PROCUREMENT STRATEGIES AND PLANNING
1.0 INTRODUCTION
1.1 The procurement of construction machineries, equipment, tools and building materials generally constitute over 40% of any construction project or for trading, manufacturing purposes. Consequently, it has a direct effect on the efficient implementation of any works or supplies. This in turn will affect the financial viability of the procurement. Similarly, procurement of office supplies and professional services also involve millions of dollars for companies and other organizations whereas it may be in just hundreds or thousands for individuals.
2.0 PLANNING FOR PROCUREMENT
2.1 It is of utmost importance that the procurement department [‘PD’] plans the procurement of requirements in sufficient detail and in advance. The aspects that will need to be included, considered and addressed in the planning program may be divided into several main headings, for example: ‘WHAT & QUANTITIES’, ‘USAGE via-avis COMPATIBILITY’, ‘WHERE - SOURCE’, ‘WHEN - TIMELINESS’, ‘WHERE - DESTINATION’, ‘TERMS & CONDITIONS’, ‘SPECIFICATIONS’ and ‘HOW - METHODOLOGY’. These are explained and elaborated further in the following paragraphs. Individuals practice these processes unconsciously; the deciding factor is most often the availability of funds.
[A] ‘WHAT & QUANTITIES’ represents the items to be procured and these are divided into two categories, ‘CONSUMEABLE MATERIALS’ [that will be absorbed in the works] and ‘CAPITAL ASSETS’ [that will be used to implement the works or used independently].
[a] The ‘PD’ should OBTAIN a list of:
[i] Consumable materials and the quantities needed for their intended purpose. The list will be provided from the relevant Quantity Surveyor [for Construction of Building Projects] or the Civil Engineer [for Infrastructure Projects] and Mechanical & Electrical Engineer [for Mechanical & Electrical Components].
[ii] Capital Assets with particulars of usage, numbers and duration of need, should be obtained from the Project Manager [where appointed] or the Engineers [C&S and M&E] responsible for the implementation of the works to be constructed as they are the ones who have the expertise and are responsible for the methodology of construction.
[b] The required lists are generally prepared with provisional information by the user department responsible for pricing the cost of works that would be submitted to the client. The provisional lists will be finalized in the event of a successful bid and receipt of the Letter of Award from the client. ‘PD’ can use these lists for its provisional program and commence preliminary inquiries and other preparatory works. This will result in the procurement process to be at its optimum.
[B] USAGE vis-à-vis COMPATIBILITY
[a] The above aspect needs to be understood to ensure that the items procured are suited to their intended needs. The specifications can be designed or specified in the procurement process. It will be important to get the input of the respective technical and appropriate professionals relevant to the item to be procured.
[C] ‘WHERE – SOURCE’ represents the identification of the procurement sources, whether local or of foreign origin. Prospective suppliers should be selected from an in-house or other approved Database of suppliers [where available] and that can also be short-listed for subsequent procurement action. However, in the event that the company does not have a Database of either local or foreign suppliers, it will be necessary to identify, evaluate and shortlist the intended suppliers. The Yellow Pages directory, the various trade directories and the Internet are a good source of supplier information. ‘PD’ should have a research department that should continuously review, expand and revise the list of suppliers to be included in the approved database.
[D] ‘WHEN - TIMELINESS’ represents the time when the item is to be required for usage. The required information may be obtained from the ‘Programmer’ or the person responsible for preparing the ‘bar chart pertaining to the implementation of works.’ The procurement program should use, as far as practical, the ‘Just-in-Time’ concept as it will ensure that the required items are available at the time of need and not too early or too late that can cause indirect/direct avoidable costs for idle periods of resources. The procurement duration will also take into account the period required for obtaining relevant management and other approvals, where necessary, in addition to the time needed to complete the supply. Special emphasis will be given to items that need to be imported as it may be subject to foreign supplier regulations, freight and port procedures and all these can have varying lengths of delivery time before the items are available for use. When items need to be designed and/or manufactured, additional provision will have to be made for design and/or manufacture, testing and commissioning of the item before its dispatch to the buyer.
[E] ‘WHERE DESTINATION’ requires careful planning of the delivery of the items to be procured. This is generally straightforward in the case of building contracts where every procured item has to be delivered to a single site. However, the delivery location for a ‘Linear’ project such as highways, railway systems and power and communications installations, will need staggered deliveries at different locations along the total length of the works. In addition, the proper ‘Packing’ mode will also need to be prescribed to ensure that the suitable logistics and space are available. The objective would be to minimize the cost of handling, safety, security, counting and other associated costs.
[F] ‘TERMS and CONDITIONS’ represent the terms, conditions and specifications that are to be incorporated in the purchase orders or procurement contracts/agreements and to which the suppliers are to be subjected. These should be comprehensive and relevant to the items to be procured and compatible to the works where they are to be used/incorporated.
[G] ‘SPECIFICATIONS’ of the items to be incorporated in the works will be provided in the contract documents. The implementing departments will notify about the prescribed specification in their requisition. The ‘PD’ must then incorporate in their procurement process and ensure the supplier is aware of it. The acceptance of such items will only be certified (certifications and approvals by relevant authorities with relevant expertise), after the respective user departments signify its acceptance of the items as in compliance of the prescribed specifications.
3.0 HOW – METHODOLOGY - OTHER ALTERNATIVES
3.1 Another important aspect of procurement is the methodology used to ensure that the items to be procured are procured in a cost-efficient and cost-effective manner. Management should always explore other alternatives for procurement of the required items. Possible alternatives include ‘In-House Manufacture’ of items and ‘agency system’ where the company may establish subsidiary companies or have associate companies that would obtain agencies from manufacturing companies and/or wholesale suppliers for specific items that are normally to be procured in quantity or on regular basis. These two alternatives have proven financially viable as the cost can be substantially reduced resulting in the company proving its competitiveness compared to others and resulting in future new business. The In-House facilities could expand its activities to become suppliers to other users. A few examples are listed below.
Manufacturing Facilities
[a] Concrete Products: R.C. Piles, Sleepers for Railway Tracks, Decking for Bridges, Drains, Ready-Mix Concrete, etc
[b] Wooden Products: Fixtures/Fittings, Loose Furniture
[c] Others: Plans Printing & Binding Services
[d] Insurance and finance facilities
Agencies - Cement, Steel, Quarry Products, Other Building Materials, Office Supplies.
3.2 The listing above includes examples that immediately come to mind. Professionals in the construction industry should be able to identify many more. These alternative methods would be feasible and economically viable only if the quantities are large and/or the need is continuous in nature or over long periods. Conglomerates are large companies that may operate within a country such as those listed on the Kuala Lumpur Bursa Malaysia and multi-nationals are ideally suited to take advantage of these alternative methods.
4.0 CONCLUSION
4.1 The Procurement Department can contribute positively to the financial bottom line if the procurement is planned and implemented effectively and efficiently. The Procurement Manual should be comprehensive, relevant, accurate and maintained current at all times to reflect the best practices. It should be revised continuously, incorporating latest developments to retain their usefulness to contribute to client finances.
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GSK/Jan 08
E-mail: gursharan38@gmail.com sharwant38@yahoo.com
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