Defining Business Need

Diploma in Procurement and Supply

The purpose of specifications
• To define the requirement
• To communicate with key internal stakeholders
• To communicate the requirement clearly to suppliers
• To provide a means of evaluating the quality or
conformance
Types of specification (1)
• Conformance specifications
• Performance specifications
Types of specification (2)
• Output specifications
• Outcome specifications
Why are specifications important?
• Goods supplied must conform to any specification of
requirement included in the contract
• Goods supplied must be of satisfactory quality and
fit for their purpose – mostly, as defined by
specification
Technical specifications (1)
• The scope of the specification (its objectives and
content)
• Definitions: explanation of any technical or
specialised terms used
• The purpose of the equipment or material that is the
subject of the specification
• Reference to any related documents that apply
• Materials requirements, properties, tolerances and
permissible variability
Technical specifications (2)
• Desired appearance, texture and finish requirements of the
finished product
• Drawings, samples or models of the required product
• Conditions under which the item or material is to be installed,
used, manufactured or stored
• Maintenance and reliability requirements
• Specification of packaging and protection
• Information to be provided by the supplier for users
Technical specifications(3)
Technical specifications have the following advantages:
• They convey a large amount of technically precise and
detailed information
• They provide precise requirements against which
deliveries can be measured, by comparison with the
detailed technical specifications
Specification by chemical or physical properties
• Certain physical properties (eg strength, flexibility,
durability) are important for safety and/or
performance
• Certain materials are restricted by law, regulation or
codes of practice, for health, safety or environmental
reasons
Closed and open specifications
• A closed specification is one that specifies specific
products and manufacturers, with no alternatives
• An open specification is one that does not name a
specific supplier or product and allows for
alternatives from the supplier
Use of conformance specifications (1)
• It can be very difficult, time-consuming and costly for the
buyer to draft a comprehensive description of exactly what is
wanted
• The buyer bears the risk of the design not performing to
expectation
• Conformance specifications may restrict the number of
potential suppliers
• The prescriptive nature of the specification may restrict
innovation and the range of solutions to problems
Use of conformance specifications (2)
• A technical or design specification may be necessary where
technical dimensions, weights or tolerances are critical for
functional, operational or safety and quality reasons
• A composition specification (specifying chemical or physical
make-up or properties required) may be appropriate in
contexts such as the production of chemicals, manufactured
materials (such as plastic or metal alloys), engineering or
construction
Other elements in conformance specifications
• Technical drawings
• A sample
• Specification of a particular brand
Drawings
• A drawing for the product as a whole
• A list of the parts required and specifications for each
of these parts
• Detailed drawings for components or subassemblies
that make up the product, together with instructions
on how the components and subassemblies come
together
Specification by sample
• If a buyer relies on a sample provided by the supplier, it is
legally entitled to receive goods which correspond with the
sample
• Some samples can be used or tested to assess suitability,
prior to purchase
• Samples are a quick and easy method of specifying
requirements, without having to describe features in detail
• If a supplier is asked to produce a sample, the buyer can be
assured that it has developed the required capabilities and
processes to produce the item
Specification by brand (advantages)
• It is simple, quick, easy and cheap to administer
• Branded products will tend to be of good quality and
consistency
• Branded products should be easy to source
• If the brand is well known, it may be a selling point
when the buyer’s own product is finished and offered
for sale
• Purchasing by brand name may be essential if a
particular part, material or technology is patented
Specification by brand (disadvantages)
• Branded items are often more expensive than unbranded
equivalents
• There may be restricted choice of branded products in a
market, and perhaps only one supplier for a given product
• The supplier may alter the specification of its product,
without changing the branding or notifying customers
• Branded products may be ‘fakes’
• Manufacturers may tend to assume, without proper
testing, that branded materials or components will be
satisfactory
A comparison
Conformance specifications Performance specifications
The buyer specifies the product or service The supplier produces the detailed product or
design. service design.
The buyer must have the required technical The supplier rather than the buyer must have
knowledge. the required technical knowledge and
expertise.

The risk from poor specification rests with the The supplier is exposed to the risk of poor or
buyer. If the product is made to specification inadequate product or service design. If the
but the specification is faulty, the buyer is product or service fails to meet the buyer’s
responsible. requirement, the supplier must rectify the
problem.

The supplier is unable to be innovative with The supplier can be innovative with product
product or service design. or service design, especially in the case of
outcome specifications.
Features of performance specifications
• The functionality, capabilities, outputs or outcomes to
be achieved, within specified tolerances
• The operating environment and conditions in which
the performance is to be achieved
• Required quality levels
• Required health and safety levels and controls
• Required environmental performance levels and
controls
Performance versus conformance specifications (1)
• Performance specifications are easier and cheaper to draft
• The efficacy of the specification does not depend on the
technical knowledge of the buyer
• Suppliers can use their full expertise, technologies and
innovative capacity to develop optimum, lowest-cost
solutions
• A greater share of specification risk is borne by the supplier
• The potential supply base is wider than with a conformance
specification
Performance versus conformance specifications (2)

• Suppliers have greater relevant technical and

manufacturing expertise than the buyer
• Technology is changing rapidly in the supplying industry
• There are clear, objective criteria for evaluating
alternative solutions put forward by suppliers competing
for the contract
• The buyer has sufficient time and expertise to assess the
potential functionality and outcomes of suppliers’
proposals and competing alternative options
Outcome specifications (1)
• The buyer’s requirements are specified in more
general terms, which means that
• Suppliers can be much more innovative in suggesting
what they can do to meet those requirements
Outcome specifications (2)
Example: A public authority wants to install new lighting
in a school building.
The use of standards in specifications (1)
• In conformance specifications, they offer a
‘shorthand’ method of specifying common
requirements for common products and services
• In performance specifications, they stipulate a
minimum standard that suppliers must achieve with
whatever product or service design they propose
The use of standards in specifications (2)
• The design of particular products
• Management systems applied by the supplier in its
operations.
Examples of standards
• Trade or industry standards are produced by trade associations
and professional bodies.
• Some countries have a national standards body, which
establishes standards for specific products, or types of product
• International standards are produced by organisations such as
the International Organization for Standardization (ISO). The
ISO has issued a large number of product standards
Using standards in specifications

• Standards provide clear specifications

• Referring to an established and recognised standard
saves the time and cost for a buyer of preparing its
own specifications and discussing these with
suppliers
• Time-to-market is reduced for the buyer’s end
product, because of reduced design time
• They allow accurate comparison of quotations
• They allow a wider range of potential suppliers
What is a statement of work-based specification?
• A specification in which the buyer gives the supplier or
contractor detailed instructions about what is required
• A performance-based statement of works, in which the
buyer specifies the performance objectives and standards
that are expected of the contractor, and the contractor
then decides how these performance objectives should be
met
• A level of effort (LOE) statement of works. A level of effort
is a support activity for another work activity in the
project, or for the project as a whole
Content of a statement of works-based specification (1)
Item Comment
Purpose What is the purpose of the contract or project? What is its objective?
What are the deliverables?

Scope of the This sets out in detail the work that needs to be done. 
work What are the tasks to be completed? What are the outcomes from
each task?

Location The SoW should specify where the work will be done. The project
might have to be carried out at a specific site, or at a central location.
Alternatively, some of the works team might be expected to work
from remote locations.
Content of a statement of works-based specification (2)
Item Comment
Deliverables The SoW should specify in detail what the ‘deliverables’ from the contract or
project must be.
Standards and If there are any industry or product standards that must be complied with,
testing these should be specified.

Payments The SoW should specify the arrangements for paying the contractor (in stages)
through the course of the contract. When will payments be made? What will
each payment be for?
Signing The SoW should specify the arrangements for completion of the work. How
off/completion will the work be ‘signed off’ by the customer or buyer?
Why specifications for services are different (1)
• Goods are tangible: they can be inspected, measured, weighed and tested
to check quality and compliance with specification. Services are intangible:
specification of service levels – and subsequently checking whether or how
far they have been achieved – can be a complicated task.
• One unit of a product is the same as another unit of the same product.
With services however, one job is often different from another, and takes a
different amount of time.
• Goods can be produced, purchased and stored in advance of need, for
later consumption. Services are inseparable and perishable, provided in
‘real time’: they can’t be provided first and consumed later.
Why specifications for services are different (2)
• Goods can often be used anywhere, once purchased. Many services can
only be performed in particular locations (eg accommodation provided at a
hotel premises, cleaning provided at the buyer’s offices).
• The exact purpose for which a tangible good is used will usually be known,
and its suitability can therefore be assessed objectively. It is harder to
assess the many factors involved in providing a service.
• Goods are usually purchased for more or less immediate use, such as
incorporation in a larger product, or onward sale. A service contract may
cover a long period, during which requirements may change from the
original specification.
Specifications in different industry sectors
Type of specification Sectors in which commonly used
Conformance, technical, drawings Engineering, projects, construction
Brand name Small businesses, consumers
Sample Textiles, commodities
Market grade Commodity trades
Standards Engineering, manufacturing
Performance/functional Manufacturing, electronics and most
sectors
Chemical/physical properties Chemical engineering, engineering,
construction
Outcome Services, projects
Outputs IT, consultancy and projects
Information about technical requirements (1)
• Intended function or performance: what the product
or service must be able to do
• Conditions under which the product or service will be
required to operate, be transported, handled and
stored
• Measures for the required quality and performance
of the product or service
• Tolerances for reliability, quality, dimension, strength
and other key properties
Information about technical requirements (2)
• Features: texture, colour, aesthetics, finishing and
other external properties
• Durability (the useful life of the product) and
serviceability (speed, ease and cost of maintenance)
• Information provided with the product or service (eg
operating, maintenance and safety instructions)
Availability of commercial products or services
• If there are no existing sources of supply, or limited sources of
supply, the technical specification may need to be reviewed for
feasibility
• If there is a reliable and high-quality source of supply, it may be
possible to involve the supplier in the specification, to improve the
quality of supply market information (early supplier involvement)
• User departments may have specified items they would like to be
manufactured specifically to their design (‘bespoke’ or ‘made to
order’ items), but a survey of the potential supply market may
identify a readily available commercial or standard item which will
do the job just as well
Schedules and lead times
• The deadline for delivery of the supplies, or commencement
or delivery of the services (in consultation with users and
operational plans)
• The lead time for ordering, production, testing, inspection and
delivery of the supplies, or development and delivery of the
services (in consultation with suppliers and logistics providers)
– and therefore
• The latest date at which a purchase contract or order will need
to be finalised
Supplier processes
• Suppliers’ process capability and expertise may
suggest opportunities for quality improvements or
cost savings
• Shortcomings in suppliers’ processes may create a
risk that specified quality and service levels will not
be met consistently
• Suppliers’ processes may present compliance or
reputational risk, in areas such as environmental
manufacturing or corporate social responsibility
Legislation and regulations (1)
• Quality standards and tolerances required for product
safety, under health and safety and consumer
protection legislation and industry codes of practice
• Controls on the use, storage and transport of
substances and materials which may be dangerous to
health
• Environmental protection law and regulation, dealing
with issues such as the safe disposal or recyclability of
waste and end-of-life products
Legislation and regulations (2)
• Draw the specification team’s attention to known
legal requirements
• Draw suppliers’ attention to known legal
requirements
• Implement their own compliance checks (audits,
monitoring and inspection) on suppliers and supplies
• Use suppliers that are certified under quality and
environmental standards, or encourage favoured
suppliers to become certified
The internet as a data source for specifications
Supplier websites The websites of suppliers of a product or service might contain useful
details about the products they make or services they provide. These
details might help a buyer to prepare conformance or performance
specifications.

Subscription websites A buyer’s organisation might have a subscription service to a trade journal
or technical journal, or provider of specialised information.

Sites for purchasing Some valuable technical data can be obtained by purchasing on the
information internet.

Online market research There are research agencies that specialise in providing information online
agencies  about particular supply markets.

Websites for markets Websites for formal exchanges provide current data about market prices.
Government websites Information about legislation or regulations (and the legislation or
regulations themselves) can be obtained from government websites.
Suppliers as a source of information (1)
• The product or service required is complex, and the
buyer might benefit from technical input from the
supplier
• The buyer wants to procure a new product that it has
not purchased before
• There are technological developments in the
supplier’s market, about which the buyer wants to
learn more
Suppliers as a source of information (2)
• Material specifications
• Tolerances
• Standardisation or variety reduction of parts and
components
• Packaging and transportation requirements for the
product
• Potential changes required in the supplier’s
manufacturing and/or the buyer’s assembly
processes to maximise quality or achieve cost savings