Procurement Management  ·  Level 6
Classification And Coding Of Procured Goods
Chapter 1: Categorise items for coding
📚 4 Topics
⚑ What you will be able to do

By the end of this chapter, you will be able to:

  • Identify the correct warehouse location by following your organization's procurement policy.
  • Determine important warehouse design features that meet your organization's specific requirements.
  • Recommend the right resources needed to design a warehouse based on actual warehousing needs.
  • Review and check the warehouse design to make sure it fully supports warehousing requirements.

Mastering these skills will help you organize and manage goods efficiently, which is essential for smooth operations in any trade.

Compiled by: Wesley Rotich

Categorising items for coding is a critical step in procurement management that ensures efficient identification, tracking, and control of goods within an organisation. In the Kenyan procurement environment, where institutions such as county governments, universities, and commercial enterprises manage diverse supplies, accurately defining the nature of goods items facilitates streamlined inventory management and compliance with procurement regulations. This chapter focuses on understanding how goods are characterised to support effective coding systems that enhance procurement transparency and accountability.

1.1 Defining the Nature of Goods Items

Understanding the nature of goods items is foundational for procurement professionals as it influences how items are classified, coded, and managed throughout the procurement cycle. Kenyan public entities such as the Ministry of Health or the Teachers Service Commission acquire a wide range of goods, from pharmaceuticals to office supplies, each requiring clear identification to avoid mismanagement. This section explores the defining characteristics of goods items to aid procurement officers in developing robust classification systems.

1.1.1 Physical and Tangible Characteristics of Goods

The physical and tangible attributes of goods form the primary basis for their identification and classification. These characteristics determine how items are handled, stored, and coded within procurement systems.

Physical Form

Goods can be categorised based on their physical state such as solid, liquid, or gas. For instance, in a hospital setting, solid items like surgical instruments differ fundamentally from liquid medicines, requiring distinct storage and handling protocols. Understanding the physical form assists in determining packaging and transportation needs.

Size and Dimensions

The size and dimensions of goods influence storage space allocation and transport logistics. In a county government office, large furniture pieces will be coded differently from small stationery items to reflect their storage requirements and handling complexity.

Weight

Weight affects handling methods and cost considerations in procurement. Heavy machinery procured by a cooperative for agricultural use demands special coding to indicate the need for specific transport equipment and safety measures.

Durability and Shelf Life

Durability refers to how long goods remain usable without degradation. Perishable goods such as food supplies for a school feeding program require classification that highlights their limited shelf life, ensuring timely usage and replenishment.

Packaging

Packaging protects goods and facilitates identification. For example, pharmaceuticals at a retail pharmacy are coded considering their packaging types, which also impact storage conditions like temperature control.

1.1.2 Functional and Usage-Based Characteristics

Beyond physical traits, the functional purpose and intended use of goods provide essential criteria for classification, enabling procurement professionals to group items according to their operational roles.

Intended Use

Goods are classified by their specific function within an organisation. For instance, cleaning agents used at a county hospital are categorised separately from medical supplies, reflecting their different procurement and usage protocols.

User Department or Unit

Classification often aligns goods with the department responsible for their use. Office furniture procured for the county government’s human resource department is coded distinctively from IT equipment allocated to the finance department.

Frequency of Use

Items frequently used, such as printer cartridges in a university library, require a coding system that facilitates rapid replenishment. Conversely, rarely used items like specialised laboratory equipment may have unique codes reflecting their infrequent procurement.

Consumability

Consumable goods that are used up during operations, such as fuel for generators in a hotel, are categorised differently from durable goods to ensure appropriate stock control and timely reordering.

Compatibility and Interchangeability

Some goods are compatible with or interchangeable between different equipment or systems. For example, standardised computer accessories procured by a bank are coded to reflect their interchangeability, simplifying inventory management.

1.1.3 Legal and Regulatory Attributes of Goods

Procurement in Kenya is governed by various laws and regulations that influence how goods are defined and classified to ensure compliance and quality assurance.

Compliance with Standards

Goods must meet national or international standards such as KEBS certification. For example, electrical appliances procured for a county office must comply with safety standards, affecting their classification.

Import and Export Regulations

Some goods are subject to import restrictions or require special permits. Pharmaceuticals imported for a public hospital have classification codes reflecting regulatory oversight by bodies like the Pharmacy and Poisons Board.

Environmental Considerations

Certain goods are classified based on their environmental impact. For example, procurement of biodegradable packaging materials by a retail business may be coded to align with NEMA environmental guidelines.

Intellectual Property Rights

Goods involving patented technology or proprietary designs, such as specialised software for a university, require classification that recognises licensing conditions and usage restrictions.

Tax and Duty Classifications

Customs duties and taxes vary with the type of goods. For instance, agricultural inputs imported for a cooperative may be coded to reflect tax exemptions or tariffs applicable under Kenyan law.

1.1.4 Economic and Financial Characteristics

Economic attributes of goods influence procurement decisions and coding by reflecting cost, value, and budgetary considerations.

Unit Cost

The price per unit affects how goods are grouped for budgeting. High-value equipment like medical imaging devices at a county hospital are coded to facilitate budget tracking and asset management.

Total Procurement Value

Bulk items such as office supplies procured in large quantities by a university are coded to reflect total contract value, aiding financial reporting and audit processes.

Depreciation and Asset Life

Durable goods with long service lives, such as vehicles for a county government, are classified differently from consumables to support asset depreciation accounting.

Budget Source

Goods financed from different budget lines, for example donor-funded medical supplies versus locally funded stationery, require distinct coding to ensure proper fund utilisation tracking.

Market Availability

The availability of goods in the local or international market affects procurement timing and coding. Rare items like specialised lab reagents for a research institution are coded to highlight procurement lead times.

Practice Questions

  1. Explain how physical characteristics of goods influence their classification in procurement management. Provide examples from Kenyan institutions. (10 marks)
  2. Discuss five functional characteristics used to categorise goods and explain their relevance in procurement systems. (10 marks)
  3. Identify and explain five legal or regulatory attributes that affect the classification of procured goods in Kenya. (10 marks)
  4. Describe how economic factors impact the coding of goods in procurement, citing examples from public or private sector organisations. (10 marks)
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🔒1.2 Classification of Goods Coding

In procurement management, classifying goods accurately is essential for efficient inventory control, cost management, and supplier evaluation. Kenyan organizations such as county governments and retail businesses rely on precise goods coding to streamline pro…

🔒1.3 Classify Goods

In procurement management, particularly within Kenyan institutions such as county governments or SACCOs, the classification of goods is essential for efficient inventory management, budgeting, and reporting. Classification helps procurement professionals group…

🔒1.4 Identify Classification

Accurate identification of classification codes for procured goods is a foundational activity in procurement management, enabling effective tracking, ordering, and reporting. In Kenyan procurement practice, correctly identifying classification supports complia…

Chapter Summary

This chapter explored the fundamental process of categorising items for coding in procurement management. It began by defining the nature of goods items, highlighting their diverse characteristics and the importance of understanding these traits for effective classification. The discussion then moved to the classification of goods coding, detailing the key categories such as raw materials, finished goods, work-in-progress, scrap, consumables, and maintenance, repair and operating spares. Each category was explained to illustrate how items fit into different stages of production or usage. The chapter also covered the practical steps involved in classifying goods, emphasizing the criteria and methods used to assign codes accurately. Finally, it addressed the identification of classification, focusing on how to recognise and verify the appropriate category for each procured item to ensure proper inventory control and management. This comprehensive approach enables organisations to maintain clarity and efficiency in managing procured goods.

Self-Assessment

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A. Written Assessment

  1. Define raw materials and explain their significance in procurement management. (3 marks)
  2. Which classification of goods typically includes items that are partially completed in the production process?
    a) Finished goods
    b) Work-in-progress (WIP)
    c) Scrap
    d) Consumables (2 marks)
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Chapter Examination Questions

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SECTION A (40 Marks) - Answer ALL Questions

  1. Explain the difference between raw materials and finished goods in the context of procurement at a county hospital in Kenya. (4 marks)
  2. Identify three key characteristics that distinguish work-in-progress (WIP) items from consumables in a manufacturing firm. (4 marks)
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Am I competent?

At the start of this chapter we promised you would be able to:

  • Identify the correct warehouse location by following your organization's procurement policy.
  • Determine important warehouse design features that meet your organization's specific requirements.
  • Recommend the right resources needed to design a warehouse based on actual warehousing needs.
  • Review and check the warehouse design to make sure it fully supports warehousing requirements.

Tick each one you can genuinely do.

So, are you there yet?

You're competent when you can confidently do 50% or more of what this chapter promised.

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