Fundamentals of procurement

Procurement isn’t rocket science, it’s not brain surgery and it’s not curing illness, junior buyers have been told. 

For the most part, procurement is “absolutely about following a series of systems and processes” to identify, source and manage contracts, said Matthew Sparkes, head of financial services at the Crown Commercial Service (CCS), who describes himself as “not a procurement person by trade”.

What Is Procurement?

Procurement is the act of obtaining goods or services, typically for business purposes. Procurement is most commonly associated with businesses because companies need to solicit services or purchase goods, usually on a relatively large scale.

Procurement generally refers to the final act of purchasing but it can also include the procurement process overall which can be critically important for companies leading up to their final purchasing decision. Companies can be on both sides of the procurement process as buyers or sellers though here we mainly focus on the side of the soliciting company.

The Sri Lanka Government Procurement Guideline defines procurement as.

'Procurement means obtaining by Procuring Entities of Goods, Services or Works

by the most appropriate means, with public funds or funds from any other source 

whether local or foreign. received by way of loans, grants, gifts, donations. 

contributions and similar receipts. It would include purchase, rental, lease or hire 

purchase. including services incidental to the provision of the said Goods or 

Services or the execution of the Works'.

DEFINITIONS
Unless the Context otherwise requires, the following terms whenever used in these Guidelines have the following meanings:

“Bid or Quotation” 

means a formal offer by a potential bidder indicating the price and other terms at which the bidder agrees to provide the Goods or Services or to execute the Works, where the offer tendered by the bidder is accepted by the Procuring Entity.

“Foreign Funding Agency” Means any multi-lateral or bi-lateral agency which has entered/intends to enter into an agreement with the Government of Sri Lanka and is not limited to the World Bank, Asian Development Bank, Japan Bank for International Co-operation.

“Foreign Funded Project”

 means a project fully or partly financed by a Foreign Funding Agency.

“Goods” 

means commodities, raw materials, products, equipment and other physical objects of every description, whether in solid, liquid or gaseous form and electricity.

“Procuring Entity” 

means a Government ministry, provincial council, Government department, statutory authority, government corporation, government owned company, local authority or any subdivision thereof or any other body wholly or partly owned by the Government of Sri Lanka or where the Government of Sri Lanka has effective control of such body, that engages in Procurement.

Key Points

Procurement is the process of purchasing goods or services and is usually in reference to business spending.

Business procurement requires preparation, solicitation, and payment processing, which usually involves several areas of a company.

Procurement expenses can fall into several different categories, depending on the procurement demand.

Competitive bidding is usually a part of most large scale procurement processes involving multiple bidders.

How Procurement Works

Procurement and procurement processes can require a substantial portion of a company’s resources to manage. Procurement budgets typically provide managers with a specific value they can spend to procure the goods or services they need. The process of procurement is often a key part of a company's strategy because the ability to purchase certain materials or services can determine if operations will be profitable.

In many cases, procurement processes will be dictated by company standards often centralized by controls from the accounts payable division of accounting. The procurement process includes the preparation and processing of a demand as well as the end receipt and approval of payment.

Comprehensively, this can involve purchase planning, standards, specifications determination, supplier research, selection,financing, price negotiation, and inventory control. As such, many large companies may require support from a few different areas of a company for successful procurement.

Procurement Committee 

Some companies may even choose to hire a chief procurement officer to lead these efforts. A chief procurement officer can oversee the establishment of procurement standards, work with accounts payable to ensure procurement standard integration and efficient payment, and serve on procurement teams making procurement decisions when there are multiple competitive bids.

Overall, procurement costs will be integrated into the financial accounting of a business, as procurement involves acquiring goods and/or services for the revenue goals of the business.

Financial Accounting

Procurement processing can be divided and analyzed from several angles. Companies and industries will have different ways of managing the procurement of direct and indirect costs. Goods companies, as compared with services companies, will also have different ways of managing costs.

Direct vs. Indirect Procurement Costs

Direct spend refers to anything related to the cost of goods sold and production, including all items that are part of finished products. For manufacturing companies, this can range from raw materials to components and parts. For merchandising companies, this will include the cost at which merchandise is purchased from a wholesaler for sales.

For service-based companies, direct costs will primarily be the hourly labor costs of employees performing services. Procurement for items pertaining to the cost of goods sold directly affects a company’s gross profit.

By contrast, indirect procurement involves non-production-related purchases. These are purchases a company uses to facilitate its operations. Indirect procurement can involve a broad range of purchases including office supplies, marketing materials, advertising campaigns, consulting services, and more. Companies will generally have different budgets and processes for managing direct costs as compared with indirect costs.

Goods vs. Services Procurement Accounting

Procurement is part of the expense process for all types of companies, but goods and services companies account for revenues and costs differently. As such, accounting for procured goods will also differ from accounting for procured services.

Companies focused on goods will need to deal with the procurement of those goods as inventory. These companies place a lot of importance in this area on supply chain management. Service-based companies provide services as their primary revenue generator so they do not necessarily rely as heavily on a supply chain for inventory although they may need to purchase goods for technology-based services.

In general, the cost of sales for many service companies is based on the hourly labor cost of employees providing the service so procurement as a direct expense is not a major factor. However, service-based companies will usually have higher relative indirect costs because they typically deal with their own procurement as an indirect expense through marketing.

Special Considerations  

Competitive bidding is a part of most business deals involving multiple bidders. The competitive bidding process for goods is usually more simplified than for services. Procurement is also the term used for purchasing goods and services on behalf of the government which has its own bidding processes and requirements.

Competitive bidding for all types of goods generally involves proposals that detail the per-unit price, shipping, and delivery terms. Competitive bidding for the procurement of services can be more complex since it can involve a multitude of things including individuals involved, technology services, operational procedures, client servicing, training, service fees, and more.

In each case, the solicitor of bids chooses the supplier they want to work with based on both operational business aspects as well as costs. The solicitor is then responsible for accounting for expenses depending on the goods or services agreed to. Government agencies and large companies may choose to solicit procurement proposals on an annual or scheduled basis to ensure that they continue to maintain the best relationships for their business.

Tender Process and Notices

Any organization that wants to place an order after the inquiry is done, needs to fill out a tender. A tender is essentially an official letter that the organizations have to send for the procurement of the goods and services required on a large scale. For the execution of projects also tender notice is required. Thus, the tenders are filled when an invitation is received for bidding. In this, the organizations fill out their quoted prices in exchange of goods and services which are further subjected to stated conditions.

Preparing Tender Notices

A tender notice can be prepared in the form of tabular or serial or paragraph form. The tenders may be open to all the parties and are often done for pre-qualification purposes. They are meant for registered parties only.

While for the jobs that are funded through foreign assistance or loans which requires heavy technology or sophisticated machinery can be offered through global tenders.

Thus, the delivery details and the estimated value of services and goods are included in the tender. The bids that are made through tender are in non-transferable form. They are available in the form of documents, which are sold and printed only by the concerned authorities.

Further, these forms are divided into different sections which are dealing with commercial conditions and technical specifications of the product.

There is a difference between the tender and pre-qualification for a contract. Pre-qualification is completely different from a tender. It is not even a form of tendering. Because the document which precedes the tender is called pre-qualification. It is done to identify who are allowed to tender for the specific contracts.

Thus, an advertisement for pre-qualification does not mean an advertisement for tendering. Because pre-qualification just allows the organizations interested to express their desire in order to be eligible for a tender. Once the organization is pre-qualified for a particular contract than only it is eligible for that particular tender.

Thanks https://www.investopedia.com

Coronavirus’s economic danger it will economically cripple millions

“We have been always saying that we are sitting on top of an unexploded bomb, but we don’t know what is going to trigger it,” said Emre Tiftik, director of Research for Global Policy Initiatives at the Institute of International Finance, a Washington-based financial industry trade group. “Can the coronavirus be a trigger? We don’t know. Maybe.”

(This article originally appeared on independent.co.uk)

Coronavirus’s economic danger is exponentially greater than its health risks to the public. If the virus does directly affect your life, it is most likely to be through stopping you going to work, forcing your employer to make you redundant, or bankrupting your business.

The trillions of dollars wiped from financial markets this week will be just the beginning if our governments do not step in. And if President Trump continues to stumble in his handling of the situation, it may well affect his chances of re-election. Joe Biden, in particular, has identified Covid-19 as a weakness for Trump, promising “steady, reassuring” leadership during America’s hour of need.

Worldwide, Covid-19 has killed 4,389 with 31 US deaths as of today. But it will economically cripple millions, especially since the epidemic has formed a perfect storm with stock market crashes, an oil war between Russia and Saudi Arabia, and the spilling over of an actual war in Syria into another potential migrant crisis.

Just as important as fighting the virus — if not more important — is vaccinating our economies against the incoming pandemic of panic. Human suffering can come in the form of illness and death. But it can also be experienced as not being able to pay the bills or losing your home.

Small businesses, in particular, are struggling as supply chains dry up, leaving them without products or essential materials. Factory closures in China have led to a record low in the country’s Purchasing Manager’s Index which measures manufacturing output. China is the world’s largest exporter and is responsible for a third of global manufacturing, so China’s problem is everyone’s problem — even in the midst of a trade war between the White House and Beijing. 

All this makes it even more worrying that governments continue to see this as a health crisis, not an economic one. It is time the economists took over from the doctors before the real pandemic spreads. 

It is difficult to imagine Italy not entering a recession (the world’s ninth-largest economy is now on lockdown). It is also difficult to imagine that failing to affect Europe and its largest trading partner, the United States. And it is impossible to see how any of this will not add up to a global downturn unless governments step in faster and harder than they did 12 years ago during the last financial crisis.

The stakes are higher this time, because there seems to be a coordinated effort to economically hurt many Western countries, and warn them away from the aggressive trade policies that Trump has so enthusiastically adopted.

Although China bore the brunt of the virus’s economic and human cost, many in Beijing will see a silver lining in the weakening of the US economy, and a distraction from Trump’s trade wars that appeared to be escalating with no end in sight.

President Trump has pushed through overdue payroll tax cuts and help for hourly workers — measures that will help both employers and employees survive. In the UK, Chancellor Rishi Sunak today unveiled a ‘Coronavirus Budget’. But everyone needs to think bigger if they want to properly deal with how this new factor changes the status quo.

This is about much more than coronavirus, oil prices, or even the global economy. This is about the balance of power between East and West. The epicentre of this has been, for the last 10 years, Syria. After a decade of conflict on the ground, the face-off seems to have now escalated from proxy war to economic conflict.

The emerging superpowers of Russia and China witnessed what many saw as American irrelevance in Syria. And they are now trying to cement their vision of a truly multipolar world. Rather than allowing US ally Saudi Arabia to lead the oil markets through the OPEC cartel, Russia and China want to reshape global markets — and power balances — to their advantage.

To survive these shifts, the US, UK and others will need to protect the future of their businesses, large and small, and look for opportunities to benefit from the new economic world order, not deny it. Ignoring these changes will be even more damaging than any flu pandemic.

Author - Omar Hassan (An economic development specialist and co-founder of UK: MENA Hub)

கொ ரோனா வை ரஸ் இலங்­கையின் பொ ரு­ளா­தா­ரத் ­தையும் ஆ ட்டிப் படைக்கும் நி லை ஏற்பட்டுள்­ளது. பெரும்­பா­லான மூலப்­பொருட்கள் சீனா­வி­லி­ருந்தே இலங்­கைக்கு இறக்குமதி செய்­யப்­பட்டு வரு­கின்­றன.

அந்தவகையில் இலங்­கையின் ஆடை உற்­பத்­திக்குத் தேவை­யான மூலப்­பொ­ருட்­களை சீனா­வி­லி­ருந்து இறக்­கு­மதி செய்­வதில் ஏற்­பட்­டுள்ள நெ ருக்­கடி கா ர­ண­மாக இங்­குள்ள பிர­ப­ல­மான சுமார் ஐம்­ப­துக்கும் மேற்­பட்ட ஆடை உற்­பத்தி நிலை­யங்­களை த ற்­கா ­லி­க­மாக மூ ட வேண்­டிய து ர்ப்­பாக் ­கிய நி லை ஏற்­பட்­டுள்­ளது.

அத்­துடன் அங்கு தொழில் புரிந்த ஆயி­ரத்­துக்கும் மேற்­பட்டோர் தொழில் வாய்ப்பை இ ழக்கும் நி லையும் ஏற்­பட்­டுள்­ளது.

இது குறித்து கருத்து தெரி­வித்­துள்ள ஆடை ஏற்­று­ம­தி­யா­ளர்கள் சங்­கத்தின் தலைவர் ரொஹான் ல­க் ஷானி, தற்­போது ஏற்­பட்­டுள்ள கொ ரோனா அ ச்சம் கார­ண­மாக இலங்­கையின் ஆடை உற்­பத்­திக்குத் தேவை­யான மூலப்­பொ­ருட்­களை சீனா­வி­லி­ருந்து இறக்­கு­மதி செய்­வதில் பெரும் சி க்கல் ஏற்­பட்­டுள்­ளது.

இதனால் ஐம்­ப­துக்கும் மேற்­பட்ட ஆடை உற்­பத்தி நிலை­யங்­களின் உற்­பத்தி ந ட­வ­டிக்­கைகள் பாதிக்­கப்­பட்­டுள்­ளன.

இவற்றில் சில நிலை­யங்கள் இம் மாதம் முதல் த ற்­கா­லி­க­ மாக மூ டப்­ப­ட­வுள் ­ள­துடன், ஏனை­யவை ஏப்­ரல் மாத விடு­மு­றையின் பின்னர் மூ டு­வ­தற்கு தீ ர்­மா­னிக்­க ப்­பட்­டுள்­ள­தாக தெரி­வித்தார்.

இதனால் எதிர்வரும் மே மாதம் அளவில் சுமார் ஒன்பதரைக் கோடி ரூபா வரை ந ஷ்டம் ஏற்படும் எனவும் அவர் மேலும் தெரிவித்தார்.

What do you don.'t Know QR Codes (Quick Response code)

• A QR code on a business card can contain an electronic version of the contact information. Scan the code and the reader application adds the contact to your address list.
• A QR code can contain event information. Scan the code on a poster for a concert and the app automatically adds its name, date and location to the agenda on your smartphone or PC.
• A QR code can contain an SMS with a phone number and text. Scan the code and the scanning app lets you automatically participate in some contest to win fabulous prices.
• A QR code can contain an e-mail message with a subject and message text. That message can be a request for information so that in return you might get a reply email with additional information and attached files.
• A QR code can contain a geographical location. Scan the code on a poster advertising for a restaurant and its location becomes available to your navigation software, informing you how to get to that place.
• A QR code can contain WIFI configuration data. Scan the code and your Android device automatically configures itself to use the wireless access at the hotel.

There are still more ways in which QR codes can be used. The above list only summarizes the main applications. You can see examples of the creative use of quick response codes. Originally this technology was created for tracking parts in manufacturing processes. In the printing industry, there is finishing equipment that uses such 2d bar codes.

Description of Quick Response bar codes

The Japanese corporation Denso-Wave created the QR matrix code in 1994. It is an open standard for which no license fee has to be paid. The physical encoding of QR codes is nowadays in the hands of various standards bodies, including JIS and ISO (e.g. the ISO/IEC 18004:2006 standard). The standard for encoding URLs was established by NTT DoCoMo, the Japanese telecom company.

QR codes contain information in both the horizontal and vertical axis. Compared to ‘regular’ barcodes, this allows for much larger amounts of raw data to be embedded. These can be numeric, alphanumeric or binary data – of which up to 2953 bytes can be stored. Only a part of each QR bar code contains actual data, including error correction information. Below you see the above QR code with the URL data stripped away. As you can see quite a large area of the bar code is used for defining the data format and version as well as for positioning, alignment and timing purposes.

Positioning, alignment,… data in a QR code

The more data need to be embedded, the larger the barcode becomes. Below is the QR code for this page. Since the URL is longer than that of the home page, the bar code has also grown. The barcode after it doesn’t contain a URL but the first 5 sentences of this page.

QR barcode pointing to this page

QR barcode with five lines of text in it

The smallest square dot or pixel element of a QR code is called a module. Like with other types of bar codes, it is recommended to have an empty area around the graphic, which makes it easier for devices to read the bar code. This quiet area is ideally 4 modules wide.

The minimum dimensions of a QR code depend upon the resolving power of the cameras that are used to scan the code. According to a Kaywa white paper, it is recommended to use a minimum size of 32 × 32 mm or 1.25 × 1.25 inches, excluding quiet zone, for QR codes that contain a URL. This guarantees that all camera phones on the market can properly read the bar code. Changing the size to a width and height of 26 × 26 mm or roughly 1 square inch still covers 90% of the phones on the market. The latest camera models, which have improved macro capabilities, can however already deal with QR codes that are less than 10 mm (0.4″) wide and high.

The above rule applies to perfectly printed codes that the user has direct access to. Things change when using QR codes on a poster or billboard. The general consensus is that there is a direct relationship between the physical dimensions of a QR code and its scanning distance. That ratio is around 1/10, so if the reader is 50 centimetres removed from the code, the size of the QR code should be at least 5 centimetres. For a billboard viewable from 10 meters, the height of the code should be at least 1 meter.

For good reader accuracy, good contrast between the background and the bar colour itself is very important. The bar code should have a dark colour on a light background. You cannot go wrong by treating the QR code as line art, using black on white. If the background needs to be in colour, make sure that it is a solid colour, not a screened tint. Avoid using cyan or magenta but a 100% yellow background should work fine. Very light Pantone colours might also work, as long as the contrast with the bar code is high enough.

How to read a QR code

To read a hard link or physical world hyperlink, a smartphone or computer equipped with a webcam needs to have the correct reader software. It will interpret the scanned image and launch a browser to visit the programmed URL. Do a web search using the keywords “QR reader” and the make of your phone to find such applications.QR codes in China aren’t just used to pay, but to easily gain access to information, products, services and even meet people with a scan.

Think about how often we re-enter info. about ourselves, swipe cards, etc.

1) Tech evolves fast in China -- most of these products were nonexistent 3 years ago.

2) These examples are by no means ‘magical’ in China; they are the norm.

QR code (abbreviated from Quick Response code) is the trademark for a type of matrix barcode (or two-dimensional barcode) first designed in 1994 for the automotive industry in Japan.

A barcode is a machine-readable optical label that contains information about the item to which it is attached. In practice, QR codes often contain data for a locator, identifier, or tracker that points to a website or application.

A QR code uses four standardized encoding modes (numeric, alphanumeric, byte/binary, and kanji) to store data efficiently; extensions may also be used.

The Quick Response system became popular outside the automotive industry due to its fast readability and greater storage capacity compared to standard UPC barcodes.

Applications include product tracking, item identification, time tracking, document management, and general marketing.

China’s mobile payment ecosystem, the largest in the world, is built upon QR codes. But that technology extends far beyond shopping to ease friction throughout daily life.

It’s no coincidence that QR codes were popularized in China, where many consumers leapfrogged the PC and bought a smartphone as their first computer. As a result, many of China’s products are built first and foremost for mobile

Thanks 

Cecile G. Tamura