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you're not going to be any good in procurement if you don't understand the procurement cycle especially since the procurement cycle is at the heart of purchasing sourcing and supply okay real quick what is procurement procurement is the strategic business function that identifies sources assesses and manages the external resources that an organization needs to successfully fulfill its objectives now the cyclic nature of procurement okay the cyclic nature of procurement has the following stages in fact this is what is normally referred to as the procurement cycle number one understanding the need and development of a high level specification number two the market or commodity options including mac or buy assessment developing the strategy or a plan pre-procurement market test and market engagement development of required documentation such as the rfq basically the request for quotation supplier selection to participate in an invitation to tender exercise issue invitation to tender or request for quotation then bid tender or quotation evaluation and validation and then contract award and implementation warehouse logistics and receipt contract performance review and continuous improvement supplier relationship or contract management and finally asset management or basically end of life yeah i get it uh that seems like a needlessly complicated procedure for someone who just wants to buy a pen or someone who just wants to buy printing material for the organization all right but uh look there there are other alternatives like organizations tend to have framework agreements or framework arrangements which help them to avoid going through all that but in this video we're going to look at all those steps in detail stage one understand needs and develop a high level specification all buying activities stem from a need which could be as simple as we are out of printing papers or as complex as a machine part that have to be custom made for our machine once the need is identified then the procurement specialist in this case you should develop a specification whether it's performance or conformance specification there is a need for you to work with relevant stakeholders when developing such you see the thing about specifications uh okay think of it these let's say your organization okay you you want to purchase or rather you want to procure services and in this case you're gonna go to marketing services and then you just think well we'll just go to facebook and use facebook to market right so develop pictures you post them on facebook and you know whatever you say we've done marketing right except that wasn't really what the people are developing products had in mind what they wanted was a way to capture leads so that they can call and convert those leads so in this case you are assuming that they want awareness but they are interested in capturing leads and that is the reason why you need to involve relevant stakeholders when it comes to developing things like specification and the same can be said about buying just anything okay buying an item buying printing papers buying machine parts the point is it's not a one person show okay you have to involve the relevant stakeholders speaking of specifications there are two kinds of specifications broadly speaking the first one is performance specification which specifies what the product or service will do or achieve but leaves the supplier the freedom to achieve this however they wish the second one is conformance or technical specification which is one that gives clear instructions to the supplier about what is required and how it should be achieved for instance technical drawings they could or they have to comply with now remember you have a need okay this is what specification does you have a need and now with specification you're specifying that particular need and how you'd rather it solved okay how you want it to be solved and uh so if you're going to decide between which one to use performance or conformance then there are things you need to know about those two all right so let's start to the first one with performance specification the supplier can be innovative about the solution it promotes competition in the marketplace the supplier bears the risk the buyer may not know exactly what they'll be getting the specification document is shorter and can be prepared faster and performance specification takes advantage of suppliers expertise but if you decide to go with the other one okay if you decide to go with the conformance or technical specification then you need to understand that there is no supply innovation there is reduced competition as a buyer you bear all the risks associated with the results buyers know exactly what they are getting the document is complex and actually time consuming to prepare and it disregards suppliers expertise why is that because with conformance you're telling them what to do and if you're telling them what to do then it means they have to rely on what you know which means if you don't know what you're talking about then you'll get the results that pretty much reflect you not knowing what you're talking about designed for you okay that is pretty much what is going to happen with that of course the choice also depends on the nature of you know the specification for example with technical machine parts okay those ones they have to conform with the designs that you've given them but if it is something like uh coming up with you know creative advertisement then you may want the person who's doing that to get as creative as possible as long as it doesn't ruin your brand so um the choice sort of just depends on those things yup so let's talk about the second thing or rather the second stage stage two market or commodity options once the specifications have been developed then as a procurement professional you are aware of what is required why it's required and when it is required the next stage is to evaluate the market options and the options to consider here will include budget available to spend on the procurement the number of suppliers available whether to make or to buy the product or service you've done that let's assume that what you need is a commodity okay then it means you need to research the market to understand the price behavior the commodity price behavior commodity refers to raw material that can be bought or sold for instance coffee gas or even oil potter's five forces okay michael porter's five forces is an effective way of trying to understand the nature of competition that exists or is likely to exist in that market and with portals you're talking about the rivalry among the existing competitors in the market depends on the bargaining power of the buyers bargaining power of suppliers threat of substitute products or services and how easy or hard it is for new entrants to get in that market now the reason why you're evaluating this competition is uh pretty much obvious or really simple because as a buyer you get to find out if there are many suppliers battling to win the contract or a small number of specialists who could supply the product or service now regarding the choice of that to make that thing or to simply buy that just comes down to whether the item in question is actually core to whatever it is that you do if it is something that is really really integral to you know whatever it is that your organization is doing or you know why you need it a core competency within an organization is a product or service that is strategic to the success or failure of the business think of it this way in a bakery business core competency could be making cakes or bread so the choice is actually should you buy these products from external suppliers or should we just make them ourselves cutters outsource matrix can help you to decide on the mac or the buy decision the idea being this matrix is simple okay first you look at items in terms of strategic importance and their contribution to operational importance and this way you end up with a quadrant okay and all the quadrant will have the following items of low contribution and strategic importance you know eliminate low contribution but high strategic importance these call for strategic alliance high contribution to operational performance and high strategic importance you want to retain these and finally low strategic importance but high contribution to the operational importance this you can outsource in this case buy rather than make so when you bring in products to the organization you don't make them you get them from outside that is that is outsourcing and the reason why you do this is because it saves money reduces overhead use of external knowledge and it helps you to focus on internal competencies but it's not all rainbow okay and sunshine and all that right there is also a disadvantage to outsourcing and such could include things like losing some control within an organization relying on external organization reducing quality and losing internal knowledge now that is the thing with the second stage okay let's move on to the third stage stage three develop strategy or a plan once the you know the make or by decision has been made and the market has been evaluated the next stage is to develop the strategy or plan of how to achieve the procurement you really need to be aware rather you really need to consider the external environment when you're making this decision conducting a competitive tender makes sense if there is competition in the market and you are in a position to leverage these now both steeple and swot analysis are good tools that you can use to analyze the environment in which your business existing with steeple you look at social technological economic environmental political legal and ethical factors which could affect what you need on the other hand if you decide to use the search okay analysis with thought you're going to evaluate strengths these are areas that perform well within the organization for instance key skill sets weaknesses areas that need improvement for instance lack of resources opportunities which are areas outside the organization that could contribute favorably or help with success threats okay areas related to external factors which could pose problem to the organization with thought that's what it does it helps you to look at what you have internally basically your strengths and weaknesses as well as externally the opportunities and threats that the the the environment presents and so let's move on to the next stage stage four pre-procurement market test and market engagement this stage of procurement cycle ensures that it is the right time to carry out the procurement now what are the things you should consider as a procurement professional stakeholders engagement for feedback supplier engagement market research any new legislation or regulations currency fluctuations and competitors action are some of the things to consider if the feedback is positive then you move on to the next stage of procurement but what if the feedback is negative well if the feedback is negative okay as you're doing your pre you know the test then you need to go back to your needs specification you need to go back to your need analysis look at the specifications to see if there is something you missed because it would be possible if one of the stakeholders giving you a negative negative feedback then the question is what is exactly is it that they wanted that is not reflected in what you're about to procure so you go back to the need specification and try to understand you guys wanted i don't know you guys wanted laptops and i'm about to procure these laptops what is the problem and then they tell you look we want laptops with these specifications because you're using them for graphic designs the ones that you've just bought here that you're you know you intend to purchase or at least the ones that your specification indicates yeah they're good but they're just good for typing and listening to music and doing that the specs will not allow us to do the graphics so you know you sort of do that and you understand why there is a negative feedback what could constitute negative feedback now that is a good question okay i mean the laptop is an example right but uh some other things that could be part of the problem will include no desire in the marketplace for the end product limited number of suppliers with capacity or capability new laws about to be passed that will force specification changes the currency is weak competitors are already one step ahead those are some of the things which probably have nothing to do with the product itself but the market the point is the negative feedback that you could get at this stage could depend on a number of factors and it is important for you to understand that before you just rush it into the market and try to procure things and then you end up wasting time money and not meeting the objectives or the scopes that you intended during the need assessment so what is the next stage well let's talk about the next stage stage five development of documentation this stage of the procurement cycle involves creating the documents that will be sent out to the potential suppliers now the document could be request for quotation or invitation to tender the choice of what to use okay the choice of which document to use actually depends on the following the urgency of the need the type of the need the sector in which the procurement professional works regulations and legal obligations the procurement professionals preferred method of working generally requests for quotations are used for quicker less complex product or requirements and tenders are used for long-term complicated contracts and services public sectors for instance will prefer using you know tenders right but uh if you're just purchasing or whether you're procurement privately from some supplier they may just want a request for quotation and that sort of is it okay so the documentation that you're going to be using uh will include things like specification okay so in this case the content will be performance or conformance contractual terms such as payment exclusions liabilities indemnity date of quotation okay or bid to be received so things like deadline for prices to be submitted uh quantity the amount of goods or service required quality standards you know conformance to any standard iso delivery schedules okay when will goods or services be required delivery address will goods or service be where will goods or service be delivered key performance indicators okay you have to show the objectives against which the suppliers will be monitored service level agreements that is the standards of service the supplier will be expected to meet when you're designing your documentations you need to have those in mind okay when you're doing a quotation what does it indicate as you're developing your kpis what should it indicate those are some of the things that the documentations you are using are supposed to reflect now stage six supplier selection i don't want to just straightaway send these documents to some random suppliers you need to have the sort of suppliers that you want to work with in mind supply selection involves evaluating suppliers against predetermined criteria to assess their suitability to work with the buying organization suppliers can be evaluated in a number of ways such as competency capacity consistency control cost commitment cash clean culture communication i mean if those sounds familiar those are actually the ray carter's tendencies of supplier evaluation okay so you know those 10 things that you can use to evaluate your suppliers stack stage is um issue of invitation to tender or request for quotation at this stage the documentations that you would prepare at stage five are sent out to the pre-evaluated suppliers that you decided on in stage six okay in public sector procurement the documentation will be sent in one stage to a market of suppliers who have not been pre-selected this is called open tendering and uh if you decide to go with invitation to tender in such a case then you unsure that all the suppliers get that at the same time because again you're avoiding things like bid rigging and also you're trying to be fair that is pretty much the thing with public sector procurement i mean it is always a good idea to give your suppliers an equal chance to take care of the problem the next stage stage seven i mean stage eight bid or tender or even quotation evaluation and validation when when the bids or quotations have been received by the buying organization the next stage is to evaluate them basically look at them okay analyze so that you can decide which supplier you're actually going to award that contract to to be certain that the potential supplier has offered a product or service that is fit for purpose it is a good practice to work cross-functionally and involve other team members who have expert knowledge of the product or service for instance engineers designers or people who use or will use the product or service so don't just focus on the price because most of the time that is what people look at this supplier has a relatively cheap price compared to that that one and therefore let's go with that one well the question is what exactly do you want in this case okay because sometimes price is not even the main thing at this stage think of total cost of acquisition the whole thing is like an iceberg in which all you see is the price but beneath that you have logistics and handling cost customer service training and support inspection basically a lot of other things okay a lot of other cost in fact price is just one of the factors so you need to pay attention to all that uh stage nine contract award and implementation at this stage the supplier has been chosen right so now what the procurement professional can now award the chosen supplier with the contract to supply the two parties will then negotiate the contractual terms to reach a mutual agreement before signing the final agreement and starting the contract in public sector procurement once the contract has been added you need to notify the other suppliers who did not make it okay who did not qualify this stage the reason why you do that well because of transparency so they need to know that while their effort were appreciated the right person was actually awarded the contract and the next stage stage 10 warehouse logistics and receipt if the contractor added is for tangible need which is something that you can touch okay so that's what tangible needs are then the stores or warehouse department need to be involved to prepare for the arrival of the goods the warehouse workers will need to allocate space for the products expect deliveries and understand specifications so that they can carry out quality checks accurately stage 11 contract performance review and continuous improvement yeah a contact has been added but you still need to manage that contract in order to effectively manage supplier performance and contractual obligations you should regularly review the supplier's performance against key performance indicators well the kpi will obviously have been agreed upon before the contract was awarded and you know when the negotiation was taking place continuous improvement is something else that the procurement team and suppliers need to work on these will actually involve waste reduction and quality improvement on that supply chain identify plan execute review is pretty much how the continuous improvement cycle works identify the opportunities in the process workflow plan how the process can be improved implement the changes and review how the changes are working for the team of course there is more to that but for now that is that we'll do okay i mean you're summarizing things here now the next stage number 12 stage 12 supplier relationship or contract management managing the supplier relationship okay and the outcome of the contract is very important the two do not automatically happen together it's very possible to have a contract that is actually giving you the results that you want but have a very poor you know relationship with the supplier so that that can happen the style of relationships required will depend on the strategic position of the product or service being procured of course strategic products or service will demand a more you know collaborative approach or a more collaborative sort of relationship with their with the supplier and stage 13 asset management or end of life at this point the question is whether or not whatever was procured will be will be needed again if the need is still current and unchanged the procurement cycle process commences again but from a different stage since you already know what we need okay and we understand it so i'm not going to go through the whole need analysis again i mean you know it's just a rebuy which could be okay if you have to change a few things then it can be a modified rebuy but uh it's not a new buy okay but if the need is not required after the contract and date the procurement professional should manage the end of life by aiming to reduce stock levels and inform the suppliers that there will be no further requirement after the contract has ended and that's pretty much how you deal with that now those are 13 stages okay the procurement life cycle certains instead you know 13 stages of them if if there is any question at this point obviously do let me know i'm says and i'll see you in the next video