1

PURCHASING MANAGEMENT

KENYA NNATIONAL EXAMINATIONS

COUNCIL.

DIPLOMA: MODULE TWO

BUSINESS EXAMINATION

NOTES: BY ORO B.O- O720555348

PhD-SCM, MBA (Procurement), B.Ed, CPSP-K, Dip (SCM)-KIM

BY : ORO B.O - 0720555348 KISUMU POYTECHNIC PURCHASING MANAGEMENT

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TOPIC ONE: INTRODUCTION TO PURCHASING

Meaning of purchasing

The activity of acquiring goods or services to accomplish the goals of an

organization.
Difference between purchasing and procurement
 Procurement involves the process of selecting vendors, establishing payment terms,
strategic vetting, selection, the negotiation of contracts and actual purchasing of
goods.
 Procurement is concerned with acquiring (procuring) all of the goods, services, and
work that is vital to an organization.
 Procurement is, essentially, the overarching or umbrella term within which
purchasing can be found.
Purchase Management is a function of materials management in a company. Their basic
function is procuring the inputs for production function. This function encompasses
suppliers in the market external to the organization and several internal to the
organization

The major objectives of purchasing

1. To pay reasonably low prices for the best values obtainable, negotiating and
executing all company commitments.
2. To keep inventories as low as is consistent with maintaining production.
3. To develop satisfactory sources of supply and maintain good relations with
them.
4. To secure good vendor performance including prompt deliveries and
acceptable quality.
5. To locate new materials or products as required.
6. To develop good procedures, together with adequate controls and purchasing
policy.
7. To implement such programmes as value analysis, cost analysis, and make-or-
buy to reduce cost of purchases.
8. To secure high caliber personnel and allow each to develop to his maximum
ability.
9. To maintain as economical a department as is possible, commensurate with
good performance.
10. To keep top management informed of material development which could
affect company profit or performance.
11. To achieve a high degree of co-operation and co-ordination with other
departments in the organization.

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Importance of Purchasing/purchasing function:

 Purchasing function provides raw materials for manufacturing and processing
/ensure uninterrupted material flow
 Efficient buying hence value for money/evaluating potential source of supply
for organization/cost reduction.
 Conducts market research
 Undertakes supplier development
 Purchasing is the main factor in timely execution of industrial projects.
 Enhance purchasing of quality materials.
 Ensure standardization of purchased materials.
Skills that purchasing officers needs to posses
 Good analytical skills
 Good presentation skills
 Good listening skills and communication ability
 Good public relation
 Good arithmetic skills
 Good interpersonal skills
TYPES OF PURCHASING SYSTEMS-
 Purchase made as per requirement: No purchase is made in advance.
Purchase is done as need arises. Method usually applied for emergency
requirement or infrequent goods.
 Contract Purchasing: Contract of material is given to an agency. It has an
advantage that low price of those materials whose cost fluctuates highly.
 Market Purchase: Purchase is made from the market to take advantage of
price fluctuations.
 Schedule Purchasing: It is a cyclic purchase model. A schedule of purchase
is made and itis used for those commodities whose price do not fluctuate

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Purchasing and Supply Functions

The purchasing and supply functions can be best summarized as follows
PURCHASING AND SUPPLY FUNCTION

Purchasing functions Stock control Stores management functions

 Determination of order quantities  Storehouse design
 Tendering  Determination of timing of orders  Stock location
 Quotations  Forecasting  Storage equipment
 Negotiations  Analysis of demand  Mechanical handling of
 Supplier selection  Scheduling equipment
 Supplier  Statistical reports  Checking receipts, Issuing
development  Stores accounting material
 Supplier rating  Stock audit  Maintenance of stock
 Review of slow moving stock records
 Contracts
 Classification and coding  Operation of storehouses
 Sales of
 Operation of stock yards
scrap/surplus
 Internal distribution
 Expediting
 Research
The purchasing function /Responsibilities
Invoice clearance
 Maintain the flow of goods/ services to serve the organization and its supply
chains, at the desired customer service levels on a continuous basis
 Minimize the investment in inventory to free up capital for other projects
 Maintain the required quality levels of purchased goods and services
 Search for and develop capable suppliers
 Standardize goods and services purchased whenever possible to reduce costs
 Achieve good working relationships with other functional areas of the organization
 Operate the purchasing and supply management department at the lowest
administrative cost possible
 Seek ways to improve the organization’s and supply chains’ competitive positions

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The Sequence of Operations in A Typical Purchasing/Stores Transaction

1. 1. Requsition 3. Issue record

USER STORES
STOCK CONTROL

8. Goods 11. Receipt record 4. Request

to order

5. Enquiries
13. Payment 6. Receipt quoatat
PAYMENT - tion
SUPPLIER
SECTION
PURCHASING
7. Order
9. Invoice

12. verified invoice

Summarized as follows:
1. User submits requisition to stores.
2. User in handed goods.
3. A record of the issue is transmitted to stock control.
4. Assuming that it is time to do so, a request to order is transmitted to
purchasing
5. Purchasing department sends out enquiries.
6. Quotations submitted by suppliers.
7. Order placed with selected supplier.
8. Goods sent to stores.
9. Invoice sent by supplier to purchasing.
10. Record of receipt sent to stock control.
11. Record of receipt sent to purchasing.
12. Invoice checked, and when verified sent to payment section.
13. Payment made to supplier

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Relationship Between Purchasing Department and Other Departments

■ Finance department
 There is a continuous exchange of information covering verification of
records and physical stock, clearance of invoices both inwards and outwards,
revision of prices, supply of material-cost information, and control of
working capital allocated to the financing of stock.
 Procedures are organised to work together effectively to control the value
of inventory and cost of materials. The ware-house management system
(WMS) provides detailed valuation of stock in real-time allowing effective
stock management to continually reduce stock in line with the varying usages.
■ Transport department
 The stores department is itself sometimes responsible for transport but,
where there is a separate transport department, it is essential that the two
work together harmoniously.
 The supply function reports details of loads, pick-up locations and discharge
points, makes facilities available for the speedy, safe loading or discharge of
goods, and provides a weighbridge service.
 The trans-port department is responsible for the ready availability of
vehicles and for advising any circumstances which may delay deliveries or
collections, such as breakdowns, strikes or adverse weather.
■ Sales department
 The service provided is normally the acceptance, storage, packing and des-
patching of finished products.
 The sales department cooperates by advising, via the ERP and WMS system,
of any appreciable fluctuation in the demand for the finished goods which
may affect storage accommodation, and is also responsible for giving
instruction on the quantities of spare parts or other materials to be held for
servicing sales already made.
■ Production department
 This department is the main supplies ‘internal customer’ and it is
therefore of the first importance that the services to production are
satisfactory in all respects.
 The closest cooperation is essential not only on the provision of materials
but also on the stock levels to be maintained in accordance with the
policy for inventory control.

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 The stores department provides materials, tools and other shop supplies
at the required times and in the required quantities to meet the factory
programme, advises anticipated difficulties or failure in supply, and
notifies any substitute or surplus materials available from stock.
 The storehouses are ready to accept work in progress and finished goods
at any time and to receive scrap, offcuts, rejected items and salvaged or
reclaimed materials as they arise, so that the shop floor may be promptly
cleared.
 The production department sends in to the appropriate storehouses not
only the work in progress and finished goods but also any excess
materials, tools, fixtures and equipment not currently required, and
notifies as soon as possible any impending changes in the production
schedule.
■ Design and engineering departments
 It is most desirable to have close contact with these departments,
particularly from the point of view of specifications, standards and
obsolescence.
 Arrangements are made to see that, before any new design, modification or
technique is put into production, due note is taken of materials to the old
design, so as to avoid obsolescence and, whenever possible, new items and
modifications are introduced to coincide with the running down of existing
stocks.
 The design or engineering departments are consulted when obsolescent or
obsolete items are being listed for disposal. In this way the enterprise
resource planning (ERP) system and the ware-house management system
(WMS) can be continually updated to allow for minimum waste in the form of
obsolete stocks.
■ Quality department
 Accommodation for inspection personnel may be provided in storehouses,
and they are notified of all receipts via electronic advanced shipping
notifications (ASN). The stores department is responsible for holding
goods received in ‘quarantine’ and submitting samples to inspection
promptly.
 In return, the inspection department inspects and tests deliveries
without delay, and indicates acceptance or rejection.

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 The supplies function must work closely with the quality department if
quality is approached from an ‘assurance’ viewpoint. This is vitally
important in just-in-time and lean-supply environments in which a ‘ship-to
line’ philosophy is employed, ostensibly fast-tracking quality-assured
material through to production with minimum stores involvement and
inspection.
 This reduces non-value-added activities (such as inspection and storage)
and ensures a smooth continuous flow of material to production in a
timely manner.
■ Maintenance department
 The supplies service in this case consists in acquiring appropriate
materials and machinery spares and being in a position to issue them
as and when required.
 To facilitate this work, the maintenance department advises details of
the forward programme on repairs and overhauls as far as possible,
particularly where planned maintenance is in operation, and advises on
the initial quantities of spares to be provided when any major new
plant or machinery is installed.

BY : ORO B.O - 0720555348 KISUMU POYTECHNIC PURCHASING MANAGEMENT

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TOPIC TWO: PURCHASING STRUCTURES AND ORGANIZATION

PURCHASING ORGANIZATION STRUCTURE

Meaning
 Organizational Structure: Purchasing Organization. Definition. The
purchasing organization is an organizational unit which procures articles and
negotiates general purchase price conditions with vendors. It is responsible
for all purchasing transactions in the company.

 Organizational structure refers to the hierarchy of decision-making power

within a department. Built like a pyramid, the employee at the top has the
most decision-making responsibility. The structure of one purchasing
department won't necessarily look like another, although there are positions
that appear within most hierarchies.
The hierarchy composes of the following:
a) Director
The department director may be given any number of titles, including
"procurement manager," "director of procurement" or "lead buyer." This
individual is ultimately responsible for the purchasing department, it's day-
to-day operations and how efficiently it operates.
b) Deputy Director
The deputy director is second in control. While companies may have
different titles for this position, the deputy director essentially takes cues
from the director, helping operate the daily activities of the department.
c) Senior Buyers
In a manufacturing business, a senior buyer must know which materials are
needed and in what quantity they should be purchased. The purchasing
department must maintain a balance between the amount of material coming
in and what will be used in the manufacturing process, so corporate funds
don't get bogged down by materials sitting unused on shelves. In consumer-
driven businesses, the senior buyer must be able to predict what consumers
will want to buy. Mistakes in that regard can cost the business money and
damage its reputation. Senior buyers report to the deputy director.

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d) Assistant Buyers
Assistant buyers answer to senior buyers but have their own responsibility
for staying abreast of current inventory and trends. Assistant buyers also
focus on evaluating suppliers finding the most reliable supply source at the
greatest cost savings to the company.
e) Support Staff
Purchasing departments often work closely together in a team approach --
with each member of the team handling specific tasks -- but come together
as a whole to make important decisions. Administrative assistants and clerks
are part of that team. They are often multi-talented employees in that they
are capable of handling any number of tasks at once in order to help the
department work as a cohesive unit. It's not unusual for administrators or
clerks to move into a buyer's position once they have become familiar with
the department.
Organization of purchasing Department.
The possible types are:
1. Organisation by Function
2. Organisation by Location
3. Organisation by Product.

1. Organization by location:
This is applicable to companies having plants located at various places. The
organization chart is shown below:

General manager

Purchasing Purchasing manager plant Purchasing manager plant

manager plant A B C

The advantage of such organisation is that things will move quickly and there will be
continuity of supply. However, one disadvantage is that prices of items may not be the
same in different plants at the same time.

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2. Organization by Function:

This generally means that the organization is based on specialization. Such an

organization chart is shown below:
General manager

Transport Purchasing manager Stores Inventory

manager manager manager

Ass. Purchasing Ass. Purchasing

mgr mgr

 the transport manager, the purchasing manager, the inventory control

manager and the stores manager are all specialized in their respective lines.
The advantage of this system is that economic use is made of the highly
paid people.
 However, there are disadvantages also. Firstly, a man dealing with same
subject, again and again, may suffer from boredom.
 Secondly, if the job becomes too specialised, there is a tendency for
everyone to ‘pass the buck’ and avoid responsibility somehow for solving a
problem that is not part of one’s routine job.

3. Organization by Product:

This type of organization is found in companies dealing with a larger number of end
products and where specialized knowledge in various types of raw materials re-
quired for these products is necessary.

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The organization chart is shown below:

(i) Flat org. General manager

Purchasing manager Purchasing manager

Product A product B

(ii) Deep org. General manager

Ass. Purchasing Ass. Purchasing

manager manager

Normally, the materials management department’s organization chart is a com-

bination of all these various organisation charts. Since such a chart is complicated
one, it is not presented here.

PURCHASING STRUCTURES
 Multi-unit companies can have several alternatives of purchasing
organization:
(a) Decentralized
(b) Centralized
(c) Hybrid
(d) Cross-functional
(a) Centralized Purchasing
 Larger companies often create centralized purchasing structures,
where a purchasing executive leads a team of individuals, housed in a
central location.
 In this situation at the corporate level, a centralized purchasing
department can be found where corporate contracting specialists
operate at the strategic and tactical levels.
 The centralized function does the following:

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 Design, procedures, and guidelines for purchasing

 Conduct audits it requested by business unit
 Supply market studies for business units to follow up
 Solve co-ordination issues
 No tactical purchasing activities are conducted
Advantages of Centralized Purchasing
 Bulk quantity of materials can be purchased at a low price with
favorable purchasing terms.
 The service of an efficient, specialized and experienced purchase
executive can be obtained.
 Better layout of stores is possible in centralized stores.
 Economy in recording and systematic accounting of materials.
 Transportation costs can be reduced because bulk quantity of
materials purchased.
 Centralized purchasing avoids reckless purchases.
 Centralized purchasing discourages duplication of efforts.
 Centralized purchasing helps to maintain uniformity in purchasing
policies.
 Centralized purchasing helps to minimize the investment on
inventory.
Disadvantages of Centralized Purchasing
 High initial investment has to be made in purchasing.
 Delay in receiving materials from the centralized store by other
departments.
 Centralized purchasing is not suitable, if branches are located at
different geographical locations.
 In case of an emergency, materials can not be purchased from local
suppliers.
 Defective materials can not be replaced timely.
(b) Decentralized Purchasing
 Decentralized purchasing refers to purchasing materials by all
departments and branches independently to fulfill their needs. Such a
purchasing occurs when departments and branches purchase separately
and individually.
 Under decentralized purchasing, there is no one purchasing manager who
has the right to purchase materials for all departments and divisions. The

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defects of centralized purchasing can be overcome by decentralized

purchasing system.
Advantages of Decentralized Purchasing
 Materials can be purchased by each department locally as and when
required.
 Materials are purchased in right quantity of right quality for each
department easily.
 No heavy investment is required initially.
 Purchase orders can be placed quickly.
 The replacement of defective materials takes little time.
Disadvantages of Decentralized Purchasing
 Organization losses the benefit of a bulk purchase.
 Specialized knowledge may be lacking in purchasing staff.
 There is a chance of over and under-purchasing of materials.
 Fewer chances of effective control of materials.
 Lack of proper co-operation and co-ordination among various
departments.
(c) Hybrid Purchasing/Matrix structure
 Hybrid structure, otherwise known as matrix structure, is a type of
organizational structure within a company/organization that is a combination
of functional and divisional structures.
 A matrix organizational structure is a company structure in which the
reporting relationships are set up as a grid, or matrix, rather than in the
traditional hierarchy. In other words, employees have dual reporting
relationships - generally to both a functional manager and a product
manager.
 A matrix-style procurement organizational structure, characterized by a
highly complex, double hierarchy, is common in businesses that permit each
department or division to run and manage their own procurement
departments.
Some examples of hybrid structures are explained:
 Voluntary Coordination: Purchasing units exchange information and small
teams with the most important users coordinate purchasing
 Lead Buyership : The largest purchasing unit with the largest volume
negotiates prices, which other units then benefit from

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 Lead Design Concept: The business unit that designs new products is
responsible for settling the suppliers as well. Hence this is more for
technical complex products, which may also require early supplier
involvement.
Examples of matrix structure
Different forms of matrix structure exist. These fall under three main categories,
depending on the level of power of the project manager:
 Functional or weak matrix - where the functional manager retains most of
the power and continues to be in charge of the people and resources. The
project manager has a minimal role and tends to carry out administrative or
coordinating tasks.
 Strong matrix - where the project manager holds most of the power and
authority, controls the project budget and manages staff. The functional
manager’s role in a strong matrix structure is limited.
 Balanced matrix - where the functional managers and the project managers
share the power and the authority over staff and budget.
Advantages of Matrix Purchasing structure
 Establishes the person at the focal point for all matters relating to projects
 It’s possible to responds to needs of different projects simultaneously
 Improve decision-making, since there are two chains of command
 Maximum use of limited pool of functional specialists
 Improve communication across the business
 Allow staff to apply their skills in different roles
 Help share best practice and ideas across teams
 Increase efficiencies due to sharing resources across department
 Excellent training for project managers
 Allows organization opportunity to take new opportunities that may arise.
The disadvantages of a matrix purchasing structure
 Confusion regarding roles, responsibilities and priorities
 Divided loyalties between project teams
 Blurred lines of accountability
 Difficulties in coordinating tasks or functions
 Conflict around authority and power between the project manager and the
functional manager
 Large overhead costs, on account of having multiple managers

(d)

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(e) Project Approach to organizing purchasing

Project Procurement Process [also called “Project Procurement Management
Process”] is a method for establishing relationships between an
organization's purchasing department and external suppliers to order,
receive, review and approve all the procurement items necessary for project
execution.
Reasons for adopting project approach
 To make decision faster and more flexible as there are clear lines of
authority.
 To speed up the response time for needs in the organization
 To encourage specialization thus improved efficiency in purchasing.
 To improve cohesion among the projects team members.
 To deal with requirements that are unique and unfamiliar to the
organization
 To reduce conflicts among the procurement team members.
Factors considered when devising internal structure of purchasing department
1. Categories of activities dealt with
2. Number and qualification of staff working in the department
3. Level of authority that the department has in the organization
4. The communication flow both the vertical and horizontal
5. Cost implication in devising the structure
6. Size of the organization
Purchasing Organization Structures
Includes the following:

(a) Vertical organizational structure

- Vertical organizational structure is a strict hierarchical structure with
power emanating from the top to the bottom. With a chain of command
well defined, decisions usually move from the top down through layer by
layer, and people at the bottom have the least autonomy. In the
structure, each person is supervised by the one directly above him.
Employees can clearly monitor their roles and duties.
- The traditional vertical organization is reflected in a standard
organizational chart. It shows a hierarchy that starts at the top with the
CEO or president. The next level down includes vice-presidents and other

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executive managers. Farther down, you see mid-level managers, and then
front-line managers and their workers.
- The vertical structure promotes top-down, authoritative relationships
between a manager and his subordinates. A primary benefit of this
structure is the clear roles of managers and employees. Concentrated
leadership and company direction are also benefits.
Advantages of vertical organizational structures
 Vertically structured organizations have clear lines of authority
 Quicker decision making and better designation of tasks to employees.
 Staffs in a vertical structure have well-defined roles and responsibilities
with reduced duty ambiguity.
 Encourages high production efficiency.
 Employees are motivated to work hard to achieve a higher level.
Disadvantages of vertical organizational structures
 Due to the lack of autonomy, employees from the bottom may have lots of
limitations to share their constructive ideas or creative proposals.
 Vertical structure is likely to be rigid, which might hamper the company
from accepting innovative concepts and trap a company in outdated
techniques.
 Because of multiple layers of powers, it will take more time to respond to a
problem or implementing decisions.

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shareholder

CEO

GENERAL
MANAGER

SALES MGR MKTING MGR PURCHASING MGR

PRODUCTION MGR

D/SALES
D/MKT D/PUR D/PROD

SALES MKT PURCHASING PRODUCTION

OFFICER OFFICER OFFICER OFFICER

(b) Horizontal organization structure/Flat

 unlike vertical and matrix organizational structures, a horizontal organizational
structure has fewer layers, normally two or three. It doesn’t have many chains of
command. The top position of the structure is the owner of the business.

 The second layer contains managers or team leaders who report to the business
owner. The third layers are team members supervised by the managers or team
leaders in the second layer. The horizontal org chart has eliminated many middle
management levels, thus can be considered as an employee-centered with emphasis
on teamwork and collaboration. Without going through complicated hierarchies,
employees have more contact with managers and even business owner.

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 Due to the simplified structure, many organizations choose to implement the

horizontal organizational model, especially some small firms who start up in their
early stage.

Business owner

Project 1 mgr Project 2 mgr Project 3 mgr


Project4 mgr

designer
 designer designer designer


 Financer Financer
Financer Financer

Advantages of horizontal structure

 Specialization brought about by division of labour
 Allows better supervision of activities taking place
 Provide greater scope of expansion
 Easier staffing due to fewer ranks
 Higher efficiency due to specialization
 An employee-centered approach, they get more satisfaction due to the
greater freedom and autonomy.
 the cross-functional structure makes optimum utilization of resources
across different teams.
 Cost-saving since they can save a great amount of money from hiring the
middle management.
 the structure is quite flexible; business managers could easily adjust the
priorities based on different tasks.

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Disadvantages of horizontal structure

 There may be contradictory between departments due to the
responsibilities are interdependent, which can hinder productivity.
 It can also lead to a feeling that every single employee who works in a small,
flat organization lacks professional skill in his or her career path because
their effort is diluted.
 It does not promote innovation and creativity, because of the breaking up of
specialized lines of business.

Purchasing consortia
A purchasing consortium is a "collaborative arrangement in which two or more
organisations join together to combine their individual requirements for goods,
works or services to gain better prices, design, supply availability and assurance
benefits compared to if each member purchased the goods or services alone"

Advantages of adapting purchasing consortia

1. It allows the constituent members to benefit from economies

of scale.
2. Members utilize the relevant professional purchasing skills of
the consortia staff.
3. Saving of time in searching for and ordering standard items
4. Building of strong purchasing power and thus buying leverage
against supplier/ better negotiation
5. Costs are greatly minimized in processing purchasing orders
6. Good relationship amongst purchasers and suppliers
7. Risk sharing amongst the members
8. Information sharing amongst the members
Status/Levels of purchasing
 High level purchasing
 Middle level purchasing
 Low level purchasing
Factors that determines the level at which purchasing function may be
placed in the management hierarchy
 The nature of the purchases carried out in the organization
 The contribution of the purchasing function to the overall strategy of the
organization

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 The level of budget allotted to the purchasing function/ cost aspect or

amount spent
 The level of qualification of the purchasing functions staff/Number of the
staff involved
 The span of control of the purchasing function
 Size of the organization
 Legal requirements
The Supply Chain Continuum
(a) Strategic Planning/High Level Purchasing
Every effective supply chain strategy begins with solid long-term decision-making.
The strategy level lays the groundwork for the entire supply chain process, from
beginning to end, and is an essential part of supply chain management. Strategy
level supply chain decisions are usually the first step of developing a good process.
Issues addressed at this level include:
 Choosing the site and purpose of business facilities
 Creating a network of reliable suppliers, transporters, and logistics handlers
 Long-term improvements and innovations to meet client demands
 Inventory and product management throughout its life cycle
 IT programs and systems to make the process more effective
(b) Tactical Management/Middle Level
Businesses make short-term decisions involving the supply chain at the tactical
level. At the strategy level, general planning begins, but processes are actually
defined at the tactical level. Tactical decisions play a big role in controlling costs
and minimizing risks. At this level, the focus is on customer demands and achieving
the best end value.
Common concerns include:
 Procurement contracts for necessary materials and services
 Production schedules and guidelines to meet quality, safety, and quantity
standards
 Transportation and warehousing solutions, including outsourcing and third-
party options
 Inventory logistics, including storage and end-product distribution
 Adopting best practices in comparison to competitors
(c) The Operational Level/low level
The operational level of supply chain management is the most obvious. These are
the day-to-day processes, decision-making, and planning that take place to keep
the supply chain active. The mistake that many companies make is to jump straight

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into operational management without focusing on the strategy and tactical levels.
Effective operational level processes are the result of strong strategical and
tactical planning.
Some aspects of operational level management are:
 Daily and weekly forecasting to figure out and satisfy demand
 Production operations, including scheduling and detailed management of
goods-in-process
 Monitoring logistics activity for contract and order fulfillment
 Settling damages or losses with suppliers, vendors, and clients
 Managing incoming and outgoing materials and products, as well as on-hand
inventories

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TOPIC THREE: QUALITY ASSURANCE

Meaning of quality control and quality assurance

What is Quality Assurance?
 Quality assurance can be defined as "part of quality management focused on
providing confidence that quality requirements will be fulfilled." The
confidence provided by quality assurance is twofold – internally to
management and externally to customers, government agencies, regulators,
certifiers, and third parties.
 Quality assurance (QA) is a way of preventing mistakes and defects in
manufactured products and avoiding problems when delivering products or
services to customers; which ISO 9000 defines as "part of quality
management focused on providing confidence that quality requirements will
be fulfilled".
What is Quality Control
 Quality control can be defined as "part of quality management focused on
fulfilling quality requirements." While quality assurance relates to how a
process is performed or how a product is made, quality control is more the
inspection aspect of quality management.

Note: Quality Assurance is process oriented and focuses on defect prevention,

while quality control is product oriented and focuses on defect identification.
Aspects in quality Assurance
 Quality assurance helps a company meet its clients’ demands and
expectations.
 High quality builds trust with your customers, makes you competitive in
the market.
 It saves costs and fixes issues before problems.
 Reduction in reworks and wastes
 It assists in setting and maintaining high quality standards
 Time Efficiency-A quality assurance team can reduce the amount of
inspections
 Employee morale is higher in a company using a quality assurance system
 Scrap Reduction i.e. Quality assurance systems identify areas that result in
scrap, or products that don't meet company specifications.

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Quality dimensions for capital Equipment

- Performance
- Reliability
- Conformance
- Durability
- Serviceability
- Features
- Aesthetics/physical look

Quality Dimensions for Services

 TANGIBLES-Appearance of physical facilities, equipment, personnel, and
communication materials.
 RELIABILITY-Ability to perform the promised service dependably and
accurately
 RESPONSIVENESS-Willingness to help customers and provide prompt
service
 ASSURANCE-Knowledge and courtesy of employees and their ability to
convey trust and confidence
 EMPATHY-Caring, individualized attention the firm provides its customers
Areas quality assurance programme may be used in an organization
 Product design
 Materials specisfication drawing
 Evaluation and selection of suppliers
 Communication and feedback mechanism
 Supplier trainning
Measures that supply chain officer may put in place for purpose of quality Assurance
- Implementing an approved quality control system in the operations of
the organization/quality circles.
- Employing qualified staff to understand quality control
activities/training regularly
- Carrying out regular appraisals and evaluations of suppliers
- Continuous surveillance of the production system/auditing
- Regular maintenance and servicing of the project facilities
- Carrying out inspection of incoming raw materials and components as well
as finished products.

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Factors that have led to organizations emphasizing on quality of products by

organizations
1. Need to comply with product safety regulations
2. High rates of product recalls/reworks
3. Need to trends in purchasing e.g. JIT
4. Need to enhance efficiency of operations
5. Increase in consumer awareness
6. Need to comply with government regulation e.g. KEBS
Role of Kenya Bureau of Standards in Quality Assurance
1. To promote standardization in industry and commerce.
2. to prepare, frame, modify or amend specifications and codes of practice.
3. To encourage or undertake educational work in connection with the
standardization.
4. To control, in accordance with the provisions of this act, the use of
standardization marks and distinctive marks.
5. To make arrangements or provide facilities for examination and testing of
commodities and any material or substance from or with which and the
manner in which they may be manufactured produced, processed or treated.
6. To provide for cooperation with the government or representatives of any
industry or with any local authority or other public body or any other person,
with a view of securing the adoption and practical application of standards.
7. To provide for testing at the request f or minister, and on behalf of the
government, of locally manufactured and imported commodities with a view
to determining whether such commodities comply with the provisions of this
act or any other law dealing with standards of quality or description.
8. To make arrangements or provide facilities for the testing and calibration
for the precision instruments, gauges and scientific apparatus, for the
determination for their degree of accuracy by comparison with standards
approved by minister on the recommendations other council, and for the
issue of certificates in regard to thereto.

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Challenges that Kenya Bureau of Standards(KEBS) experience in enforcing

compliance
 Lack of trained personnel
 Lack of finances to buy testing equipment
 Lack of support from general public on reporting counterfeits
 Lack of adequate number of personnel to cover a wider region
 Lack of political goodwill to pass necessary legislation on counterfeits
 Lack of sharing of information with other regulatory agencies
Reasons why organizations adopt international quality standards
 To save cost as they help optimize operations thus improved bottom line
 Need to improve quality and appeal to customers across the globe
 Need to access new markets as international standards help prevent the
barriers
 Need to reduce impact on the environment by some organizations products.
 Need to increase market share due to increased productivity
Techniques used in quality Assurance
The tools and techniques most commonly used in Quality management and process
improvement are:
 Cause and effect diagram
 Control Charts
 Histogram
 Pareto Charts
 Flow chart
 Failure mode and effect analysis
(a) Cause and effect diagram
 Cause and effect diagram is very helpful to find the root cause of the
defect. Cause-and-effect diagrams show the relationship between the
results of problems and the root cause of these problems.
 This diagram shows all the primary and secondary causes of a problem and
the effect of all the proposed solutions. This Ishikawa diagram is also called
fishbone diagram due to its fish-like shape. In the above diagram: poor
training, old equipment, funds are the causes and “Excessive downtime” is
the effect.
(b) Control Charts
Control charts measure the results of processes over time and display
the results in the form of a graph. By using control charts one can

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determine whether process variances are in control or out of control. A

control chart is works on sample variance measurements, from the
samples chosen and measured, the mean and standard deviation are
determined.
(c) Histogram
 Histograms are a type of bar charts that depict the distribution of variables
over time. This represents the distribution by mean. This graph may take
different shapes based on the condition of the distribution. Histogram can
be used to measure something against time i.e. the graph is plotted with a
variable on x-axis and time on the y-axis.
 Consider the following example: The following histogram shows number of
hits on the company’s website in different time of the day. The x-axis shows
the number of users or customers active on the website and the y-axis
shows the time of the day.
(d) Pareto chart
 Pareto observed that 80 percent of issues occur due to 20% reasons. Over
the years, others have shown that the 80/20 rule applies across many
disciplines and areas. So it was a good idea to identify and focus on that
category of defects which covers the maximum portion.
 It is a special form of vertical bar chart and used to identify the first few
major sources responsible for the problem. In the figure below the total no.
of defects are plotted against the reasons for those defects. The problems
are rank-ordered according to their frequency and percentage of defects.
By doing this ordering it is easier for you to identify the primary areas for
corrective action.
(e) Flowchart
 Flowcharts are logical steps in a logical order so as to accomplish an
objective. Flow charts are drawn with the use of geometrical objects like
rectangular, rhombus, parallelogram, activities, decision points to in a
process.
 The quality policy is a guideline created by the top management that
describes what quality policies should be adopted by the project team, in line
with other companies. These tools and techniques are very helpful for a
project manager to understand it and incorporate it and deliver a quality
product.
(f) Failure Mode and Effect Analysis
 Failure Mode and Effects Analysis (FMEA) is a structured approach to
discovering potential failures that may exist within the design of a product

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or process. Failure modes are the ways in which a process can fail. Effects
are the ways that these failures can lead to waste, defects or harmful
outcomes for the customer.
Benefits of Failure mode and effect analysis
1. Improved corporate image and competitiveness
2. Reduced documentation and tracking of actions thus reducing
risks
3. Failure are identified on time and corrective action taken
earlier
4. Improved quality, reliability and safety of the organizations
products
5. Improved customer’s satisfaction due to minimal defects
6. Reduced costs of production as wastes are minimized.

Quality Standards
 Quality management standards establish a framework for how a business
manages its key activities. They identify an agreed way of doing something,
either making a product, managing a process or delivering a service.
What are quality standards?
Quality management standards are details of requirements, specifications,
guidelines and characteristics that products, services and processes should
consistently meet in order to ensure:
 their quality matches expectations
 they are fit for purpose
 they meet the needs of their users
Note: Standards are an essential element of quality management systems.
Purpose of quality management standards
 ensuring safety and reliability of their products and services
 complying with regulations, often at a lower cost
 defining and controlling internal processes
 meeting environmental objectives
 Satisfying their customers’ quality requirements
 Ensuring their products and services are safe
 Complying with regulations
 Meeting environmental objectives
 Protecting products against climatic or other adverse conditions
 Ensuring that internal processes are defined and controlled

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Businesses committed to following quality management standards are often more

able to:
 increase their profits
 reduce losses or costs across the business
 improve their competitiveness
 gain market access across the world
 increase consumer loyalty
Examples of quality management standards
ISO international standards are by far the most widely accepted set of quality
standards in the world. ISO 9001:2015 specifies the requirements for a quality
management system that businesses can use to develop their own quality agenda.
Other types of best practice standards
 Accessibility standards - can help make services or premises accessible to
disabled users
 Health and safety standards - can help reduce accidents in the workplace
 Information security standards - can help keep sensitive information secure
 Food safety standards - can help prevent food from being contaminated
 Environmental management standards - can reduce environmental impact and
waste
 Energy management standards - can help cut energy consumption
Roles/benefits of ISO certification
Some of the benefits to your organization:
 Provides senior management with an efficient management process
 Sets out areas of responsibility across the organization.
 Mandatory if you want to tender for some public sector work
 Communicates a positive message to staff and customers
 Identifies and encourages more efficient and time saving processes
 Highlights deficiencies
 Reduces your costs
 Provides continuous assessment and improvement
 Marketing opportunities
Some of the benefits to your customers:
 Improved quality and service
 Delivery on time
 Right first time attitude
 Fewer returned products and complaints
 Independent audit demonstrates commitment to quality

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Management Principles of ISO 9000 Family of Standards

1) Customer Focus Organization
Organizations depend on their customers and therefore should understand current
and future customers’ needs, should meet customers’ requirements and strive to
exceed customers’ expectations.
2) Leadership
Leadership is very important in commercial transactions. Without clear and strong
leadership, a business flops. Proper leadership is essential for the direction of the
organization.
3) Involvement of People
People’s involvement is very crucial. An organization is nothing without its staff
whether part time, full time, in house or outsourced. It is their abilities that help
maximize business success.
4) Process Approach
The process approach is all about efficiency and effectiveness. It is also about
consistency and understanding that good processes also speed up activities. Great
processes reduce cost, improve consistency, eliminate waste and promote
continuous improvement.
5) Systematic Approach to Management
To increase organizations’ effectiveness and efficiency in achieving its objectives,
it should identify, understand and manage interrelated processes as a system.
The organization should establish quality policy and quality objectives to provide a
focus and direction to the organization.
6) Continuous Improvement
Organization should maintain current levels of performance. It ought to respond to
the changing conditions and circumstances. An organization must identify, create
and exploit new opportunities when they establish and sustain ongoing focus on
improvement.
7) Factual Approach to Decision Making
Efficient decisions are based on the analysis of data and information. Appropriate
decisions, based on experience and entrepreneurial intuition can only be reached
when these data and information are reviewed and verified continuously.
8) Mutually Beneficial Organization and Supplier Relationship
Everything is interdependent. Organizations particularly depend on good business
relationship with their suppliers. This is the only way for parties to make the
maximum contribution to the creation of mutual value and mutual trust.

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The Following Procedure Must be followed to Obtain ISO 9001 Certification

 Commit to get ISO 9001 Certification
To obtain ISO 9001 certification a commitment and a fair decision from the top
management or the decision maker is essential.
 An Appointment of internal Project Manager
The organization needs someone to oversee things internally. Getting the third
party certification is a project. So, it should be treated as a project. Research
should be done to find out what it involves.
 Allocate Resources
Getting ISO 9001 certification, involves time, effort and expenditure. Therefore,
the organization must allocate fund and assign employees for it.
 Establishment of Baseline Status
The organization must find out where it is now and its starting point or its
baseline. The organization should identify how much gap it has to fill out and how
much improvement it has to make to be eligible for certification.
 Development of the System
After the gap analysis, the organization must develop its quality control system. In
most cases it may mean improving the existing condition by filling up the gaps. If
necessary, the organization ought to develop new processes, procedures, quality
control systems or even documentation. An organization should make all the
changes or improvement necessary to fulfill the requirements of the standards.
 Auditing the System
The organization must internally audit their own system i.e. compliances and risks
audit and not financial audit. The organization should make internal audit to check
that its performance and activities matches with the system and requirements
including the ISO 9001 requirements. When any problems or weaknesses are found
then the organization should fix them with its own formal processes that exist in
its own system.
 Selecting an external Auditor
An accredited auditor, registrar or certifier should be chosen by making a formal
application and by paying the prescribed fees. The date of audit must be arranged
and scheduled.
 To have the External Audit
The external certifier will audit the organization’s quality system against all the
requirements of ISO 9001. It is a rigorous test for the organization’s quality
control system.
 Get the Certificate and celebrate

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If the organization becomes successful in the test, the certifier will award the
coveted certificate to the organization. In the certificate it generally mentions
the scope of the certificate and what it covers. In case of ISO 9001, the certifier
will insert the name of the company with certification. Thereafter, the
organization will be able to claim that it has ISO 9001 certification or ISO 9001
registration.
 Maintaining the Certificate
Each certification is awarded for a three-year period. During this period the
company can continue to run the system, maintain it and of course improve it. From
time to time the auditor will come to check. At the end of three years, the auditor
will come for full audit and for recertification.
Total quality management (TQM)
TQM is a management philosophy that seeks to integrate all organizational
functions (marketing, finance, design, engineering, and production, customer
service, etc.) to focus on meeting customer needs and organizational objectives.
TQM is the foundation for activities, which include:
 Commitment by senior management and all employees
 Meeting customer requirements
 Reducing development cycle times
 Just in time/demand flow manufacturing
 Improvement teams
 Reducing product and service costs
 Systems to facilitate improvement
 Line management ownership
 Employee involvement and empowerment
 Recognition and celebration
 Challenging quantified goals and benchmarking
 Focus on processes / improvement plans
 Specific incorporation in strategic planning
Principles of TQM
The key principles of TQM are as following:
(i) Management Commitment
(ii) Employee Empowerment
(iii) Fact Based Decision Making
(iv)Continuous Improvement
(v) Customer Focus

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Benefits of TQM
1. Elimination of defects and waste
2. Enhanced market image for the organization
3. Ability to adapt to changing/emerging market conditions
4. Reduced costs and better cost management
5. Increased competitiveness due to improved customer satisfaction
6. Better quality products
7. Minimization of reworks/rejections
8. Enhanced integration of all functions
Inspection for goods
what is inspection
 Critical appraisal involving examination, measurement, testing, gauging, and
comparison of materials or items.
 An inspection determines if the material or item is in proper quantity and
condition, and if it conforms to the applicable or specified requirements.
 Inspection is generally divided into three categories:
(1) Receiving inspection,
(2) In-process inspection,
(3) Final inspection.
Objectives/importance of inspection
 to certify the quality of the product being dispatched to the customer,
 to minimize the quality issues with the customer,
 to distinguish quality products from those products which are off in quality
so that off quality products can be segregated,
 to determine if the process is changing and approaching the specification
limits requiring application of controls,
 to determine the stage of the process at which the product is picking up
the defect.
 to rate the quality of the products
 to determine the types of defects in the products
 to determine the causes of the defects
 to measure the precision of the measuring instruments and testing
equipment.
 to measure process capability.

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Circumstances under which 100% inspection is appropriate

1. Where the organization is dealing with goods of high value
2. Where organization is dealing with small quantities of materials
3. Where very high degree of quality is required/critical goods
4. Where cost of reject or damage would be very high
5. Where the inspection does not involve complete destruction of the product
6. When goods/materials are not required urgently
7. When process of inspection is less involving.
Reasons for using Sampling rather than 100% inspection
 Sampling saves time
 Sampling saves money
 Sampling provides basis for control
 When product is received from ISO certified/KEB approved organization
 Where few staff are involved
 High volume procured
 Inadequate equipment for inspection
 Items is destructive in nature
 Dealing with past reliable/second supplies
Ways benchmarking technique may enhance quality assurance in supply chain
operations
 Encouraging continuous improvement in material quality
 Enhancing comparability of materials being purchased to bets quality in
market
 Instilling culture of quality consciousness
 Encouraging buyer- supplier commitment to meeting quality expectations
 Encouraging need to research on quality aspects
 Identifies performance gaps/graphs
 Minimize resistance to quality change

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TOPIC FOUR: SOURCING

Supplier development concept

Supplier development is the process of working with certain suppliers on a one-to-
one basis to improve their performance for the benefit of the buying organization.
Reasons for supplier Development
 Improving supplier performance
 Reducing costs
 Resolving serious quality issues
 Developing new routes to supply
 Improving business alignment between the supplier and the buying
organization
 Developing a product or service not currently available in the marketplace
 Generating competition for a high price product or service dominating
the marketplace
Note: Supplier development should lead to improvements in the total
added value from the supplier in question in terms of product or service
offering, business processes and performance, improvements in lead
times and delivery for instance.
Factors considered for selection of suppliers for development
 Category strategy
 Scale of value/improvement opportunity
 Cost,
 Complexity
 Duration of value attainment
 Supplier co-operation
Three levels to build trust and develop supplies:
1. Communication
 The easiest way to up-skill suppliers is to simply direct it. This partly
depends on the buyer company’s relative strength. You cannot command a
supplier to invest in new technologies if they have no interest in doing so or
face no commercial threat in your cancelling the contract.
 Communication can be facilitated on mass to suppliers, either by generic
emails or through a supplier portal, but these are unlikely to create dramatic
alterations.
2. Training

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Training comes in two forms. Firstly, remote training allows buyers to use on-
line webinars to convey new required standards or systems. This absorbs
considerably less resource for both buyer and supplier, as travel is kept to a
minimum, but the impact of such sessions can be questionable.
3. On-site assistance
On-site assistance can provide rapid implementation for a new capability –
either in installing a new technology or implementing a new management practice
– and can offer faster time-to-market than sourcing from a new supplier.
Benefits of supplier Development
1) Full transparency between organization and supplier
2) Improved collaboration between organization and supplier
3) Streamlined and reduced sourcing activities and lead times
4) Improved quality, manufacturability, and reliability for new designs
5) Increased supplier responsiveness
6) Increased customer satisfaction
7) Increased awareness of supplier diversity
8) Increased visibility of full supply base to procurement, quality, and even
management departments
Steps to Supplier Development
1. Supplier selection
 Choosing suppliers is crucial to your business. And categorizing your supply
base is also vital to making the most of your available resources when
managing those suppliers.
Importers and purchasers often consider various criteria for evaluating potential
suppliers when beginning their search, such as:
 Minimum order quantity (MOQ): smaller purchasers or those with a limited
budget, in particular, will be sensitive to the minimum order size a supplier
requires.
 Payment terms: importers large and small may consider payment terms an
important factor in choosing a supplier.
 Certifications: common certifications like ISO 9001 and ISO 14001 may be
valuable to you.
 Production capabilities and capacity: an obvious point but one that many
importers don’t know how to verify.

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2. Developing an approved suppliers list

We often find that a company’s supply base invariably expands over time.
Indeed, taking advantage of the “risk management” option of a “second
source supply” is a very prudent business strategy.
Categorizing suppliers by criteria
Your supplier list should contain categories based on the following criteria:
 Supplier type – critical, tooling, office supplies, maintenance and training
 Spending – high, medium, low
 Frequency of use – often, occasionally, rarely
 Second source supplier – yes or no
Filtering information in approved list to manage suppliers
By adding categories such as these to the supplier list, you can then filter this
information in numerous ways to find:
 The top five highest spending suppliers
 The top 10 critical suppliers
 Critical suppliers with no second source
 Infrequently used suppliers with low spending
3. Auditing suppliers
As with most audits, supplier audits represent a snapshot in time. Lots of
information can be collected by this method, and it is indeed a mandatory
requirement for most quality management systems (QMS).
On-site supplier audits
On-site auditing would, of course, provide you all of the information from a
questionnaire-based audit and much more, such as:
 The structure of the company’s QMS
 Performance data
 Product and process management
 Results of supplier internal audits and certification audits
 A tactile feeling of how the company operates and the atmosphere within
the organization
 Personal interaction with key members of the supplier’s staff
4. Measuring supplier performance
Supplier KPIs are a good measure of overall supplier performance, such as:
 Right first time
 Delivery on time
 Response time, quotes and inquiries
 Defect rate
 Inspection and auditing results

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5. Supplier development
Some larger companies will have a team of dedicated supplier quality engineers who
spend most of their time at their own office, rather than at suppliers’ facilities.
This defeats the purpose of supplier quality engineering.
6. Supplier management
 Once the development stage has matured to an acceptable level, it’s time to
tailor on-going management to the needs of each supplier.
 Tracking ongoing supplier performance is key to understanding each
supplier’s needs and any required corrective actions.

Barriers/challenges to supplier development

 Protectionism. Suppliers will naturally seek to protect their investment in
the innovation.
 A fair return. Suppliers will want to commercialise their ideas and
innovations and get a fair return. If you expect your suppliers to innovate
for free or demand that they bring you the latest thing as part of your
expectations around ‘continuous improvement’, the chances are your
suppliers will pay lip service to this and talk to other companies who are
prepared to pay.
 Lack of communication. Even if parties are prepared to open up and share
their plans, someone needs to ask that question. And often when it is
business as usual that simple question gets forgotten.
 Failure to act. If a supplier brings you a great idea that could add
competitive advantage to your business, but the idea doesn’t make it past
the minutes of the meeting, then it is lost.
Ways to overcome Barrier/challenges to supplier development
 Choose your partners well. Lots of suppliers will have good ideas they want
to share, but you need to choose with whom you want to work.
 Align your directions. The best innovation happens naturally when achieving
your goals resonates with, and helps the supplier achieve, theirs.
 Base your relationships on trust. This doesn’t exist between companies; but
between the right people in them working in an open, transparent and
consistent way.
 Ensure there are mutual rewards. Innovation is often more than a piece of
work that gets completed to an agreed specification.
Ways in which buying organization may develop a supplier

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 By providing them with finances to support supply operations

 By advising suppliers on changes in the production process and technologies
 By providing skilled personnel to suppliers
 By allocating purchase orders to such suppliers in order to maintain their
business
 By establishing supplier performance standards
 By jointly conducting research for innovations
 By loaning the supplier production equipment for use.
 Early supplier involvement in decisions
 By promptly paying the suppliers
 By offering after supply services
Building and maintaining relationship with suppliers
 Openness and transparency in the process of awarding contracts.
 Ensuring joint problem solving whenever there is an issue between them
 Ensuring proper communication to ensure the right information is received
 Providing feedback whenever its necessary.
 Maintain trust with each other through ethical dealings.
 Supplier development
 Joint consultations
 Early supplier involvement
 Timely payments/deliveries
 Giving clear specification
Suppliers Evaluation
 Supplier evaluation is when you are deciding if you want to work with a
vendor; analyzing their proposal, checking their references, checking
experience, evaluating the delivery team, project management
methodology, industry expertise e.t.c etc.
 Supplier rating is when a supplier has delivered their goods/services and
you are rating their actual performance on factors such as Customer
Service, Innovation, Quality, Value, Execution etc.
Benefits of Supplier Evaluation Process:
1) Increase performance visibility
When companies have no or little knowledge on how their suppliers are performing,
supplier management tends to be based on the game of guesswork with the factor
of ambiguity.

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2) Remove hidden waste and cost drivers in the sustainable procurement.

The sustainable process of the procurement is full of potential risks that can
originate from suppliers with regards to the aspect of corporate social
responsibility.
3) Leverage the supply base
Through the process of Supplier Evaluation, the company is able to set a threshold
for its suppliers that can result in the higher-quality results. Companies can plan
better and new range of products and services based on a good understanding of
its suppliers’ expertise, vital capabilities, and performance levels.
4) Align customer and supplier business practices
In the ideal case scenario, the suppliers should run their business operations in
alignment with their customer sharing the similar business ethics, expect similar
levels of excellence, show commitment towards the aspect of corporate social
responsibility, and work towards the continuous improvement of their operations.
5) Diminish risk factors
With the proper insights into the performance of the suppliers and their overall
business practices helps to reduce the business risk, particularly when the
companies increase their dependency on their key suppliers. Risks can range from
financial to operational in nature and increase with geographic distance.
6) Improve the performance of the suppliers
The main goal of the Supplier Evaluation process should be the improvement of the
performance of the suppliers.
There are eight common supplier selection criteria
 Cost.
 Quality & Safety.
 Delivery.
 Service.
 Social Responsibility.
 Convenience/Simplicity.
 Risk.
 Agility.
The 10 Cs of supplier evaluation are:
1. Competency.
2. Capacity.
3. Commitment.
4. Control.
5. Cash.

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6. Cost.
7. Consistency.
8. Culture.
9. Clean.
10. Communication.

1. Competency
 First, look at how competent this supplier is. Make a thorough assessment of
the supplier's capabilities measured against your needs, but then also look at
what other customers think. How happy are they with the supplier? Have
they encountered any problems? And why have former customers changed
supplier
2. Capacity
 The supplier needs to have enough capacity to handle your firm's
requirements. So, how quickly will it be able to respond to these, and to
other market and supply fluctuations?
 Look at all of the supplier's resources, too. Does it have the resources to
meet your needs, particularly when commitments to other clients are
considered? (These resources include staff, equipment, storage, and
available materials.)
3. Commitment
 Your supplier needs to provide evidence that it's committed to high quality
standards. Where appropriate, look for quality initiatives within the
organization, such as ISO 9001 and Six Sigma
 The supplier also needs to show that it is committed to you, as a customer,
for the duration of the time that you expect to work together. (This is
particularly important if you're planning a long-term relationship with the
supplier.)
4. Control
 Query how much control this supplier has over its policies, processes,
procedures, and supply chain.
 How will it ensure that it delivers consistently and reliably, particularly if it
relies on scarce resources, and particularly if these are controlled by
another organization?
5. Cash
 Your supplier should be in good financial health. Cash-positive firms are in a
much better position to weather the ups and downs of an uncertain economy.

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 So, does this supplier have plenty of cash at hand, or is it overextended

financially? And what information can the supplier offer to demonstrate its
ongoing financial strength?
6. Cost
 Look at the cost of the product that this supplier provides. How does this
compare with the other firms that you're considering?
 Most people consider cost to be a key factor when choosing a supplier.
However, cost is in the middle of the 10 Cs list for a reason: other factors,
such as a commitment to quality and financial health, can potentially affect
your business much more than cost alone, particularly if you will be relying on
the supplier on an ongoing basis.
7. Consistency
 How will this supplier ensure that it consistently provides high quality goods
or services?
 No one can be perfect all of the time. However, the supplier should have
processes or procedures in place to ensure consistency. Ask this supplier
about its approach, and get a demonstration and a test product, if possible.
8. Culture
 The best business relationships are based on closely matching workplace
values
 . This is why looking at the supplier's business culture is important. For
example, what if your organization's most important value is quality, and your
main supplier cares more about meeting deadlines? This mismatch could mean
that it's willing to cut corners in a way that could prove to be unacceptable
to you..
9. Clean
 This refers to this supplier's commitment to sustainability, and its
adherence to environmental laws and best practices. What is it doing to
lighten its environmental footprint? Ask to see evidence of any green
accolades or credentials that it's earned.
 Also, does this supplier treat its people – and the people around it – well; and
does it have a reputation for doing business ethically?
10. Communication
 Query how the supplier plans to keep in touch with you. Will its proposed
communication approaches align with your preferred methods? And who will
be your contact person at this firm?

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 It's also important to find out how the supplier will handle communications in
the event of a crisis. How quickly will it notify you if there's a supply
disruption? How will that communication take place? And will you be able to
reach senior people, if you need to?
Supplier Competence
Compliance to specifications
 Meets specification requirements
 Meets standards
Customer service
 Policy and practice
 Surveys customers
 Systems to measure customer satisfaction
 Backup and advice
Quality system for deliverables
 Certification
 Documented system
Capability
 Staffing structure
 Availability of experienced staff
 Experience in the industry
 State of technology
Past performance
 Experience in the industry
 Previous experience
 Customer recommendation
Strategic
 Location
 Networking
Innovation
 Leading technology
 Creativity
Supplier analysis
Financial viability
 Satisfies key financial ratios for the industry
 Full financial disclosure from supplier will be required.
Risk and insurance
 Adequate insurance
 Allocate and acceptance of risk

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Legal review
Compliance to Cigna contract terms
 Complies to the terms and conditions
Conflict of interest
 Existing or potential, or perceived
Legal proceedings
 Legal proceedings related to contractual issues - past or present
Financial
Total cost of ownership/best value
 Bid price
 Ability to propose an innovative financial approach (gain-sharing, etc.)
 Freight
 Warranty
 Price breaks and quantity discounts
 Satisfies best value analysis
 Maintenance costs
Financial review
 Tax
 Accounting
 Lease vs. Buy
 Foreign exchange
 Payment terms
 Business justification
 Insurance
 Net present value analysis
 Payment methods (i.e. EDI, etc.)

 Supplier appraisal– Assessment of a potential supplier ’s capability of

controlling quality, delivery, quantity, price and all other factor s to be
embodied in a contract.
 Supplier approval – The placing of an enterprise on an approved list of
suppliers following a process of supplier appraisal.
 Supplier rating– an index of the actual performance of a supplier
Importance of supplier evaluation and appraisal
(i) Managing supplier risks
Perhaps the most single compelling reason for evaluating your suppliers is
because to do so helps to manage your risks.

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(ii) Fewer Defects

Increasingly customers who do evaluate their suppliers indicate that the
process leads to fewer defects within the supply chain.
(iii) Better Co-ordination
Although managing risks is important, there are more positive benefits to
be had from supplier evaluation.
(iv) Evaluations As Incentives
Although the days of the supplier being very much dominated by the
customer have long gone, the evaluations can act as an incentive for the
supplier to implement new procedures or tasks that they can then
present at the evaluation,
(v) Retaining The Competitive Edge
Evaluating suppliers’ performance can therefore be a very useful tool
that leads to a better working relationship, fewer defects and problems
with regard to the supply chain, as well as overall efficiency savings and
cost reductions.
What is Vendor rating
 Is the result of a formal vendor evaluation system. Vendors or suppliers
are given standing, status, or title according to their attainment of some
level of performance, such as delivery, lead time, quality, price, or some
combination of variables.
Criteria for Vendor Evaluation
Vendor performance is usually evaluated in the areas of pricing, quality, delivery,
and service. Each area has a number of factors that some firms deem critical to
successful vendor performance.
Pricing factors include the following:
 Competitive pricing. The prices paid should be comparable to those of
vendors providing similar product and services. Quote requests should
compare favorably to other vendors.
 Price stability. Prices should be reasonably stable over time.
 Price accuracy. There should be a low number of variances from purchase-
order prices on invoiced received.
 Advance notice of price changes. The vendor should provide adequate
advance notice of price changes.
 Sensitive to costs. The vendor should demonstrate respect for the
customer firm's bottom line and show an understanding of its needs. Possible

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cost savings could be suggested. The vendor should also exhibit knowledge of
the market and share this insight with the buying firm.
 Billing. Are vendor invoices are accurate? The average length of time to
receive credit memos should be reasonable. Estimates should not vary
significantly from the final invoice. Effective vendor bills are timely and
easy to read and understand.
Quality factors include:
 Compliance with purchase order. The vendor should comply with terms and
conditions as stated in the purchase order. Does the vendor show an
understanding of the customer firm's expectations?
 Conformity to specifications. The product or service must conform to the
specifications identified in the request for proposal and purchase order.
Does the product perform as expected?
 Reliability. Is the rate of product failure within reasonable limits?
 Reliability of repairs. Is all repair and rework acceptable?
 Durability. Is the time until replacement is necessary reasonable?
 Support. Is quality support available from the vendor? Immediate response
to and resolution of the problem is desirable.
 Warranty. The length and provisions of warranty protection offered should
be reasonable. Are warranty problems resolved in a timely manner?
 State-of-the-art product/service. Does the vendor offer products and
services that are consistent with the industry state-of-the-art? The vendor
should consistently refresh product life by adding enhancements.
Delivery factors include the following:
 Time. Does the vendor deliver products and services on time; is the actual
receipt date on or close to the promised date? Does the promised date
correspond to the vendor's published lead times? Also, are requests for
information, proposals, and quotes swiftly answered?
 Quantity. Does the vendor deliver the correct items or services in the
contracted quantity?
 Lead time. Is the average time for delivery comparable to that of other
vendors for similar products and services?
 Packaging. Packaging should be sturdy, suitable, properly marked, and
undamaged. Pallets should be the proper size with no overhang.
 Documentation. Does the vendor furnish proper documents (packing slips,
invoices, technical manual, etc.) with correct material codes and proper
purchase order numbers?

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 Emergency delivery. Does the vendor demonstrate extra effort to meet

requirements when an emergency delivery is requested?
Finally, these are service factors to consider:
 Good vendor representatives have sincere desire to serve. Vendor reps
display courteous and professional approach, and handle complaints
effectively. The vendor should also provide up-to-date catalogs, price
information, and technical information. Does the vendor act as the buying
firm's advocate within the supplying firm?
 Inside sales. Inside sales should display knowledge of buying firms needs. It
should also be helpful with customer inquiries involving order confirmation,
shipping schedules, shipping discrepancies, and invoice errors.
 Technical support. Does the vendor provide technical support for
maintenance, repair, and installation situations? Does it provide technical
instructions, documentation, general information? Are support personnel
courteous, professional, and knowledgeable? The vendor should provide
training on the effective use of its products or services.
 Emergency support. Does the vendor provide emergency support for repair
or replacement of a failed product.
 Problem resolution. The vendor should respond in a timely manner to resolve
problems. An excellent vendor provides follow-up on status of problem
correction.
Factors that determine price for products
 Unique properties e.g. technological advancements
 Devepolment costs
 Demand and supply state in the market
 Quality perception in the buyers eyes
 Production and transportation cost
 Government price control/restrictions
Factors considered when carrying out technical appraisal of potential
supplier
1. The technical capability of the supplier
2. The production capacity of the supplier
3. Quality control systems of the supplier
4. The level of technology employed by the supplier
5. The competence of the supplier staff in handling production system
used in their operations
6. Innovation and creativity of the supplier

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Benefits of vendor rating systems include:

 Helping minimize subjectivity in judgment and make it possible to consider all
relevant criteria in assessing suppliers.
 Providing feedback from all areas in one package.
 Facilitating better communication with vendors.
 Providing overall control of the vendor base.
 Requiring specific action to correct identified performance weaknesses.
 Establishing continuous review standards for vendors, thus ensuring
continuous improvement of vendor performance.
 Building vendor partnerships, especially with suppliers having strategic links.
 Developing a performance-based culture.

TOPIC FIVE: SUPPLIER AND MARKET BEHAVIOUR

Market structures
 A market is a set of buyers and sellers whose interaction determines the
price of the good or service. Types of market structures originate from
the characteristics of the market that impact the behaviour and outcome
of the firms in that market.
 The Market Structure refers to the characteristics of the market either
organizational or competitive, that describes the nature of competition
and the pricing policy followed in the market.
 A comparison of different types of market structures shows the most
competitive market structures is perfect competition and the least
competitive is pure monopoly.
Elements of Market:
The essentials of a market are:
(i) Presence of goods and services to be exchanged.
(ii) Existence of one or more buyers and sellers.
(iii) A place or a region where buyers and sellers of a good get in close touch
with each other.

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Determinants of market structure

There are different types of market structures based on the following
determinants:
 Number and nature of sellers -How many sellers does the market have and
what are their characteristics? This is an important aspect that influences
the market structure, for instance, a single seller in the market is a
monopoly.
 Number and nature of buyers/market- How many buyers are in the
market? Are they sophisticated? The number and nature of buyers will
influence their bargaining power, resulting in a specific market structure.
 Nature of the product -If there is no product differentiation, the market
is characterized by perfect competition since the products are all the same.
 Entry and exit conditions- Profits will attract new entrants into the market
and losses will lead to the exit of weak firms from the market. In a perfect
competition market, there is freedom of entry and exit of firms.
 Economies of scale- Firms that achieve large economies of scale in
production grow large in comparison to others in the same industry. If only
one firm attains economies of scale such that it is able to meet the entire
demands of that market, a monopoly market structure is created.
 The concentration ratio of the company, which shows the largest market
shares held by the companies.
 The degree of vertical integration, i.e. the combining of different stages
of production and distribution, managed by a single firm.
 The level of product and service differentiation, i.e. how the company’s
offerings differ from the other company’s offerings.
 The customer turnover, i.e. the number of customers willing to change their
choice with respect to the goods and services at the time of adverse market
conditions.
There are four basic forms of market structures:
 Perfect competition
 Monopolistic competition
 Oligopoly
 Monopoly
(a) Perfect competition
Perfect competition is a market structure where a large number of small
firms compete against one another with homogeneous products.
Characteristics of a perfect competition market include
 A large number of buyers and sellers.

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 Sellers sell identical products.

 Each buyer and seller acts independently.
 Sellers and buyers are reasonably well-informed about products and
prices.
 Competitors are free to enter into the market, conduct business, or
exit the market.
 Firms have no influence over the market price since the individual
firm’s production is an insignificant part of the entire market.
 Market demand and market supply determine the market price and
quantity.
 The demand for a firm’s product is perfectly elastic.
Examples of perfect competition
 Local vegetable farmers
 Grocery retailers
 Plumbing
 Dry cleaning businesses
(b) Monopoly
This refers to a market structure where a single firm controls the entire
market.
Monopoly features in a market structure includes:
 There is only one seller of the product.
 There are barriers to entry into the market to prevent competition.
 There are no close substitutes for the good being produced.
 The supplier has absolute power to determine the price of the good in
the market.
 Control over supply and price enables monopolists to achieve and
sustain abnormal profits
 Monopoly markets are usually regulated
Examples of monopoly firms
 Kenya Power Limited in Kenya; it is the only supplier of electric
power to homes and industries.
 Nairobi Water and Sewage Company in Nairobi City County is the
main supplier of water to Nairobi City.
Types of monopoly
 Natural monopoly: Here, the costs of production are minimized
by having a single firm produce the product.
 Geographic monopoly: Based on the absence of other sellers in
a certain geographic area.

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 Technological monopoly: Based on the ownership or control of a

manufacturing method or process.
 Government monopoly: Organization that is owned and operated
by the government.
(c) Monopolistic Competition
This refers to a market structure where a large number of firms compete
with one another with differentiated products.
Monopolistic competition market characteristics include:
 A large number of competing firms.
 Each firm produces a differentiated product.
 Firms compete on product quality, price, and marketing.
 Firms are free to enter and exit the industry. All conditions of
perfect competition are met except that products are not identical.
 There are real or perceived differences between products in the same
industry. For instance, in Kenya, Aquafresh and Colgate are
differentiated but serve the same purpose.
 Non-price competition, for example, the use of advertisements and
giveaways.
Examples
 Detergent manufactures in Kenya, Unilever Kenya Limited, Bidco
Company, and Procter and Gamble.
4. Oligopoly
In this type of market structure, there is a small number of firms competing
against one another.
Oligopoly market characteristics include:
 Few very large sellers dominating the industry and competing with one
another.
 When one firm acts, the others tend to follow.
 Firms are price makers. Examples The market for sportswear such as
Adidas, Nike.
Ways purchasing organizations may enhance its bargaining power in Oligopoly
1. By developing negotiation skills
2. By consolidation of their purchases to ensure large quantity
3. By banding together in a purchasing consortia with other purchasing
organizations
4. By entering into long term supply contracts
5. Ensuring early payments
6. Having good relations with suppliers

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Level of competition in market depends on the following

1. The number of competitors
2. Their relative size of market
3. Whether their product offering and strategies are similar
4. The existence of high fixed costs
5. The commitment of competitors and
6. The size and nature of exist barriers
Pricing strategies

Definition: Price is the value that is put to a product or service and is the result of
a complex set of calculations, research and understanding and risk taking ability. A
pricing strategy takes into account segments, ability to pay, market conditions,
competitor actions, trade margins and input costs, amongst others.

There are several pricing strategies:

 Premium pricing: Use a high price where there is a unique brand. This
approach is used where a substantial competitive advantage exists and the
marketer is safe in the knowledge that they can charge a relatively higher
price.
 Penetration pricing: price is set artificially low to gain market share quickly.
This is done when a new product is being launched. It is understood that
prices will be raised once the promotion period is over and market share
objectives are achieved. Example: Mobile phone rates in India; housing loans
etc.
 Economy pricing: no-frills price. Margins are wafer thin; overheads like
marketing and advertising costs are very low. Targets the mass market and
high market share. Example: Friendly wash detergents; Nirma; local tea
producers.
 Skimming strategy: high price is charged for a product till such time as
competitors allow after which prices can be dropped. The idea is to recover
maximum money before the product or segment attracts more competitors
who will lower profits for all concerned. Example: the earliest prices for
mobile phones, VCRs and other electronic items where a few players ruled
attracted lower cost Asian players.
 Psychology Pricing: This approach is used when the marketer wants the
consumer to respond on an emotional, rather than rational basis.

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 Bundle Pricing: Here sellers combine several products in the same package.
This also serves to move old stock. Blu-ray and videogames are often sold
using the bundle approach once they reach the end of their product life
cycle.
 Value Pricing: This approach is used where external factors such as recession
or increased competition force companies to provide value products and
services to retain sales e.g. value meals at McDonalds and other fast-food
restaurants. Value price means that you get great value for money i.e. the
price that you pay makes you feel that you are getting a lot of product. In
many ways it is similar to economy pricing
 Promotional Pricing. Pricing to promote a product is a very common
application. There are many examples of promotional pricing including
approaches such as BOGOF (Buy One Get One Free), money off vouchers and
discounts. Promotional pricing is often the subject of controversy.
 Geographical Pricing. Geographical pricing sees variations in price in
different parts of the world. For example, rarity value, or where shipping
costs increase price. In some countries there is more tax on certain types of
product which makes them more or less expensive, or legislation which limits
how many products might be imported again raising price.
Pricing strategy matrix
Quality

Economy Penetration
High

Price Skimming Premium

Low
Low High
Strategies that businesses implement when setting prices on their products and
services.
 Pricing at a Premium. With premium pricing, businesses set costs higher than
their competitors.
 Pricing for Market Penetration.
 Economy Pricing.
 Price Skimming.
 Psychology Pricing.
 Bundle Pricing.

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Factors influencing International pricing strategy

 National Market Size
One of the main factors to determine an international pricing strategy is the size
of the national market, which affects prices in different ways. A company will
often attempt to use the potential volume of sales to estimate the price at which
they will need to market their product to break even.
 Exchange Rate
Exchange rates also play a significant role in setting prices. Due to discrepancies in
the value of different currency, similar products in different countries may be
priced differently. This has to do not just with demand for that particular
product, but with macroeconomic demand for national currencies, which affects
inflation and, by extension, pricing. Companies often have to adjust prices due to
fluctuations in exchange rates.
 Regulations
When setting prices in other countries, companies must research all national
regulations relevant to their product. Many countries set price ceilings as well as
price floors on certain products. For example, in Nigeria (a large oil producer) the
price of gasoline and other petroleum derivatives is capped. Even if the product a
company is selling does not have price restrictions, regulations placed on the prices
of similar products may affect potential demand and thus price.
 Distribution
Before setting a price, companies also must consider the distribution network by
which they are selling their products overseas. For example, if a company is selling
a product through franchise licenses, they will likely price their products
differently than if they were selling them wholesale to local distributors, as their
profit structure would be different.
 Cultural Differences
One of the more complicated factors in international pricing is cultural variations
between companies. Cultural variations that affect pricing can take many forms,
most of which have to do with how members of certain cultures perceive the value
of certain products, which in turn affects how much they are willing to pay for
them. For example, in the United States women's handbags often are seen as a
status symbol. Female consumers, therefore, often are willing to pay high prices. In
other cultures, however, handbags are considered more functional, meaning they
can only command a significantly lower price.

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Fixed pricing strategy

A fixed-price strategy means you set a price and keep it constant for an extended
period of time.
Advantages of fixed pricing strategy
 Gives the buyer an opportunity to plan and budget for the purchases
 The buyer avoids cases of reviewing contract price from time to time.
 Provides an incentive to supplier compete the work within the scheduled time
 It relieves the buyer off any extra arising from the contract performance
 Reduces conflicts between the buyer and the seller where the market prices
are fluctuating.
 Reduces time for negotiation

TOPIC SIX: PURCHASING AND CONTRACT

Meaning of Contract
The term contract is defined as an agreement between two or more parties which
has a binding nature, in essence, the agreement with legal enforceability is said to
be a contract. It creates and defines the duties and obligations of the parties
involved.

Essential Elements of a Contract

1. Agreement: The primary element that creates a contract between parties is
agreement, which is a result of offer and acceptance, that forms
consideration for the parties concerned.
2. Free Consent: Consent of the parties is another important aspect of a
contract, which means the parties entering into the contract, must agree
upon the same thing in the same sense. The consent of the parties is said to
be free when it is not influenced by coercion, undue influence, fraud,
misrepresentation and mistake.
3. Competency: Competency refers to the capacity of the parties to enter into
the contract, i.e. he/she has reached the age of maturity, he/she must be of
sound mind, and he/she is not disqualified from contracting, as per the law
like the alien enemy, foreign sovereigns, etc.
4. Consideration: It implies the price agreed to be paid for the promisor’s
obligation by the promisee. It must be adequate and lawful.
5. Lawful object: The object for which the contract is created must be lawful,
or else it is declared as void.

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6. Not expressly declared as void: The law should not expressly declare the
contract as void, such as contract in restraint of marriage, trade or legal
proceedings.
Other important elements of Contract
 There must be at least two parties to constitute a contract, i.e. one who
proposes and another accepts the same.
 The parties entering into the contract must intend to create a legal
obligation for one another.
 It must be in writing.
 There must be certainty of meaning. the terms of the parties must be clear
to the parties, i.e. the party should not interpret anything wrong, there must
be a consensus ad idem.
 There should be a possibility of performing the contract.

Types of Contract
 On the basis of validity
o Valid Contract: An agreement which is enforceable by law, is a valid
contract.
o Void Contract: The contract which is no longer enforceable in the
court of law is a void one.
o Voidable Contract: A contract in which one of the parties to the
contract has a choice to avoid performing his/her part, then it is
termed as a voidable contract. When the consent of the party is not
free, the contract becomes voidable, at the option of the aggrieved
party.
o Illegal Contract: A contract which is forbidden by law is termed as an
illegal contract.
o Unenforceable Contract: The contract whose substance is good, but
due to some issues, it is not enforceable, is called unenforceable
contract.
 On the basis of formation
o Express Contract: When the terms of the contract are expressed
orally or in writing, it is known as an express contract.
o Implied Contract: The contract which is constituted by implication of
law or action, is an implied one.
o Quasi-Contract: These are not real contract, but are identical to a
contract, which is formed out of some circumstances.
 On the basis of Performance

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o Executed Contract: When the contract is performed, it is known as an

executed contract.
o Executory Contract: When the obligation in a contract, is to be
performed in future, it is described as an executory contract.
 Unilateral Contract
 Bilateral Contract
When contracts become void
 Coercion – Consent is said to be caused by coercion when it is obtained by
pressure exerted by either committing or threatening to commit an act
forbidden by the law detaining or threatening to detain any property.
 Undue influence – A contract is said to be induced by “undue influence”
where the relation subsisting between the parties are such that one of the
parties is in a position to dominate the will of the other and uses that
position to obtain an unfair advantage over the other.
 Fraud – Means and includes the following acts done with the intention to
deceive or to induce a person to enter into a contract. (a) the suggestion
that a fact is true when it is not true and the person making the suggestion
does not believe it to be true (b) active concealment of a fact by a person
who has knowledge or belief of the fact, (c) promise made without the
intention of performing it.
 Misrepresentation – When a person positively asserts that a fact is true
when his information does not warrant it to be so, though he believes it to
be true, it is misrepresentation. A breach of duty which brings an advantage
to the person committing it by misleading the other to his prejudice is also a
misrepresentation.
 Mistake – Where both parties to an agreement are under a mistake as to a
matter of fact essential to the agreement, the agreement is void. An
erroneous opinion as the value of the thing, which forms the subject matter
of the agreement, is not deemed as mistake as to a matter of fact.
Unilateral mistake, i.e. the mistake in the mind of only one party does not
affect the validity of the contract.
Types of information contained in the purchase contract
 The specification for the materials
 The conditions that should apply
 The duration the contract is likely to last
 The penalty clauses for breach of contractual terms
 The escalation of price clause which may apply if need arises
 The force majeure clauses to cater for incidences

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Activities involved in contract formation:

 Managing Service Delivery
To ensure that the products are delivered as and when they are ordered.
 Managing the Relationship
This is the communications between the vendor and the purchaser.
 Managing the Contract
This is the ongoing contract administration to ensure that the day-to-day
procurement activities follow the spirit and sections of the contract.
 Seeking Improvements
Improvements within a procurement environment mean greater efficiencies
and an increase in profits.
 Ongoing Assessment
The entire procurement activities are assessed on a continual basis to
ensure that the contracts are adhered to and the purchasing processes
followed.
 Managing Change
In a long term procurement relationship, there are sometimes changes in
activities, requirements or products available. All of these changes need to
be noted and handled effectively
Types of purchases
What are the types of Purchasing?
 Personal Purchasing: Consumers who purchase for their personal
consumption come under this category. They form the most important class
of buyers because they ultimately use all the products of the economy. The
whole economy depends upon this group of buyers for its survival because
most of the items to be produced are to be ultimately purchased by this
group.
 Mercantile purchasing: This type of purchasing is done for resale. Under
this group come middlemen who purchase not for their own consumption, but
to meet others’ requirements. Middlemen can be distributors, wholesalers,
retailers and agents who form the channels of distribution of the
manufactured goods from the manufacturers to the consumers. In such type
of purchasing, the purchaser must select what the customer wants and
which he can sell at a price which includes a reasonable profit.
 Industrial purchasing: This type of purchasing is done for consumption or
conversion of material purchased into finished product. It involves buying of
raw materials, components, consumable stores and supplies, spares and tools,

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machines and equipments, office supplies and office appliances. To make

industrial purchasing other functions of the organisation.
 Institutionalized or government purchasing: Under this group come
governmental agencies and institutions who buy for public utilities. They
form an important group of purchasers because they purchase in bulk.
Six Core Purchasing Strategies:
 Supplier Optimization.
 Total Quality Methods and Management.
 Risk Management.
 Global Sourcing.
 Vendor Development.
 Green Purchasing.
Types of purchasing Specifications:
 Performance Specification: A type of specification in which the goods
and/or services are described in terms of required performance. They may
include such details as required power, strength of material, test methods,
and standards of acceptability and recommended practices.
 Design Specification—These are detailed descriptions of a good or service,
including such things as details of construction or production, dimensions,
chemical composition, physical properties, materials, ingredients and other
details needed for the provider to produce an item of minimum acceptability.
 Combination Specification—This type of specification includes elements of
both design and performance specifications.
 Brand Name or Equal—This type of specification is used to describe a
commodity of a fairly common nature. It states a detailed description and a
manufacturer and catalog or model number which meets the description and
has been determined to be acceptable.
 Industry Standard—In this type of specification, all goods made to an
industry standard are identical, regardless of manufacturer, and will result in
acquisition of goods of uniform quality. An example is the UIL standard for
electrical products.
Methods of purchasing
 Purchasing by requirement
 Market Purchasing
 Speculative Purchasing
 Purchasing for Specific Future Period
 Contract Purchasing
 Scheduled Purchasing

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 Group Purchasing of Small Items

 Co-operative Purchasing:
1. Purchasing by Requirement:
This method refers to those goods which are purchased only when needed and in
required quantity. The goods which are not regularly required are purchased in this
way. On the other hand it refers to the purchase of emergency goods. These goods
are not kept in store. Purchasing department must be in knowledge of the suppliers
of such goods so that these are purchased without loss of time.
2. Market Purchasing:
Market purchasing refers to buying goods for taking advantages of favourable
market situations. Purchases are not made to meet immediate needs but are
acquired as per the future requirements. This method will be useful if future
needs are estimated accurately and purchases are made whenever favourable
market situations arise. The market situation is constantly studied for forecasting
price trends.
3. Speculative Purchasing:
Speculative purchasing refers to purchases at lower prices with a view to sell them
at higher prices in future. The attention in this method is to earn profits out of
price rises later on. The purchases are not made as per the production needs of
the plant rather these are far in excess of such requirements. A cloth mill may
purchase cotton in the market when prices are low with the attention of earning
profits out of its sales when prices go up.
Speculative purchasing should not be confused with market purchasing. The former
is done to earn profits out of future price rises whereas the latter is concerned
with purchasing for own needs when favourable market situations exist. Though
speculative purchasing may result in profits but there are chances of prices going
down in future, fear of obsolescence and incurring higher storage costs.
4. Purchasing for Specific Future Period:
This method is used for the purchase of those goods which are regularly required.
These goods are needed in small quantity and chances of price fluctuations are
negligible. The needs for specific period are assessed and purchases made
accordingly. The requirements for such purchases may be assessed on the basis of
past experience, period for which supplies are needed, carrying cost of inventory
etc.
5. Contract Purchasing:
Under this method a specific quantity of materials is contracted to be purchased
and delivery is taken in future. Even though the goods are procured in future but
the price and other terms and conditions are fixed at the time of contract. This

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method may be useful when price rises in future may be expected and material
requirements for future may be accurately estimated.
6. Scheduled Purchasing:
Under this method the suppliers are supplied a probable time schedule for material
requirements so that they are in a position to arrange these in time. An accurate
production schedule is prepared for estimating future material needs. The
suppliers are informed of probable needs and orders are sent accordingly. The
schedule provided by the purchaser to the vendor is not a contract. This is only a
gentleman’s agreement for terms and conditions of purchases. The main objectives
of this method are: minimum inventory, prompt service. low prices, quality goods.
7. Group Purchasing of Small Items:
Sometimes a number of small items are required to be purchased. The prices of
these items are so small that costs of placing orders may be more than prices. In
such situations the buyer places order with a vendor for all these items. The
purchase price is agreed to be by adding some percentage of profit in the dealer’s
cost. This method will be used only when dealer’s records are open to inspection
for determining his cost. This type of purchasing reduces the cost of the buyer by
eliminating much clerical work.
8. Co-operative Purchasing:
Small industrial units may join to pool their requirements and then place bulk
orders with dealers. This will help them in availing rebates on large quantity
purchases, cash discounts and savings in transportation costs. After receiving the
materials these are divided among the member units. Co-operative purchasing helps
small units in availing the benefits of bulk purchasing.
Other methods of purchasing includes
(a) Bulk Purchasing. -
Large quantity of purchase for the future. Such a quantity of purchase for the
future. Such a method is followed when it is felt that method is followed when it is
felt that material will be regular throughout the material will be regular
throughout the year. Discounts & concessions are enjoyed year.
Reasons for undertaking bulk purchasing
1. To reduce costs associated with transportation
2. To take advantage of discounts offered by suppliers for bulk purchases
3. To reduce paperwork and other forms of documentation
4. For seasonal materials which may not be available at some time in the year.
5. To reduce costs associated with ordering the goods
6. To optimize the use of material handling equipment

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(b) Hand to Mouth Purchasing.

This type of purchasing is also known as purchasing by Zero or ZERO stock buying.
It stocks buying. It means that no purchase is made until a means that no purchase
is made until a need arise and buying only the quantity need arise and buying only
the quantity which necessary to meet the current need.
Why prefer hand to mouth purchasing/small scale purchaser
1. They offer customized services to buyers
2. Pay closer attention to buyers
3. Show more commitment to meeting the requirement of the buyer
4. Has created better relationships
5. Highly responsive to requirements
(c) Blanket Purchasing.
In this type of purchasing the items of same group order in one category. same
group order in one category.
(d) Reciprocate Purchasing.
In this type of purchasing sell to others and buy from them that is called and buy
from them that is called reciprocate purchasing.

Documents used in purchasing

(i) Bill of Materials:
This is a document prepared by the Design, or Engineering, or Production
planning and control department. It shows the materials required for a particular
job, contract, or work. In other words, this contains the estimated or
normative quantity required.
(ii) Purchase Requisition:
This is a document which is prepared by the stores department. It shows the
materials required by the stores department. The purchase requisition is raised
when the reorder level of materials is reached. This is sent to the purchase
department and acts as an authorization for the purchase of materials.
(iii) Purchase Order:
This document is prepared by the purchase department. It shows the material
code, description specifications, quantity, job or contract against which required,
unit price of materials, total value of order, expected delivery date, taxes and
duties, terms of payment, place of delivery, other terms and conditions etc.
(iv) Inspection Note:
This document is prepared by the inspection d e p a r t m e n t . I t s h o w s t h e
m a t e r i a l s inspected by the Inspection department. The material inspection note
is a document which shows the material code, description, specifications, quantity

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received for inspection, quantity accepted, quantity rejected, reasons for

rejection etc.
Steps in a Standard Procurement Cycle
1. The Need
You need to identify that there is a need to update the inventory or stock.
You may also need a business service or ad hoc product.
2. Specify
Now you need to decide how much and when you want the products or
services delivered.
3. Requisition or Order
This is when you write the purchase order or requisition order.
4. Financial Authority
Before the order can be placed, it usually requires some kind of authority
for its purchase. With some purchase orders, this is reasonably automatic.
With a large order that will be put out to tender it could be multi staged.
5. Research Suppliers
Repetitive orders usually have set suppliers, although it does no harm to
review the options sometimes. Other orders will either need to go out to
tender or there will be a choice of suppliers.
6. Choose Supplier
The supplier is now chosen.
7. Establish Price and Terms
In a large company, many suppliers will be contracted with a Master
Agreement where prices and terms are set for a defined period. For other
orders, now is the time to negotiate terms and prices.
8. Place Order
At this stage in the purchasing cycle, the order is placed and this becomes a
contract between the business and the supplier.
9. Order Received and Inspected
The goods are delivered, checked in the warehouse and entered into the
inventory. Shortages and breakages are reported to the supplier for the
appropriate credits to be supplied.
10. Approval And Payment
Usually within 30 days, the invoices are received and paid.
11. Update Of Records
The purchasing ledger and stock records are updated. This is automatically
done by many purchasing computer systems.

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Steps for Purchasing Cycle with Tenders

1. The Need
In this case, the need usually goes through a business case and is then
tightly defined and specified.
2. Financial Authority
This usually happens at a higher level and includes the management of the
department that requires the goods.
3. RFP
A Request For Proposal (RFP) is written, in which the need is highly
specified.
4. Invite Tenders
This is always done formally, usually by posting the request in trade
magazines and appropriate web sites. Government projects are posted on
government web sites.
5. PQQ
A Pre Qualification Questionnaire (PQQ) is sent out to likely suppliers in
order to select a short list of appropriate potential suppliers.
6. Tenders
The tenders are sent in from the qualified suppliers.
7. Qualifying
A number of meetings are held to clarify any questions that suppliers may
have.
8. Evaluation
This is the most exciting part of the purchasing cycle and can take many
weeks for a big tender. All the tenders are evaluated and the requirement
awarded to the winning bidder.
9. Negotiation
The fine print of the terms and conditions are negotiated with the chosen
supplier. The price is fixed at the bid price.
10. Contract Award
In a very short time, the contract is awarded to the chosen bidder.
11. Manage Contract
This is the period in the purchasing cycle when the goods are delivered.
12. Approval And Payment
If the contract is carried out completely then full payment is made. If there
are problems, there may be a damage request.

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13. Sign Off

At the end of the contract work and deliveries, the contract is signed off
and all relationships with the supplier are finished.
14. Update Of Records
The purchasing ledger and stock records are updated. This is automatically
done by many purchasing computer systems.
The basic steps in the strategic sourcing process follows:
1. Discover potential suppliers.
2. Evaluate potential suppliers.
3. Select suppliers.
4. Develop suppliers.
5. Manager supplier relationships.
Discovering/sources of Potential Suppliers
Following is a list of resources to use in establishing a robust list of potential
suppliers:
 Supplier websites
 Supplier information files
 Supplier catalogs
 Trade registers and directories
 Trade journals
 Phone directories
 Mail advertisements
 Sales personnel
 Trade shows
 Company personnel
 Other supply management departments
 Professional organizations
Ways Purchasers can be fair when dealing with suppliers
 Respect the confidentiality of the information provided by the supplier
 Honesty in dealing with the supplier
 Avoid excessive pressure on the supplier
 Accord equal opportunities to all the suppliers
 Objectivity in evaluating the supplier
 Transparency in dealing with the supplier
 Engage more of debriefing activities

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TOPIC SEVEN: SUPPORT TOOLS FOR PURCHASING DECISION MAKING

Tendering process
 A tender is a submission made by a prospective supplier in response to an
invitation to tender. It makes an offer for the supply of goods or services.
 Tender process is generally for the selection of the highest responsive
bidder that will undertake supply/contract of the works.
Tendering process
Stage 1: Prequalification of Companies
Where the nature of goods or services requires prequalification, Companies
interested in participating in any tender can download the prequalification form
and fill in
Stage 2: Preparation of Shortlisted Companies
Tenders are floated to shortlisted companies, which are either approved and
bidders registered companies to participate if they meet the requirements. Check
preliminary, technical requirements suppliers to confirm that they have the
technical capability to provide the required goods or services.
Stage 3: Invitation to Tender
Contractors or suppliers approved in Stage 2 will be invited to tender. It is
essential that contractors and suppliers familiarize themselves with and carefully
follow the instructions in the tender document. All tender documents specify the
address, date and time for submitting tenders. Missing the specified deadline
results in disqualification.
Stage 4: Evaluation of Tenders
Received tenders are evaluated by company in two steps. Firstly, the company will
examine the technical part (if any) of tenders and evaluate the adequacy of
technical submissions. Secondly, company will open, examine and evaluate the
commercial part of tenders for only those that are deemed technically acceptable
in the first step. Tenderers whose technical submissions have not been accepted
will not have their commercial submissions opened.
Stage 5: Award and Announcement of Results
Contractors or suppliers, which are deemed to be technically and commercially
acceptable, will be considered for award. The successful contractor or supplier will
receive award notification and be requested to sign contracts or agreements
documents. Unsuccessful tenderers will be notified after the award has been
made.

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Importance of debriefing
 It promotes fairness in the contract awarding process
 Encourages openness and transparency
 Identifies ways of improving the process for next time
 Reduces number of complaints from dissatisfied potential suppliers
 Encourages better bids from those suppliers in future
 Closer knowledge of what the market is thinking
 Helps establish a reputation as a fair, open and ethical buyer with whom
suppliers will want to do business in future.
Potential benefits for government and the wider public sector:
 Demonstrates commitment to good practice and openness
 Can contribute to intelligence gathering about the market and its
segments
 Educates the market that the public sector is value-driven and not cost-
driven.
Potential benefits for the supplier:
 may help companies to rethink their approach so that future bids are
more successful
 offers targeted guidance to new or smaller companies to improve
their chances of doing business in the public sector
 can provide reassurance about the process and their contribution or
role (if not the actual result)
 can provide a better understanding of what differentiates public
sector procurement from the private.
Advantages of tendering
 No Nepotism: Tenders or bids are evaluated on the basis of certain
predetermined criteria, such as price, quality and value for money. In other
words, the firm offering the highest quality product or service at the lowest
price point would win the contract.
 Value for Money: From the perspective of the client, tenders offer the
greatest value for the amount of money spent.
 Encourages Competition: The process of tendering helps promote a
competitive market. This is because a number of potential contractors, firms
or suppliers get a chance to bid for every project.
 Easier Entry: The system of tendering makes it easier and simpler for new
firms to enter the market or even a particular industry. This is due to the

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fact that contracts under this system are awarded on the basis of
predetermined, objective criteria.
Characteristics of tenders
 All potential contractors and suppliers and must submit their bids within the
deadline decided on by the client
 The bid must include all the required and relevant details about the
materials to be used, the expected cost of the project, etc.
 After the deadline has passed, all bids are evaluated by the client on the
basis of a set of predetermined criteria such as price and quality
 The tendering process begins with an invitation to tender or a request for
tender (RTF)
Guidelines that should be observed with regard to handling tenders sold
to suppliers by an organization
 The invitation to tender information to tender should be the same for
all tenders
 The tenders should be received and locked in a secure place
 The date of opening and time should be clear
 The opening of the tenders should be done in the presence of
tenderers or their representatives
 The tenders should be submitted in a sealed envelope indicating the
tender number to help in categorizing them

TYPES OF TENDERING
(a) Open Tendering
Open tendering is the main tendering procedure employed by both the private
sector and the government. The client advertises the tender offers in the local
newspaper along with the key information of the proposed works and inviting
interested contractors.
Advantages of open tendering
- No favourism (everyone can apply for the tender)
- High competition in pricing (client will take good prize)
- New firms can enter into the market
- Increased employment opportunities (new firms comes)
- New experience (new technology)
- Helps contractors to grow
- Contractors get new client

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Disadvantages of open tendering

 Lengthy timeframe for completion of the procurement action,
 Requires strict adherence to procedures,
 Assumes existing internal capacity for the completion of clear and
precise specifications,
 Restricts suppliers’ participation in determining the technical
specifications,
 Limits the possibility of building long-term relationship with suppliers,
 Focuses only on a least-cost solution,
 Suppresses innovation, and
 Excessive formalism may limit supplier participation in the tendering
process.

(b) Selective Tendering

 Selective tendering is the one alternative developed to address the
limitation of the open tendering procedure.
 Here a short list of contractors is drawn up and they are invited to submit
tenders. The purpose of this tender is to improve the quality of bids
received to ensure that the contractors with necessary experience are given
a chance to submit the necessary bids for the specific reason of the
employer.
 This makes the e-tendering process in India more manageable and less
burden for the parties involved.
Advantages of Selective tender
- Well known contractor
- Good quality
- Less aggregate cost for tender
- Less evaluation time
Disadvantages of Selective tender
- Favourism
- Less price competition
- Cartel tendering
- New firms cannot enter in to the market
- Regular updating is necessary

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(c) Negotiation Tendering

 This type of tendering is widely used in the engineering and construction
industry commencing from tendering until the resolutions of the disputes,
which comes under the pre-contract negotiations and the post-contract
negotiations.
 Usually, a single contractor is included but can be scaled into 3 contractors.
Disadvantages of Competitive Bidding
The bidding process can be very tedious sometimes. Here are some of the
disadvantages of the bidding process.
1. Leading suppliers may not tender
In Australia, for example, government procurement guidelines only allow suppliers
who actually tender to be considered for a procurement decision. If the leading
supplier or suppliers do not tender, the purchaser can only consider bids from
suppliers who do tender.
2. Barriers to communication between supplier and customers
When making significant purchases, frank and open communication between
potential supplier and customer is crucial.
3. The cost-plus phenomenon
There is a bear-trap in the purchase of goods and services on the basis of price
tag that people don't talk about. To run the game of cost plus in industry a supplier
offers a bid so low that he is almost sure to get the business.
4. Use of cheaper, poor quality materials and/or labour
A supplier forced to play the competitive bidding game may come under pressure to
keep costs down to ensure he gets a satisfactory profit margin.
5. Safety shortcuts
Another area where suppliers may be tempted to lower costs is safety standards.
Safety costs can ran away with a contract. Cutting down on safety costs is a sure
way to keep the bidding price low.
6. Competitive bidding can be extremely slow
When Organs of State, and indeed, private companies use competitive bidding it
can take sometimes years to award the bid. The result is the customer can wait
incredibly long periods for goods or services that may be required quickly.
7. Insufficient profit margin to allow for investment in research and
development, new technology or equipment
Competitive bidding can force a supplier to accept a very slim profit margin. These
low margins can result in a supplier having little or no money to spend on research
and development, new technology and equipment.

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(d) Electronic tendering Process

1. The Tender Process is Determined
 How to register for e tendering? The organization which requires the tender
will determine the type of tender that will be used, and what will be involved
in the online tendering process.
 There are various types of tenders as already discussed and these tenders
can be issued through:
• Expressions of Interest(EOI)- used to shortlist potential suppliers before
seeking detailed offers
• Request for information (RFI)- used in the planning stage to help in
defining the project however not used to select suppliers.
• Request for proposal (RFP)-used where the project requirements have
been defined, but an innovative and flexible solution is required.
• Request for Quotation(RFQ)-invites businesses to provide a quote for the
provision of specific good or services
• Request for tender-an invitation to tender by public advertisement open
to all suppliers.
2. Request for Tender is Prepared
 The tender request includes what is required, the requirements of the
contract and how you should respond. These are an invitation to the suppliers
to provide a competitive offer to win a contract for the supply of their
products or services. Although the documents may vary from one
organization to another, the common elements for tender request
documents include:
• Description of the good and services to be procured: this includes
what the work will involve, any technical specifications and anything
related to the requirement, deliverables or outcomes of the project.
• Conditions of tender: These consist of the terms and conditions
that must be met in order to be considered for the project.
Evaluation criteria: This outlines how your tender submission will be
assessed and evaluated. This is then used as a guide when preparing
your tender submission.
Submission content and format: includes the details on how you
should present your submission which may be relating to the length of
the submission, its format, presentation etc. Templates or response
forms may also be provided.

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Process rules and information: the deadline for submission, the place
and time for its submission, what the submission must include etc are
what this consist of.
Conditions of contract: this includes the standard terms and
conditions of the contract with additions and alterations made while a
winning tender is announced.
3. Tenders are Invited
 The tenders are invited as a part of the online tender submission procedure
depending on the value, complexity and business category.
 Registering with tender information service providing website can be
another great way to keep track of what opportunities are available in the
tender market.
4. Suppliers Respond
This is followed by the response:
You should get all relevant documentation and then,
• Attend any pretender briefing sessions being conducted
• Clarify the uncertainties
• Plan and prepare your response
• Submit the prepared response in the right format on time and at the right place.
5. Evaluation and Selection
Each tender will be checked for compliance and then evaluated across the criteria
specified in the tender documentation. The tender, which offers the best value for
money, will win the business.
Each tender will be initially assessed to find out if it complies with all requirements
of the tender document, i.e.
• Complies with any conditions of participation
• The tender has been lodged on time
• The documents are signed as required
• Tender meets all mandatory requirements.
6. Notification and Debriefing
When a contract has been awarded, the successful tenderer will be advised in
writing of the outcome and the unsuccessful tenderer’s are advised a debriefing
interview.
7. Contracts Established and Managed
Generally, a formal agreement will be required between the successful tenderer
and the relevant agency. Once you are notified of the success of your tender and

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have awarded the contract, it is important to meet all requirements and manage
the contract effectively.
Investment appraisal techniques
 Accounting rate of return
 Payback period
 Discounted cashflow
 Investment risk and sensitivity analysis
Accounting rate of return
 Accounting rate of return or 'ARR' compares the profits you expect to make
from an investment to the amount you need to invest.
 It's normally calculated as the average annual profit you expect over the life
of an investment project, compared with the average amount of capital
invested.
Payback period
 Payback period is a simple technique for assessing an investment by the
length of time it would take to repay it. It's usually the default technique
for smaller businesses and focuses on cashflow, not profit.
Discounted cashflow
 Discounted cashflow applies a discount rate to work out the present-day
equivalent of a future cashflow. There are two types of discounting methods
of appraisal - the net present value (NPV) and internal rate of return (IRR).
Investment risk and sensitivity analysis
 Investment risk and sensitivity analysis is a realistic assessment of risks is
essential. In practice, the biggest risk for many investments is the
disruption they can cause.
The benefits of investing in your business
Spending money on your business can have many benefits, including:
 greater flexibility and quality of production
 faster time-to-market, resulting in a bigger market share
 improved company image, better staff morale and job satisfaction, leading to
greater productivity
 quicker decisions due to better availability of information
Techniques of Costing
1. Marginal Costing
Marginal costing is a technique of costing in which allocation of expenditure to
production is restricted to those expenses which arise as a result of production,
e.g., materials, labor, direct expenses and variable overheads. Fixed overheads are

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excluded in cases where production varies because it may give misleading results.
The technique is useful in manufacturing industries with varying levels of output.
2. Direct Costing
The practice of charging all direct costs to operations, processes or products and
leaving all indirect costs to be written off against profits in the period in which
they arise is termed as direct costing. The technique differs from marginal costing
because some fixed costs can be considered as direct costs in appropriate
circumstances.
3. Absorption or Full Costing
The practice of charging all costs both variable and fixed to operations, products
or processes is termed as absorption costing.
4. Uniform Costing
A technique where standardized principles and methods of cost accounting are
employed by a number of different companies and firms is termed as uniform
costing. Standardization may extend to the methods of costing, accounting
classification including codes, methods of defining costs and charging depreciation,
methods of allocating or apportioning overheads to cost centers or cost units. The
system, thus, facilitates inter- firm comparisons, establishment of realistic pricing
policies, etc.
Measures to minimize costs of procuring materials
 Switching to alternative quality but cheaper materials
 Avoiding purchasing branded goods
 Negotiating effectively with the suppliers on the costs
 Consolidating of the orders to have bulk purchases
 Buying materials from local markets
 Automation of purchasing activities
 Value addition and reengineering of the product
 Making instead of buying options
Forecasting techniques/methods
 Simple Moving Averages
 Trend analysis/Exponential Smoothing
 Regression Analysis Models
 Hybrid Forecasting Methods
 Delphi method/Expert opinion
 Weighted average methods.

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TOPIC EIGHT: NEGOTIATION

Meaning of Negotiation

It is a process by which compromise or agreement is reached while avoiding

argument and dispute.
Characteristics of Negotiation
There are certain characteristics of the negotiation process. These are:
(i) There are a minimum of two parties present in any negotiation.
(ii) Both the parties have pre-determined goals which they wish to achieve.
(iii) There is a clash of pre-determined goals, that is, some of the pre-
determined goals are not shared by both the parties.
(iv) There is an expectation of outcome by both the parties in any
negotiation.
(v) Both the parties believe the outcome of the negotiation to be
satisfactory.
(vi) Both parties are willing to compromise, that is, modify their position.
(vii) The incompatibility of goals may make the modification of positions
difficult.
(viii) The parties understand the purpose of negotiation
Steps of the Negotiation Process
The negotiation process can essentially be understood as a four-stage process. The
four stages of the negotiation process are preparation, opening, bargaining and
closure.
Stage 1: Preparation
Preparation is instrumental to the success of the negotiation process. Being well-
prepared generates confidence and gives an edge to the negotiator. Preparation
involves the following activities:
(i) Gathering Information about supply market situation: One needs to learn as
much as one can about the supply market situations.
(ii) SWOT Analysis: Evaluation of other party’s strengths at the outset is
important because there may be a number of things one can do to improve one’s
leverage or diminish the leverage of the other side.
(iii) Understand the people involved: It is important to know the people with
whom the negotiation is to take place. An understanding of their objectives, roles
and the issues likely to be raised by them will facilitate better handling of the
situation during the negotiation process.

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(iv) Rapport: It is helpful to establish a rapport with the opponent during the early
stages, that is, before the bargaining process begins is helpful. This was, one can
determine early on how cooperative the opponent is going to be.
(v) Know your objectives: Clarity of objectives is absolutely essential. It needs to
be decided in advance how much you are willing to concede to the opponent and
what your priorities are. All arguments and justifications should be ready.
(vi) Venue arrangement
(vii) Mock negotiation /role play
(viii)Development of the tactics and ploys to be used
(ix)Identifying variables likely to be traded in
Stage 2: Opening Phase
Here the two sides come face to face. Each party tries to make an impression on
the other side and influence their thinking at the first opportunity. Psychologically,
this phase is important because it sets the tone for the negotiation to a large
extent. It involves both negotiating parties presenting their case to each other.
Stage 3: Bargaining Phase
The bargaining phase involves coming closer to the objective you intended to
achieve when you started the negotiation. In this phase, the basic strategy is to
convince the other side of the appropriateness of your demands and then
persuading the other party to concede to those demands.
Stage 4: Closure Phase
The closing phase of a negotiation represents the opportunity to capitalize on all of
the work done in the earlier phases. The research that has been done in the
preparation phase, combined with all of the information that has been gained is
useful in the closing phase. It also involves the sealing of the agreement in which
both parties formalize the agreement in a written contract or letter of intent.
Reviewing the negotiation is as important as the negotiation process itself. It
teaches lessons on how to achieve a better outcome. Therefore, one should take
the time to review each element and find out what went well and what needs to be
improved.
Nature of preparations that a negotiator needs to be effective in management
of purchasing contract
1. Familiarize with the suppliers company
2. Discover the suppliers agenda by gathering information about the
supplier strategy
3. Understand the suppliers negotiating team performance
4. Review the suppliers performance history

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5. Develop a negotiating strategy/ploys

6. Organize selection and time
7. Dummy negotiations
Issues addressed in purchase contracts
- Laws which will apply
- Obligations of both the buyer and supplier
- Mechanisms of resolving disputes
- Liabilities of the buyer and the supplier
- Terms and conditions of payments
- Contract compilation time
- Quality standards/ specifications to be met.
Payment terms included in a contract between purchaser and the Supplier
 Method of payment e.g. cheques, banks transfer, bill of exchange
 Phasing of payments e.g. for high volume contracts
 Invoice settlement period
 Prompt payment is to be made e.g. a particular bank account
 The currency of payment
The most common causes of deadlock are:
 Parties become entrenched
 One party's bottom line has been exposed too early and is seen by the other
as being unreasonable
 Emotional blockage - matters of principle, reputations to maintain or even
make
 Team dynamics - deadlock is more common in team negotiations because the
risk is syndicated
 Tactical deadlock.
There are several ways to break through in these situations:
 Use deadlock to change from competitive to co-operative mode. Treat the
deadlock as a joint problem which can be jointly solved.
 Find a concession that is cheap to make but valuable to receive.
 Take a break, allowing emotions to cool.
 Introduce humour.
 Safeguard your desired solution but offer different scenarios for reaching
it. For example, introduce guarantees, alter payment terms, change contract
wording.
 Change the negotiating team either to alleviate emotional baggage or to
match the other team's make-up - engineer with engineer, accountant with
accountant etc.

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 Break down the problem - deal with smaller issues one by one.
 Introduce a deadline, either during or subsequent to negotiations. This
enables both sides to review the case in stages.
 Introduce new information or place a different emphasis or perspective on
existing issues.
 Change the risk sharing - a willingness to share in the 'unknowns' of a deal
can create a feeling of 'partnership'.
Factors that negatively influence the outcome of negotiation for a purchase
contract
(i) Poor preparation by the negotiators
(ii) Hard stands taken by one of the negotiation party/deadlocks
(iii) Lack of cooperation from the negotiating parties
(iv)Poor knowledge of the products to be purchased
(v) Lack of negotiation skills by the team mandated to negotiate
(vi) Poor timing of the negotiation
Main Forms of Negotiation
(a) Distributive Negotiation: this is also referred to as positional or hard-
bargaining negotiating. It generally pertains to a single issue and often
ends up with one person walking away with a bigger piece of the pie
(usually financial) than the other.
Distributive Bargaining Basics
 Play your cards close to your chest.
 The opposite is equally true.
 The only thing you should ever tell.
 Let them make the first offer.
 Be realistic.
(b) Integrative Negotiation: this is the softer side of the two forms of
negotiation, often referred to as win-win. This form may also be
referred to as interest-based, merit-based, or principled negotiation.
Essentially this means that all parties walk away happy and with more
or less equal pieces of the pie. Additionally, integrative negotiation
generally involves multiple moving parts as opposed to a single issue.
Ways purchasing officer would use integrative negotiation tactics to
achieve desired outcome
 By being open about own needs and concerns in the situation
 By collaboratively agreeing to generate options for issues under
negotiations

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 By focusing on areas of common and mutual agreements

 By supporting other party in accepting proposals while emphasizing joint
problem solving
 By maintaining any modelling flexibilities in making and inviting reasonable
counter offers and compromises.
Negotiation tactics
 Multiple Issues – Integrative negotiations usually entails a multitude of
issues to be negotiated, unlike distributive negotiations which generally
revolve around the price, or a single issue. In integrative negotiations, each
side wants to get something of value while trading something which has a
lesser value.
 Sharing – To fully understand each other’s situation, both parties must
realistically share as much information as they can to understand the other’s
interests. You can’t solve a problem without knowing the parameters.
Cooperation is essential.
 Problem Solving – Find solutions to each other’s problems. If you can offer
something of lesser value which gives your counterpart something which they
need, and this results in you realizing your objective, then you have
integrated your problems into a positive solution.
 Bridge Building – More and more businesses are engaging in long term
relationships. Relationships offer greater security.
The Negotiation Styles
 Competitive.
 Collaborative.
 Compromising.
 Avoiding.
 Accommodating.
(i) Avoiding
 Primarily concerned with avoiding intra-personal conflict
 Is useful when the stakes of a negotiated outcome are not worth the
investment of time or the potential for igniting conflict
 Characterized by sidestepping, postponing, and ignoring the issue or
situation
 Effective when avoidance of the situation or issue does not greatly affect
the relationship and short term task is not important to either party
(ii) Accommodating
 Primarily concerned with the relationship between the parties

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 Easily gives the other side concessions in hopes of strengthening the

relationship, but often gives away too much too soon
 Tend to neglect their own needs in favor of helping the other side get what
they want
 Effective when long term relationship is important and short term task is
not important
(iii) Compromising
 The style falling between accommodating and competing
 Useful when time is a concern or there is a strong relationship between the
parties
 Requires concessions from both sides to find agreement
 Does not focus on legitimate or fair standards for settlement and instead
utilizes “Meet in the middle,” or “Split the difference” solutions
(iv)Collaborating
 Focuses on using problem solving methods to create value and discover
mutually satisfactory agreements
 Utilizes the creativity of both parties to find solutions to both sides’
interests
 Tend to be assertive about their needs and cooperative with the other side
 Effective when long term relationship is important and short term task is
important
(v) Competing
 Primarily concerned with achieving their own goals regardless of the impact
on others
 Views negotiation as a win/lose rather than a problem solving activity
 Often utilize manipulative tactics such as attacks, threats, and other
aggressive behavior to achieve their objectives
 Effective when long term relationship is not important and short term task
is important
Strategies and tactics of negotiation
 Problem solving - both parties committing to examining and discussing issues
closely when entering into long-term agreements that warrant careful
scrutiny
 Contending - persuading your negotiating party to concede to your outcome
if you're bargaining in one-off negotiations or over major 'wins'
 Yielding - conceding a point that is not vital to you but is important to the
other party; valuable in ongoing negotiations

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 Compromising - both parties forgoing their ideal outcomes, settling for an

outcome that is moderately satisfactory to each participant
 Inaction - buying time to think about the proposal, gather more information
or decide your next tactics.
Factors to consider when developing Negotiation Strategy
 The market situation
 Negotiation objectives
 Supplier interest and position
 Purchasing organization interest and position
 Volume of purchases
 Urgency of the purchases
 Type/nature of goods
 Skills/expertize of the team involved
Tactics of negotiation
 Extreme demands followed up by small, slow concessions. Perhaps the
most common of all hard-bargaining tactics, this one protects dealmakers
from making concessions too quickly. However, it can keep parties from
making a deal and unnecessarily drag out business negotiations. To head off
this tactic, have a clear sense of your own goals, best alternative to a
negotiated agreement (BATNA), and bottom line – and don’t be rattled by an
aggressive opponent.
 Commitment tactics. Your opponent may say that his hands are tied or that
he has only limited discretion to negotiate with you. Do what you can to find
out if these commitment tactics are genuine. You may find that you need to
negotiate with someone who has greater authority to do business with you.
 Take-it-or-leave-it negotiation strategy. Offers should rarely be
nonnegotiable. To defuse this hard-bargaining tactic, try ignoring it and
focus on the content of the offer instead, then make a counter-offer that
meets both parties’ needs.
 Inviting unreciprocated offers. When you make an offer, you may find that
your counterpart asks you to make a concession before making a
counteroffer herself. Don’t bid against yourself by reducing your demands;
instead, indicate that you are waiting for a counteroffer.
 Trying to make you flinch. Sometimes you may find that your opponent
keeps making greater and greater demands, waiting for you to reach your
breaking point and concede. Name the hard-bargaining tactic and clarify
that you will only engage in a reciprocal exchange of offers.

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 Personal insults and feather ruffling. Personal attacks can feed on your
insecurities and make you vulnerable. Take a break if you feel yourself
getting flustered, and let the other party know that you won’t tolerate
insults and other cheap ploys.
 Bluffing, puffing, and lying. Exaggerating and misrepresenting facts can
throw you off guard. Be skeptical about claims that seem too good to be true
and investigate them closely.
 Threats and warnings. The first step is recognizing threats and oblique
warnings as the hard-bargaining tactics they are. Ignoring a threat and
naming a threat can be two effective strategies for defusing them.
 Belittling your alternatives. The other party might try to make you cave in
by belittling your BATNA.
Interpersonal Skills needed for Negotiation
These skills include:
 Effective verbal communication.
 Listening.
 Reducing misunderstandings is a key part of effective negotiation.
 Rapport Building.
 Problem Solving.
 Decision Making.
 Assertiveness.
 Dealing with Difficult Situations.
Build a Better Team/Composition/Negotiation roles
(i) Leader
 The leader has two main roles, first to coordinate the actions of the team
and second to provide the main 'face' of the negotiating team.
 The leader may be a senior person who has the authority to make decisions.
There can be a risk in this, however, when the person is not experienced in
team negotiation and may make elementary mistakes that could cost their
organization a great deal.
(ii) Critic
 The critic is the 'bad cop' of the team, always looking for flaws and
problems. They may have an internal focus, criticizing their own team's
activities (in private, of course) and may focus more in the room, criticizing
points made by the opposing team.

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(iii) Relater
 The relater is the friendly face of the team. They build relationships with
individuals in the opposing team and may through this gain useful pieces of
information.
 The relater may well avoid the harder substance of the negotiation, focusing
more on relationships. However, they may at times need to use the
relationship bridge to talk about aspects of the deal.
(iv)Expert
 Experts may be rolled in and out of the negotiation to provide particular
evidence or assessments in key areas, for example technology or law.
 Typically they do not do any direct negotiating, but give information and
answer questions. When they are not there permanently, they may need to
be briefed before they enter the negotiating room so their comments can be
adjusted to align with the position of their home team.
(v) Recorder
 The recorder (often called a scribe, secretary, etc.) takes notes about what
is said. In particular they note what people are requesting and what offers
are made.
 While they may occasionally ask questions to ensure they take accurate
notes, they are mostly silent. This can let them act as another observer and
they may make side notes that they can bring up with the leader or team
later.
(vi)Builder
 The builder is the person who creates the deals, putting together packages
of things to exchange for other packages in return. They may also have a
financial role where they assess the cost and value of items being
exchanged.
 Often in negotiations, people over-value what they offer and under-value
what they might receive. The builder seeks the truth of such positions and
provides the leader with facts to enable a sound decision.
(vii) Observer
 The observer has a watching brief, in particular paying attention to the
subtleties of words and non-verbal body language. They may pass notes to
the leader about their observations and discuss what they see in breaks
between meetings.
 Hence, for example, they watch for signs of lying and other tensions. While
this is not an exact science, people do send many unconscious signals that

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other members of the team may miss as they focus more on the substance
of the negotiations.
Qualities a good Negotiator
 Preparation and planning skill.
 Knowledge of the subject matter being negotiated.
 Ability to think clearly and rapidly under pressure and uncertainty.
 Ability to express thoughts verbally.
 Listening skill.
 Judgment and general intelligence.
 Integrity.
 Ability to persuade others.

TOPIC NINE: ETHICS AND INTEGRITY IN PURCHASING.

Meaning of Integrity

 Integrity is the practice of being honest and showing a consistent and

uncompromising adherence to strong moral and ethical principles and values.
In ethics, integrity is regarded as the honesty and truthfulness or accuracy
of one's actions.
 Ethics- Business ethics is the study of appropriate business policies and
practices regarding potentially controversial subjects including corporate
governance, insider trading, bribery, discrimination, corporate social
responsibility, and fiduciary responsibilities.
Create Ethical culture in organization
1. Define company ethics
Every company has spoken and unspoken rules about how to act within a company
environment. Give lucid explanations about what is okay and what is not okay. This
includes behavior towards other employees, customers, and the public. Sometimes
these guidelines are different for different companies.
2. Ensure that you have necessary tools
It is the duty of the Human resource department to ensure that the employees are
equipped with adequate tools which enable them to behave ethically in the
organization.
3. Strengthen the Behavior You Want

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Strengthening the behavior in an employee is an easy task. Offering awards and

recognition is one of the best ways to encourage the ethical behavior you want to
reinforce in an employee. To create a strong ethical culture in an organization,
there has to be a constant communication about ethical values among the members.
You can also specifically explain about the behaviors you do not want to inculcate
4. Focus on building skills
Create workshops which improve the ethical culture in the company. It is the duty
of the organization to build and develop ethical skills among the members rather
than just stating the behaviors which you encourage and behaviors which you do
not. This should also develop ethical behavior and problem-solving skills in an
employee
Characteristics of Business Ethics
(i) A Discipline:
Business ethics are the guiding principles of business function. It is the knowledge
through which human behaviour is learnt in a business situation.
(ii) Ancient Concept:
Business ethics is an ancient concept. It has it origin with the development of
human civilization.
(iii) Personal Dignity:
The principles of ethics develop the personal dignity. Many of the problems of
ethics arise due to not giving dignity to individual. All the business decisions should
be aimed by giving dignity to the customers, employees, distributors, shareholders
and creditors, etc. otherwise they develop in immorality in the business conducts.
(iv) Related to Human Aspect:
Business ethics studies those activities, decisions and behaviours which are
concerned with human aspect. It is the function of the business ethics to notify
those decisions to customers, owners of business, government, society,
competitors and others on good or bad, proper or improper conduct of business.
(v) Study of Goals and Means:
Business ethics is the study of goals and means for the rational selection of sacred
objects and their fulfillment. It accepts the principles of “Pure goals inspire for
pure means” and “Means justifies the end”. It is essential that goals and means
should be based on morals.
(vi) Different from Social Responsibility:
Social responsibility mainly relates to the policies and functions of an enterprise,
whereas business ethics to the conduct and behaviour of businessmen. But it is a
fact that social responsibility of business and its policies is influenced by the
business ethics.

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(vii) Greater than Law:

Although the law approves various social decisions, but the law is not greater than
ethics. Law is usually related to the minimum control of social customs whereas
ethics gives importance to individual and social welfare actions.
Features of Business Ethics
1. Code of conduct : Business ethics is a code of conduct. It tells what to do
and what not to do for the welfare of the society. All businessmen must
follow this code of conduct.
2. Based on moral and social values : Business ethics is based on moral and
social values. It contains moral and social principles (rules) for doing
business. This includes self-control, consumer protection and welfare,
service to society, fair treatment to social groups, not to exploit others, etc.
3. Gives protection to social groups : Business ethics give protection to
different social groups such as consumers, employees, small businessmen,
government, shareholders, creditors, etc.
4. Provides basic framework : Business ethics provide a basic framework for
doing business. It gives the social cultural, economic, legal and other limits
of business. Business must be conducted within these limits.
5. Voluntary : Business ethics must be voluntary. The businessmen must accept
business ethics on their own. Business ethics must be like self-discipline. It
must not be enforced by law.
6. Requires education and guidance: Businessmen must be given proper
education and guidance before introducing business ethics. The businessmen
must be motivated to use business ethics. They must be informed about the
advantages of using business ethics. Trade Associations and Chambers of
Commerce must also play an active role in this matter.
7. Relative Term: Business ethics is a relative term. That is, it changes from
one business to another. It also changes from one country to another. What
is considered as good in one country may be taboo in another country.
8. New concept: Business ethics is a newer concept. It is strictly followed only
in developed countries. It is not followed properly in poor and developing
countries.
Ethical Principles for Business Executives
1. Honesty.
2. Integrity.
3. Promise-keeping & trustworthiness.
4. Loyalty.
5. Fairness.

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6. Concern for others.

7. Respect for others.
8. Law abiding.
Functions of Kenya Institute of supplies Management
 To educate its members on the purchasing code of ethics
 Senzitization of members on penalties that can be meted on contravention
of the code
 Launch survey to ascertain the viability of a training Institute to offer
short courses, certificate Diploma and Degree courses in purchasing and
Supply management. KISM will also market in-house corporate trainings more
aggressively.
 To encourage training in the profession and certify qualified members
through a well designed program of study and recognizable experience and
contribution to the profession.
 De registration supply chain professionals who are convicted for
participating in unethical practices.
 Monitoring performance of supply chain officers and maintaining a record of
their status.
 To promote ethically sound best practices in procurement and supplies
management both in the private and public sectors.
 Updating its members on new laws that require their attention
 Research on emerging supplies issues
 Provide training and continuous development of supplies related issues.
Role of Kenya Anti Corruptions Commission (KACC) in public procurement
 Investigate ”corruption, economic crimes and violation of codes of ethics”
particularly those of the Anti-Corruption and Economic Crimes Act (ACECA)
and the Leadership and Integrity Act (LIA).
 Develop and oversee enforcement of the” Codes of Conduct and Ethics”
 Promote best practices on integrity
 File recovery proceedings including forfeiture of unexplained assets
 Recover public property acquired through corruption,
 Conduct mediation, conciliation and negotiation
 Promote standards and practices of integrity, ethics and anti-corruption.
 To educate and create awareness on matters against corruption and any
other unethical conduct.
 Perform mediation and negotiation.
 To facilitate investigations on matters concerning unethical conduct.

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 To undertake preventive measures against corruption and unethical

practices.
Challenges that EACC experience in dealing with unethical practices
 Political interference as many cases are politicized
 Lack of enough resources to undertake investigations on the unethical
practices.
 Delays in prosecuting cases that have been forwarded to the director of
public prosecution
 Corrupt KACC officers who are compromised to cover up some of the
unethical practices.
 Lack of cooperation by the organizations and individuals being investigated.
 Interference by the executive in some of the cases being handled by KACC
Public officers code of ethics
The conduct of public officers is expected to be ethical in relation to the
following:
(a) Professionalism
A public officer shall:-
 carry out his duties in a way that maintains public confidence in the
integrity of his office
 treat the public and his fellow public officers with courtesy and respect
 to the extent appropriate to his office, seek to improve the standards of
performance and level of professionalism in his organization.
 if a member of a professional body, observe the ethical and professional
requirements of that body
 observe official working hours and not be absent without proper
authorization or reasonable cause
 maintain an appropriate standard of dress and personal hygiene
 discharge any professional responsibilities in a professional manner.
(b) Rule of law
 A public officer shall carry out his duties in accordance with the law.
 In carrying out his duties, a public officer shall not violate the rights
and freedoms of any person of the Constitution.
(c) No improper enrichment
 A public officer shall not use his office to improperly enrich himself
or others.
 Without limiting the generality of subsection

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 A public officer shall not—(a)except as allowed accept or request

gifts or favors from a person who:
(i) Has an interest that may be affected by the carrying out, or not
carrying out, of the public officer’s duties
(ii) Carries on regulated activities with respect to which the public
officer’s organisation has a role;
(iii) Has a contractual or similar relationship with the public officer’s
organisation;
(d) Conflict of interest
 A public officer shall use his best efforts to avoid being in a position
in which his personal interests conflict with his official duties.
 Without limiting the generality of subsection (1), a public officer shall
not hold shares or have any other interest in a corporation,
partnership of other body, directly or through another person, if
holding those shares or having that interest would result in the public
officer’s personal interests conflicting with his official duties.
(e) Collections and harambees
 A public officer shall not use his office or place of work as a venue
for soliciting or collecting harambees; or either as a collector or
promoter of a public collection, obtain money or other property from a
person by using his official position in any way to exert pressure.
Causes of unethical behavior and practices in public sector
1. No Code of Ethics
Employees are more likely to do wrong if they don’t know what’s right. Without a
code of ethics, they may be unscrupulous. A code of ethics is a proactive approach
to addressing unethical behavior. It establishes an organization’s values and sets
boundaries for adhering to those values. Everyone is accountable.
2. Fear of Reprisal
When explaining why they don’t report ethical misconduct that they witness,
people often say it is because they worry about the ramifications. They don’t want
to damage their career or incur the wrath of the offender.
3. Impact of Peer Influence
If everyone is doing it, it must be right. Or is it? What’s to stop someone from
padding their expense report when their co-workers do it but don’t get caught?
Too often people lapse into the bad behavior of others.

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4. Setting a Bad Example

Ethical behavior starts at the top. Employees emulate their leaders, and the most
significant factor in ethical leadership is personal character. Corporate leaders
who employees view as demonstrating personal character are more likely to be
perceived as setting a strong tone, researchers say.
5. False Communications
False communications fall into various categories. They include falsification of
auditor ‘s or controller‘s report or any form of manipulation that does not tell the
whole truth.
6. Collusion
Collusion, especially with competitors, to fix prices, is an unfair business practice
today. This could be considered stealing from customers.
7. Gifts and Kickbacks
Some organizations do not allow their employees to receive gifts from clients
during normal course of business. Those who do, generally provide guide lines on
limitations as to the amount an employee can receive as gift.
8. Conflict of Interest
Conflict of interest occurs when ones private interest interferes or appears to
interfere in any way with the interest of the organization
Some examples of conflicts of interest are:
- Diverting from the organization for personal benefit, a business
opportunity,
- Using the organization‘s assets for personal benefit,
- Accepting any valuable thing from the organization‘s customers or
suppliers, and
- Having a financial interest in an organization‘s competitor.
Measures to eradicate unethical behavior
1. Create Policies and Practices: Organizations must research, develop,
and document policies and processes around defining, identifying, and
reporting ethics violations. These policies should be articulated in the
employee handbook and protections should be put in place for those
who raise ethical issues.
2. Hire Right: Selecting quality people from day one can make a huge
difference in the ethics of your organization. Some organizations
scour background checks, purchase screening tools, or use behavior-
based interview questions, which may ask candidates to describe a

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situation when they acted ethically even when it was against social or
cultural norms.
3. Develop People's Understanding/educate- sensitization of staff to
provide awareness on ethical matters
4. Incent the Right Thing: Some in the education community are asking,
"Do states and school districts incent people to cheat or act
unethically by giving more weight to certain measures over others?"
Before introducing a new measure in schools--or any other industry--
leaders must consider if it encourages the type of actions that are
valued by the organization. If there is a risk of impropriety, it is
important to have a conversation around what checks and balances will
be put in place to make sure unwanted behaviors are handled
appropriately.
5. Put Controls in Place/e procurement- adopt e procurement in
operations of the organization
6. Build a Culture of Transparency, Openness, and Communication:
Cultural management work is difficult. To ensure true success when it
comes to organization ethics, people must see and hear what is going
on as well as feel comfortable to stand up and speak out if they see
something occur that is not right.
7. Leadership Must Walk the Talk: Leaders can talk about the
importance of policies and processes, incentives, communication, and
openness all day, but if they turn around and act unethically, it can be
like throwing a large stone into the pond of ethics tranquility. The
same goes for promoting staff who have behaved unethically. It
doesn't take long for staff at all levels of an organization to recognize
a leader who talks the talk, but doesn't walk the walk when it comes
to ethics. This can breed suspicion and destroy trust.
8. Punishing the culprits/taking administrative actions this involves
punishing the offenders and rewarding the diligent employees
9. Rotation of procurement staff _ in their roles/jobs to avoid building
of empire jobs
Most frequently observed unethical behaviors in the workplace.
(a) Misusing company time

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Whether it is covering for someone who shows up late or altering a time sheet,
misusing company time tops the list. This category includes knowing that one of
your co-workers is conducting personal business on company time. By "personal
business" the survey recognizes the difference between making cold calls to
advance your freelance business and calling your spouse to find out how your sick
child is doing.
(b) Abusive behavior
Too many workplaces are filled with managers and supervisors who use their
position and power to mistreat or disrespect others. Unfortunately, unless the
situation you're in involves race, gender or ethnic origin, there is often no legal
protection against abusive behavior in the workplace.
(c) Employee theft
Employee fraud is also on the uptick, whether its check tampering, not recording
sales in order to skim, or manipulating expense reimbursements.
(d) Lying to employees
The fastest way to lose the trust of your employees is to lie to them, yet
employers do it all the time. One of out every five employees report that their
manager or supervisor has lied to them within the past year.
(e) Violating company internet policies
Cybers lackers. Cyber loafers. These are terms used to identify people who surf
the Web when they should be working. It's a huge, multi-billion-dollar problem
for companies.
Procurement Do's & Dont's of procurement
Corrupt and Fraudulent Practices
 Insufficient or inadequate advertising
 Excessively short bidding time
 Collusion among bidders to establish an artificial non-competitive bid price
 A public officer offering or receiving gifts of substantial value to influence
the procurement process
Conflicts of Interest
 When a Consulting firm is to be hired by a Unit in a Ministry and it had
previously participated without being awarded the contract within in other
bidding process carried out by the same Unit in the past six months
 Two bidders using the same accounting firm to prepare their annual audited
financial statements

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 Employee involved in the procurement process has a direct or indirect

relationship with a bidder, declares the interest and continue their
involvement in the procurement process.
Procurement Methods
 Poor or lack of proper procurement planning
 Fragmenting contracts so as to bypass approval thresholds (NCC & Cabinet)
 Inviting tenders from unregistered contractors outside of the specified
value range
 Failure to advertise procurement opportunities within the specified value
threshold
 Failure to obtain the required number of quotes
 Choosing inappropriate procurement method
 Use of emergency contracting procedures without approval from the Head
of the Procuring Entity
 Variation to contract sum without written approval from Accounting
Officer/Head of Procuring Entity
 Require direct contracting without competition by artificially creating the
“need”
 Require prequalification for procurement that is not complex or of
substantial amounts
 Example: Suppliers/contractors collude to divide among themselves the
different contracts available
Tender Process
 Not specifying a clear address, contact name and room number for the
submission of bids
 Tender box that is not secured and restricted to the Tender Officer
 Improper record keeping
 Accepting bids after the specified date and time
 Inappropriate use of mandatory site visits or pre-bid meetings
 Delays in making payments to supplier/contractor

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Functions of a procurement manual

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