Chapter 3

Locating, Evaluating, and Selecting Global Supplier

3.1. THE SUPPLIER SELECTION DECISION
“If you choose the right suppliers, all of your supply problems will be solved” is old supply
wisdom. It is at the supplier selection stage that all of the preparation in understanding and
specifying organizational needs comes to fruition. The supply professional’s key challenge is
to match the organization’s needs to what the market can supply. The critical decision is
which supplier(s) to select. This chapter will first discuss the identification of potential
suppliers, where to find them, and the collection of information. The next topics include
whether to select single or multiple sources, deal directly with manufacturers or go through
distributors, and choose small or large suppliers and domestic or foreign ones. In case no
satisfactory source can be found, supplier development provides an existing alternative to
routine supplier selection. The decision to place a certain volume of business with a supplier
should always be based on a sound set of criteria. The art of good supply management is to
make the reasoning behind this decision as sound as possible. Traditionally, the analysis of
the supplier’s ability to meet satisfactory quality, quantity, delivery, price/cost, and service
objectives governed this decision. Some of the more important supplier attributes related to
these prime criteria may include past history, facilities and technical strength, financial status,
organization and management, reputation, systems, procedural compliance, communications,
labor relations, and location. Obviously, the nature and amount of the purchase will influence
the weighting attached to each objective and hence the evidence needed to support the
decision. For example, for a small order of new circuit boards to be used by engineers in a
new product design, quality and rapid delivery are of greater significance than price. The
supplier should probably be local for ease of communication with the design engineers and
have good technical credentials. However, for a large printed circuit board order for a
production run, price would be one key factor, and delivery should be on time, but not
necessarily unusually fast. Thus, even on requirements with identical technical specifications,
the weighting of the selection criteria may vary.
It is this sensitivity to organizational needs that separates the good supply manager from the
average. The one result every supply professional wishes to avoid is unacceptable supplier
performance. This may create costs far out of proportion to the size of the original purchase,
upset internal relationships, and strain supplier goodwill and final customer satisfaction.
Information Sources The identification of potential sources is a key driver of the ultimate
success or failure of the supplier solution effort. Every supply professional is always on the
alert for potential new sources. Knowledge of sources is therefore a primary qualification for
any effective supply manager. Online searches, e-catalogs, and company Web sites are the
most common tools used today. Other sources include trade journals, advertisements, supplier
and commodity directories, sales interviews, colleagues, professional contacts, and the supply
department’s own records.
3. 2 Introduction to Tendering
Tender, Bid, Quotation: is related to an offer received from a supplier.
Tender is a proposal, bid or offer that is submitted in response to a
Request for Tender from a contracting authority
Quotation is a statement of price / the bid submitted in response to a
Request for Quotation from a contracting authority.
Bidder: an entity who seeks to supply goods by sending tender/bid. In
addition to these; it is related to a natural or juridical person submitting a
bid
Bid bond: An agreement by a third party financier that a certified amount
of money is insured and payable if a bidder refuses to accept a contract.

Performance bond: A guarantee submitted by a contractor, certifying

that if the contractor is unable to fulfil the obligation the amount will be
paid to the purchaser to compensate any loss.

3.2 introduction to tendering

Common Terminologies in Tendering
Tender, Bid, Quotation: is related to an offer received from a supplier.
Bidder: an entity who seeks to supply goods by sending tender/bid. In addition to these; it is
related to a natural or juridical person submitting a bid.
Tender Document and Bidding Document: is a detailed document issued by the purchaser
specifying his needs and the requirements that a potential bidder must meet.
Format of Tender The bidders are to furnish their quotations as per the prescribed format
and also as per the instructions incorporated in the tender documents. Quotations sent by
telex or cable are to be ignored and rejected

Tender Announcement
It should contain all the salient features of the requirement in brief to give a clear idea to the
prospective tenderers about the requirements. Irrelevant details should not be incorporated in
the tender notice, as it will increase the cost of the advertisement.
The Tender Notice should contain:
♦ the general description related to the type of the procurement and the respective quantity or
amount,
♦ Period and terms of delivery,
♦ Cost of the tender/bidding document,
♦ Place(s) and timing of sale of tender documents,
♦ Place and deadline for receipt of tenders,
♦ Place, time & date for opening of tenders,
♦ Amount & Form of Bid Security, and
♦ Any other important information.
Bid is the executed document submitted by a potential supplier in response to an Invitation
for Bids (lFB), a Request for Quotation (RFQ) or a multi-step bidding procedure.
According to Ethiopia Public Procurement directive Bid refers to a stage in the procurement
process extending from advertisement of or invitation to bid up to signing of contract.
Tender is a proposal, bid or offer that is submitted in response to a Request for Tender from a
contracting authority
Quotation is a statement of price, terms of sale, and description of goods or services offered
by a prospective seller to a prospective purchaser, usually for purchases below the amount
requiring formal bidding. Quotation is simply the bid submitted in response to a Request for
Quotation from a contracting authority.

Sealed Bid: A bid which has been submitted in a sealed envelope, by a prescribed time, to
prevent its contents being revealed or known before the deadline for the submission of all
bids; usually required by law or rule on major procurements to enhance fair competition
Auction: is a sale of goods or properties at which intended buyers bid against one another for
individual items, each of which is sold to the bidder offering the highest price. It can also
defined as a process of buying and selling goods or services by offering them up for bid,
taking bids, and then selling the item to the highest bidder. In economic theory, an auction
may refer to any mechanism or set of trading rules for exchange.
Bid bond: An agreement by a third party financier that a certified amount of money is
insured and payable if a bidder refuses to accept a contract.
Performance bond: A guarantee submitted by a contractor, certifying that if the contractor is
unable to fulfill the obligation the amount will be paid to the purchaser to compensate any
loss.
3.1. Alternative Methods of Foreign Procurement
The varying nature of goods and service to be procured, the Birr value involved the need to
access wider public (buyer and seller) and the integrity level required forced Public
Procurement practitioners and policy makers to device different strategies, methods and
procedures that best suit to a particular circumstance in the procurement process. It is agreed
that no best method that serves all the situations prevailing and all the interests perceived by
the stakeholder in the due process.

The variation in quantity, quality, market competition and confidentiality of the goods and
services calls for a different methods of procurement. On the other way round, the
government acts as a seller of public goods which calls for a different procurement approach.
Similarly, the public wants to know how and why their money is spent. The higher the Birr
involvement and the more risks associated, the greater degree of integrity is required.
Furthermore, Public Procurement practices are also under the influence of technological
advancements- electronic commerce and globalization in which government procurement
methods are expected to consider the impact of foreign firm’s involvement in the
procurement process.

When the government or private firm wants to sell and/or buy goods and services, they wish
to access a wider public and solicit maximum competition. The intention is to obtain best
value for money and the maximum price that buyer is willing to pay for goods and services
to be purchased and sold respectively. These situation leads government policy makers to
device and Public procurement practitioners to apply an appropriate procurement method to a
particular situation. Procurement techniques, strategies and frameworks enable to attack all
possible challenges in the public procurement due process. Therefore, in this chapter an
attempt will be made to discuss on the approved method of procurement from our county
context.
A procurement method is the technique that public body uses to acquire goods, works and
services. The procurement methods described in this chapter are applicable to the
procurement of goods, works and services (consultancy and non-consultancy). The method
selected depends on a number of factors including the type of goods or service being
procured, the value of the good or service being procured, the potential interest of foreign
bidders and even the cost of the procurement process itself.

 According to Ethiopia Procurement Proclamation(EPP) Article 33: The following

six methods of procurement shall be used in public procurement:
1. Open Bidding
2. Request for Proposals
3. Two-Stage Bidding
4. Restricted Bidding
5. Request for Quotations; and
6. Direct Procurement
1. Open Bidding Method
Under open bidding method, all interested firms bidders are given adequate notification of
contract requirements and all eligible bidders are given an equal opportunity to submit a
tender. The public body must give sufficient public notification of bidding opportunities to
potential bidders to determine their interest and prepare bid documents.
The Open Bidding Method is the preferred method of procurement of goods, works and
services (Consultancy and Non Consultancy), unless the threshold levels or circumstances
relating to a specific requirement make it more appropriate for one of the other procurement
methods to be used. To float an open bid procedure, there are conditions to be fulfilled.
These are:
 Availability of sufficient time to prepare the bidding document;
 Volume/bulk purchase that can justify the cost of open bid administration;
 Existence of at least two or more suppliers in the market (domestic and international)
 Non confidential product purchases (e.g confidential such as defense and security
materials.
Furthermore, many countries including Ethiopia stipulate thresholds for applying open bid
procedure. Open bid procedures are generally classified in to two: National Competitive Bid
and International Competitive Bid. Indeed, this classification basically depends on
preferences of the country as to which procedure to pursue so that value for money can be
obtained.

A. National Competitive Bid (NCB)

National Competitive Bidding (NCB) is used under two conditions if the threshold set for
international completive bid is not met or if the product is found only in the domestic market
albeit meeting of the threshold. NCB should be advertized locally for 30 days with a media
that have a wider coverage and circular (e.g in Ethiopia Addis Zemen, Ethiopian herald,
Ethiopian Television and Radio Agency, Addis Admas, Reporter etc) the bid price is
supposed to be national currency including all taxes and duties. NCB follows standard
bidding document prepared by the PPA mostly in local language. However, it is also
possible to use international language since foreign contractors are not excluded. A
preference margin can be applicable even though it varies from country to county.

NCB method is used if the value of the contract is:

For goods between Birr 50,000 and Birr 10,000,000
For construction between Birr 2,000,000 and Birr 50,000,000
For other services between Birr 400,000 and Birr 7,000,000
For consultancy between Birr 300,000 and Birr 2,500,000
B. International Competitive Bidding (ICB)

International Competitive Bidding (ICB) is applicable when the value of purchase meets the
minimum threshold mostly for developing countries set by the government PPD
(Procurement Procurement Directive) and under certain situation international organization
particularly world Trade organization (WTO) and Multi-lateral Development Banks may set
threshold for member countries particularly under Agreement on Government Procurement
(AGP) and WB Procurement guideline. ICB is aimed to solicit wider competition across the
globe to obtain maximum competition and to meet international Agreement on Government
Procurement (AGP) requirement. Thus, ICB is advertised for about 45 days locally and
international in foreign language with the help of medias those having wider or global
coverage. More importantly, however, the government agencies website is preferable. ICB
price is offered in foreign and local currency inclusive of tax and duties for local firms
(bidders) while the bid price for foreign firms is exclusive of taxes and duties. Foreign
bidders’ price should include price breakdown as per INCOTERMS supposed to be used such
as FOB, CIF, CIP etc. Insurance coverage is also mandatory for international bidders.
National bidders are not excluded as far as they qualify the instruction to bidder given by the
PPA. The bid amount should be greater than the threshold set by the government. For
instance, as per Ethiopian PPD the threshold is specified for different items as follows.

 Construction 50,000,000 ETB and above

 Good procurement, 10,000,000 ETB and above
 Consultancy 2,500,000 ETB and above
 Service 7,000,000 ETB and above

Based on the countries PPD specific issues may be raised such as product quality and
standard, trade contractual terms and conditions, dispute resolution mechanisms and
currency choices. Generally, all economic operators (contractor, supplier and service
provider) who are interested and meet the minimum technical and financial criteria set out
in the contract notice can submit a tender. Because, an open bid procedure is intended to
give an equally accessible opportunity for all tax payers.

2. Restricted Bidding

This is a procurement method where by an invitation for bid is sent to limited number of
qualified firms or suppliers, who are interested to participate in the tender rather than
floating the invitation through open media.

The restricted bidding procedure is a two-stage procedure where bidders express their
interest following publication of a procurement notice, but only those invited by the public
body may submit bids after a screening process. Thus the restricted procedure consists of two
distinct stages - selection of suitable bidders and evaluation of bids. At the first stage, the
only criteria which may be used to select prospective bidders are economic and financial
standing or technical knowledge or capability of carrying out a specific assignment. The
restricted procedure works best where the public body is clear at the start of the process as to
what it wants to procure, in terms of pricing and other award criteria.
 When the number of bidders is too many (unmanageable number of suppliers) a
minimum of 5-7 bidders would be invited from supplier list or from list of pre-
qualified suppliers.
 When goods and related services and works and physical services, because of their
specialized nature, are available only from a limited number of Suppliers or
 Contractors. (e.g. aircraft, locomotives, specialized medical equipment,
contraceptives, etc).
 The cost of procurement does not exceed the threshold specified in respect of
restricted bidding in the Directive.
 Where a repeated advertisement of the invitation to bid fails to attract bidders in
respect of a procurement subject.
 Construction less than or equal to 2,000,000 ETB
 Goods procurement less than or equal to 500,000 ETB
 Consultancy service less than or equal to 300,000 ETB
 service procurement less than or equal to 400,000 ETB

3. Two-Stage Bidding Method

A two-stage bidding method is used when the procurement process is split into two phases.
The first phase identifies suitable candidates, who are then invited in the second phase to
submit their firm bids. A public body may use the Two-Stage Bidding Method in accordance
with the requirements set out in Proclamation in the case of large or complex contracts of
goods and related services and/or works and physical services, such as turnkey (installation)
contracts for manufacturing process plants, e.g. the design, construction, installation of
equipment and commissioning of a new factory, industrial plants or the procurement of major
computer and communications systems or construction and commissioning of a public
institution.
 The use of the word ‘complex’ in describing the nature of the items to be procured
under Two-Stage Bidding Method covers procurement objects for which it may not be in
the best interests of the public body to prepare complete technical specifications in
advance because of rapidly changing technology. This could also be in situations when
the public body may not be capable of preparing a full technical specification because
alternative technical approaches may be available, but not within the knowledge of the
public body. In such circumstances, it is better for the public body to learn from Bidders
about the most appropriate, fit-for-purpose solution to meet its procurement requirements.
Conditions for use of Two-Stage Bidding

Public bodies may engage in procurement by means of two-stage bidding:

 When it is not feasible for the public body to formulate detailed specifications for the
goods or works and in the case of services, to identify their characteristics and, in order to
obtain the most satisfactory solution to its procurement needs;
 When the public body seeks to enter into a contract for the purpose of research,
experiment, study or development, except where the contract includes the production of
goods in quantities sufficient to establish their commercial viability or to recover research
and development costs;
 where bid proceedings are initiated but no bids are submitted as a result of the nature of
the object of procurement not being clearly described or where all bids are rejected due to
failure on the part of the public body concerned to draw up a clear and complete
specification; and because of the technical character of the required goods or works, or
because of the nature of the consultancy or other services it is necessary for the public
body to negotiate with the suppliers.

4. Request for Proposal

Mostly, Request for Proposals (RFP) procedure is used for service procurement, particularly
consultancy service procurement. The public entity can employee different methods such as
Expression of Interest (EOI) and approved short list (suppliers list) when the value of
consultancy service is above the threshold e.g as per Ethiopia public procurement directive
above 300,000 birr and less than the threshold respectively.

The range of consultancy services may include intellectual service such as studies, research
work, projects, technical assistance etc.

The public entity would design and/or prepare evaluation criterions before hand and discloses
at the time of request for proposal or expression of interest. Each of the major criterions
should be given weights based on their relevance to the intended service. That means the
potential impact of these factors on the overall accomplishment of the consultancy service
should be understood first. The selection criterions, however depends on the value and on the
focus point of the procurement body. The commonly applicable selection methods can be:
Quality and Price Focused Selection approach, Budget Category Based Selection Approach,
Competency Based Selection Approach, Least Price Based Selection Approach.

Conditions for use of Request for Proposal

  Public bodies may engage in procurement by means of request for proposals when it
seeks to obtain consultancy services or contracts for which the component of
consultancy services represents more than 50% of the amount of the contract.

5. Request for Quotation

Request for Quotation (RFQ) is applied in a small value procurement, which case there is no
need to advertise and draft contractual document and or Standard Bid Document (SBD). It
can be conducted through Pro forma collection containing an invitation through registered
letter with detailed evaluation parameter and item description from at least three to seven
suppliers or from approved list of suppliers. This procedure is mostly applicable, off-the-
shelf and goods having standard specification and/or commodities available from several
sources of supply within the country or in the local market.

According to Ethiopia Procurement Directive a Public Body may carryout procurement by

means of request for quotation with the authorization of the head of the Public Body or his
representative without having to obtain the approval of the procurement endorsing committee
if the value of such procurement falls within the threshold set forth below for each type of
procurement:
o For works, ……………………………. birr 250,000.00
o For goods, ……………………………. birr 100,000.00
o For consultancy, ……………………..…..birr 60,000.00
o For services, …………………………..…birr 75,000.00

Conditions for use of Request for Quotations

 Public bodies may engage in procurement by means of request for quotations for the
purchase of readily available goods or for procurement of works or services for which
there is an established market, so long as the estimated value of the contract does not
exceed an amount stated in the procurement directive to be issued by the Minister.

Note that: When procurement is made through Request for quotation the price quotation
should be collected from firms that are comparable in size and quality, otherwise there will
be unfair competition, which denies the Public entity value for money. In addition, goods and
services which can be produced at varying quality level and with different product feature
should not be procured by RFQ because it distorts the intention of competition which enables
to obtain least price.

6. Single Sources (Direct Procurement)

Acquiring goods, services and construction works from only one source is referred to as:
sole-source procurement, single-source procurement, sole-source selection, direct
procurement, among others. This is clearly a non-competitive procurement method.
The procuring entity may procure the goods or works and services by soliciting a price
quotation from a single qualified bidder.
For instance, in Ethiopian PPD it tends to be direct contract under conditions of emergency,
goods with proprietary nature, and additional works to a preceding contract, unplanned
miscellaneous items and to meet urgent demands in travel. The value ranges from 1500 (one
thousand five hundred per counteract and not more than 30,000 birr per budget year. To large
contracts 25% in quantity and 30% in Birr value of the previous contract which may be in
millions for large projects, construction works, consultancies and service acquisition is
allowed to use negotiated procedure. The nature of negotiated procedure is inclined to only
one supplier and follows a written letter and item description as a base for negotiation.

Public bodies may use direct procurement only where the following conditions are
satisfied:
 when in absence of competitions for technical reasons the goods, works consultancy
or other required services can be supplied or provided only by one candidate;
 for additional deliveries of goods by the original supplier which are intended either as
parts of replacement for existing supplies, services or installations or as the extension
of existing supplies, services or installation where a change of supplies would compel
the public body to procure equipment or services not meeting requirements of
interchange ability with already existing equipment or services;
 within limits defined in the procurement directive, when additional works, which have
been not included in the initial contract have, through unforeseeable circumstances,
become necessary since the separation of the additional works from the initial contract
would be difficult for technical or economic reasons;
  within limits defined in the procurement directives, for new works consisting of the
repetition of similar works which conform to a basic project of which an initial
contract has been awarded on the basis of open or restricted bidding;
 within limits defined in the procurement directives, for continuation of consultant
services, where the original contract has been satisfactorily performed and the
continuation is likely to le to lead to gains in economy and efficiency;

Note that: Single source procurement should have a written justification provided by the
tender committee, the user department or the chief budget manager.