Eskom Procurement Book 2015

THE PROCUREMENT PROCESS

SYNOPSIS In order to support organisational objectives, the purchasing group within an organisation must work to ensure that the sourcing process is carried out efficiently and effectively. This is the process used to identify users’ requirements; identify and qualify suppliers; bid to, negotiate with and select suppliers; approve purchases; release and receive purchase requirements and monitor and measure supplier performance. This chapter covers the key steps in the purchasing process and the requirements for ensuring that this process is carried out efficiently and effectively. The chapter introduces the following topics:

• Procurement objectives. • Key steps in the sourcing process. • Types of purchases. • Importance of item and service purchased. • Managing the sourcing process. • Improving the sourcing process/best practices.

2.1 INTRODUCTION Effective procurement of goods and services helps to contribute to the competitive advantage of an organisation. The sourcing process links the various entities in a supply chain; and effective sourcing helps assure the quality of goods and services supplied in that chain. The quality of the goods and services that serve as an input affects finished product quality and hence customer satisfaction and return on investment. Input costs comprise a significant portion of total costs in many industries. With the importance of procurement as a determinant of revenues, costs and supply chain relationships, it is easy to understand why it has recently been receiving more attention from practitioners and academics. Procurement can be a relatively complex process that is difficult at times to define, understand and manage. Depending on the circumstances, procurement can be defined, in a narrow sense, as the process of acquiring goods and services for the firm. The procurement process is, however, more than just the culmination of an activity; it is the successful completion of a series of activities that often cut across organisational boundaries. To formalise the definition, then, procurement consists of all those activities necessary to acquire goods and services consistent with user requirements. In order for procurement to be effective, it must be well managed, must integrate and link with other functions within the firm as well as with suppliers and customers and, ultimately, must support organisational goals and objectives. In this chapter we cover the various aspects of the sourcing process and what is required to be effective in that process.

28 CHAPTER 2