Eskom Procurement Book 2015

THE PROCUREMENT PROCESS

not be purchased with regular frequency, typically requires large sums of money to procure (hence the meaning of the word ‘capital’ in capital equipment) and is typically highly sensitive to economic conditions. With capital equipment, buyers do not usually switch suppliers often and may have very few or only one key supplier. The relationship between buyer and supplier often lasts for years and may include such activities as co-design of engineered items, close collaboration to reduce total costs and joint quality improvement projects [1]. Many firms depend on external contractors for certain services. For example, a firm may hire a cleaning company to clean its offices every day; or a firm that provides gardening services to keep its gardens maintained. Typically, a firm will engage a contractor for a long period of time (months to years) and will negotiate contracts with these service providers accordingly. Transportation and distribution services are specialised third-party forms of services. Procurement departments have, over the past several years, become engaged in buying these types of services from certain firms and are often involved in the management of inbound and outbound materials flows. It is now fairly common for major firms to have their procurement group evaluate and select logistics services providers, and procure these types of services in similar fashion to procuring other, more standard, types of services as described above. 2.5 IMPORTANCE OF ITEM AND SERVICE PURCHASED The products and services purchased by a company are not all the same. Some products are more important and require greater procurement attention. By applying the same procurement strategies, tactics and resources to supplying a computer manufacturer with paper clips and computer chips, the differences in criticality of each item to the firm’s survival and profitability is overlooked. That is, the computer company can survive without paper clips but not without computers. A quadrant technique presented in Chapter 4 enables the supply manager to assess the importance of each product or service being purchased. The quadrant technique uses a two-by-two matrix to determine a procured item’s relative importance on the basis of value and the number of suppliers that comprise the supply market. 2.6 MANAGING THE PROCUREMENT PROCESS Managing the procurement process can be difficult for a multitude of reasons, ranging from inflexible organisational structures to inflexible organisational 2.4.7 SERVICES, INCLUDING THIRD-PARTY LOGISTICS SERVICES

38 CHAPTER 2