In the previous article we discussed the overview of Procurement discipline in Botswana and the challenges it continues to face despite the number of years it has been practiced.
In this part 2 discussion, let us focus on Procurement Planning. As I indicated previously, 60 to 70% of any organizational spending goes to procurement. Understanding and appreciating the importance and benefits of procurement planning becomes crucial. Every year in February, the Minister of Finance and Economic Development announces the national budget plan. In this plan a significant amount of money is allocated to procurement (over 60%). It is on this basis that government ministries and departments must have long planned their procurement for the financial year to be each given their pie of the cake.
It is very ironic how ministries and departments are often reluctant to develop their procurement plans, making one to wonder why they must be pushed to produce this very important document. Do they really understand the importance and benefits of procurement planning?
The annual procurement and asset disposal plan is a written document indicating the goods, works and services expected to be procured, the procurement methods, recurring or non-recurring expenditure, the targets and milestones, and the estimated costs. Where payments are expected to be made on a regular basis then a cash flow chart should be created. The plan must include estimated timelines for each stage of the procurement process as well as the estimated cost of each activity. The procurement and asset disposal plan must be reviewed and adjusted throughout the given period. Effective procurement requires adequate, timely and efficient planning, which includes the production of an annual procurement master plan.
Benefits of Procurement Planning
Ø Helps to quickly and easily define your procurement requirements
Ø Helps to quickly define the appropriate methods of procurement and the timeframes for delivery
Ø Helps to get much out of supplier relationship
Ø It ensures the procurement of the right products for government business at the right price, from the right place, at the right time, with the right and competent personnel, delivered to the right place etc
Ø It helps to identify all of the items you need to procure
Ø Creates a sound financial justification for procuring goods, services and works
Ø It helps to list all of the tasks involved in procuring your products and schedule those tasks by allocating timeframes and resources
Ø It creates a robust project procurement process for your business
Ø It saves money by obtaining price reductions through quantity discounts
Ø It allows for better workload planning and scheduling
Ø It allows for consolidating requirements for greater economies
Ø Creates room for providing sufficient lead time and resources in the selection of appropriate contract types and development of innovative contracting methods
Ø Allows provision of sufficient time to obtain required approvals before submission of requisitions
Ø Provides room for identifying and obtaining necessary reviews and approvals required throughout the procurement process
Ø Allows for early identification and resolution of potential problems
Ø It ensures the adequacy of specifications or statements of work to be done
Ø Provides grounds for identification of capable sources sufficient to promote adequate competition
Ø Prevents unrealistic delivery or performance schedules and provides for receiving acceptable products and services in a timely manner
Ø Promotes market research before procurement
Besides the numerous benefits that procurement planning brings to an organization, we continue to see departments and organizations doing business without procurement plan. A lot of procurement professionals are coerced to produce procurement plans. Planning for procurement eliminates the necessity of emergency orders, or waivers, and the resultant complaints from the contracting community. Planned procurement results in lower purchase costs, as well as improved service delivery. Unplanned procurement leads to emergency procurement and unnecessary waivers which comes at a cost to the organization. Organizations end up paying exorbitant prices because of pressure and lack of adequate time to evaluate the tenders and award correctly.
*Theetso Ntsima MCIPS, Chartered Procurement and Supply Professional
Senior Consultant – Supply Chain Management, IDM