on expectations before formalizing the supplier contract.
g) Conduct Due Diligence
Conducting due diligence entails verifying the shortlisted suppliers’ claims and capabilities
through reference checks, audits, or site visits. This thorough evaluation helps to ensure
that the chosen supplier can deliver on their promises, minimizing risks and ensuring
reliability in the partnership before finalizing the agreement.
h) Make a Selection
Making a selection involves choosing the supplier that best meets the organization’s
requirements based on thorough evaluation and negotiations. This decision is finalized by
formalizing a contract that outlines all agreed-upon terms and conditions, establishing a
clear framework for the supplier relationship moving forward.
i) Implement and Monitor
Implementing and monitoring entails executing the supplier agreement and establishing a
system to track the supplier’s performance against agreed terms. This process includes
regular communication, performance reviews, and feedback sessions to ensure compliance,
address any issues promptly, and foster a collaborative relationship for continuous
improvement.
j) Review and Adjust
Reviewing and adjusting involves periodically assessing the supplier relationship to ensure
ongoing satisfaction and alignment with organizational needs. This includes evaluating
performance metrics, addressing any emerging issues, and being open to renegotiation of
terms if circumstances change, ultimately fostering a dynamic partnership that adapts to
evolving requirements.
