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to secure better outcomes than from traditional negotiations.242 Despite the fact that both
sourcing and procurement deal with suppliers and purchasing, they involve very different
processes.
Sourcing consists of spending analysis; finding suppliers; managing RFIs, RFQs, RFPs and
RFXs; as well as the management of contracts; and supplier relationship management (SRM).
The sourcing process ends before the procurement process begins, as procurement involves
the purchasing and ordering of goods and services from those suppliers.243
e-Sourcing Benefits
The reasons why e-sourcing has become so prevalent, is that, as in many other areas of
online activity, the Internet brings suppliers and provider closer together. This facilitates
reduced costs, better communication, and a more efficient process. The benefits of e-
Sourcing include streamlining the sourcing process, reducing prices by maximising supplier
competition, and creating a repository for sourcing information.244
Reduced Costs
Even though saving money is only one aspect of good procurement practice, it is a main
driver of e-Sourcing. The ability to access a broader range of suppliers, and the different
bidding approaches that systems facilitate, can provide for incredibly successful outcomes
for buyers.245
e-Sourcing systems also speed up procurement processes. This reduces the total time of a
tender process and cuts the number of hours procurement managers spend on tendering.
This in turn frees up valuable time for them to focus on strategic activity. In addition, the
process efficiencies that these systems bring, reduces expenses for both buyers and sellers.
Costs reduced include mainly print and paper costs.
Improve Supplier Relations
E-Sourcing can greatly increase transparency and openness between buyers and suppliers.
The systems provide a portal through which suppliers can see all tender opportunities from
a buyer with deadlines, their current statuses, and the final outcomes all clearly presented.
Communication through the system ensures speedy communication and effective feedback.
Suppliers are therefore always aware of the current situation.
E-sourcing facilitates a reduction in geographical boundaries. This, along with the clear
publishing of tenders, allows suppliers to efficiently engage in more opportunities. This
creates the potential for buyers to develop relationships with companies whose size or
proximity might have previously been a barrier.
242 Why E-Sourcing? https://www.springtideprocurement.com/e-sourcing/why-e-sourcing/ 20 Aril 2019
243 What is e Sourcing and how is it different from eProcurement? https://selecthub.com/eprocurement/top-5-esourcing-
tools/30 April 2019
244 Busch J what is e-Sourcing and how to get started? https://www.nextlevelpurchasing.com/articles/what-is-
esourcing.php 30 April 2019.
245 An e-Auction conducted by the UK Government delivered savings on mobile phones of over 59%.
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Improve compliance and reduce risk.
The systematic approach of e-Sourcing processes provides companies with control over
their tender processes and provides an audit path for compliance purposes.
In South Africa e Sourcing platforms are utilised in all spheres, both public and private. SARB
uses an ERP sourcing module as part of its procurement process. This provides a consistent,
transparent, and efficient process for tendering and contract execution,
delivering significant value to both their internal and external stakeholders.246 The e-
sourcing platform Quest is also available to South African businesses through an association
between Quadrem and Trade World.247
The new joint service, which is being marketed as Quest, marries Quadrem’s Quest sourcing
functionality with Trade World’s supplier database and support infrastructure. Quest is an
end-to-end strategic Web-based sourcing solution. It automates and manages all aspects of
the sourcing process. It includes a self-service auctions module that allows procurement
organisations to manage reverse auctions online and in real time.
Benefits to suppliers are an increase in new business opportunities through access to a pool
of large global buyers; bottom-line reduction in quotation, interaction, and audit trail costs;
and a strengthening of relationships with customers.
Benefits to buyers include enhanced process efficiencies through automation of manual
processes; a streamlined quote management process; access to a large database of
suppliers and a lower total cost of doing business.
The relevance of measuring supplier performance to the supply chain function
An MIT study found that 77 percent of companies surveyed said two out of the top three
major procurement risk factors were related to suppliers. These two matters were
specifically over-dependency on a supplier and quality issues stemming from a supplier
which effected an organisation’s product quality, brand image, production efficiency and
more.248 For this reason, companies have chosen to adopt and implement supplier
performance measures.
Supplier performance measures are a tool used to determine whether a supplier is doing
their work as expected. 249What is expected of the supplier is usually described in the supply
contract or statement of work, specification, service level agreement or KPIs, or a mixture of
some of these.
There are many tools used to assist in the measurement of supplier performance. Some of
these are paper-based checklists, others are digitally enabled.
Electronic performance measurement helps to set constant measures for suppliers in similar
categories or projects. Below are the benefits and disadvantages of standardised measures
across different suppliers.
246 SARB, https://www.resbank.co.za/AboutUs/Departments/FinancialServices/ProcNew/Pages/eSourcing.aspx30 Aril 2019
247 Engineering News, E-Sourcing solution now available in South Africa, https://www.engineeringnews.co.za/print-
version/esourcing-solution-now-available-in-south-africa-2003-06-13 30 April 2019.
248https://www.jaggaer.com/6-benefits-of-supplier-performance-management/ 14 January 2018
249 ADR, What are supplier performance measures, http://www.adr-international.com/insights/what-are-supplier-
performance-measures1 May 2019.
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Before these are explained, however, an overview of supplier performance measures and
their purpose is provided.
Measurements for supplier performance
Supplier performance measures may consider different elements depending on whether a
firm is buying goods or services.
They typically address similar areas, looking at areas which are important for the
performance of the overall organisation and its stakeholders. The table below includes
some examples.
Examples of measures of supplier performance
Measurements Goods Services
Timeliness On time delivery of goods Work completed or
or other information response time at or within
a specified period or time
Completeness Delivery in full Service completed for the
expected duration or with
the expected outcome
Quality Low defect rate or Low re-work, errors, or
unplanned failure complaints
Productivity Yield, output, process Utilisation, process
efficiency efficiency, learning curve
Regulatory Compliance Working within legal standards, health and safety
protocols or organisational guidelines
Social Responsibility Sustainability, diversity, or community initiatives
Innovation Continuous improvement resulting in improved outcomes
Creating Supplier Performance Measures
Each area of measurement is influenced by the needs of the business. These needs reflect
stakeholder or end user requirements or address specific project requirements.
The measurement area should also address the needs of the organisation. An example
would be an organisation-wide requirement to improve working capital or corporate and
social responsibility performance.
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Supplier performance measures must be SMART:250
Specific
Measurable
Achievable
Realistic
Time-based
Supplier performance measures should also:251
be few and address at most 4 or 5 critical-to-quality areas.
not require excessive resource to manage.
motivate the supplier to meet and exceed targets.
Examples of how supplier performance measures are created.
Business Need Example Supplier Example SMART Metric
Performance Measure
5% reduction in
Improved Quality Product reliability customer warranty
improvement
claims within 12
months
Customer experience 10% higher satisfaction
improvement rating from external
Better Service customers or users
2% price reduction
Specification change each contract year
Reduced Cost resulting in lower operating resulting from
cost approved vendor-
initiated reengineering
activities”
Monitoring Supplier Performance Measures Daily
The supplier, the buying organisation’s procurement department or their business may be
responsible to monitor how suppliers are performing against these goals.
It is often a joint effort because there may be commercial consequences of the supplier
performing well or poorly. Such consequences could be:252
250 Ibid 103
251 Ibid
252 Ibid
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A bonus, or increased workload or a recognition incentive for good performance.
Poor supplier performance, on the other hand, may result in application of
contractual remedies such as liquidated damages. Other sanctions could be the
supplier not being considered for additional projects for a period of time.
Periodic reviews of performance often take place quarterly or annually. These reviews are
often an addition to more routine corrective action planning. This helps the organisation to
track trends and decide if targets should be adjusted or stretched, based on previous
performance, or changing business needs.
The Benefits of Supplier Performance Management (SPM)
Having an SPM program in place helps an organisation:253
1. Avoid supply chain risk and disruptions: If a company is not deeply familiar with the
third-party vendors making up its supply chain, it will be difficult to put measures in
place to prevent interruptions and thus reduce the incidence of risk exposure. Supplier
performance management provides in-depth information regarding the risk a supplier
may pose so that the company can put measures in place to reduce or eliminate that
risk as it relates to its supply chain.
2. Protect and improve brand/reputation: Many corporate brands have been tarnished by
the actions of their suppliers. An example would be the recall of automobiles. SPM can
assist the organisation track supplier performance against these KPIs which will enable
it to enact corrective actions early. In this way it can keep its brand and reputation
strong in the eyes of its customers and partners.
3. Avoid costs and achieve savings: There are a range of cost factors that can be tracked
using supplier performance management which affect both hard and soft currency
costs. The lack of timely and accurate vendor information can have a huge impact on
costs and can prevent a company from capturing savings. Cost and savings related KPIs
are not only used to track supplier performance. The information provided by an SPM
system can also assist in cost avoidance and savings achievements because it centralises
supplier data into a single source of information which is available for everyone
interacting with vendors.
4. Segment and rank vendors: As noted above, supplier performance management is
useful beyond the supplier managers in the organisation. SPM gives procurement
groups insight into specific groups of suppliers and their overall ability to meet the
organisations expectations and requirements. With accurate performance data in hand,
procurement can make informed data-based decisions regarding where to direct
spending.
5. Collaborate with suppliers: When a company collaborates closely with suppliers it
creates new value for its business. The data collected through a supplier performance
management solution, these being supplier performance measures, can help to start
253 Ibid 104
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these conversations as it provides the supplier insight into what is important to the
organisation. The results are many:254
a. continuous improvement of the supply base and the creation of realistic
contracts based on past performance,
b. better communication with suppliers,
c. forming common goals, and
d. the establishment of trust.
Ultimately, SPM drives the creation of meaningful and mutually beneficial relationships with
suppliers.
6. Improve internal processes: Creating a SPM process is an important step towards
optimising a company’s supplier management program. Where a company uses a
technology-based solution for SPM, it can achieve a standardised and automated
approach for creating scorecards, issuing, and tracking scorecards for completion, and
in-depth reporting and analysis. Where this is incorporated into an existing supplier
information management process, SPM data will contribute to a complete supplier
management lifecycle.
Should Supplier Performance Measurement be Standardised?
Consistent measures across similar suppliers / categories or across a project has both
advantages and disadvantages:
The advantages of standardised supplier performance measures:
a. It enables performance standard measures. Targets can, however, be supplier
specific.
b. It helps to compare suppliers against each other.
c. It helps to compare performance against supplier price, cost, and external
benchmarks.
d. Suppliers may view this consistency as equitable.
e. Provides for ease of reporting within organisational systems or tools.
The disadvantages of standardised supplier performance measures:255
a. A company may want supplier specific any incentives or sanctions.
An example would be, where the company wants to have flexibility to adjust
payment terms to reward a small or medium-sized business or provide an award to
an organisation that relies on public relations successes to win new work.
b. Suppliers may be more committed to targets if they are involved in the design of the
performance measures or incentive scheme.
254 Ibid 105
255 Ibid
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c. The measures and targets may be specific to the organisation’s supplier
development goals for specific vendors, thus reflecting their specific capabilities.
- An example would be where a company wishes a supplier to grow their capability or
capacity to match its own organisation’s requirements if they have the resources and
aspiration to support the company.
d. Where the organisation is using digital tools to help obtain a global picture of
supplier performance across a wide range of categories, projects, or regions, it can
be helpful to provide decision-makers with the facts they need to inform category,
supplier, and business strategies. However, having some flexibility within that
regime is helpful as it shows suppliers, customers, and stakeholders that
measurement is driven by their interests primarily and is not just reporting for its
own sake.
Collecting basic supplier information and completing initial approval or vetting steps are the
beginning of a successful supplier management program. These actions are not enough to
effectively evaluate an ongoing relationship with suppliers, however.
To obtain additional value from its supply base, an organisation needs to implement a
meaningful supplier performance management (SPM) program.256 Industry analysts have
found that SPM is a meaningful and valuable addition to any business.
A benchmark study reported that among companies surveyed, implementing standard
metrics and procedures for measuring supplier performance improved supplier
performance by 26.6 percent on average. The areas of improvement came from quality, on-
time delivery, price, total cost, contract compliance, lead times, and overall responsiveness.
These improvements resulted in direct hard currency savings or as improvements in
responsiveness and service to end customers.
This is just one example to demonstrate that supplier performance management can add
value to any organisation. Whether a company begins big with a comprehensive SPM
program, or small, with measuring a critical group of KPIs or suppliers, initiating SPM
activities will enable it to make its supply base work in ways beyond simply providing a
product or service. 257
The potential impact of queries and clarifications on the supply chain
A query is defined as ‘a question, often expressing doubt about something or looking for
an answer from someone.258’ Clarification is “an explanation or more details that makes
something clear or easier to understand.259” clarifications are therefore given in response to
queries. Where clarification is given to queries, it brings understanding and assists in
communication between parties. Communication is key within relationships, and especially
within the supply chain.
Be it in contract formation, buyer to buyer or buyer to consumer relations,
miscommunication can be disastrous and lead to mistrust. It is therefore vital that
256 Ibid 106
257 Ibid
258 https://dictionary.cambridge.org/dictionary/english/query3 May 2019
259 https://dictionary.cambridge.org/dictionary/english/clarification 3 May 2019
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communication be clear. Where parties do not understand each other, or there is a lack of
consensus, especially in contract formation, querying a matter and seeking clarification, as
opposed to assuming one knows, is particularly important. On the other hand, the way
queries are dealt with has the potential to cement or destroy relationships and potential
collaboration within supply chain management.
Dealing with queries and seeking clarity on matters can prevent mistakes and delays in the
supply chain. From the matters dealt with above, especially specifications and conformance
clauses within contracts, it is clear that parties are fully aware of the need to remove any
room there may be for miscommunication through clear and concise contractual clauses
which bring clear understanding between the buyer and seller. Despite these, however,
there is still room for misunderstanding. Where parties do not clearly understand
instructions given or the requirements of a service provider etc., it is better that queries be
made upfront, prior to moving forward rather than moving ahead without having received
clarification.
The impact of queries and clarifications are vast and differ according to their nature and the
stage at which they are received and even the parties who will be affected.
Within supply chain, most contacts begin at the pre-bid or tender stage. Whether bids are
put out by government or the private sector, where the requirements are not clear, this can
and will affect the parties bidding for the contract. An example of this is found in the
eThekwini Municipality Supply Chain Management Standard Operating Procedures
manual260.Article 10.3.1 of this document states that the specifications document is the
most important document where bids are being sought and tenders being advertised by the
municipality. Where invitations to tender have been put out, Article 13 (1)( l) and (m)
provide as follows:
“(l)For works or complex supply contracts, particularly those requiring refurbishing of
existing works or equipment, a pre-bid meeting may be arranged for potential bidders to
meet with the Municipality official to seek clarifications.
(m) Minutes of the meeting should be provided to all prospective bidders. Any additional
information, clarification, correction of errors, or modifications of bidding documents
should be sent to each recipient of the original bidding documents in sufficient time before
the deadline for receipt of bids to enable bidders to take appropriate actions. If necessary,
the deadline should be extended.”
This must happen because the bidding process must be fair and equitable and give each
bidder and equal opportunity to compete for the bid. The impact of clarifications, in this
instant, is clear. For the sake of clarity and equity, allowance for clarifications have been
built into the tender process, to the extent that the process may be delayed until the
relevant matter has been dealt with.
Article 15 which deals with Post Tender evaluation refers again to clarifications. It provides
as follows: 15.1 Other than where the negotiated procedure is specifically authorised, the
following shall apply:
• “The Authorised Official may seek clarification from contractors where appropriate.
260 http://www.durban.gov.za/Resource_Centre/Policies/Documents/Sops.pdf 3 May 2019.This document is being used for
illustration; the various municipalities all have their own policy documents which are governed by the relevant national
legislation.
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• Negotiations on price are never permissible.
• A full written record shall be kept of the results of any clarifications, signed by the
relevant official and retained on a central file by the Head.”
The effect of clarifications may therefore have legal repercussions and are weighty enough
for parties to contain the results in a written file.
The Mbombela Local Municipality’s Supply Chain Management policy261 was written in
alignment with the Municipal Finance Management Act (MFMA) and provides for Dispute
resolution and the management of queries under Article 50. According to this provision:
The supply chain management policy of a municipality or municipal entity must provide for
the appointment by the accounting officer of an independent and impartial person not
directly involved in the supply chain management processes of the municipality or municipal
entity:
(a) to assist in the resolution of disputes between the municipality or municipal entity
and other persons regarding –
(i) any decisions or actions taken by the municipality or municipal entity in the
implementation of its supply chain management system; or
(ii) any matter arising from a contract awarded in the course of its supply chain
management system; or
(b) to deal with objections, complaints, or queries regarding any such decisions or
actions or any matters arising from such contract.
(2) A parent municipality and a municipal entity under its sole or shed control may for
purposes of sub regulation (1) appoint the same person.
(3) The accounting officer, or another official designated by the accounting officer, is
responsible for assisting the appointed person to perform their functions effectively.
(4) The person appointed must -
(a) strive to resolve promptly all disputes, objections, complaints, or queries received;
and
(b) submit monthly reports to the accounting officer on all disputes, objections,
complaints, or queries received, attended to, or resolved.
(5) A dispute, objection, complaint, or query may be referred to the relevant
provincial treasury if –
(a) the dispute, objection, complaint, or query is not resolved within 60 days: or
(b) no response is received from the municipality or municipal entity within 60 days.
(6) If the provincial treasury does not or cannot resolve the matter, the dispute,
objection, complaint, or query may be referred to the National Treasury for
resolution.
(7) This regulation must not be read as affecting a person’s rights to approach a
court at any time.
261 https://www.mbombela.gov.za/supply%20chain%20management.pdf 3 May 2019 108
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The weight given to solving queries in the above provision shows the importance given to
clarity within the tender process at a government level. Because the nature of government
projects and the value of tenders given, not dealing with queries not only has time and cost
implications, but delays may have ripple effects, affecting not only the parties concerned
but the communities and government entities as well.
The possible impact of mistakes and delays on the supply chain
The public procurement process can be delayed for different reasons. These delays may
damage the public entity’s or the successful contractor’s reputation and are a waste of
scarce public resources. In addition, where contracts are not awarded on time, this may
result in poor delivery of public goods and services.262
The following are common causes of delay in the public procurement process and what a
company can do to avoid them:
1 – Delay in Preparing Technical Specifications, Scope of Work or Terms of Reference
Technical specifications, scope of work, and terms of reference are documents that describe
what is needed, and should be clear enough to avoid confusing suppliers, contractors,
service providers or the evaluation panel. They are needed to prepare the bidding/tender
documents. If they are not completed ahead of schedule, the procurement process is
delayed before it even starts.
Delay is usually because of lack of expertise in preparing these documents, or not realising
the extent of the information and research that may be needed to complete them. Special
expertise is sometimes needed to prepare the technical specifications, scope of work and
terms of reference. If this is not taken into consideration, a big delay could result because of
the time it may take to find or hire such a person.
It is important not to overlook the need for special technical expertise to assist with the
development of technical specifications, scope of work and terms of reference. To obtain
such expertise, if not readily available, may involve having to hire a person or team.
2 – Failure to Start the Procurement Process on Time
This is a very common delay. Where there is an approved procurement plan and the
procurement schedule has been developed, but it has been overlooked or not taken into
consideration, the procurement process will begin later than intended.
To avoid this delay, it is important that the procurement department stay informed of the
deadlines on the procurement schedule. This is especially true for the start date of the
procurement process. Tools such as electronic calendars, for example the Google or MS
Outlook calendars, set reminders of important dates on the procurement schedule.
3 – Extension of Bid or Proposal Submission Date
262Lynch J, 8 Causes in the Public procurement process and how to avoid them, 109
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The bid or proposal submission period may need extending. This will cause a delay in
awarding the contract. Some of the reasons for extension are:263
Mistakes in the bid or proposal documents
Granting more time to prospective bidders for submission
Poor response to invitation for bids or calls for proposals.
Unforeseen event such as natural disaster, emergency, mass demonstrations, etc.
Where a request for clarification results in an amendment to the solicitation
documents. This will require an extension of the submission period for bidders to
take the amendment into account in their bids or proposals.
It is not easy to plan for possible extensions of the bid or proposal submission date. But to
avoid or reduce some of the above-mentioned causes, a company must prepare a
comprehensive bid or proposal document and make submission periods long enough to
allow bidders enough time for bid preparation.
4 – Delay in Opening Bids or Proposals Received264
Bids and proposals have a set deadline for submission. Unless the procurement rules or the
solicitation documents state otherwise, late submissions must be rejected.
The opening of bids and proposals is usually a public event which takes place immediately
after the submission date and time. Bidders may often hand-in their bids or proposals on
the date of submission and wait to attend the opening.
Unless the delay is caused by a catastrophic or other event that is not within the control of
the procuring company, it must be avoided at all cost. At this stage delays undermine the
integrity of the procurement process and the procuring company, thus reducing the
prospective bidders’ trust.
5 – Delay in Starting or Finishing the Evaluation Process265
While the procuring company organises the evaluation process, the bids and proposals are
evaluated by an independent panel of three or more individuals. The duration of the
evaluation process is therefore not under the control of the procuring party.
It may happen that one or more members are not available to start the evaluation process.
When the process has been started, they may be consistently available to continue due to
other commitments. A possible solution is to ensure that personnel assigned as evaluation
panel members are temporarily relieved from other duties to focus exclusively on the
evaluation process.
When seeking evaluation panel members, it is important to ensure they are available and
committed to the evaluation schedule to avoid delaying the contract award. Another
263 Ibid 110
264 Ibid
265 Ibid
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solution may be to hire independent panel members who can meet the agreed evaluation
deadline.
6 – Delays during the Approval Process
Approval is required at different stages in the procurement process. It depends on the
monetary value and complexity of the procurement requirement. These approvals are laid
down in the procurement rules.
The approving authority may be situated on different levels of tender boards. These would
include central, ministerial, and departmental and depend on the value attributed to the
approval which is needed. Approvals are a common cause of delay because tender boards
usually have specific dates on which they convene. Procurements need to be scheduled
accordingly to avoid delaying the process. Where the tender board meeting is cancelled, or
they do not have enough time to address all issues, approvals will be delayed until the next
tender board meeting. When procurements are donor funded, donor approval may be
required at different stages of the procurement process. Because delays caused by tender
boards and donors are difficult to control, they need to be anticipated and considered
during procurement planning and scheduling.
7 – Delay in Contract Negotiations266
Not all contracts are negotiated. Goods and works contracts are awarded without
negotiations. Once bidders meet the administrative and technical requirements, the
contract is awarded based on lowest reasonable price.
With more complex goods and works requirements, negotiations may be required before
the contract award. This must be determined during procurement planning and scheduling,
and clearly reflected in the bid and proposal documents.
There are usually negotiations prior to the contractual award of consulting services.
Agreement on issues related to methodology, personnel, and slight changes in the scope of
work are reached through negotiations. Rates may be discussed if they are deemed
unreasonable. If the price is a factor in determining the winning firm, it would be unfair to
other bidders to adjust rates.
Delays result where negotiations take longer than anticipated. The duration of contract
negotiations is beyond the control of the procuring party. It may therefore only be
conservatively determined during procurement planning and scheduling.
8 – A Contractor, Supplier or Service Provider Challenges the Procurement Process267
266 Ibid 111
267 Ibid
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Contractors, suppliers, and service providers can formally challenge the procurement
process where they have evidence or reason to believe the procuring party failed to comply
with the procurement rules. Grounds for challenge also exist if they feel they were unfairly
treated or affected by the way the procurement process was carried out.
This delay is also difficult to avoid. To reduce this possibility, the solicitation documents
must be prepared in a manner that is clear and comprehensive. In addition, the
procurement party must ensure the procurement rules and stipulations of the solicitation
documents are followed. Effort must also be made to build trust in, and create a positive
impression of, the procuring party, procurement officers and anyone directly or indirectly
involved in the public procurement process.
Causes of mistakes in the procurement process.
While delays are commonly liked to the procuring party, mistakes are commonly attributed
to the parties competing for a tender. Common mistakes are as follows:268
1 – Inaccurate Pricing
One of the main differentiators between a winning tender and the other tenders is how
much the job will cost. A bad estimate will give the impression that a tenderer is not up to
the task. Pricing must be as accurate as possible and include as much information as
possible. A company needs to do its research ahead of time and find out what the job will
really cost. A pricing template will help to display all of a company’s expected costs and
detail detailing how it got to its final quote. It will also help the company plan for any
contingencies and show the reader that it is prepared and professional.
2 – Writing mistakes
Writing is the cause of many drawbacks in the tender process. Common writing mistakes
include:269
a. Not answering the question. While this sounds very basic, it is probably the most
common error in tender writing, and it is a very easy mistake to make. Examples of
this type of mistake include misunderstanding the question, going off at a tangent,
partial answers and determinedly giving the message you want to convey, regardless
of the question:
b. Not addressing the specification requirements. A very common mistake occurs when
a company sells itself and its portfolio without paying much or any attention to what
the commissioning body requires for the specific tender.
Companies need to remember that a tender is not an opportunity to sell their
services, but an opportunity to demonstrate they are able comprehensively to meet,
and exceed, the requirements of the commissioning body.
268 Hook J, Seven common mistakes hurting your tender projects, https://www.buildsoft.com.au/blog/common-mistakes-
hurting-your-project-tenders 6May 2019
269 Insequa Ltd, Common mistakes in writing a tender, https://www.insequa.co.uk/common-mistakes-in-tender-writing/ 6
May 2019.
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c. Insufficient detail. This occurs when a company gives an overly brief or superficial
response to a tender question. Descriptions and propositions must be detailed to
build credibility and show the commissioners exactly what they are potentially
buying.
d. Lack of evidence. A company’s claims, plan and propositions within a tender must be
backed up and substantiated. The evaluator must be shown evidence of a company’s
achievements as proof that it can deliver what it claims. Without the underpinning
evidence-base, its responses may appear weak and lack credibility.
e. Compliance errors. In some cases, questions in tenders ask a company to account for
its compliance with certain standards and regulatory or legal requirements. Health
and Safety issues, safeguarding, staff recruitment and information security are all
examples of the type of compliances commonly encountered in social care tenders.
If a company’s responses do not reflect the expected standards, it will lose marks or,
depending on the discrepancy, could be ruled out altogether.270
2 – Including Unnecessary Information
Marks are not allocated for information and content that does not answer the question.
Responses must be relevant and direct. Where a tenderer keeps to the point and makes
sure all the content within a response is there for a reason, they are likely to score a mark
from the evaluator. The reader will most likely have a whole pile of tenders on their desk, so
the ones that get to the point quickly will make a good impression.271
3 – Failing to Answer the Question
Tender questions are designed so that the answers can be easily compared and read by the
reader. Where questions are not answered directly, it will frustrate the reader as they will
have to sift through the document to find the relevant answer. Because they often do not
have that time or desire to put in the extra effort, a company will be penalised. It is best to
include subheadings and answer the questions clearly and succinctly. This makes it easy for
the reader to like a tenderer. Poorly constructed, rambling responses make it much harder
for the evaluator to award marks because it takes ages to find the required information.
4 – Forgetting to Proof-Read
Many tenders are discarded as a result of easily fixed spelling and grammatical errors.
These can easily be fixed by printing out a document and reading it slowly, making changes
and fixing errors as one reads. It should then be read it aloud. If greater certainty, a third
party should read it through as well. Elements such as the name of the company and the
contact person should be spelled correctly. 272
5 – Incorrect Forms or Outdated Documents
270 Ibid 113
271 Ibid
272 Ibid
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Different types of tenders require specific documents, but all have to be up to date and
certified. A company will need the right forms to proceed, or its tender could be disqualified,
and all its effort will be in vain. Errors can be avoided by double-checking that everything
required is attached.
6 – Forgetting to Sign
One of the most common tender mistakes is forgetting to sign it. Sure, there are a lot of
documents that need signing in a tender, and it can be easy to miss a few by accident. So
once again, this can be avoided by checking and re-checking the tender admission.
Other impacts of mistakes and delays
From the above, it is clear that the impact of mistakes and delays may be costly. Delays in
completing tenders do not only discourage the parties who are waiting for the award but
may impact badly on the company or organisation making the award. Where projects
include infrastructural changes need by an organisation, the delays in the project will impact
badly on its growth and development prospects which are reliant upon these developments.
Where a project involves basic sourcing of suppliers of inputs, delays can impact on the
development of merchandise and hence product orders etc.
With social development projects, the impact of delays extends beyond the borders of the
parties involved and can have direct impacts on the communities who are being serviced.
The impact of mistakes on the party competing for a tender is much clearer. What appears
to be an insignificant mistake could cost a company a much-needed contact, with dire
consequences.
The use of reverse auctions/ e-auctions
A reverse auction is also called procurement auction, e-auction, sourcing event and e-
sourcing. This is a tool used in business-to-business procurement. In this process, the role of
the buyer and seller is reversed. The primary purpose of these reverse auction to compete
purchase prices downwards. In this type of auction sellers bid for the prices at which they
are willing to sell their goods and services. In an ordinary auction273 buyers compete to
obtain a product or service. In a reverse auction, sellers therefore compete to obtain
business.274
In a regular auction, a seller puts up an item and buyers place bids until the close of the
auction, when the item goes to the highest bidder. In a reverse auction, the buyer puts up a
request for a required good or service. Sellers then place bids for the amount they are
willing to be paid for the good or service at the end of the auction the seller with the lowest
amount wins.275
273 These are also known as forward auctions. 114
274 http://www.purchasingauctions.com/what-is-a-reverse-auction/ 14 January 2018
275 Chen J, Reverse Auctions, https://www.investopedia.com/terms/r/reverse-auction.asp 6 May 2019
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Reverse auctions gained popularity with the emergence of internet-based online auction
tools. These enabled multiple sellers to connect with a buyer on a real-time basis.
Reverse auctions are now used by large corporations and government entities as a
competitive procurement method for raw materials, supplies and services like accounting
and customer service. Reverse auctions should not be used for all procurement. They should
only be carried out for commodities which.
a. are not core strategic to a business,
b. have many suppliers who produce a competitive market, and
c. for which, the key awarding decision is price.276
Disadvantages of a Reverse Auction277
a. The reverse auction does not work for every good or service. Goods and services
that can be provided by only a few sellers are not usually ideal for reverse auctions.
A reverse auction generally works only when there are many sellers who offer
similar goods and services to ensure the integrity of a competitive process.
b. There could be the tendency to focus on the lowest bids by sellers with less regard
for quality of the good or services. A buyer may therefore suffer from sub-optimal
quality of the lowest priced set of goods or services purchased through a reverse
auction.
c. A buyer must be thorough in communicating all the specifications to the auction
participants. Where it does not it may end up with a winning bid that does not
capture all of the much-needed attributes.
Advantages of reverse auctions278
a. It is very time efficient as the awarding decision can be taken in weeks instead of
months, as occurs in traditional tendering.
b. They provide an insight to the bidders on how competitive they are and indicate
their ranking amongst their peers.
c. It reduces paperwork and increases transparency in the award process. This is
something much appreciated and required in the public sector.
d. It helps in breaking cartels.
Example of a Reverse Auction
An example of reverse auctions is bidding for government contracts. In this type of auction,
governments specify requirements for the project and the bidders, who are approved
contractors, produce a cost structure to finish the project.
276 Ibid 115
277 Ibid
278 Ibid
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A reverse auction is usually used as the last leg of sourcing and tendering to obtain the best
price by encouraging competition among bidders on price. It is hosted by a single buyer and
has two or more suppliers competing for business. It is called reverse because during the
auction, the price can only come down.
Image Source and Credit: https://www.feedough.com/what-is-a-reverse-auction-how-does-it-work/
KT0204: Formation of agreements with external organisations
Knowledge Theory (KT) and corresponding Internal Assessment Criteria (IAC) / Learning
Objectives (LO) covered:
KT0204 Formation of agreements with external organisations
IAC0209 List the key elements of forming agreements with customers and suppliers
IAC0210
Discuss the context of transition and mobilisation arrangements
List the key elements of forming agreements with customers and suppliers.
A valid contract lies at the heart of a lasting agreement between suppliers and customers.
The procurement process ultimately will then come down to a valid contract between the
parties which is used to regulate and define the relationship between the parties, their roles,
and responsibilities etc. South African law is very specific about what constitutes a valid
contract. Where any of the essential elements are missing, the contact will be deemed to be
either void or voidable.
What is a contract?
A contract can be defined as ”an agreement between two or more parties with the purpose
to create a commitment” the agreements have the right to be bonded on both parties. The
reason is that if a contract is bound, that there are several other requirements in addition to
be complied with the agreement.
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The label "contract" is not reserved for agreements that are managed to bind commitments.
Even if one or more of the requirements for validity is lacking, it is a common practice to
describe the agreement as a "void contract".279
The Free Dictionary defines a contract as:280
“A legally enforceable agreement between two or more parties generally relating to a trans
action for thepurchase or sale of inputs, goods and services. A contract involves obligations
on the part of the contractors which may be verbal r in writing.’
The South African contract, generally, has six validity requirements which must all be met. In
short, a valid contract:281
1. The contract must be entered into with the consensus of all the contracting
parties.
2. All the contracting parties must have the legal capacity to contract.
3. The formalities for conclusion of the contract must be fulfilled.
4. The contract must be lawful by not being prohibited by any law.
5. The obligation that is to be potentially created must be capable of being
performed.
6. The content of the agreement must be determinable.
Consensus
The validity requirement of consensus provides that the parties have the intentions to agree
on all material terms of a contract. This generally includes the process of an offer and an
acceptance of that offer. As an example, A may offer to B that A will buy B’s goods on the
condition that A’s payment will only be made in the future in six consecutive payments of a
fixed amount within a period of six months. If B accepts all the terms of this offer, B then
has reached consensus with A.
The intention to accept or offer a contract can be in any form, including writing, verbally or
by conduct. Silence on its own can also be a sign of an acceptance in some circumstances282.
The parties may also agree that an intention to consent must be made known in a specific
manner.
An offer has a set of requirements which must be fulfilled. These have been extended by the
Consumer Protection Act.283
1. An offer must be firm. Parties must have the intention that acceptance of the offer
will create a binding contract.
2. The offer must be complete. This means that all of its material terms are included in
the offer itself.
279 Ibid
280 https://financial-dictionary.thefreedictionary.com/Contractual+agreement 7 May 2019
281 Pretorius R, The Law of contract: A comparison between the South African and English Law of Specific contacts ,May
2016, University of Pretoria, file:///C:/Users/le/Downloads/LAW_OF_CONTRACT_A_COMPARISON_BETWEEN_THE.pdf 7
May 2019 at pp9 to 17
282 This was decided in the case of McWilliams v First Consolidated Holdings ( Pty) Ltd 1982 (2) SA (A)
283 Ibid at p10 with reference to Sections 22(1) (a) and (b) of the CPA
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3. The offer must be clear and certain for the other party to only accept by answering
with a positive statement. An example would be “I will buy your machine if you will
allow me to make six consecutive payments of R2000 per payment for six months on
the 23rd of each of the following six months, do you accept this offer?”
4. The offer must be in a plain and easily understood language that an ordinary person
in the class of persons for whom the notice, document or representation is intended.
In addition, a person with average literacy skills and little experience as a consumer
of goods or services, must be able to understand the content, significance, and
importance thereof without undue effort.
5. The offer must indicate whether the goods are reconditioned.
6. The offeror must not promote goods or services on the basis that those goods or
services are to be supplied unless a person declines the offer.284
7. If the goods are marketed directly to the offeree, they have a right to withdraw from
the contract by a written notice within five dates of either the date the agreement
was entered into or the goods were delivered, either one which is later.285
An offer is terminated in any of the following manners:286
a. The rejection of the offer by the offeree.
b. The death of either of the potential parties before any acceptance.
c. Effluxion287 of the prescribed or reasonable time.
d. Revocation288 of the offer by the offeror.
e. Loss of legal capacity to act by either of the parties.
f. The offeree accepts the offer.
An acceptance of an offer is a clear and unambiguous declaration of intention by the offeree,
in which they directly agree to all the terms of the proposal embodied in the offer. An
example of this would be as simple as: “Yes, I accept your offer”. This can be done expressly
or by implication. The validity requirements for an acceptance are set out as follows:289
1. The acceptance must be unconditional in the sense that it accepts the offeror’s
terms as it is with no further conditions attached290.
2. The acceptance is made by the person to whom the offer is made.
3. The acceptance must be a conscious response to the offer as a person must be
aware of the offer to accept it.
4. If a specific form of acceptance is required, the acceptance must be made in that
specific manner.
284 Section 31(1)(a) of the CPA 118
285 Section 16(3) (a) to (b)
286 Ibid at p11
287 This means the expiration of a limited- time agreement or contract.
288 The official cancellation of a decree, decision, or promise
289 Ibid at p12
290 This would be a counteroffer that would have to be accepted by the offeror of the original offer.
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Acceptance, therefore, takes place at the time and where the offeror learns of the
acceptance. The parties may sometimes enter into an agreement concerning the main
agreement which are known as ”pacta de contra hendo”. These contracts are entered into
for the aim of the being enter into another subsequent contract.
Two forms of these contracts are valid in South African law:
a. The option contract: The parties agree to keep an offer open for a certain period of
time.
b. The preference contract: Here party A binds himself to give preference to party B if
he decides to conclude a specific contract. An example would be the situation where
B is interested in buying A’s house, which is at the current time not in the market. If
B enters into a preference agreement with A, then and A decides to place his house
in the market in the future, then A has the obligation to first offer to sell the house
to B before offering to sell the house to another possible buyer. In terms of the
preference contract, B has no obligation to accept the offer. B only has the right to
be the first party to either accept or reject A’s offer to sell the house.
Consensus can be denied by a mistake of one of the parties. The mistake must be a material
or unilateral mistake, but not a common one. Consensus can also be improperly obtained by
one of the parties. The effect of this is that the entire contract is voidable by the innocent
party. The contract will, however, remain valid, until the innocent party exercises the
choice to set the contract aside. The innocent party has the following remedies at his
disposal:291
a. Restitutio in integrum: The effect of this remedy is that the contract is completely
cancelled. The parties must return any performance that they have received in
terms of the contact up to the point of rescission. The purpose of this remedy is to
restore the parties to the positions that that were in prior to entering the voidable
contract.
b. Delictual damages: If the conduct of the other party constitutes a delict, the
innocent party is entitled to delictual damages. These take the form of any financial
loss suffered due to the delict, regardless of whether or not the contract has been
rescinded.
This occurs because the elements of a delict exist independently of those elements
of a contract. The aim of this remedy is to place the innocent party in the position
that he would have been had the delict not been committed.
The following conduct is normally regarded as action in which consent is obtained in an
improper manner:292
a. Misrepresentation by the other party.
b. Duress, or intimidation by the other party to force the party to conclude the contract.
c. Undue influence by the other party in the form of improper pressure. This pressure
influences a person’s judgement and is brought upon the person to force them to
conclude the contract in question.
291 Ibid 119
292 Ibid at p14
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d. Commercial bribery of a company’s agent. This is a wrongful and immoral method of
securing an agreement.
e. Any form of ”unconscionable conduct” mentioned in section 40 of the CPA.
Prohibited actions include the “use of physical force…coercion, undue influence,
pressure, duress, or harassment, unfair tactics or any other similar conduct…in
connection with…the negotiation, conclusion, execution or enforcement of an
agreement…”. Section 40 also states that it is “unconscionable for a supplier to
knowingly take advantage of the fact that a consumer is substantially unable to
protect his own interests due to a disability, illiteracy, ignorance, inability to
understand the language of the agreement or any other similar factor”. The common
law mainly deals with the requirements for valid consensus to be formed. Certain
factors such as a mistake may render the contract void entirely, while other factors
such as conduct that results in improperly obtained consensus may render the
contract voidable at the choice of the innocent party.
Contractual Capacity 293
Legal capacity is regarded as a person’s ability to bear legal rights and duties. This is limited to
certain juristic acts294 depending on factors such as age and mental status of the person in
question. Contractual capacity, which is defined as “the competence to create rights and duties
by concluding a contract with other persons:”
a. Natural persons, the legal term for a human, have contractual capacity, but it is
determined by several factors. Age is an important factor.
i. A person younger than seven years has no contractual capacity but may
have rights given to them by way of another person incurring certain legal
duties on his behalf, such as a parental guardian.
ii. Minors, persons aged between 7 and 18 years. They require the consent or
ratification of their guardian, or sometimes a court, to conclude most
contracts to incur legal rights and duties.
iii. If the natural person is not a minor, married in community of property,
insolvent or a prodigal, that person is deemed to have full contractual
capacity to enter into a contract, unless it is limited in some way by the law.
b. Juristic persons. These are non-physical entities who are created by the law to
acquire most of the rights and duties that a natural person would have acquired. An
example of such an entity is a company that is incorporated in terms of the
Companies Act. The contracting capacity of a company is carried out by its
authorised representatives who finalise contracts on its behalf.
Formalities295
293 Ibid at p15 120
294 The conduct that incurs these legal rights and duties is known as a juristic act.
295 Ibid
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South African law of contract does not generally require formalities. This position differs for
contracts regarding specific content, for example the purchase and sale of land, or if the
parties themselves agree that formalities may be required for the conclusion of a contract
296 An example of where the law would require formalities for a specific contract would be
the alienation of land. The Alienation of Land Act provides that the deed of alienation must
be signed by the parties thereto or by their agents acting on their written authority. The ALA
defines “alienation” as the sale, exchange, or donation of land. An example of formalities
required by the contracting parties is given below. A and B negotiate a sale of B’s motorbike
for the price of R12 000, to be paid by A in six consecutive payments of R2 000 per payment
for a period of six months on the 23rd of each of the following six months. B states that, for
this contract to be valid, it must be in writing and signed only by A and not an agent on his
behalf. A and B will in this manner indicate their consensus in a valid manner in writing by
signature. When A then signs B’s written contract, B’s formality is complied with and the
contract is enforceable on B’s behalf for a total value of R12 000, and on A’s behalf for the
transfer of B’s motorbike to him.
Legality 297
A contract will be unlawful, or illegal if either the conclusion, terms or performance of the
contract is not in line with the common law or legislation. Contracts that are void due to
their illegality are mostly based on the fact that those some contracts are against general
law or public interest (contra bonos mores).298
Some important public interests are the following: contracts “concluded voluntarily should
be complied with and enforced; equal bargaining power between the parties; state safety is
still preserved; full exercise of legal rights of the parties must not be interfered with.” The
following contracts can be void due to their illegality:
a. Contracts entered into contrary to the good morals. These are weighed against the
community’s morals at the relevant time)
b. Contracts entered into or performed or that are contrary to statute, are illegal.
Section 90 of the National Credit Act provides a list of clauses that are illegal in a
credit agreement that are voidable by the court’s discretion.
c. A contract that is void because of illegality is not necessarily void in its entirety. The
illegal part of the contract can be severed from the rest of the contract. Factors that
must be considered include the clause’s distinctness from the rest of the agreement,
the clause’s relation to the purpose of the contract and whether the parties regard
the illegal clause as crucial or not.
d. Some illegal contracts may be valid, but because of their illegal nature are not
enforceable. Wagering and gambling contracts fall under this category. Agreements
in restraints of trade are valid and enforceable. The party who wishes to evade the
consequences of the contract may do so by proving that the restraint is contrary to
296 A common reason for this is to have proof of an agreement in case of a dispute or enforcement of a contractual right,
297 Ibid at p15
298 The court in the Sasfin (Pty) Ltd v Beukes stated that agreements contrary to the community’s interests, legally or
morally, will not be enforced 1989 (1) SA 1 (A).
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public interest and not enforceable. A restraint of trade will be contrary to public
interest if its consequence is unreasonable.
Possibility and certainty299
These requirements have a very close connection and will be discussed together. Firstly, the
requirement of possibility will be discussed, and then, secondly, the requirement of
certainty.
a. The obligation imposed by the contract itself must be possible to perform. A general
rule exists that if the performance is impossible to perform, the creation of
obligations is prevented. If the item of the contract cannot be delivered due to its
destruction at the time of conclusion of the contract or if the object does not even
exist, the contract will be void due to impossibility of performance. If performance is
impossible subjectively by the one party only, and cannot be classified as objectively
impossible, performance will still be possible and the other party’s right to that
performance is still enforceable.
b. The certainty requirement requires that the contents of the agreement must be
certain, determined, or determinable. A contract can be void due to uncertainty
caused by reasons such as vague language or because the contract endures for an
indefinite duration. A contract may include a clause in which it indicates how
certainty may be obtained. An obligation may not flow from an uncertain agreement.
The other, certain, parts of the agreement may still create valid obligations if the
parties elect to abide by the contract. Any performance made in terms of an
obligation based on an uncertain term in the agreement can be reclaimed because of
unjustified enrichment.
The context of transition and mobilisation arrangements
The Transition Phase
Once a contract is awarded, a process should commence to implement the contract with
minimal issues or disruption to the contract. This is the transition phase.300
Transition refers to the changeover from:
a. one contract to another; and/or
b. from one contractor to another; or
c. the initiation of an inaugural contract.
For every contract, consideration should be given to both the process of transition in and
out.
299 Ibid at p17
300 Government of Western Australia, Contract transition,
https://www.finance.wa.gov.au/cms/uploadedFiles/Government_Procurement/I_Manage_a_Contract/Contract_Transitio
n.pdf9 May 2019
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requirements.
Planning for Transition
The transition requirements for a contract should preferably be considered during the
planning stage of the procurement and the final transition strategy decided prior to contract
award. Consideration needs to be given to both the transition in and transition out
requirements. The extent of the requirements will depend on the value, complexity, and risk
of the contract. A formal contract transition plan may be required Such a plan would
identify what is to be done, by whom and by when. A transition plan may also be included
as part of a contract management plan.
Transition Objectives
The main objectives of transition are to:301
a. Ensure that a contract begins efficiently, and/or incoming contractor begins
effectively and if relevant, the previous contract is wound -up effectively and/or an
outgoing contractor leaves in an orderly manner.
b. Provide for a smooth transition and continuation of essential contracted goods
and/or services.
c. Minimise the risk of any misinterpretation or miscommunication.
d. Minimise the impact on end users and/or stakeholders.
e. Schedule or complete the transfer or return of records, information, equipment
and/or assets.
f. Establish the relationships, systems and procedures that are needed for the ongoing
management of the contract.
Transition Tasks302
These are the tasks that are required to ensure that a contact is successfully implemented.
Some of the tasks that must be considered are:
a. Identifying potential transition issues and risks as well as a proper strategy to
manage them.
b. Developing a contract transition plan which outlines tasks, timeframes, and
resources.
c. Determining who is going to manage the transition process. Will an individual or a
transition management team be more suited.
d. Establishing a communication strategy if it is required.
e. Implementing the plan.
301 Ibid at p1 123
302 Ibid at p2
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Transitioning In303
As a minimum requirement to managing the transition in of a new contract and/or
contractor, the contract manager should convene a contract management meeting with the
contractor, the public authority’s representatives, and appropriate stakeholders. The aim of
the meeting is to ensure all parties have a common and clear understanding of their
responsibilities and obligations. This must be done as soon as possible after the award of a
contract. The meeting is important for establishing a good working relationship between the
parties. The introductory meeting must be used to confirm and/or clarify contract details. It
is not a forum to renegotiate or change the contract. Below is a suggested meeting agenda.
Suggested Meeting Agenda304
Introduction
Participants must introduce themselves and describe their role as specified in the contract.
Contract Details
The contract details with the contractor must be confirmed. This should include reaffirming
the scope or specifications and deliverables as well as any procedures that need to be
followed for the approval process.
The terms and conditions, including special conditions, as well as the rights and obligations
of both parties must be confirmed. Issues must be clarified and documented.
Monitoring and Evaluation of Performance
The process for monitoring performance must be confirmed. This includes the feedback
approach that will be used. Any consequences for unsatisfactory performance also need to
be confirmed.
Reporting and Meeting Requirements
The reporting and meeting requirements for the contract must be confirmed.
Contract Administration
A brief overview of the public authority’s contract administration processes and procedures
must be provided. This should include, specifically, processes and procedures for exercising
any extension options and requests for contract variations.
303 Ibid 124
304 Ibid at p3
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Payments
Confirm with the contractor the invoicing and payment requirements. This is very important
particularly where there is a payment schedule associated with the achievement of specific
deliverables and/or milestones.
Contacts and Authorities
Both parties should confirm the details of their contract management representatives. This
must include their name, contact details, role, responsibilities, and decision making or
approval authority.
Potential Problems/Challenges/Issues
The parties must raise any issues that they think could generate future problems. They
should jointly agree on how they may be handled or what a proposed solution could be.
Minutes for this meeting are to be prepared, distributed to all attendees, and filed in the
contract file.
The minutes must show the names of attendees, topics discussed, decisions made, further
actions required, who is responsible and the deadlines. It is essential that the meeting be
used only confirm or clarify details, and not to renegotiate or alter the contract.
Transitioning Out305
If there is an outgoing contractor and/or a contract is coming to an end, arrangements must
be made to discuss and finalise any transition out and/or contract closure requirements.
The steps and tasks that may need to be considered in finalising a contract include:
a. Reviewing the contract deliverables to ensure that they have been delivered and are
met as required.
b. Arranging and completing the return and/or transfer of the public authority’s
required records, information, equipment and/or assets supplied or used and/or
generated under the contract.
c. Ensuring outstanding issues are resolved, particularly where it may result in a claim
against the public authority.
d. Returning any financial and/or other guarantees and/or securities.
e. Making arrangements with regard to warranties available under the contract.
f. Making arrangements regarding any legal rights and/or obligations that may survive
after the contract has expired. These include intellectual property rights or
professional indemnity insurance obligations.
g. Finalise all payments required under the contract.
h. Ensuring that security/access rights to premises and/or systems are terminated or
revoked.
305 Ibid at p4 125
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i. Documenting any improvements for future contracts. This would include all lessons
learnt.
j. Providing an opportunity to give and/or receive feedback.
Mobilisation Period306
Mobilisation covers the period between the award of a new contract to the actual beginning
of that contract and service. This is a critical time which is fundamental to the successful
implementation of a new service. It sets the tone for effective, long standing relationships
across a system. The mobilisation period is the time period between when the contract is
signed before actual performance is started. During this period there are many possible
developments that the contract manager needs to manage.
a. They must identify their counterpart on the other company’s team that they will be
dealing with so that they may initiate communications. This is essential as they will
need to may agree upon certain housekeeping items. This will include how things are
to be managed, communication flows, and who will keep and publish meeting
minutes. They also need to agree upon when reviews will be held and establish a
schedule for reviews once the work commences. A buyer may want to explain what
is required for the supplier to invoice and get prompt payment.
b. A second activity that occurs during the mobilisation phase is that the supplier may
want to propose certain changes or substitutions. This may be regarded as an
extension of the negotiations. This may also be used to bring clarity. If a specification
spelled out a brand name and allowed “or equal” the supplier may identify what
they want to use. The contract manager’s responsibility with this activity will be to
ensure that they get the same value. If what is being proposed is acceptable but
costs less. They may want to ensure the company gets a credit on that. Here the
manager would want to talk with their internal customer or subject matter expert to
determine what’s acceptable and what difference there is in value or cost.
c. A third activity that occurs in the mobilisation phase is any place the agreement
required advance approval; the supplier will need to be submitting information for
approval. Approvals may have required over the team that performs the work or any
changes to that team. The manager may have also required approval over the
subcontractors or material suppliers that get used. Approval may also be needed for
things like where a site office may be located or where materials may be stored for
work performed on site.
d. A fourth activity in the mobilisation phase is to record all that has been agreed. This
recording must be shared with the other party and included that in the contract file.
Where what is agreed to, has no impact on the contract and no impact on the
contract price, a simple letter or email will be sufficient. If it has an impact on the
contract or the price this information must be saved s and included in the first
written amendment.
The contract does not need to be amended every time something happens. The
manager in charge can collect and include multiple things in an amendment.
306 Contract Management, The Mobilisation period, 126
http://knowledgetomanagecontracts.blogspot.com/2012/03/mobilization-period.htm 9 May 2019.l
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Chapter 3 – KM-02-KT03: Technology and Supply Chain Information
The topic elements to be covered in this chapter include:
KT0301 Electronic procure to pay (P2P) systems and the supply chain
KT0302 Internet technologies and supply chain operations
The internal assessment criteria or learning outcomes relevant to this chapter are as
follows:
IAC0301 List the stages of the sourcing process from identification of needs to the
IAC0302 award of agreements
IAC0303
IAC0304 Discuss the process of creating approvals and their timescales
IAC0305
Define procure to pay (P2P) systems and the impact on the supply chain,
(Automating requisitions, purchase orders and invoices)
Discuss the impact on the supply chain of the integration of systems
between organisations
Discuss the importance of web-based solutions such as e-requisitioning, e-
sourcing, e-ordering, e-invoicing to the supply chain function
KT0301: Electronic procure to pay (P2P) systems and the supply chain.
Knowledge Theory (KT) and corresponding Internal Assessment Criteria (IAC) / Learning
Objectives (LO) covered:
KT0301 Electronic procure to pay (P2P) systems and the supply chain
IAC0301
List the stages of the sourcing process from identification of needs to the
IAC0302 award of agreements
IAC0303
Discuss the process of creating approvals and their timescales
Define procure to pay (P2P) systems and the impact on the supply chain,
(Automating requisitions, purchase orders and invoices)
The procurement function is one of the most important and recurring activities in the supply
chain operational environment. Optimal efficiency is required in order to manage this
process effectively. Thus, the use of technology-based procurement or purchasing
management systems in this regard produces benefits for all types of organisations, be it
those that deal in goods, services, or a combination of both.
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In a relative sense it is most beneficial to firms that:
• Carry a large number of diversified materials in inventory.
• Process a large number of purchase orders.
• Buy a large number of different items.
• Deal with a large number of different suppliers.
Definitions of (P2P) procure to pay or purchase to pay.
307The Purchase to Pay (P2P) process underpins many sub-processes from sourcing and
negotiating terms, ordering, receipting and payment, through to contract and relationship
management (Lysons and Farrington, 2006; Monczka et al., 2009; Pandit and Marmanis,
2008). A well-executed P2P process can increase control and visibility, save costs, and
generate automation efficiency (Monczka et al., 2009; Pandit and Marmanis, 2008).
In a more detailed sense and from another angle, 308“procure to pay is the process of
requisitioning, purchasing, receiving, paying for and accounting for goods and services. It
gets its name from the ordered sequence of procurement and financial processes, starting
with the first steps of procuring a good or service to the final steps involved in paying for it.
It is a process, not a technology, though there is software expressly designed to handle the
entire procure to pay process or components of it, such as invoicing, or related processes,
such as inventory management and financial accounting.
Procure to pay is often abbreviated as P2P, but it should not be confused with, for example,
peer-to-peer networking technology, which is also called P2P. Procure to pay is also
sometimes called purchase to pay.
The procure to pay process.
The main steps in procure to pay, starting with the procurement side, include, first, a
requisition order -- essentially, an internal request to purchase something -- which starts the
ordering process during which a purchase order (PO) is created. The next steps involve
receiving the good; common documents created in this phase include an advanced shipping
notice (ASN) and order confirmation. Finally, there is the payment side, which typically
includes creating an invoice, arranging to pay suppliers, and recording the transaction in the
accounting system.
In practice, most organizations have many additional steps in each major phase of procure
to pay. Procurement might require the use of an approved catalogue of products or involve
the issuance of a request for quotation (RFQ). Managerial approval is typically required at
key decision points, such as before a PO is sent to a supplier or before payment is approved.
There are often processes to inspect received goods, acknowledging their acceptance, and
entering them into inventory”.
307 https://www.cips.org/en-ZA/knowledge/procurement-topics-and-skills/ecommerce---systems/e-sourcing--e- 129
procurement-systems-p2p/purchase-to-pay-p2p-process/
308 https://searcherp.techtarget.com/definition/procure-to-pay-P2P
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Depending on the type of organisation in question, “309there are many elements to the P2P
process, each of which is important in the overall process. The process begins with the
sourcing of items and ends with the payment to the selected vendor.
1. Sourcing
The P2P process begins with the purchasing department being asked by research and
development or the production department to find a vendor for a special item or
service. The R&D department may have produced a specification within which the
vendor has to perform.
In some instances, the item may be standard stock item that is needed for the
production process, and it may only require the purchasing department to find the best
quality item at the best price. Depending on the item or service required, the
purchasing department may issue a Request for Quotation (RFQ) or may select suitable
vendors based on previous relationships.
2. Contracts
When the purchasing department has selected a suitable vendor or vendors, there will
be a contracting process where vendors and the purchasing department will negotiate
a contract based on price, payment terms, and delivery schedules.
3. Purchasing
After the contracts are signed between the company and the vendor, purchase orders
can be raised and sent to the vendor. To improve the delivery time of the items, the
company can send the purchase order electronically rather than sending or faxing.
By sending an electronic purchase order, the information can be entered directly into
the vendor's computer system. To ensure that there is visibility, the vendor should
provide the company progress information such as updated delivery dates and
documents such as advanced shipping notice (ASN).
4. Goods Receipt
Following the shipment of the items from the vendor, the next step is for those items to
arrive at the customer. The items will be checked to ensure the quantity is the same as
the purchase order, as well as checking the items for damage and quality.
If there is any issue with the items that are received, the customer will inform the
vendor so that either item can be returned, or a discount arranged.
309 https://www.thebalancesmb.com/purchase-to-pay-p2p-2221220 130
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5. Invoicing
The vendor can invoice the customer at any time after the items are shipped. By using
an electronic invoicing solution, the P2P process can be streamlined so that the
information is entered into the customer's accounts payable system.
When the items are received, matched against the invoice and purchase order, the
invoice processing can commence.
6. Invoice Processing
In the P2P process, the processing of invoices should be made so that any discounts
offered by the vendor are obtained. In the negotiated contract, the vendor can offer
discounts for payment that is made by the customer before the payment is due.
For example, the vendor may offer a five percent discount for payments made less than
ten days after the receipt of the items.
7. Analytics
As part of the P2P process, a company should have complete viability to its purchasing
spend. Constant monitoring of the spend will identify areas that could be a cause for
concern such as vendors increasing prices, or rogue spending.
A P2P process that incorporates best practices can save companies money. It should
include limitations on what can be purchased outside of the standard P2P process.
By allowing non-standard purchases, the incidences of unnecessary costs rise and
policing these purchases can waste resources that could be saved if the correct P2P
process were used”.
Procure to pay platforms.
“310Considering the complexity of the procure to pay process in most companies, it is not
surprising that some software vendors have attempted to develop what they claim are end-
to-end suites that automate and integrate each step. However, the reality is procuring, to
pay began as a mostly manual process conducted on paper, with components of it being
gradually computerized in recent decades.
Most vendors of ERP software -- Infor, Microsoft, Oracle, and SAP being the market share
leaders -- provide modules that handle the major phases of procure to pay. ERP suites
typically have procurement and order management modules, as well as inventory,
warehouse management and logistics functions for the middle phase of procure to pay.
ERP core financials, including accounts payable and general ledger functions, handle the
invoicing, payment, and accounting stages. Some ERP vendors claim to have integrated the
procure to pay process across their various modules.
310 https://searcherp.techtarget.com/definition/procure-to-pay-P2P 131
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Numerous vendors specialize in one of these ERP business processes and support at least
parts of the procure to pay workflow. Vendors of e-sourcing and procurement software,
such as SAP Ariba and Coupa Software, have significant procure to pay features. A few niche
players, among them Basware, Birch Street Systems, GEP, Jaggaer, Verian and Zycus, claim
to automate the entire process.
One of the biggest benefits of integrated procure to pay suites is their ability to consolidate
data, enabling a process called spend management that executives can use to get more
control over expenses”.
The process of creating approvals and their timescales.
For supply chain processes, the faster and more transparent exchange of information is, the
more it will increase flexibility and reduce cost for supplier and customer through faster
response times. For example, supermarkets seeking to reduce their inventory at distribution
centres benefit significantly from electronic data interchange (EDI) to facilitate optimal
inventory levels between the retail sites, distribution centres and suppliers of products. For
firms employing more complex SCM strategies such as cross-docking, the use of EDI is
significantly more crucial in enhancing productivity and efficiency as it shares real time
information sharing between all parties.
311“To adapt to the increasingly challenging environment in which they operate, supply
chain organizations have transformed processes and added IT capabilities that reduce cost,
improve responsiveness and increase performance. The build-to-forecast model has evolved
into a demand-driven supply chain, utilizing postponement and build-to-order capability to
provide high service levels at a reduced cost.
Functional supply chain silos have been eliminated by aligning incentives and integrating
end-to-end processes to improve efficiency and reduce cycle time. The linear supply chain
has evolved into the networked supply chain as companies have outsourced increasingly
strategic operations and increased the use of multi-tier supplier relationships.
Evolving Supply Chain Capability
Next-generation supply chains will sense and respond to demand changes in real time in
order to maximize business outcomes. As supply chains continue to evolve, the intelligent
use of information will become increasingly important, and deficiencies in planning and
execution will negatively impact performance.
The real-time supply chain operates on a more granular timescale than ever before,
requiring tight alignment between planning and execution processes as well as real-time
planning and execution capability. New or enhanced capabilities are needed to support the
model, including:
311 http://www.oracle.com/us/corporate/profit/archives/opinion/092610-roy-175554.html: 132
Article by Stuart Roy, September 2010 (Oracle Profit Magazine)
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Demand sensing close to the point of consumption, and real-time demand
management.
Process orchestration across functions, partners, and multiple supplier tiers
Continuous tracking of supply constraints and commitments
Detection of manufacturing and supplier exceptions in real time
Real-time planning to determine optimum action based on changing demand and
supply.
Supply chain organizations need to improve performance by more tightly coupling planning
and execution capabilities, reducing cycle time, detecting supply and demand in real time,
and enhancing (Sales and Operations Planning) S&OP processes.
Eliminate data latency.
Many supply chain organizations rely on several systems to support operations. Limited
integration across systems results in manual data manipulation, latency, and data quality
problems, introducing latency into planning and execution processes.
Data latency can be reduced by using integration technology to link disparate systems.
Master data management can be used to manage complex data sets and transform them
into a format suitable for planning and execution activities.
Improve demand sensing and management.
Supply chain organizations can improve visibility of demand across multiple channels by
sensing demand at or close to the point of consumption and automating data processing
and analysis. The approach used will depend on the particular channel; organizations may
need several approaches to sense demand across multiple channels.
For example, point-of-sale data for retail, sell-through and inventory for the distribution
channel, and contracts for contract-driven activity. Software tools can be used to
consolidate, analyse and transform demand information into a form which can be used to
drive planning and decision-making activities”.
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Image Credit/Source: https://www.demandcaster.com/wp-content/uploads/2018/11/SOP-Process.png
KT0302: Internet technologies and supply chain operations
Knowledge Theory (KT) and corresponding Internal Assessment Criteria (IAC) covered:
KT0302 Internet technologies and supply chain operations
IAC0304
Discuss the impact on the supply chain on the integration of systems
IAC0305 between organisations
Discuss the importance of web-based solutions such as e-requisitioning, e-
sourcing, e-ordering, e-invoicing to the supply chain function
Information Technology (IT) is always regarded as an enabler of effective supply chain
management. Supply chain management is about the flow of products and information
between organizations and these organizations can be suppliers, customers, producers, and
logistics service providers, among others. In order to ensure effective supply chain
management process, these organizations have to share information and use the available
information to work collaboratively together to acquire, purchase, convert/manufacture,
assemble, and distribute goods and services, from supplier to the ultimate end customers.
The ability to obtain reliable and timely information to assist in supply chain management
process can become a competitive advantage for company who can do it better than its
competitors.
The impact on the supply chain due to integration of systems between organisations
Information is the key to an effective supply chain management process and in order to
leverage on the available information, there is a generic process to follow – collect, access,
and analyse.
In short, in order to utilise information, we need to gather information, gain access to
information and use the available information for analysis to assist process improvement.
Hence, the supply chain management goals in these areas are:
Collect information on each product from production to delivery or purchase point
and provide complete visibility for all parties involved.
Access any data in the system from a single-point-of contact.
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Analyse, plan activities, and make trade-offs based on information from the entire
supply chain.
Overall, the fundamental goal is to use IT in the supply chain to link information from the
point of production seamlessly with the point of delivery or purchase.
The main point here is to have an information trail that follows the product’s physical
movement or the flow of service delivery.
An effective information flow from the beginning of supply chain to the end customer will
allow planning, tracking, and estimating lead times based on actual data.
In a matured information system of supply chain, all relevant stakeholders that are
interested to know about the supply chain should be able to access to the information.
From the diagram below, information and products flow from the supplier to the
manufacturer, internally through the manufacturer’s distribution system, and then on to the
retailers.
When retailer places orders with the suppliers, retailers need to know the status of its
orders and the suppliers need to be able to anticipate an incoming order from the
manufacturer.
This means that both stakeholders here such as retailers and suppliers need to access to
data that reside in other companies’ information systems. This may span across different
functions and geographic locations.
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Image Source and Credit:
https://www.smartsheet.com/integrated-supply-chain-management-vertical-and-horizontal
312When supply chain integration is done correctly, companies can reap a multitude of
rewards. Here are some key elements to keep in mind when discussing a move toward
supply chain integration within your organisation:
312 https://www.smartsheet.com/integrated-supply-chain-management-vertical-and-horizontal 136
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Image Credit/Source:
https://d2myx53yhj7u4b.cloudfront.net/sites/default/files/styles/full_width_desktop/public/IC-Key-Elements-
of-Effective-Supply-Chain-Integration.jpg?itok=arjFQLmg
Image Credit/Source:
https://www.smartsheet.com/sites/default/files/ic-benefits-of-supply-chain-integration.jpg
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The importance of web-based solutions such as e-requisitioning, e-sourcing, e-ordering, e-
invoicing to the supply chain function
E-Procurement
E-requisitioning, e-sourcing, e-ordering, e-invoicing are all subsets of the e-procurement
process in the supply chain.
313In its broadest sense, e-procurement involves electronic data transfers to support
operational, tactical, and strategic procurement. E-procurement has therefore been around
for much longer than the term itself which first came into usage after the establishment of
the internet in the 1990s. From the 1960s until the mid-1990s, e-procurement primarily
took the form of electronic data interchange (EDI). Nowadays, e-procurement is often
supported by internet technologies and is becoming more prevalent. The historic context is
demonstrated in the chart below:
Image Credit/Source: Adapted from - https://www.ungm.org/Areas/Public/pph/e-procurement.png
313 https://www.ungm.org/Areas/Public/pph/ch04s02.html 138
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Those involved in the procurement function need to understand the e-procurement
concepts and tools to provide input into their development, use, evaluation, and refinement
as a means of improving procurement efficiency and effectiveness.
Procurement officers and managers can make a contribution to decisions about investments
in, and configuration and use of e-procurement tools by:
having a general understanding of the various e-procurement applications
identifying the procurement processes that are effectively supported by e-
procurement.
understanding the sources of benefit of e-procurement
identifying the risks associated with the adoption of e-procurement.
contributing to the development of e-procurement tools through identifying scope
for e-commerce supported process improvement.
E-procurement tools and applications
Some e-procurement tools and applications include:
electronic systems to support traditional procurement.
EDI (electronic data interchange)
ERP systems
internet as a support or complement to traditional procurement.
electronic mail (e-mail)
web enabled EDI
extensible mark-up language (XML)
world wide web (www)
internet tools and platforms that replace traditional procurement.
Electronic systems to support traditional procurement.
These include mainframes and personal computers (PC), Electronic Data Interchange (EDI)
and Enterprise Resource Planning (ERP).
EDI (Electronic Data Interchange)
EDI is an application whereby electronic messages can be exchanged between computer
programs of two separate organizations. Some features of EDI include:
Messages are exchanged in groups, known as batches.
Messages can automatically be sent, transmitted, and stored between computers
without retyping or keying data.
EDI has to be implemented by each pair of organizations (sender and receiver) who
wish to use it. This means that the implementation costs of EDI are relatively high.
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EDI is mostly used where the messages exchanged concern such matters as orders,
confirmations, transport information and invoicing.
EDI traditionally runs on so-called, “Value Added Networks”, which are closed
networks (unlike open networks like the Internet).
ERP systems
ERP systems are management information systems that integrate and automate many of
the business practices associated with the operations of a company or organization. ERP
systems typically handle the manufacturing, logistics, distribution, inventory, shipping,
invoicing, and accounting for a company or organization. ERPs aid in the control of many
business activities, like sales, delivery, billing, production, procurement, inventory
management, and human resources management.
Internet as a support or complement to traditional procurement.
There are various types of internet-based applications that serve different purposes. Some
well-known applications that use the internet are described below:
Electronic mail (e-mail)
Email is an Internet based application through which electronic messages are exchanged
between people.
Web enabled EDI
Web enabled Edi is like traditional EDI (see above), but run on the Internet; also known as
EDI-INT.
Extensible Markup Language (XML)
XML is used to allow for the easy interchange of documents on the World Wide Web.
World Wide Web (WWW)
The WWW is a major service on the Internet. The World Wide Web is made up of "Web
servers" that store and disseminate "Web pages," which are "rich" documents that contain
text, graphics, animations, and videos to anyone with an Internet connection.
The figure below illustrates the categories of electronic communication exchange between
people and computers.
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Inter
net
tools
and
platf
orms
that
repla
ce traditional procurement.
Some internet tools and platforms that replace traditional procurement include:
E-sourcing
E-tendering
E- auctioning
E-ordering and web-based ERP
E-information
E-sourcing
E-sourcing supports the specification phase; it can be used to pre-qualify suppliers and also
identifies suppliers that can be used in the selection phase. For suppliers, the benefit is:
“marketing” and for the buying organizations the benefit is facilitating the sourcing of
suppliers. The UN Global Market Place (UNGM www.ungm.org) is an example of an E-
sourcing tool.
E-tendering
E-tendering supports the selection stage and acts as a communication platform between the
procuring organization and suppliers. It covers the complete tendering process from REOI
via ITB/RFP to contracting, usually including support for the analysis and assessment
activities; it does not include closing the deal with a supplier but facilitates a large part of
the tactical procurement process. It results in equal treatment of suppliers; transparent
selection process; reduction in (legal) errors; clear audit trial; more efficiency in the tactical
procurement process and improved time management of tendering procedures.
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E-auctioning
E-auctioning supports the contract stage. It enables the closing of a deal with a supplier if
parties agree on price. They operate with an upward or downward price mechanism e.g., e-
auctioning with upward price mechanism for the selling organization and e-reverse
auctioning with a downward price mechanism for the buying organization. They can be
made in accordance with traditional ITB/RFP. They are internet based using open or closed
systems.
E-ordering and web-based ERP
E-ordering and web-based ERP is the process of creating and approving procurement
requisitions, placing purchase orders, as well as receiving goods and services ordered, by
using software systems based on the Internet.
System Usually used…
E-ordering For indirect (facility) goods and services.
By all employees of an organization.
For ad-hoc ordering.
Web-based ERP For direct (product related) goods and services.
By a procurement department.
For planned ordering.
E-informing
E-informing is not directly associated with a stage in the procurement process; it is the
process of gathering and distributing procurement information both from and to internal
and external parties using Internet technology.
E-procurement in the procurement cycle
The figure below shows the six forms of e-procurement plotted in the procurement process.
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Each of these forms can be explained as follows:
E-sourcing supports the specification phase; it identifies suppliers that can be used in
the selection phase.
E-tendering supports the selection phase; it facilitates the REOI and ITB/RFP
activities, usually including support for the analysis and assessment activities.
E-reverse auctioning supports the contract phase; it enables closing a deal with a
supplier.
E-ordering and web-based ERP is the process of creating and approving procurement
requisitions, placing purchase orders, as well as receiving goods and services
ordered, by using a software system based on the Internet.
E-informing is not directly associated with a phase in the procurement process; it is
the process of gathering and distributing procurement information both from and to
internal and external parties using Internet technology.
E-procurement strategy – costs, benefits, and risks
Business cases aimed at adopting or enhancing e-procurement tools are often prepared by
information technology and/or finance specialists. However, some of the most successful e-
procurement implementations have been driven by those who best understand the
procurement processes and outcomes to be achieved. Because of their understanding and
proximity to procurement processes, those involved in the procurement function have a key
role to play in identifying and assessing the costs and benefits of e-procurement tools and in
providing input into how existing tools may be enhanced.
The following costs and benefits as identified by de Boer, Harink et al. (2002), can be
influenced by e-procurement:
The cost of expenditure on goods/services related directly to the production/service
delivery.
The cost of non-production of goods and services.
The cost of operational procurement activities – e.g., requisitioning, ordering,
expediting and administrative support.
The cost of tactical procurement activities – e.g., formulating specifications, selecting
suppliers, negotiating with suppliers, contracting, disposals etc.
The costs of strategic procurement activities – e.g., spend analysis, transaction
analysis, market analysis, planning, developing procurement policies etc.
Internal benefits arising from investments in particular inter-organizational
relationships.
The contribution of investments in particular inter-organizational relationships to
revenues.
These costs and benefits should be assessed in relation to each e-procurement tool. While it
is usually assumed that e-procurement will automatically deliver benefits, the actual
benefits will depend on many factors including: cost of required investment, ability to
convert associated savings to cash, nature of the procurement process being automated,
particular supply market and the extent to which the organization supports its
implementation.
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Benefits
Particular benefits of e-procurement in the public sector are thought to include greater
transparency in procurement through electronic publishing of tender notices and contract
awards. This in turn is likely to enhance accountability and reduce the instances of
corruption.
When developing a business case for adopting or enhancing an e-procurement tool, it is
important to assess the baseline benefits and costs associated with the process or processes
to be automated in order to understand the probable outcomes of e-procurement adoption
or enhancement. In essence, it is important to understand what will change and how it will
change when an e-procurement tool is implemented.
Risks
The implementation of e-procurement tools carries certain risks. One of the primary risks is
missing opportunities to implement strategies that improve procurement management
without the need for investment in e-procurement. This is because many of the benefits
ascribed to e-procurement may be achieved simply by improving procurement practice. For
example, it is often said that e-procurement reduces “maverick buying”. However, other
measures, including the implementation of corporate buying strategies that offer value for
money, do not need electronic tools.
Another risk is over-investment in e-procurement tools that do not deliver the expected
benefits. This risk arises when there has been inadequate evaluation of the implications of
the adoption or enhancement of e-procurement tools. The risk that users will not accept an
e-procurement tool is another common risk. This risk often arises where users have not
been adequately consulted about the adoption or enhancement of particular tools.
On the supply side, there is a risk that suppliers will not cooperate with the use of e-
procurement tools. For example, some suppliers are sufficiently powerful to insist on the
use of paper-based systems. Others may not have access to affordable internet-based
technology that would give them access to the e-procurement tools of purchasers. In
markets that are already competitive with low profit margins, suppliers may choose not to
participate in e-reverse auctions. Normal methods of risk assessment and management
should be applied during the development of business cases for e-procurement
development or enhancement.
Legal aspects of e-procurement
The accepted legal framework guiding e-procurement is the UNCITRAL Model Law on
Electronic Commerce which states:
“In the context of contract formation, unless otherwise agreed by the parties, an offer
and the acceptance of an offer may be expressed by means of data messages.”
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“Where a data message is used in the formation of a contract, that contract should not
be denied validity or enforceability on the sole ground that a data message was used for
that purpose.”
In adopting or adapting any e-procurement systems, the practical issues around these legal
aspects need to be taken into consideration during the planning and implementation stages.
E-invoicing
314Electronic invoicing (e-Invoicing) is the exchange of the invoice document between a
supplier and a buyer in an integrated electronic format. Traditionally, invoicing, like any
heavily paper-based process, is manually intensive and is prone to human error resulting in
increased costs and processing lifecycles for companies. e-Invoicing is a common B2B
practise and has been part of Electronic Data Interchange transactions for many years.
The issue of compliance seems to have separated e-Invoicing from B2B. Perhaps surprisingly
many Finance leaders are unaware that their company is already sending/receiving EDI
electronic invoices.
The true definition of an electronic invoice is that it should contain data from the supplier in
a format that can be entered (integrated) into the buyer’s Account Payable (AP) system
without requiring any data input from the buyer’s AP administrator.
314 https://www.einvoicingbasics.co.uk/what-is-e-invoicing/ 145
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As this allows for a number of formats to be employed, it is useful to apply the following
guidelines:
An e-Invoice
Structured invoice data issued in Electronic Data Interchange (EDI) or XML formats
Structured invoice data issued using standard Internet-based web forms.
Not a true e-Invoice
Unstructured invoice data issued in PDF or Word formats
Paper invoices sent via fax machines.
Scanned paper invoices
Although significant cost and time savings can be achieved by removing paper and manual
processing from your invoicing, the real benefits of e-Invoicing come with the level of
integration between you and your trading partners and between your invoicing software
and other business systems.
Diagrammatic Overview of e-Procurement Processes
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Chapter 4 – KM-02-KT04: Integration of Supply Chain Information
The topic elements to be covered in this chapter include:
KT0401 Information parameters impacting the effectiveness of the supply chain
KT0402 Decision making processes regarding supply chain information systems
KT0403 Effectiveness of supply chain information systems
The internal assessment criteria or learning outcomes relevant to this chapter are as
follows:
IAC0401 Discuss the need for integrated supply chain information within the
IAC0402 organisation
IAC0403
IAC0404 List the information requirements linked to the different supply chain
IAC0405 processes
IAC0406
IAC0407 Explain information parameters as a basis to measure the effectiveness of
IAC0408 the supply chain
Describe the process of effective decision-making regarding supply chain
information systems
List the stakeholders involved in the decision-making process
List the criteria for effective information systems in accordance with needs
and stakeholder requirements
Explain how the effectiveness of the information system will be measured
against these criteria
List the tools used to effectively determine and introduce improvements
KT0401: Information parameters impacting the effectiveness of the supply chain.
Knowledge Theory (KT) and corresponding Internal Assessment Criteria (IAC) covered:
KT0402 Information parameters impacting the effectiveness of the supply chain
IAC0401
Discuss the need for integrated supply chain information within the
IAC0402 organisation
List the information requirements linked to the different supply chain
processes
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The need for integrated supply chain information within the organisation
In today’s increasingly complex and digitally driven supply chain, where competitive
advantage can quickly evaporate and on-time practically means yesterday, smart
integration is essential to stay competitive.
Here are some primary ways to use integration to boost productivity and effectiveness:
1. Integrate existing platforms with vendor, supplier, distribution centre, warehouse,
yard, and transportation management systems. Better collaboration with vendors
through connected systems leads to overall improvements in inventory management.
For example, integrating your transportation management system (TMS) with a
warehouse management system enhances the flow of products within a facility,
tuning operations toward omnichannel success. Cloud-based TMS is capable of
handling existing operations, leveraging legacy system data, and helping shippers gain
insight into inbound and outbound logistics in a single platform. Using the cloud, cloud
based TMS platform is also scalable, a pre-requisite for effective integration.
2. Use data for continuous improvement/refinement of systems. Consumers generate a
mountain of data, and this information holds great value for effective supply chain
management. Consumer data can be used for increased forecasting, but this is only
possible through supply chain systems integration. Using consumer and company data
helps identify threats and opportunities in the supply chain, so effective risk mitigation
increases in both financial and physical supply chains. Additional sources of data, like
social media, can be further integrated with systems to increase customer service
levels.
3. Use blockchain technology. Blockchain technology is among the latest innovations in
supply chain management, offering the promise of end-to-end visibility, decentralized
data, and distributed information. As an incorruptible resource, blockchain could
provide heightened accuracy in processes, virtually eliminating the need for invoice
auditing programs. Since blockchain is not yet widely available for use in supply chain
systems today, companies looking to increase end-to-end visibility should consider
outsourcing freight auditing programs. This would require integration with third-party
logistics provider (3PL) platforms as well.
4. Deploy IoT technology to gain insights. If understanding data in the supply chain is
the goal, the Internet of Things (IoT) is the gatekeeper. It serves to collect data from
across millions of devices, including internal company sensors and connected products
in the possession of end-users, to give managers a window into consumer needs and
wants. The number of IoT-enabled devices will exceed 40 billion by 2020, says Archana
Venkatraman of ComputerWeekly.com, but this technology is not necessarily capable
of communicating with all other systems. Disconnects develop, leaving data out in the
cold, but integration ensures value in data, giving companies the opportunity to
transform raw data into meaningful insights.
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