MODULE 4 Flashcards
It’s often considered interchangeable with the term procurement process,
Purchasing Process
more confined to actually obtaining goods and services,
purchasing process
refers to the overall framework established to optimize that purchasing for maximum value, savings, and efficiency
procurement
A better synonym for the purchasing process
procure-to-pay (P2P) process
The primary benefit of a formal process for purchasing
avoiding waste due to fraud, rogue spend, theft, and other financial pitfalls that accompany undocumented, non-optimized buying habits.
formalizing and optimizing your purchasing process is also important to:
Creating and efficient and effective buying process for not just direct spend (e.g., raw materials) but indirect spend (e.g., office supplies, IT services, etc.).
Successful supplier relationship management.
Optimal supply chain management and strategic sourcing (for both cost savings and value)
Streamlining the procurement cycle and all its sub-processes.
Providing a solid audit trail for internal and external review.
Establishing a model for business process management that can be applied across your entire organization.
Whether you’re a small business or a multinational corporation, having a ________ is essential to competing in the modern marketplace
FORMALIZED PURCHASING PROCESS
“Manual workflows and paper-based record-keeping are sufficient for companies that want optimal return on their purchasing investment or a healthy, strategic supply chain. Automation and artificial intelligence do much to eliminate or mitigate the challenges that come with these outdated methodologies.”
FALSE; RECORD-KEEPING ARE NO LONGER SUFFICIENT
PURCHASING PROCESS STEPS
- Needs Analysis
- Purchase Requisition to Purchase Order
- Purchase Order Review and Approval
- Requests for Proposal
- Contract Negotiation and Approval
- Shipping and Receiving
- Three-Way Matching
- Invoice Approval and Payment
- Accounting Records Update
At this stage, the company recognizes and documents a need for goods or services to solve a particular problem. The procurement team describes the need to be met, and works with others to determine how best to do so.
Needs Analysis
For example, a company facing high travel expenses might invest in more fuel-efficient company transportation for its sales staff, or reduce the amount of travel required for remote employees by investing in advanced telecommunication software.
Needs Analysis
contains full details on the items or services to be obtained;
purchase requisition
below established budget thresholds are automatically updated to purchase orders, and submitted to the preferred supplier for that item or service
Purchase requests
TOF: More expensive purchases, or unexpected purchases not in the budget, will be forwarded to the appropriate individuals for review and approval before they can be transferred to PO’s.
T
Rejected purchase requisitions are returned to the ______ for review and correction or clarification as needed.
ISSUING PARTY
The “purchasing” portion of the purchasing process kicks off with a purchase requisition submitted to the purchasing department or purchasing manager by the individual, team, or department requesting the goods or services
Purchase Requisition to Purchase Order
Approved purchase orders are sent to accounting to verify the funds exist in the appropriate budget to cover the requested goods and services.
Purchase Order Review and Approval
POs that receive budget approval are returned to the procurement department and, as required, used to create requests for proposal (RFPs), also known as requests for quotation, or RFQs. These are dispatched to vendors to solicit bids to fulfill the order for goods or services.
Requests for Proposal
Who submit their bids, and are carefully reviewed based on their performance history, compliance records, and important characteristics such as average lead times, reputation, and price.
potential suppliers
What’s The Difference between RFQs & RFOs?
RFQ is a Request for Quote, or Request for Quotation
RFO is a Request for Offer
It is sent to multiple potential suppliers and contains the exact details of all the specific requirements of the intended purchase,
Request for Quote, or Request for Quotation
It is sent to multiple potential suppliers and contains the details of all the parameters of a service-based need and provides some flexibility because there is no clearly defined solution
Request for Offer
You’re asking for a price quote, so you can be sure to get the lowest price when you put in the formal purchase order.
Request for Quote, or Request for Quotation
exact details of all the specific requirements of the intended purchase,
- Part descriptions or numbers
- Quantity/Volume
- Delivery requirements
- Terms and conditions
- Term of contract
- Other value-add terms or requirements
- Draft contract
It is often used in place of a Request for Proposal or an RFP.
Request for Offer
The concept of the ____remains the same with an RFO, but the terminology is being phased out in favor of the RFO.
RFP
When You Should Use an RFQ
- You know exactly what you’re looking for and are committed to buying it.
- You’re purchasing a commodity or something that you often buy in bulk.
- There is little to no service associated with what you want.
- All you really care about is the best price, and you’re fine with ignoring other factors in your vendor selection process.
TOF: Send the RFQ to multiple potential bidders – and the highest bidder wins.
FALSE; LOWEST BIDDER
TOF: “Make sure your suppliers know you’re sending a request for quote, rather than a request for qualifications, another RFQ acronym with a completely different meaning.”
T
When You Should Use an RFO
- You have more complex business requirements.
- You’re looking for specific solutions to solve a problem – and you’re open to suggestions you may not have come up with on your own
- What you want possibly includes professional services.
- You cannot decide based solely on the price because other evaluation criteria are vital to the decision-making process.
- On-going services may or may not be part of what you’re looking for, but you at least need help getting the solution set up.
Issued when you’re choosing a supplier based on things other than price. Sent to multiple suppliers with whom you’re considering a partnership or a relationship.
RFO
TOF: The vendor with the losing bid is then awarded a contract, which is further refined before signing to ensure optimal terms and conditions and to ensure a mutually satisfactory arrangement for both parties.
FALSE; WINNING BID
[5. Contract Negotiation and Approval]
Once the contract is ____, the purchase order is a legally binding agreement between buyer and seller.
SIGNED
The supplier delivers the goods or services within the agreed-upon timeframe.
Shipping and Receiving
Once they’ve been received (in the case of goods) or performed (in the case of services), the purchaser carefully _________ to ensure they’ve received what was promised, and notifies the vendor of any issues.
reviews the goods and services
three-way-matching is the comparison of
- shipping documents
- packing slips with the original purchase order
- invoice issued by the supplier
TOF: Discrepancies must be rectified as soon as possible to avoid additional charges, delays in production and payment, or damage to consumer relationships.
FALSE; SUPPLIER RELATIONSHIP
This comparison is used to ensure all the information related to the transaction is accurate
Three-Way Matching
Successfully matched orders are approved for payment. Any modifications or additional charges may require another layer of approvals before payment can be issued. Once approved, payment is issued to the vendor. Ideally, such payments are made with the goal of capturing early payment discounts and other incentives while avoiding late payment fees.
- Invoice Approval and Payment
Completed orders are recorded in the company’s books, and all documents related to the transaction are securely stored in a centralized location.
- Accounting Records Update
an important government system for spending public money on acquisition of goods, works, and services needed for public programs and projects
PUBLIC PROCUREMENT
Public procurement comprises:
(i) preparation of annual budget when government agencies have to estimate their needs,
(ii) procurement planning following budgetary allocation, and
(iii) execution of procurement plans. Procurement plans are implemented using a procurement cycle that includes tendering or bidding, contract award, and contract management.
PUBLIC PROCUREMENT OBJECTIVES
delivery of quality and timely services to citizens through public programs and projects, implementation of which is supported by public procurement.
ToF: The main objective of public programs and projects is to improve the living standards of government
FALSE; STANDARDS OF GOVERNMENT
critical for accountability of public expenditure and supports good governance, and it assists with economic and social development and public trust in government
Public procurement
Right procurement is essential for ensuring timely delivery of goods, works, and services intended for citizens; it also promotes competitiveness, trade (within and among countries), and investment
FALSE; GOOD PROCUREMENT
ToF: Access to information today has made citizens more aware of their rights of access to benefits from public programs and projects; they are now in a better position to challenge and scrutinize the outcome of public procurements. They know that poor procurement practices can prevent them from receiving public benefits.
TRUE
PILLARS OF PUBLIC PROCUREMENT
PILLAR I - LEGISLATIVE
PILLAR II- INSTITUTIONAL ARRANGEMENT AND MANAGEMENT CAPACITY
PILLAR III- PROCUREMENT OPERATIONS AND MARKET
PILLAR IV - INTEGRITY AND TRANSPARENCY
the public procurement regulatory framework comprises the implementation regulations and standard procurement documents
Legislative/regulatory framework, including standard procurement documents:
The implementation regulations discuss in more detail the provisions in _______ so as to facilitate public officials’ adherence to them. Also, in order to facilitate the implementation task of public officials, and with a view to standardizing the procedures and practices of the conduct of procurement
public procurement law or act (PPL/A)
stipulate the preparation of standard prequalification/bidding documents as a minimum for goods, works, and services, as well as procurement manuals and standard/ model specifications for the procurement of off-the-shelf goods.
public procurement law or act (PPL/A)
required to ensure that the public procurement system in a country is functioning as part of the institutions and management systems that operate to ensure public sector governance in the country, including budget preparation, its execution and reporting; procurement regulatory body, its funding and staffing; existence of institutional development capacity; and procedures for collecting and monitoring national procurement data.
Institutional and management capacity
this pillar considers whether public procurement is effectively and efficiently functioning at the level of procuring entities. Given the importance of the private sector to procurement, it also looks at whether the private sector is strong and capable of providing competition; whether the private sector has any trust in public officials conducting and managing procurement; whether it has easy access to credit to be able to participate in tendering, etc. It also ensures that the necessary procedures are in place that do not only keep the private sector informed about the legal and procedural requirements of public procurement but also create an environment of trust by all parties in the public procurement system.
Procurement operations and market practices
this pillar ensures that the public procurement system functions with integrity, that suitable controls supporting the system exist, and that appropriate anti-corruption measures are in place to avoid any improprieties in public procurement. Therefore, this pillar considers effective control and audit systems, efficiency of appeals mechanism, access to procurement information, and ethics and anti-corruption measures.
Integrity and transparency of the public procurement system
The public procurement system in most countries is based on the following seven globally accepted principles:
1.value for money
2. economy
3. integrity
4.fit for purpose
5. efficiency
6. transparency
7. and fairness
“Procurement in IPF (Investment Project Financing) and Other Operational Procurement Matters” is a policy of ____
world bank policy
effective, efficient, and economic use of resources, which requires an evaluation of relevant costs and benefits, along with an assessment of risks, and non-price attributes and/or life cycle costs, as appropriate. Price alone may not necessarily represent value for money.
Value for money
Economy takes into consideration factors such as: ____. It permits integrating into the Procurement Process economic, environmental, and social considerations
- sustainability
- quality, and
- non-price attributes and/or
- life cycle cost as appropriate that support value for money.
refers to the use of funds, resources, assets, and authority according to the intended purposes and in a manner that is well informed, aligned with the public interest and aligned with broader principles of governance … all parties involved in the Procurement Process … observe the highest standard of ethics … and refrain from fraud and corruption.
Integrity
applies both to the intended outcomes and the procurement arrangements in determining the most appropriate approach to meet the project development objectives and outcomes, taking into account the context and the risk, value, and complexity of the procurement.
Fit for Purpose
requires that procurement processes be proportional to the value and risks of the underlying project activities. Procurement arrangements are generally timesensitive and strive to avoid delays
Efficiency
requires (i) that relevant procurement information be made publicly available to all interested parties, consistently and in a timely manner, through readily accessible and widely available sources at reasonable or no cost; (ii) appropriate reporting of procurement activities; and (iii) the use of confidentiality provisions in contracts only where justified.
Transparency
refers to (i) equal opportunity and treatment for bidders and consultants; (ii) equitable distribution of rights and obligations between …; and (iii) credible mechanisms for addressing procurement-related complaints and providing recourse ….”
Fairness
Procurement is generally divided in three categories:
- goods
- works
- services
All manufactured items, including equipment, furniture, etc., are defined as _____
goods
____ relate to construction, repair, and rehabilitation of infrastructures, including buildings, roads, highways, etc
works
Services are further divided in two subcategories:
(i) advisory and intellectual (consultant) services and
(ii) technical services that are labor and/or equipment intensive, such as cleaning, surveying, and mapping
Manufactured goods, equipment, furniture, computers, material, and supplies are defined as goods.
Goods
Construction, reconstruction, and rehabilitation of infrastructure, including all kinds of buildings, ports, highways, roads, and bridges are known as works
Works
Intellectual and advisory services are called consultancy services. Examples include project management, advice on privatization, design and delivery of training, etc.
Consultant services
Non-intellectual services are technical services in which the element of manual or machine inputs is substantial. Some examples are: building maintenance, surveys, mapping, data collection and inputting, etc.
Technical services
relates to collection of resources and their efficient and effective allocation for government programs (also called budget formulation); it includes efficient utilization of these scarce resources, including economic and efficient conduct of procurement, and a system of controls to ensure that budget entities use budget funds with care
PROCUREMENT AND PUBLIC FINANCE MANAGEMENT (PFM)
effective allocation for government programs is also called ____
budget formulation
more than a process for executing transactions; it constitutes an integral part of the mechanism through which budget entities use public money.
procurement
links directly to service delivery and government policy aims (since budgets get translated into services aimed at by a government policy in large part through the operation of the procurement system).
PROCUREMENT
PFM Cycle
A. BUDGET PLANNING AND PREPARATION
B. BUDGET APPROVAL AND ALLOCATION
C. BUDGET EXECUTION (CASH AND COMMITMENT MANAGEMENT)
D. BUDGET EXCUTION (PROCUREMENT)
E. ACCOUNTING AND REPORTING (BUDGET MONITORING)
F. EXTERNAL OVERSIGHT
formulated on the basis of budget entities’ estimates of expenditures on government programs and projects.
BUDGET
estimates are usually based on end users’ submissions to the ______
Department of Finance (DOF).
have the responsibility of ensuring that budget entities are spending budgetary funds in accordance with prevailing applicable procedures. They play an important role in procurement through enhancing accountability of public officials, risk management process, and governance.
External and internal audit
government agencies serve as procuring entities which fulfill their needs in goods, works, and services, in accordance with the country’s legislative and/or regulatory requirements.
DECENTRALIZED SYSTEM
a single government entity is designated as a procurement entity to conduct procurement for all government entities.
centralized public procurement system
(combination of decentralized and centralized procurement) seems to offer a better solution, especially for procurement of commonly and frequently used items.
hybrid model
The choice of the optimal degree of centralization must be determined on the basis of _____
advantages for each commodity and organizational structure
Carefully designed centralized procurement strategies are able to reduce the total cost of public purchases, both by achieving lower purchasing prices and by streamlining the acquisition processes, so reducing transaction cost. Financial benefits may accrue when larger orders are placed for the same goods or services because suppliers are likely to offer lower prices when faced with bulk procurement, particularly for standard products, usually consumables such as stationery, office equipment, fuel, medicines, or food products.
Economies of scale
Partly as a response to the consolidation of supplies, but also more generally, it is possible that a centralized coordination of procurement — notably in the more formal aspects of document preparation, advertisement, and bid opening and evaluation procedures — could result in greater consistency, reliability, and efficiency in the procurement process, thus considerably reducing the risk of litigation at any stage of the procurement cycle. Such results would benefit both procuring entities and bidders by creating greater certainty and confidence as compared to a system operated by any number of inexperienced procurement officers, which risks becoming fragmented and inconsistent.
Increased efficiency
Centralized efforts are often justified by the need to establish technical standards for information technology systems and computer software applications within the government sector and to set environmental standards for the inclusion in technical specifications and contracts with suppliers. It is less easy to achieve these objectives if the government’s purchasing system is highly fragmented, particularly in the absence of a public procurement office.
Product standardization
Centralization may yield more efficiency to public procurement in strategic sectors such as defense and health. A centralized procurement used for large, fixed-quantity purchases of pharmaceuticals and nutritional supplements, vaccines, etc., leads to economy and efficiency. Medical equipment are also recommended to be procured centrally in part to take advantage of multiple unit purchases, but primarily because the expertise to procure specialized capital medical equipment is unlikely to be available or easy to maintain in a cost-effective way at lower administrative levels of the health system. Central purchasing also enables creation of networks for better and cost-effective, after-sales services as the quantities are large.
Strategic procurement
an individual, community, or an organization with interest in a public or private activity.
Stakeholders
Public procurement stakeholders include, among others, the following:
- people, the intended beneficiaries of public programs and projects;
- parliament;
- politicians;
- Government;
- procurement agency;
- procuring entities;
- private sector, including contractors, consulting firms, and suppliers;
- Government oversight bodies;
- civil society; and
- media.
it is important that any procurement decision is informed by a _____
STAKEHOLDER ANALYSIS
refer to the different market characteristics that determine relations between sellers to each another, of sellers to buyers and more.
Market structures
several basic defining characteristics of a market structure:
- The commodity or item that’s sold and the extent of production differentiation.
- The ease or difficulty of entering and exiting the market.
- The distribution of market share for the largest firms.
- The number of companies in the market.
- The number of buyers and how they work with or against the sellers to dictate price and quantity.
- The relationship between sellers.
There are four basic types of market structures.
Pure Competition
Monopolistic Competition
Oligopoly
Pure Monopoly
a market structure defined by a large number of small firms competing against each other. A single firm doesn’t have significant marketing power, and as a result, the industry produces an optimal level of output because firms don’t have the ability to influence market prices. Supply and demand determine the amount of goods and services produced, along with the market prices set by the companies in the market. Products are identical to competitors’ products, and there are no significant barriers to entering and exiting the market.
Pure or perfect competition
there are many producers and consumers in the market and no single company can influence the pricing
PERFECT/ PURE COMPETITION
A perfectly competitive market has the following characteristics:
- There are many buyers and sellers in the market.
- Each company makes a similar product.
- Buyers and sellers have access to perfect information about price.
- There are no transaction costs.
- There are no barriers to entry into or exit from the market.
a market structure referring to a large number of small firms competing against each other. However, firms in monopolistic competition sell similar but highly differentiated products. Lowest possible cost production, which leads to optimal output in a pure competition market structure, is not assumed.
Monopolistic Competition
can include style, brand name, location, packaging, advertisement, pricing strategies and more.
Differentiation
dominated by a few firms, resulting in limited competition. They can collaborate with or compete against each other to use their collective market power to drive up prices and earn more profit.
OLIGOPOLY
TOF: Entering into an oligopoly is easy. The most powerful companies have control over raw materials, patents and financial and physical resources that create barriers for potential entries. This is what helps set high prices. However, if prices are too high, buyers will head to product substitutes in the market.
FALSE; OLIGOPOLY IS DIFFICULT
video gaming consoles are an oligopoly with three companies:
Microsoft, Sony and Nintendo
Oligopoly has _______ dominant firms, but this number can vary depending on the market
3-5
there’s a single firm that controls the entire market. The firm and industry are synonymous. This firm is the sole producer of a product, and there are no close substitutes. Because there are no alternatives, the firm has the highest level of market power. Hence, monopolists often reduce output, increase prices and earn more profit.
pure monopoly
TOF: Entry or exit is blocked in a pure monopoly
TRUE
two of the best examples for pure monopolies:
public utilities and professional sports leagues.
considered natural monopolies because they have economies of scale — a firm receives certain cost advantages due to its size — in an extreme way.
Public utilities
