Achieving value for money Ǯ Žƒ… ”‹†ƒ› ’”‘…—”‡‡– ”‡†‹–‹‘ǯ

OUR previous articles sought to demonstrate what procurement is, why procurement is critical and further thrived to unpack the benefits of employing qualified procurement professionals into procurement positions. We also made mention of how modern countries have established executive positions for this cadre, which are the likes of; chief procurement officers (CPO), head of procurement and supply chain directors.

There has been numerous interpretations of the buzzing word ‘Value for Money’ In various jurisdictions world-over and this means different things but the common trend is that, it is mostly used around the procurement subject. As enshrined in our Public Procurement Act of 2011, which is enforced in Eswatini; value for money is highlighted as one of the objectives deemed to enhance economic growth.

So what is value- for - money (vfm)? in essence, this is the sum of efficiency and effectiveness factoring in economic constraints, all into one procurement exercise. VFM propels practitioners to not only focus on the price an entity is willing to pay for a particular commodity or service, but it also incorporates the availability, proximity of the supplier, the quality of the service offered and up-to post contract award which is normally after-sales services and execution of works and services in line with the signed Service Level Agreement (SLA).

Today we will delve deep into the nitty-gritty of VFM as a force earmarked to boost Organisations drive to beat the current volatile economic stance.

There are other objectives of procurement which are global standard; popularly known as the rights of procurement.

these are right quality, right quantity, right price, right place, and right time. all these objectives can be depicted in a form of a chain. Breaking one could lead to a failed procurement exercise.

The first objective is to receive the right quality of goods or services. It is every procurement practitioner’s desire to achieve quality from a supplier for every single procurement transaction.

Fortunately, the quality that sought is usually determined by the end-user or project owner. They do this by crafting specifications which will yield the quality of goods or services which are of high value by initiating the procurement process. The role of procurement is to facilitate the exercise to ensure that the quest for a desired quality outcome is met as efficiently as possible.

The second objective is attaining the right price.

There is a huge temptation to mistake price for cost and a distinction between the two is vital. While these words are used interchangeably, let us try and separate them as they apply in the procurement sense. Price is one element of cost.

An author by the name (Bailey et al) best demonstrates this in a portrait of an ice-berg.

Bailey argues that the price tag you see on a commodity could be a tip of an ice-berg and that there could be some hidden costs which could change the price if not interrogated.

Installation

Think about the costs of delivery, installation, after-sales-service, maintenance, consumables and disposal etc., before embarking on a procurement exercise.

This concept is also called the total– cost– of–ownership.

Thirdly, procurement thrives to receive goods at the right time. Time is vital when it comes to the procurement clock. The fact that a supplier has goods readily available compared to their counterparts does not automatically make them eligible to get a contract.

The issues of the price and the quantity they have available has to be factored into during decision making. A supplier could be offering competitive prices, but the lead-times could still pose as a threat which may lead to disruption of services and cause further monetary loses and worse reputational damages.

The fourth objective of procurement is to achieve the right quantity of goods. This component speaks to the bill of quantities and also the bill of materials in the case of the materials requirements planning (MRP systems). It does not serve a good purpose to have a supplier with the right quality of goods but not the enough quantity to make production flow at a given moment.

If the supplier has a small quantity in store and can only have the balance in a couple of months might not meet the objectives of the particular procurement at hand.

The last one, which is the fifth is ending up with the supplier who will deliver of execute the service at the right place. The place of delivery may seem as insignificant but delivery costs can change the initial price if not put into perspective. Furthermore, entities should also evaluate the logistics management of a particular procurement.

Logistics

Logistics is the flow of materials and also the flow of information between all the parties involved. We will also look deep into logistics in the following articles.Recently, authors have added two more procurement objectives which are; the likes of the right supplier and the right relationship. Supplier relationship management is now considered to be an organisation’s strategic intangible asset.

Learning from the COVID-19 aftermath, countries realised the importance of forging relationships with their strategic partners both at national and organisational level.

At the height of the pandemic, China would prioritise supplying companies they had solid relationships with. We will dive deep into this subject in our next article.