Procurement is a key activity in the supply chain. It can significantly influence the overall success of an emergency response depending on how it is managed. In humanitarian supply chains, procurement represents a very large proportion of the total spend and should be managed effectively to achieve optimum value. It serves three levels of users:
In collaboration with the warehouse function, products/commodities are mobilised and delivered.
Diagram 1: The role of procurement
Procurement is a large subject area and bridges the fulfilment of identified needs. The objective of this topic is to highlight the key areas, provide tools, templates and hyperlinks to additional information such as donor guidelines should that be required.
Note: It is NOT the intention to recommend process in this chapter. Process, in the context of procurement, is organisation specific and based on organisational policies and donor requirements. The intention here is to provide industry best practice that can be replicated or used to complement what is already in existence or adopted in totality where no guidelines exist.
Procurement is the process of identifying and obtaining goods and services. It includes sourcing, purchasing and covers all activities from identifying potential suppliers through to delivery from supplier to the users or beneficiary;
Purchasing is the specific function associated with the actual buying of goods and services from suppliers; and
Sourcing is simply: “Identifying and working with appropriate suppliers”.
Source: Mangan, J., Lalwani, C. and Butcher, T. 2008, "Global Logistics and Supply Chain Management", Hoboken, NJ, USA, John Wiley and Sons, Inc.
The three important principles of humanitarian logistics procurement are:
The principles and their importance stem from three key facts:
The Procurement function must guard and mitigate against risk, understand the market, build relationships with suppliers, meet needs in a timely manner and constantly monitor performance to improve service provision. Hence the need for an organisation to have clearly defined policies that are well understood.
The aim and objective of procurement is to carry out activities related to procurement in such a way that the goods and services are procured according to the "Six Rights." These "Six Rights" are:
The “Six Rights” can inform the procurement process and includes:
It is important to recognise that these steps are interrelated and may influence each other but do not carry the same weight depending on the situation. For example, in an emergency situation it may be possible to obtain the right quantity but not at the right price. There may be competition for certain goods, so to get the quantities required may mean paying a slightly higher price.
Procurement policies will vary from organisation to organisation but are the organisational rules and regulations governing the procurement function. The policies determine how different aspects of procurement will be carried out in the organisation and how people working in procurement should behave. In summary, the policies;
As a guide, a typical procurement policy should include, but not necessarily be limited to the following subjects:
Logistics staff participation in assessments provides logistics information and data that supports program/response implementation. This enables the logistics function to know and understand program or response needs. The organisation is then able to plan ahead for the provision of the goods and services. The assessment results feed into procurement plans. In an emergency situation, the participation of logisticians will inform management on the feasibility of a response to physical needs.
For emergency response purposes the procurement process can be wrapped into four clear steps:
Diagram 2: Procurement Process
Requirements for goods and services originate from different users. In emergencies, the response teams in various sectors request for basic supplies to meet the needs of those affected. The needs range from blankets, mosquito nets, tents to food supplies, household items, etc.
The needs are communicated to procurement in the form of a “request”. These requests may be electronic, hard copy or verbal, and may be very specific where the users know exactly what they need in terms of specification, quantities, and delivery details. Or they may be less specific where the users are not able to provide exact information.
In emergencies the requests are sometimes verbal or done on email communication.
In whatever form, the needs must be clear, unambiguous and confirmed by the originator of the request. The specifications should contain the essential features or characteristics of the requirements but must not be over or understated or contain non-essential features that might limit the sources of supply or limit the number of potential suppliers. Assessments inform needs identification.
Once the needs have been identified and forwarded to Procurement in a request form (see different purchase order requisition templates in the Annexes), the procurement department should develop or communicate a plan on how to deliver the service or goods required. But the plan must be developed in collaboration with the other functions within the organisation, so that it is integrated into the organisation's strategy and therefore provided for adequately.
To be able to purchase the right goods or services, the specifications of what the user/beneficiary needs must be clear. These specifications are used to communicate to the supplier what is needed and what should be supplied. It is therefore important to have clear, precise and accurate specifications. Most organizations have standard specifications for the most regularly procured items and services such as medical and construction. One example is of Inter-Agency working groups who have developed standards to facilitate the establishment of common framework agreements. (See Plastic Sheeting and Blankets specifications)
The customers determine the specification. There is, however, an important role to be played by those responsible for purchasing the goods or services.
What makes a good specification?
Specification is a detailed description of the design, the service, or materials. It describes in detail the requirements to which the supplies or services must conform. The basic requirement of a good specification is to clearly identify the service or product to stakeholders. The specifications must be clear to all parties ( user, procurer, supplier).
Factors to consider in specifying a product:
Respecting operational requirements, consideration should be given to not over specifying products. Over specification can limit competition and increase cost.
Some of the methods of purchasing or obtaining goods and services for an emergency are:
Sourcing is the process of identifying sources of supply that can meet the organisations immediate and future requirements for goods and services. In an emergency situation the immediate needs would be priority consideration. Under the circumstances, identifying sources of supply and accessing supplier capabilities will either be carried out as users’ place their requests to procurement or once a request has been received.
The sourcing process adopted will depend on the situation and on the time available to carry out sourcing. In response to a slow onset emergency, stock-piling may take place before specific requests are made.
In a sudden on-set emergency the need to respond quickly to the emergency will mean there is no time to gather sourcing information and approve suppliers before customers start to place requisitions. The organisation would then call-off on existing stocks or purchase short term requirements off the local market for the initial days or order from existing agreements.
Some sources of supply information are:
Vendor rating and supplier performance monitoring are applicable to all scenarios for quality service delivery. These aspects should be built into on-going business. For emergencies, performance monitoring is limited to delivery and quality of goods. Though vendor rating is applicable in emergencies, the criteria may vary from one that is used in the long term arrangements. For example, ability to deliver immediately may carry more weight than the price, provided the price variation is not too big.
Factors to consider in vendor rating:
For more information, see Suppliers Confidential Business Questionnaire and Supplier Rating Tool in the Annexes.
Steps in the sourcing process
Diagram 3: Sourcing Process.
Sourcing from the Open Market
Sourcing from the open market will require using quotations and/or tenders. The process for this will vary depending upon an organisation’s own internal procedures. But the following are considered ‘best practices’.
|Inviting and receiving quotations||Inviting and receiving tenders|
The evaluation of tenders and awarding of contracts to suppliers is an important phase of the procurement process. It is this process that determines the actual quality, reliability, delivery, etc. of the goods and services. The procurement department coordinates the following:
Some points to note:
Placing Orders and Contracting
The next step in the process involves placing orders for the goods or services with the supplier, or establishing contracts which need to be sent to suppliers. In emergency situations the approval levels and limits are adjusted, based on an approved process, to speed up the process of acquiring goods and services. Under normal circumstances, the approval processes may be more elaborate. The orders establish contractual relationships between the organisation and the supplier. Depending on the organisations guiding policies, this contractual relationship can be represented in various forms (see attachments in Annexes). Examples of these documents include:
For information on international trade, see International Commercial Terms used in international contracts of sale: INCOTERMS 2000 , INCO terms explanation, INCOTERMS narrative, INCOTERMS practical application chart.
Important features of a contract or agreement:
See Contracting tips and basic inclusions, Standard conditions of contract and Purchase contract: an agreement between purchaser and supplier.
Expedite/ Progressing Orders
Once the order is placed and the supplier has confirmed receipt and agreed to the contract terms and conditions, the role and the amount of work that staff in procurement have to undertake will be affected by the performance of the suppliers. It is necessary therefore, for the procurement staff to monitor the progress of orders and the performance of the suppliers. Supplier performance will determine the amount of time and money that has to be spent in expediting orders and the managing of suppliers. To ensure an uninterrupted flow of goods and services, expediting should be a continuous process, especially in emergencies. The continuous monitoring enables the organisation to pick out break-down points in the system and quickly identify solutions.
Delivery and Return
Procurement only facilitates delivery through expediting for timely delivery and trouble-shooting returns. The physical receipt and inspection of goods takes place at the delivery point. Procurement only needs to know that delivery has taken place and that the supplier has delivered in accordance with the purchase order and complied with delivery contract requirements.
Whoever is responsible for accepting delivery and inspecting the goods should understand the procedure to follow in the event that there are any problems or discrepancies. For certain goods or commodities an independent inspection company may be used to check the quality of the goods.
When goods or services are received and accepted into stock, Procurement then facilitates payment of the supplier by providing necessary documentation to Finance.
Orders are normally generated in Procurement. As the goods are delivered in the warehouses and transported to final distribution points, additional documents are generated in the process to support transactions. All these documents are finally consolidated to support vendor payments. In the diagram below, the entities on the left generate the documents. On the right are examples of some of the documents used to support payment.
Diagram 4: Example of necessary documentation used to support payments.
For samples, see the Annexes.
It is very easy to forget the review stage, particularly when there is a lot of procurement activity taking place as in the case of an emergency. The review stage has got three main objectives:
In emergency situations, the review step happens much later in the emergency. Emphasis during the emergency is focused on obtaining the goods and services and meeting the needs.
Different humanitarian organisations will have their own systems and documentation that they use during the procurement process. These are used to enable people to carry out the procurement process efficiently and consistently. Historically, the procurement process has been paper based and has required the use of a range of documents. In the initial days of an emergency, it is difficult to introduce a new system but easy to apply an existing one with minimum guidance to facilitate the speed of response.
In this context a standard procurement systems (SPS) is a software suite providing front office services to procurement professionals. It is intended to provide standard business processes and data management across a wide range of procurement communities. Procurement in emergencies is very complex, necessitating procurement of relief supplies from multiple worldwide sources. An SPS provides a paper-less transaction trail for better accountability, facilitates order tracking and reduces the opportunity for fraud. There are many SPS available on the open market, from which an organisation can select one that is suitable to their needs. There are also service providers on the open market who have the capability to develop an SPS specifically tailored to meet individual needs.
Procurement must be seamlessly integrated with the other aspects of Logistics and functions within the organisation, such as Warehousing, Distribution, Finance, HR, etc. An integrated approach to service delivery will no doubt contribute to the timely, efficient and effective delivery of humanitarian assistance. Clear communication lines, timely flow of documentation and constant feedback will facilitate the procurement process. The involvement of the Logistics function in assessments will enable Logistics to plan for the delivery of services, but for Logistics to succeed, the procurement plan must be well integrated and visible in the overall response plan. In emergency situations, easily accessible logistics preparedness and response guidelines will help to fast track the development of a response plan, tailored for a specific situation.
International Commercial Terms: INCOTERMS 2000 , INCO terms explanation, INCOTERMS narrative, INCO practical application chart.
IFRC Logistics Field Manual
UNHCR Handbook for Emergencies
UNICEF Emergeny Field Handbook
WFP Emergency Operations Handbook
World Vision International
WHO Logistics Manual
Rushton,A., Oxley,J., and Croucher,P., The Handbook of Logistics and Distribution Management (Second Edition), Kogan Page (1989,2000)- Link
Mangan, J., Lalwani, C., and Butcher, T., Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd- Link
Fritz Institute Certification in Humanitarian Logistics Module-Link