1.1 Meaning of terms used in procurement

Every procurement office works with a shared vocabulary. When a user department, the procurement unit, finance and suppliers use the same words in the same sense, requisitions are raised correctly, solicitation documents are clear and disputes are avoided. This topic explains the key terms a procurement officer uses daily: procurement, purchasing, supply chain management, logistics, procurement needs, specifications and procurement planning. Example: if the production manager of a food processing company asks the procurement office to "buy packaging", the officer must know whether this is a purchase from an existing supplier, a new procurement need that requires specifications and a market survey, or a logistics question about delivering stock already ordered.

1.1.1 Procurement

Procurement is the whole process by which an organisation obtains the goods, works and services it needs, from identifying the need through selecting a supplier, contracting, receiving and paying, up to managing the contract and disposing of the item at the end of its life. It is wider than buying: it includes planning, sourcing, negotiation, contract management and supplier relationship management. In Kenya, procurement by public entities is governed by the Public Procurement and Asset Disposal Act, 2015 and its regulations, which require public procurement to be fair, equitable, transparent, competitive and cost-effective, as set out in Article 227 of the Constitution of Kenya, 2010.

Key features of procurement

• Strategic: It is linked to the organisation's plans and budget, not only to day-to-day orders.
• Covers the whole cycle: It runs from the need to the end of the contract, including after-sales service and disposal.
• Value for money: It seeks the best combination of quality, cost, delivery and service over the life of the item, not only the lowest price.
• Governed by rules: Public entities follow the procurement law and regulations; private firms follow their own procurement policies and manuals.
• Involves many parties: User departments, the procurement unit, finance, management and suppliers all take part.

Example: when a state corporation needs a fleet of utility vehicles, procurement covers the needs assessment, the procurement plan, specifications, the tender, evaluation, award, contract signing, delivery, inspection, payment and the later servicing contract.

1.1.2 Purchasing

Purchasing is the narrower, transactional part of procurement: the act of buying goods or services at an agreed price and terms, mainly by placing an order with a chosen supplier and following it up to delivery and payment. Purchasing answers the question "how do we buy this item now?", while procurement also asks "should we buy it, from whom, under what contract and for how long?".

Procurement and purchasing compared

Example: a manufacturing company that has already signed a one-year framework contract for cartons buys each month's cartons by issuing a purchase order under that contract: the monthly order is purchasing, while the tender that produced the framework contract was procurement.

1.1.3 Supply chain management

Supply chain management is the planning, coordination and control of all the activities and organisations involved in moving materials, information and money from the original suppliers, through production and distribution, to the final customer. It looks at the chain as a whole, so that each link (suppliers, manufacturers, warehouses, distributors, retailers and customers) works together to deliver the right product, in the right quantity, at the right place and time, at the lowest total cost.

Main activities in supply chain management

• Planning: Forecasting demand and planning supply, production and stock levels.
• Sourcing and procurement: Selecting suppliers and obtaining materials and services.
• Production or operations: Converting inputs into finished goods or services.
• Warehousing and inventory management: Holding the right stock and controlling its cost.
• Distribution and logistics: Moving goods to customers.
• Returns and reverse logistics: Handling returned, faulty or end-of-life items.
• Information and relationship management: Sharing data and building partnerships along the chain.

Procurement is one function within supply chain management. Example: a dairy processor's supply chain runs from the farmers who supply milk, through collection, processing, packaging and cold storage, to distributors and supermarkets; the procurement office is responsible for the inputs such as packaging, chemicals and spare parts.

1.1.4 Logistics

Logistics is the part of supply chain management that plans, carries out and controls the efficient movement and storage of goods, services and related information from the point of origin to the point of use. It covers inbound logistics (bringing purchased goods into the organisation) and outbound logistics (delivering finished goods to customers).

Elements of logistics

• Transport: Choosing the mode (road, rail, sea, air, pipeline) and the carrier, and planning routes.
• Warehousing: Receiving, storing and protecting goods until they are needed.
• Inventory control: Keeping stock at levels that avoid both shortages and excess.
• Materials handling and packaging: Moving and protecting goods safely.
• Order processing and information flow: Tracking orders and shipments.
• Clearing and forwarding: Handling customs and port procedures for imported goods.

Example: when an organisation imports laboratory equipment, procurement selects the supplier and agrees the price, while logistics arranges shipping, clearing at the port, road transport to the organisation and safe storage on arrival.

1.1.5 Procurement needs

A procurement need is a requirement that a user department cannot meet from its own resources and that must be obtained from outside the organisation. Needs arise from operations (stock running low), new projects, replacement of worn assets, legal requirements or changes in plans. Each need is classified as works, goods or services, because the classification decides how it is specified, which procurement method is used, who evaluates it and how its delivery is inspected.

Works

Works are activities connected with building, construction, repair, renovation, alteration, extension or demolition of buildings, roads and other structures, together with the goods and services that form part of that work, such as site preparation and installation of equipment. They are specified through drawings, bills of quantities and technical specifications, and they are supervised and certified by qualified professionals such as engineers or quantity surveyors. Example: construction of a new warehouse, re-roofing an office block or paving a yard.

Goods

Goods are physical items and commodities that are bought, received and either used, stored or resold. They include raw materials, office supplies, equipment, machinery, vehicles, furniture, spare parts and consumables. Goods are specified by their technical and quality characteristics and are inspected and counted on delivery. Example: reams of photocopy paper, laptops, forklift spare parts or bags of cement.

Services

Services are intangible activities performed for the organisation by a supplier, where the main output is the work done rather than a physical item. They include cleaning, security, transport, maintenance, catering, insurance and printing (non-consulting services) and professional advice such as audit, legal, engineering design or training (consultancy services). Services are specified through terms of reference or a scope of work and are accepted by checking the work done against agreed performance standards. Example: a contract for servicing the organisation's air conditioners every quarter.

1.1.6 Specifications

A specification is a clear, accurate and complete description of what the user needs: the required characteristics of goods, the scope of works or the services to be provided, and the standards they must meet. Specifications are the basis for the requisition, the solicitation document, the evaluation of offers and the inspection on delivery, so a vague specification leads to wrong supplies, disputes and wasted money. In public procurement, specifications must be generic and must not favour a particular brand or supplier unless there is no other sufficiently precise way to describe the need, in which case "or equivalent" is added.

Types of specifications

• Technical (design) specification: Describes the physical and technical details, such as dimensions, materials, capacity and tolerances. Example: a steel shelving unit 2,000 mm high, 900 mm wide, with five adjustable shelves each rated for 100 kg.
• Performance (functional) specification: States what the item must achieve and leaves the design to the supplier. Example: a generator able to supply the whole office block during a power cut.
• Brand or trade name specification: Names a make or model, used only where justified and followed by "or equivalent".
• Sample specification: The supplier must match an approved sample, often used for uniforms or printed items.
• Standard specification: Refers to a recognised standard, such as a Kenya Standard issued by the Kenya Bureau of Standards (KEBS) or an international (ISO) standard.
• Terms of reference or scope of work: Describes services or works, including the tasks, outputs, timelines and qualifications needed.

Qualities of a good specification

• Clear and precise: It can be read in only one way.
• Complete: It gives all the information a supplier needs to price and deliver.
• Generic and fair: It does not favour one supplier and allows competition.
• Measurable: Each requirement can be checked on delivery.
• Realistic: It describes what the market can supply at an acceptable cost.
• Current: It reflects the latest needs and standards.

1.1.7 Procurement planning

Procurement planning is the process of identifying, in advance, what the organisation will need to buy over a period (usually the financial year), how much, when, at what estimated cost, by which procurement method and from which budget line. The result is a procurement plan, a schedule that ties each need to the approved budget and sets dates for each stage of its procurement. Under Kenyan public procurement law, every public entity must prepare an annual procurement plan as part of its budget process, and it must not start a procurement that is not in an approved plan and budget.

Purpose of procurement planning

• Links needs to the budget: Only items with approved funds are procured.
• Avoids emergency buying: Needs are met in time, without rushed and costly purchases.
• Allows aggregation: Similar needs of different departments are combined to get better prices.
• Chooses the right method: The value and nature of each need decide the procurement method early.
• Supports monitoring: Actual performance can be compared with the plan.
• Promotes transparency: Suppliers and oversight bodies can see planned procurement.

Steps in preparing a procurement plan

1. User departments identify and justify their needs for the coming period, with quantities and specifications.
2. The procurement unit consolidates the needs and removes duplication.
3. Costs are estimated from market surveys, past prices and price lists.
4. Each need is matched to an approved budget line and funding source.
5. The procurement method and the timing of each stage (advertisement, evaluation, award, delivery) are set for each need.
6. The plan is reviewed, approved by the accounting officer or management and submitted where required.
7. The plan is implemented, monitored and revised formally when needs or budgets change.

Example: a water company plans to buy water treatment chemicals every quarter, replace five computers in the second quarter and repaint its offices in the third quarter; the procurement plan shows each item, its estimated cost, its budget line, its method and its dates.