STRATEGIC PROCUREMENT

THEORY AND PRACTICE

MSCSCM 628

LESSON 2 – PROCUREMENT SCOPE

 WHAT IS PROCUREMENT
• In some case is has been referred to as the third-party spend. Procurement is
one of the most essential disciplines or functions in any organization’s
operations.
• No organisation is endowed with all resources it requires.
• At some point every organisation is somewhat involved in acquiring resources
from an external source.
• No company exist in an Island.
• Therefore, procurement is a function that exists in every organisation for the
aforesaid purpose.
• This signifies procurement and has made it a topic of interest in this 21 st century
(Kioko & Mwangangi, 2017, p. 20; Tiwari & Agrawal, 2016, p. 64).
 DEFINITION OF PROCUREMENT
• Notwithstanding the existence of procurement in every entity, it will be
of interest to learn that procurement has been defined in different ways.
• However, according to Hossein & Jawid, (2014, p. 3) despite numerous
definitions, every definition has generally something in common.
• In view of the foregoing, the most central issue is the acquisition of
supplies from an external source.
• Despite common elements, more developments are still going on. Hence,
twenty-first century came with an extended version of procurement
scope.
 EXTENDED VERSION OF PROCUREMENT
SCOPE
• Procurement is no longer only about acquiring supplies from an external source.
• It now takes into consideration the whole life cycle of a product.
• This has brought the need to include disposal of supplies into contemporary
definitions. Disposal of supplies has become an important aspect of procurement.
• Due to global sustainability agenda, disposal of supplies is nolonger an
afterthought but a necessity in the supply chains.
• Numerous governments including Zimbabwe are now incorporating the issue of
disposal of supplies through their legislation and statutory instruments.
 EXTENDED VERSION OF PROCUREMENT
SCOPE
• Therefore, in defining procurement, the module adopted a generic
definition by Tiwari & Agrawal, (2016, p. 64) which is the only
definition that have incorporated issues on disposal of supplies.
• Procurement was defined as the combined functions of procurement
planning, supplier search, vetting and selection, buyer supplier
negotiation, contracting, inventory management and disposal of
supplies.
 PROCUREMENT VS PURCHASING
• Procurement has been synonymously used in many jurisdictions with
the term purchasing (Shukla, Khan, & Shah, 2016, p. 2).
• Even to date, such debate is still standing with some arguing that, it is
a matter of semantics.
• The module, differentiated the two terms based on scope.
• Procurement was conceptualised as an overarching function of
purchasing with additional activities such as procurement planning,
supplier rating, early supplier involvement, spend analysis etc. outside
the payment and receipt of goods only concerned with purchasing.
 CATEGORIES OF PROCUREMENT
Basis categorisation
• Due to uniqueness of business operations, different organisations require different
supplies.
• According to Khan, (2018, p. 7) supplies are categorised into three; goods, services
and works.
• This calls for different procurement methods for different supplies.
• Goods are best described by the aspect of tangibility which include items such
machinery, furniture, and stationery.
• The second category is the procurement of works.
• This involves procurement of constructions, re-constructions, repairs, and
rehabilitation of infrastructure such as airports, roads, and buildings.
 CATEGORIES OF PROCUREMENT
• Lastly is the procurement of services.
• Services are described as the intangibles.
• These are in two forms which in their nature include (i) advisory and
intellectual services such as auditing and architectural (consultant
services) and (ii) technical services that are labor and/or equipment
intensive, such as cleaning and transportation (Non consultancy).
 CATEGORIES OF PROCUREMENT
Categorisation by use
• Procurement may further be qualified based on where each of the supplies is to
be used.
• This informs of direct or indirect procurements.
• Direct procurements are related with manufacturing companies where acquired
supplies are for direct consumption in production.
• Usually this type of procurements includes supplies such as raw materials (e.g.
wheat) which form part of the end product (e.g. bread).
• Indirect procurement is associated with those supplies which indirectly support
an organisation’s daily operations such as stationery (ProcurePort, 2020).
 WHO DOES PROCUREMENT?
• Procurements are done by governments or by any other stakeholder
outside the government classified as private.
• This entails that, procurement can either be public or private.
• The module focused on the general aspects of both public and private
procurement
 PROCUREMENT EXPENDITURE?
• ‘We spend how much?’ is a cry I have often heard from a senior executives the
first time he or she finds out the true extent of his or her company’s third-party
expenditure.

• One of the writers Booth Carol in 2010 once wrote,

• Years ago, I asked the group finance director of a leading UK financial services
company how much his organization spent with suppliers. He said that he didn’t
know but that it wasn’t much because, ‘we don’t actually make anything. Don’t
forget, Caroline, we are a bank, not a manufacturer’. His company actually spent
over £2 billion, and that was in the late 1990s.
 PROCUREMENT EXPENDITURE?
• Today procurement is viewed among the most essential management functions
that support the strategic objectives of any organization (Ndunge, 2016, p. 1).
• The department now typifies the most expensive components in an
organisation’s cost structure (Tiwari & Agrawal, 2016, p. 64).
• Through procurement a substantial amount of money are spent (Aditya, Dekar,
& Faishal, 2016, p. 2).
• At this point and briefly in the few slides to come, allow me to take bias on
public procurement
• This brought the realisation of the significance of public procurement in public
administration as majority of any economy’s financial resources are consumed
through it.
 PROCUREMENT EXPENDITURE?
• The aforementioned sentiments were also echoed by The world bank (2016, p. 7,
14) in their study of 180 economies.
• Public procurement was recorded as the largest single marketplace and the
biggest spender in both developing and developed economies, accounting for
around one-fifth of the global GDP.
• The size of the global procurement expenditure was estimated at US$13 trillion
per annum between the period 1 April 2018 and 31 March 2019 (Open
Contracting Partnership, 2020, p.6).
• This entails that, in any economy significant amounts of money is channeled
through public procurement whether at organisational or at national level.
 PROCUREMENT EXPENDITURE?
• In light of the global research by Open Contracting Partnership in 2020 which
confirmed a global public procurement expenditure of US$13 trillion per annum,
individual countries’ empirical public procurement expenditures were also
recorded and confirmed.
• It was deduced that, from an expenditure of US$13 trillion over US$10 trillion
which translate to 77% was spent by 16 countries with the rest of the world
spending approximately $2 trillion per annum.
• Amongst the greatest spenders, China was recorded by far the largest procurer at
US$4.2 trillion while the United States spending an approximate of US$1.8 trillion.
• Some other 14 countries were recorded to spend between US$100 billion to US$1
trillion per annum.
 PROCUREMENT EXPENDITURE?
• These countries in their descending order included: Japan, Germany, India,
France, the United Kingdom, Indonesia, Canada, Italy, South Korea, Australia,
Brazil, Netherlands, Russia, and Spain (Open Contracting Partnership, 2020, p.2).
• From the aforementioned study, no African country was recorded in the top 16 of
the great spenders despite an average spending of over R967 billion annually in
South Africa through public procurement (Brunette & Klaaren, 2020, p.7).
• However, this does not brush aside the significance and magnitude of public
procurements among African nations.
 PROCUREMENT EXPENDITURE?
• To enhance comparison and justification of the public procurement spending in
Africa compared with the developed world, relative values were considered.
• OECD, (2019, p. 14) provides that, OECD member countries are known to spend
an average of 29.1% of GDP on public procurement.
• This was also corroborated by Hafsa, Darnall, & Bretschneider, (2021, p.1) who
posited that, public procurement as a percentage of GDP in the U.S., U.K., Italy,
and Netherlands ranged between 19–24%, 13–56%, 3–10%, and 12–38%,
respectively.
• In light of the aforementioned statistics, Zimbabwe cannot be separated from one
of the top 16 countries (Italy) in annual public procurement expenditure as a
percentage of GDP.
 PROCUREMENT EXPENDITURE?
• According to Open Contracting Partnership, (2020, p.31) on average Zimbabwe’s
public procurement spending stands at 8.8% compared to Italy which averages at
3–10% (Hafsa, Darnall, & Bretschneider, 2021, p.1).
• Despite Zimbabwe not being listed among the greatest spenders, however its
public procurement spending magnitude as a percentage of GDP signifies its
importance as those of developed nations.