Establish goods and services to be procured

The first step in planning procurement activities is to determine and agree on the organisation's need for goods and/or services to be procured. This involves identifying the gap in the organisation's current resources, processes, or services and determining the goods and services required to fill this gap.

To determine the organisation's needs, you will need to engage with relevant stakeholders, such as department heads, project managers, or other decision-makers. It is important to ensure that all stakeholders have input into the process and agree on the need for the goods and services to be procured.

In some cases, the organisation's needs may be identified through a formal process, such as a business case or project proposal. In these situations, it is important to ensure that the identified need aligns with the organisation's strategic goals and objectives.

Once the need for goods and services has been identified and agreed upon, it is important to clearly document this need to ensure that all stakeholders are aware of the requirements. This documentation can take the form of a procurement plan, a statement of work, or a project charter, depending on the nature of the procurement activity.

Example

ABC Consultancy is a medium-sized consultancy firm that specialises in business strategy and advisory services. The firm has experienced a problem with its current printers, which are becoming increasingly faulty and unreliable. This has led to delays in delivering reports and other client deliverables, causing frustration and dissatisfaction among clients. As the procurement manager, you have been tasked with procuring new printers that can meet the needs of the business and ensure that reports and other client deliverables are delivered in a timely manner. To do this, you will need to follow the following procurement process:

1. Determine and agree on the organisation's need for new printers: The first step is to engage with stakeholders within the business, such as the IT department, finance department, and project managers, to determine the need for new printers. In this case, the need is urgent because the current printers are causing delays in client deliverables.
2. Obtain specifications for new printers: The next step is to obtain specifications for the new printers that are required. This may involve speaking with the IT department to determine the technical requirements and speaking with project managers to determine the volume and types of printing required.
3. Research and identify the supply market for new printers: With the specifications for the new printers in hand, the next step is to research and identify the supply market for these printers. This involves identifying potential suppliers and assessing their suitability based on factors such as price, quality, and reliability.
4. Select procurement methods: With potential suppliers identified, the next step is to select the procurement methods most appropriate for the particular goods and services to be procured. This may involve issuing a request for quotation (RFQ) to potential suppliers or engaging in negotiations with them directly.
5. Communicate with stakeholders to approve new printers: Once a suitable supplier has been identified and the procurement method has been selected, it is important to communicate with stakeholders to approve the new printers. This ensures that all stakeholders are aware of the procurement activity and that there are no unexpected surprises or delays.

Overall, following a structured procurement process ensures that the organisation’s needs are met, that appropriate suppliers are identified, and that the procurement activity is transparent and accountable. This helps to minimise risks and ensure that the organisation receives value for money.

Obtaining specifications for goods and services to be procured from relevant personnel is a critical step in the procurement process. The following steps outline the process of obtaining specifications:

1. Identify relevant personnel: The first step is to identify the personnel who can provide the necessary specifications for the goods or services to be procured. Depending on the nature of the procurement, this could be a technical expert, an end-user, a department manager, or any other stakeholder who has the necessary information. (Examples of all the relevant internal and external stakeholders have been provided in the Introduction section)
2. Contact relevant personnel: Once the relevant personnel have been identified, the next step is to contact them and request the required specifications. This could be done through email, phone, or in-person meetings.
3. Clarify requirements: It is essential to clarify the requirements with the relevant personnel to ensure that the specifications provided are accurate and comprehensive. This could involve discussing technical details, quality standards, quantity, delivery times, and any other specific requirements that need to be met.
4. Document specifications: Once the requirements have been clarified, it is essential to document the specifications provided by the relevant personnel. This could be done in a specification sheet, a detailed description document, or any other format that suits the nature of the procurement.
5. Review specifications: After documenting the specifications, it is necessary to review them to ensure that they meet the requirements of the procurement. This could involve checking for accuracy, completeness, and feasibility.
6. Obtain approval: Once the specifications have been reviewed and finalised, they need to be approved by the relevant personnel before proceeding with the procurement process.

By following these steps, procurement personnel can obtain accurate and comprehensive specifications for the goods and services to be procured, ensuring that the procurement process is successful and meets the needs of the organisation. 

The steps to research and identify the supply market for goods and/or services to be procured are as follows:

1. Define the scope of the procurement: The first step is to define the scope of the procurement, which includes identifying the goods or services to be procured, the quantity required, and the timeframe for delivery. For example, if the company needs to procure office supplies, the scope could include pens, paper, staplers, and other related items.
2. Identify potential suppliers: Once the scope is defined, the next step is to identify potential suppliers who can provide the required goods or services. This can be done by researching online, checking industry directories, and seeking recommendations from colleagues or other professionals in the industry. For example, for office supplies, potential suppliers could include local office supply stores, online retailers, or wholesale distributors.
3. Evaluate potential suppliers: After identifying potential suppliers, the next step is to evaluate them based on factors such as price, quality, delivery time, and customer service. This can be done through a request for information (RFI) or a request for proposal (RFP) process. For example, a company could send an RFP to potential office supply vendors, asking them to provide a quote for the required items, along with information about their delivery times, warranties, and return policies.
4. Negotiate with suppliers: Once potential suppliers have been evaluated, the next step is to negotiate with them to finalise the procurement agreement. This can include negotiating on price, delivery time, payment terms, and other related factors. For example, a company could negotiate with a vendor to receive a discount for bulk orders or extend payment terms to 30 days instead of 15.
5. Finalize the agreement: After negotiations are complete, the final step is to finalise the procurement agreement. This can include drafting a contract or purchase order, reviewing the terms and conditions, and obtaining the necessary approvals. For example, a company could draft a purchase order specifying the required office supplies, the agreed-upon price, and the delivery time, and have it reviewed and approved by the relevant stakeholders.

Selecting the most appropriate procurement method for the goods and services to be procured involves considering several factors, such as the nature of the goods and services, the value and complexity of the procurement, the level of competition in the market, and the time frame for procurement. The steps involved in selecting the procurement method are as follows:

1. Determine the value and complexity of the procurement: Next, evaluate the procurement based on its value and complexity. This helps in determining the most suitable procurement method. For instance, a high-value and complex procurement may require a different procurement method than a low-value procurement.
2. Determine the level of competition in the market: Assess the level of competition in the market for the required goods and services. This includes identifying the number and types of suppliers in the market, their capacity to supply the goods and services, and their pricing.
3. Consider the procurement time frame: The time frame for procurement is a critical factor to consider when selecting the procurement method. If the procurement is urgent, it may require a faster procurement method.
4. Evaluate the available procurement methods: After considering the above factors, evaluate the procurement methods available. Common procurement methods include open tendering, restricted tendering, direct procurement, request for proposal (RFP), request for quotation (RFQ), and electronic reverse auction.
5. Select the most appropriate procurement method: Finally, select the most appropriate procurement method based on the evaluation of the above factors. For instance, open tendering may be the most suitable method for low-value and non-complex procurement, while restricted tendering may be the most suitable method for high-value and complex procurement.

By following these steps, procurement personnel can select the most appropriate procurement method for the goods and services to be procured, ensuring that the procurement process is effective and efficient.

Example

A large pharmaceutical company decided to procure a new enterprise resource planning (ERP) system to improve its internal business operations. The company had a large budget for procurement, and the management team was tasked with selecting the most appropriate procurement method.

However, due to a lack of proper evaluation and understanding of the procurement requirements, the management team selected a procurement method that was not suitable for the company's needs. They decided to use a direct procurement method and approached a single vendor to provide the ERP system.

The vendor provided a proposal that was significantly overpriced, and the company had no other options for comparison. However, the management team went ahead and finalised the agreement without proper negotiations, thinking that the vendor was the only option available.

Once the ERP system was implemented, the company found out that the system was not meeting their requirements, and they faced numerous technical issues. Additionally, they found out that the vendor they had selected did not have sufficient expertise in ERP system implementation and support, which resulted in a significant loss for the company.

The management team realised that the procurement method they had selected was not appropriate, and they should have used an RFP or RFQ method to compare multiple vendors and evaluate their proposals. They learned that a lack of understanding of the procurement requirements and improper evaluation of procurement methods can lead to significant financial and operational losses for the company.

Communicating with stakeholders to approve goods and/or services to be procured is crucial in the procurement process for several reasons:

1. Stakeholders' input can improve the procurement process: The feedback and input from stakeholders can provide valuable insights that can enhance the procurement process. For instance, stakeholders' input can help to identify the right specifications for the goods or services needed and assist in the selection of the appropriate procurement method.
2. Approval from stakeholders ensures alignment with organisational objectives: Procuring goods or services without stakeholder approval can lead to misalignment with organisational objectives, resulting in wasted resources and time. Getting stakeholders' approval can ensure that the procurement process is aligned with the organisation's objectives.
3. Transparency and accountability: Communicating with stakeholders to approve goods and/or services to be procured ensures transparency and accountability. Stakeholders' approval indicates that the procurement process is transparent, and all parties involved in the process are accountable for their actions.
4. Avoids conflicts of interest: Obtaining approval from stakeholders can help prevent conflicts of interest. It ensures that the procurement process is unbiased and free from any favouritism or unethical practices.

Overall, communicating with stakeholders to approve goods and/or services to be procured is an essential step in the procurement process. It helps to ensure that the procurement process is transparent, efficient, and aligned with the organisation's objectives.

Examples of effective communication methods include:

For example, when communicating with stakeholders about the procurement of a new software system, a combination of methods could be used. The project manager could hold face-to-face meetings with the finance team and other key stakeholders to discuss the procurement process and address any concerns. They could then send an email outlining the details of the procurement process and the expected outcomes to all stakeholders. A webinar could be scheduled for stakeholders who are located in different regions, and a presentation could be made to a large group of stakeholders at a company-wide meeting. The project manager could also use project management software to provide real-time updates on the procurement process.