Aung Kyaw Moe / Task 1 Procurement

Memo To: From: Date: RE: Francois Damba Aung Kyaw Moe
29 May 2013

TASK 1 PROCUREMENT

Current Situation of procurement in SCILaid Betaland According to the Handover Report of Jake Mulryan, the previous Logistics Officer before me, there is not much procurement works here whereas we used petty cash to buy some small items. The main problem area is that of the procurement of food since our supplier gives us in 1 Kg package that creates a lot of problem for us in storage, transportation and distribution. For our food ration, UNFA provides us rice, beans and oil and we add salt and sugar. We have a purchase Contract of Salt and Sugar from a local supplier called Ralem Co. Ltd that resided in Mugla. The amount of supplies and other terms and conditions of our purchase contract are as follows: Supplies: 20 MT of Sugar, value of 632,258.00 Beta Dollars 6 MT of Iodized Salt, value of 81,300.00 Beta Dollars Payment: 30 days after confirmed delivery of goods in good order, subject to the issuance of satisfactory Packing list, Certificate of Origin, Phytosanitary Certificate, Fumigation Certificate, Satisfactory Independent Inspection Certificate (confirming weight, quality and packing) Delivery Type: DDU (Delivery Duty Unpaid - Incoterms 2000) to SCILaid Warehouse, 12 Calgary Street, Mugla by truck Actually this purchase contract is near to end and we are in the process of re-tendering in conformity with the standard in-house rules and regulation of procurement in SCILaid. According to the previous Comparative Bids Analysis (CBA) Table, we can see the following things: Sugarland is the lowest bidder at the price of US$ 20832 but this company demanded 30% prepayment which is against the SCILaid financial regulations. AYOCO Limited is the second lowest bidder at the quote of US$ 21400 but that company can only receive in US$, not in Betaland Dollars. Betafood is the highest bidder with the wrong specifications of supplies Ralem Co. Ltd is the third lowest bidder at the quoted price of US$ 22120 but it was awarded the purchase contract because of its capability to supply the required specified supplies to SCILaid

Potential Areas of Improvements for Procurement in SCILaid Betaland (A) Improvements in Six Rights

According to our learning materials, we can define the meaning of procurement as The process of identifying and obtaining goods and services. In doing so, there are many factors involved in the process to take care for. We call these factors as Six Rights. Right Quality. Right Quantity. Right Time. Right Place. Right Cost. Right Source. These Six Rights are the areas in which we can improve our management of procurement in SCILaid Betaland. Right Quality. Every procurement is by definition the exchange of money and goods/services. In this regard, we can define that Quality is the degree of level of excellence as required by the customer who pay for it. And we can see that all form of procurement is coming out of a purpose, a goal so the goods and services we procure must be in line with our purpose and goal. For example, we procure salt and sugar to add in the food baskets which are mainly donated by UNFA. If we buy low quality of salt and sugar to combine with rice, bean and oil from UNFA, the total food baskets will be damaged and spoiled. In the same way, we should not spend a lot of money to buy superb quality of sugar and salt which are not actually necessary. The feed-back information from the end-user is the key to decide about the level of quality we need to buy. On top of that, in case of food ration, the nutrition-experts professional opinion about the right quality of food is also very crucial. Right Quantity. Another thing is about Right Quantity to purchase. It is linked with the level of funding we can spend and the market situation, shelf life of the supplies, periodical demand of endusers and the suppliers ability to provide the supplies after confirmed orders. All these factors should be taken into account. Lower prices can be obtained for larger quantities, but this may conflict with storage capabilities and lead to goods taking unnecessary space in warehouses or being held for long periods of time. Right Time.
The following factors mainly determine the decision about Right Time for procurement:

Excess availability of supplies and consequently prices are low.

Predictable Shortage of supplies in the future market Necessity of Stock-piling for emergency Competition among humanitarian organizations Procurement Policies regulated in the organization

On top of these things, the Right Time to deliver the supplies (neither too early nor too late) is also very important. It is also related with the storage capacity of our warehouse and transportation. Too late delivery of supplies is also undesirable since it cannot meet the time when the end-users demand the necessary supplies.

Right Place

According to the purchase contract between SCILaid and Ralem Co. Ltd, the place for delivery of supplies is SCILaid Warehouse, 12 Calgary Street,
Mugla .

Since Mugla is the central hub for our Supply Chain in Betaland, it was correct to chose the place of delivery of supplies. Now we have new warehouse in Chagong for the time being and we should consider this warehouse as a new place for delivery of Cargo. In this case we should provide our supplier the detail information about the place to deliver. Right Cost. Right Cost means not only price but includes all total cost of operation and maintenance of a procured items. This is the most considerable area to think about SCILaid procurement in Betaland. Out of four suppliers, Ralem is not the lowest bidder but we had made contract with this particular company because we failed to deal with other company. For example, Sugarland, the lowest bidder, demanded 30% prepayment. In that case we should arrange a business discussion to persuade the supplier to offer a kind of installment payment or we should try to negotiate with them to scale down their % of prepayment. The second lowest bidder, AYOCO determined to accept only foreign currency. In that case, what we should deal with them is to get to reach to an agreement point on that they can accept the payment with local currency linked up with the floating exchange rate. We have to predict the exchange market fluctuations and

Right Source. A Right Source of supplies can be defined as: A source in conformity with the organizations procurement strategy and policy A source matched with the rules and requirements of donors A source that is reliable and ethical A source that follows the humanitarian principles and protection of the children A source that has environmental concerns SCILaid should consider about all the factors that determine the right source and review the contract with Ralem Co Ltd whether we are really using the right source of supplies. (B) Improvement in the procurement process

In addition to the basic procurement principles of six rights, we have to find some areas of improvement in the following steps of the procurement process: 1. Identifying need

Procurement starts with the identification of need by need analysis of the beneficiaries. In that stage, the program sections are mainly responsible for identifying need of the supplies. What sort of supplies and which level of quality is needed must be identified. 2. Convert need to Specifications The second step is to specify the needs into a detail list of specifications. The specification of supplies must be as accurate as possible. In this regard, supply staff, technical staff and programme staff must coordinate with each other in order to get to detail description and specification of a required supplies. 3. Identifying Source After getting a full picture of what we need to procure by detail specifications, the next step in the process is to identify the source. We have to decide to find the supplies from a reliable and ethical supplier and we should think about where to find the supplier, in local market or in the overseas markets. If the required supplies are standard items, we can make repeat order or order from the same supplier who may have LTA (Long Term Agreement) with us. If the items are non-standard ones, we should find the potential suppliers from various sources, both local and international. 4. Identifying method of procurement When source of supplies is identified, we have to decide to use a method of procurement since there are a number of different
methods available and we have to decide to have a method that is suitable with our organizations procedure and policies, strategies and overall situation in Betaland.

5. Contact Suppliers and floating of Bid/Quotation If all of necessary data and information about what to procure is ready in hand, we can contact suppliers and float the Bids and Quotation Requests in our standard forms. 6. Receiving Quotes and make comparison/tabulations When we receive Quotes from our regular suppliers at the already set time, we invite them all and open the sealed envelopes of quotation before all of them, with a witness from one of our program sections. After that, we draw a tabulation table for comparison of all quotations offered and check who is more reliable and advantages. 7. Awarding purchase contract

Base on the factors such as reasonable price/cost, acceptable delivery time and proven past performance records, we choose one supplier and award her the purchase contract. 8. Inspection before delivery When the purchased supplies are ready, the supplier usually contacts us and inform about the completion of order. At that time we visit to the suppliers premise and inspect the supplies before delivery. We accept the consignment and recommended for delivery if the supplies are 100% conformity with the detail specifications mentioned on the Purchase Order. If there are some minor discrepancies, we inform to our program colleagues and ask about their opinions whether to accept it or not. 9. Payment after delivery Payment can be made when the supplier submits the invoice with supporting documents as waybills, packing list, warehouse receipt vouchers or signed government receipts. 10. Final Evaluation of a suppliers performance The final step of any procurement is to evaluate the performance of the supplier as per following criteria: Whether quality and specs of supplies are in conformity with Purchase Order or not. Whether quantity ordered are exactly delivered or not Whether delivery time/lead time is within the deadline of Targeted Arrival Date mentioned on Purchase Order Whether warehouse receipt vouchers and government receipts are clean and free from any discrepancies mentioned Base on these criteria, we can evaluate the supplier in 5-steps grading system as 1=poor, 2=unsatisfactory, 3=satisfactory, 4=good and 5=excellent. This final evaluation must be kept well as a record for future reference.

Best Regards, Aung Kyaw Moe Logistics Officer Sub-Office (SCILaid Betaland)