Dbs Purchasing
Dbs Purchasing
Dbs Purchasing
CONCEPT OF PURCHASING
1.0 PURCHASING
Purchasing is the act of buying the goods and services that a company needs to operate and/or
manufacture products.
Many people are ignorant of what purchasing is all about. “Purchasing” is the term used in
industries, commerce, public corporations to denote the act of and the financial responsibility for
procuring material, supplies and services. It simply describes the process of buying. However in a
broader sense, the term involves determining the needs, selecting the supplier, arriving at a proper
price, terms and conditions, issuing the contract or order, and following up to ensure proper
delivery. It focus is to purchase or obtain materials in the right quantity, in the right quality, at the
right price, at the right time, and from the right supplier and delivering to the right place.
Supply chain management (SCM) is a process used by companies to ensure that their supply chain
is efficient and cost-effective. A supply chain is the collection of steps that a company takes to
transform raw components into the final product. Typically, supply chain management is comprised
A plan or strategy must be developed to address how a given good or service will meet the needs of
the customers. A significant portion of the strategy should focus on planning a profitable supply
chain.
Develop is the next stage in supply chain management.
It involves building a strong relationship with suppliers of the raw materials needed in making the
product the company delivers. This phase involves not only identifying reliable suppliers but also
At the third stage, Make, the product is manufactured, tested, packaged, and scheduled for delivery.
Then, at the logistics phase, customer orders are received and delivery of the goods is planned. This
As the name suggests, during this stage, customers may return defective products. The company
Supply chain management is the management of the flow of goods and services and includes all
processes that transform raw materials into final products. It involves the active streamlining of a
business's supply-side activities to maximize customer value and gain a competitive advantage in
the marketplace.
SCM represents an effort by suppliers to develop and implement supply chains that are as efficient
and economical as possible. Supply chains cover everything from production to product
Typically, SCM attempts to centrally control or link the production, shipment, and distribution of a
product. By managing the supply chain, companies are able to cut excess costs and deliver products
to the consumer faster. This is done by keeping tighter control of internal inventories, internal
SCM is based on the idea that nearly every product that comes to market results from the efforts of
various organizations that make up a supply chain. Although supply chains have existed for ages,
most companies have only recently paid attention to them as a value-add to their operations.
In SCM, the supply chain manager coordinates the logistics of all aspects of the supply chain which
The supply chain manager tries to minimize shortages and keep costs down. The job is not only
about logistics and purchasing inventory. According to Salary.com, supply chain managers, “make
Improvements in productivity and efficiency go straight to the bottom line of a company and have a
real and lasting impact. Good supply chain management keeps companies out of the headlines and
Supply Chains
A supply chain is the connected network of individuals, organizations, resources, activities, and
technologies involved in the manufacture and sale of a product or service. A supply chain starts
with the delivery of raw materials from a supplier to a manufacturer and ends with the delivery of
SCM oversees each touchpoint of a company's product or service, from initial creation to the final
sale. With so many places along the supply chain that can add value through efficiencies or lose
value through increased expenses, proper SCM can increase revenues, decrease costs, and impact a
It is well known that supply chain management is an integral part of most businesses and is essential
to company success and customer satisfaction. The main importance of Supply Chain Management
are:-
Decreases Purchasing Cost – Organizations generally prefer quick distributions of costly products
Decrease Production Cost – A reliable supply chain delivers materials to assembly plants and avoid
Right quantity and quality – Customer expects delivery of right quantity and quality of products.
On-time delivery – Customers expect to receive the correct product mix and quantity to be delivered
on time. A reliable supply chain can help in avoiding any bottlenecks and ensure customers get their
occur in the product, customer expects it to be fixed quickly. A right supply chain ensures that
C. FORWARD MOMENTUM
Supply chain management streamlines everything from product flow to unexpected natural disasters.
With an effective SCM, organizations can diagnose problems and disruptions correctly.
SCM plays an important role in moving items quickly and efficiently to destination.
With the emergence of competition in current market scenario, an efficient supply chain can give a
The purchasing cycle are the steps taken to order and pay for products that a business requires. The
1. The Need
You need to identify that there is a need to update the inventory or stock. You may also need a
2. Specify
Now you need to decide how much and when you want the products or services delivered.
3. Requisition or Order
4. Financial Authority
Before the order can be placed, it usually requires some kind of authority for its purchase. With
some purchase orders, this is reasonably automatic. With a large order that will be put out to tender
5. Research Suppliers
Repetitive orders usually have set suppliers, although it does no harm to review the options
sometimes. Other orders will either need to go out to tender or there will be a choice of suppliers.
6. Choose Supplier
In a large company, many suppliers will be contracted with a Master Agreement where prices and
terms are set for a defined period. For other orders, now is the time to negotiate terms and prices.
8. Place Order
At this stage in the purchasing cycle, the order is placed and this becomes a contract between the
The goods are delivered, checked in the warehouse and entered into the inventory. Shortages and
breakages are reported to the supplier for the appropriate credits to be supplied.
The purchasing ledger and stock records are updated. This is automatically done by many
1. The Need
In this case, the need usually goes through a business case and is then tightly defined and specified.
2. Financial Authority
This usually happens at a higher level and includes the management of the department that requires
the goods.
3. RFP
A Request For Proposal (RFP) is written, in which the need is highly specified.
4. Invite Tenders
This is always done formally, usually by posting the request in trade magazines and appropriate
5. PQQ
A Pre Qualification Questionnaire (PQQ) is sent out to likely suppliers in order to select a short list
6. Tenders
7. Qualifying
A number of meetings are held to clarify any questions that suppliers may have.
8. Evaluation
This is the most exciting part of the purchasing cycle and can take many weeks for a big tender. All
the tenders are evaluated and the requirement awarded to the winning bidder.
9. Negotiation
The fine print of the terms and conditions are negotiated with the chosen supplier. The price is fixed
This is the period in the purchasing cycle when the goods are delivered.
12. Approval And Payment
If the contract is carried out completely then full payment is made. If there are problems, there may
be a damage request.
At the end of the contract work and deliveries, the contract is signed off and all relationships with
The purchasing ledger and stock records are updated. This is automatically done by many
1. Purchasing function provides materials to the factory without which wheels of machines cannot
move.
2. A one percent saving in materials cost is equivalent to a 10 percent increase in turnover. Efficient
3. Purchasing manager is the custodian of his firm’s is purse as he spends more than 50 per cent of
4. Increasing proportion of one’s requirements are now bought instead of being made as was the
7. Materials management organisations that exist now have evolved out or purchasing departments.
8. Other factors like:
(ii) Cyclical swings of surpluses and shortages and the fast rising materials costs,
The purchasing objective is sometimes understood as buying materials of the right quality, in the
right quantity, at the right time, at the right price, and from the right source. This is a broad
generalisation, indicating the scope of purchasing function, which involves policy decisions and
1. To pay reasonably low prices for the best values obtainable, negotiating and executing all
company commitments.
3. To develop satisfactory sources of supply and maintain good relations with them.
4. To secure good vendor performance including prompt deliveries and acceptable quality.
6. To develop good procedures, together with adequate controls and purchasing policy.
7. To implement such programmes as value analysis, cost analysis, and make-or-buy to reduce cost
of purchases.
8. To secure high caliber personnel and allow each to develop to his maximum ability.
10. To keep top management informed of material development which could affect company profit
or performance.
11. To achieve a high degree of co-operation and co-ordination with other departments in the
organisation.
Right SERVICE
SPECIFYING REQUIREMETS
2.0 INTRODUCTION
The overall purpose of a specification is to provide a basis for obtaining a good or service that will
satisfy a particular need at an economical cost and to invite maximum reasonable competition. To
By definition, a specification sets limits and thereby eliminates, or potentially eliminates, items that
with seeking overall economy for the purpose intended. A good specification should do four things:
(3) List reproducible test methods to be used in testing for compliance with specifications, and (4)
Although Procurement has final responsibility for the competitiveness and suitability of
specifications, Procurement cannot initiate or prepare all specifications. The size of staff necessary
to do this would be prohibitive. Procurement serves as the primary activity involved in developing
specifications for items purchased under indefinite quantity term contracts and definite quantity
scheduled purchases. The duty of Procurement to promote both product and price competition
requires that specifications be as non-restrictive as practicable, consistent with satisfying legitimate
needs. Procurement is responsible for final editing of specifications, and ensuring clarity of
language with jargon or in-house terminology. Purchasing will assist and advise you in developing
your specifications, however, Procurement does not have expertise in every sphere. Hence the need
Specifications can be prepared in a number of ways. Speaking generally, one is the specification
construction or personal services contracts. The other group call for ready-made, off-the-shelf
materials and supplies. Within these broad groupings are more particular types, including: brand-
1. BRAND-NAME SPECIFICATIONS
The brand-name specifications has the effect of limiting the bidding to a single product and is the
most restrictive kind of specification. Its use will not be permitted unless only one product will meet
an intended need, there are at least ten competitors that can supply the product, the department head
has submitted written justification to this effect and the Director of Procurement has approved the
use.
2. BRAND-NAME-OR-EQUAL SPECIFICATIONS
designations that identify the specific products of a particular manufacturer as having the
characteristics of the item desired. Any other brands or models substantially equivalent to those
named are considered for award, with the Procurement Officer reserving the final right to determine
purchasing.
A. Although there may be situations when the use of this specification is our only means of
attempting to satisfy the requirement, its use should be limited and justified before solicitation. If
this specification is used, tangible performance, quality or other required characteristics should be
clearly defined in the bid invitation. Bidders offering an equal should be put on notice that the
criteria used to define performance, quality or essential characteristics must be met to be considered
responsive.
B. The best position is to list at least two brand names that will satisfy the requirements.
Another alternative is the requirement that bidders offering products other than specified obtain
approval for the product offered before bid opening. There must be sufficient basis to determine that
these products are equal and this basis must be predicated upon sound evaluation criteria. Vendors
should be provided the criteria for the purpose of qualifying the bid document.
A qualified product list (QPL) is a specification based on manufacturers' names, brand names and
model numbers, but it is arrived at by a systematic and formal process. A QPL is predicated on a
written specification which includes certain tests or other criteria for comparing, examining and
approving products before soliciting competitive bids. These criteria and the methods for
establishing and maintaining a QPL varies widely for different products. Some may require that
committees test the products, others may simply require that brands be tested under controlled
conditions and assessments made of their performance and others may require laboratory tests.
Departments wishing to establish a QPL must list the products that have been tested and are
considered equal, state testing methods used to establish the QPL and indicate steps to be taken by
4. DESIGN SPECIFICATIONS
Design specifications customarily employ dimensional and other physical requirements of the item
being purchased. "Design" in this sense means that the specification concentrates on how the
product is to be put together. It is the most traditional kind of specification, having been used
historically in public contracting for buildings, highways, and other public works, and represents the
kind of thinking in which architects and engineers have been trained. Its use is called for where a
structure or product has to be specially made to meet the purchaser's unique need.
Departments using design specifications must submit complete specifications with all necessary
drawings, dimensions, terms, and definitions of non-standard terms. Materials used must be
5. PERFORMANCE SPECIFICATIONS
The terms "functional" and "performance" are used interchangeably to designate an approach to
specifications that is less interested in dimensions and materials and configurations and more
interested in what a product does. The performance specification is less interested in how a product
is made, and more interested in how it performs, how well it performs, and at what cost.
Performance purchasing is results orientated in terms of function and cost. In contrast to the design
approach, performance specifications afford the manufacturer or bidder sizable latitude in how to
accomplish the end purpose. Performance requirements describe the characteristics and capabilities
Specification of a work is required to describe the quality and quantity of different materials
required for a construction work and is one of the essential contract documents.
This also specifies the workmanship and the method of doing the work. Thus specification of a
work serves as a guide to a supervising staff of a contractor as well as to the owner to execute the
A work is carried out according to its specification and the contractor is paid for the same. Any
As the rate of work is based on the specification, a contractor can calculate the rates of various
items of works in tender with his procurement rates of materials and labour. Thus tender rate
Specification is necessary to specify the equipment tools and plants to be engaged for a work and
The necessity of specification is to verify and check the strength of materials for a work involved in
a project.
Description of materials: The quality and size of materials required to do an item of work shall be
fully described for checking up at site according to the bindings provided in the specification.
Workmanship: Complete description of workmanship, the method of mixing to the proportion, the
method of laying, preparation of base or surface, compaction, finishing and curing etc. specifically
Tools and plants: The tools and plants to be engaged to carry out a work shall be described. The
Protection of new work: The method of protection of new works against damage or the method of
curing if required, the test of completed work if necessary shall be described in separate clauses
Expression: While writing a specification endeavour shall be made to express the requirements of
the specification clearly and in concise form avoiding repetition and unusual words. The style of
Clauses of specifications: As far as possible, the clauses shall be arranged in the order in which
work shall be carried out. This does not mean to follow the works according to the order of
arrangements but it facilitates reference. While framing clauses for quality of materials,
1. Simple, consistent and exact, but not so specific that a loophole will allow a bidder to evade any of
the provisions and thereby take advantage of his competitors or the buyer.
2. Identified, when possible, with some brand specification already on the market. (Custom goods are
expensive).
3. Capable of being checked. It should describe the method of checking which will govern acceptance
or rejection. A specification which cannot be checked is of little value and only confusion will
result.
8. Flexible, inflexible specifications defeat progress. Invite vendors to suggest cost saving alternatives
or substitutes.
4. Circulation of specifications for one product to several suppliers makes competitive bidding
possible
5. Eliminates the need for detailed, verbal descriptions of a product each time it is ordered
SOURCING PROCESS
Sourcing is the "location, acquisition and management of all the vital inputs required for an
organisation to operate. This includes raw materials, component parts, products, labour in all its
Sourcing seeks to find, evaluate and engage suppliers to achieve cost savings and best value for
goods and services which can be done through a tender process. Factors such as reliability, quality,
flexibility and capacity are considered in the tendering process alongside price.
STRATEGIC SOURCING
Strategic sourcing is a procurement process that continuously improves and re-evaluates the
A supply strategy based upon joint opportunities, mutual trust, respect and open & honest
– Create contractual alliances with suppliers to support the long-term goals of the Organization.
Analysis
Sourcing Strategy
Integrate Suppliers
Monitor & Follow-Up
Sourcing is the process of evaluating and hiring individual businesses to supply goods and services
to your business. Procurement is the process of actually purchasing those goods and services.
Sourcing and procurement have become a bigger part of a supply manager’s job in recent years, in
A definition of a good supplier which would be acceptable to everybody would be difficult to write,
there are a number of attributes which might be regarded as desirable for a typical relationship.
Delivers on time
Keeps promises
Consumable supplies
Subcontracts
Service
A procurement strategy enables decision makers to understand longer-term goals, such as realizing
value for money and encouraging supplier improvement, and to consider these goals when making
procurement decisions.
The traditional approach to source decision making involves the buying organisation in:
Selecting the best supplier from those who quoted by comparing the offers.
Placing the purchase order with them, specifying such matters as volume, schedule, place of
Experience has shown that the 7 step strategic sourcing process developed in 2001 has stood the test
of time and with variations, has become best practice. The main objective of strategic sourcing is to
save money but other reasons include improving the acquisition process, supplier performance and
minimizing risk.
Understand everything about the spend category as the first step in the strategic sourcing process.
This means defining the category and commodities in it. What is the current quantity used, types
and sizes. Who are the users, where are they located, what are the processes used and who else is
involved in the supply chain. Data must be documented in as much detail as possible as changes
may be needed.
Identify potential new global and local suppliers. Study the cost components of the product or
service, and analyze the suppliers’ marketplace for risks and opportunities. Key raw material prices
and other variables such as labour and transportation must be priced and calculations done of the
Deciding where to buy while minimizing risk and costs is how you develop the strategic sourcing
strategy. Using a cross functional project team is a must. The strategy will depend on what real
alternatives there are to the current suppliers, how competitive the supplier marketplace is and
The most common method of sourcing is to use a Request for Proposal process for soliciting bids. It
includes product or service specifications, delivery and service requirements, pricing breakdown
and legal and financial terms and conditions. Often the evaluation criteria are also stated.
The first round of the negotiation process, after reducing the bids to the valid ones, is conducted
with many suppliers asking for clarifications and more detail where needed. A good strategic
sourcing strategy is to conduct multiple rounds of negotiations to get to a short list. The final
selection is usually done by the team and signed off as per the approval process.
Notify the successful suppliers and ensure that they are involved in the implementation process.
Implementation plans vary depending on the degree of changes. The communication plan in the
strategic sourcing strategy will include any improvement to specifications or process, changes in
This is a key element of the sourcing management process. It is the start of a continuous cycle,
starting with benchmarking the current status of the commodity or category, monitoring the results
and ensuring that full value is being achieved. Back to Step 1 to review the supply market again and
Every organisation maintains a list of vendors, trade group-wise whom they approach for their need
of materials. This list is under constant review. Unsatisfactory suppliers are eliminated and new
important function of the purchase research section will be to obtain this information from the
following sources and keep a classified record for reference when necessary.
1. Newspaper advertisements
Newspapers columns are full of advertisements from various firms indicating the items of stores
2. Trade directories
Indian and foreign directories are available which give classified information of suppliers industry
wise. Very detailed information is available there in regarding names and addresses of
manufacturers, their regional and branch offices, their authorised agents and their range of products.
Prices obtainable from catalogues and price lists are generally not final and are subject to
confirmation at the time of placing the order. Catalogues and price lists should be properly
classified and arranged to enable easy reference. Either they could be kept according to commodity
groups as such as pipes and fittings, tools, alloy steel, abrasives, etc., or numbered serially and
If necessary, a supplier wise card index or list may also be maintained to facilitate locating
catalogues of various firms. The card or list will be arranged alphabetically and will show supplier’s
4. Trade journals
Most leading companies advertise in trade journals like the Indian Trade Journal. Sometimes
excellent articles appear in them regarding specific industries. Valuable information can be obtained
Salesmen are excellent sources for supply and material information. Not only are they usually well
informed about the capabilities and features of their own products, but they are also familiar with
By the very nature of their specialised knowledge, sales people can often suggest new applications
for their products which will eliminate its search for new suppliers. From their contacts with many
companies, sales men and sales women learn much about many products and services and all of this
This is a key reason why sales personnel should always treated courteously and given ample time to
make their sales presentations. To deny them this opportunity is to risk the loss of valuable
6. Advertised tender
Tender is the process of ascertaining availability and price of materials in sealed covers which are
opened and scrutinized, at a predetermined time by a tender committee. It is implied that the
The tender system induces the bidders to quote the lowest Price, safeguards the interests of both the
buyer as well as that of bidder, ensures impartially and fairness, inspires confidence in the suppliers
and leaves no room for malpractice such as favouring a particular bidder or tampering with prices in
7. Telephone directories
If satisfactory trade relations are maintained, even one’s own competitors will part with the
information he has.
Visits to exhibitions and fairs should give valuable information regarding potential suppliers. Such
exhibitions and fairs are held industry wise and also for specific purposes, e.g., import substitution.
Some such exhibitions are held regularly at specific intervals when available information can be
updated.
Personnel from other departments of a firm can often provide purchasing with helpful information
associations, and social groups, these employees often learn about outstanding suppliers.
Scientific, technical and research personnel who use sophisticated materials or services always have
many valuable suggestions to make regarding possible sources of supply. From their attendance at
conventions and trade exhibits, and from their discussions with associates, these personnel are
particularly well informed regarding new products, new methods and new manufacturers.
11. Enquiry
This is a simple method of ascertaining availability and price of materials through open offers. It is
adopted when there is no room for competition on account of (a) the value being very small, (b) the
materials being of a proprietary nature, (c) the policy being to buy only from one particular firm, (d)
the source of supply being limited or not established as in the case of machined components and
fabricated parts. The buyer may, however endeavour to obtain price reduction by negotiation. The
enquiry form (form7) is simpler then the tender form (form 8) but both call for price, terms of
Another commonly known directory is the classified yellow pages section of telephone directories.
This source of information is frequently of limited value to industrial buyers because local
However, buyers can readily obtain telephone books for all major cities from the telephone
company. The size and capability of companies are also difficult to determine, as management and
The yellow pages do, however, have the virtue of being well indexed. Also, they can serve as a
useful starting point if other sources have proved fruitless, and if local sources are desired.
The location of potentially useful sources of supply is a major responsibility of the procurement
Three principal reasons why the location of suppliers might be difficult are:
Technical advances – the buyer’s needs are becoming more complex and difficult to meet, and
Increasing ‘concentration’ in supply markets - the continuing process of mergers and takeovers is
leading in many industries, to a situation where there are few, very large suppliers who have less
need actively to pursue business which will inevitably come their way.
The organisation (buyer) is in a much better position to evaluate an existing supplier, based on his
Task variables which determine the choice of supplier are traditionally stated as: quality, quantity,
timing, service, and price the supplier is evaluated for named products or processes as fully
Effect on price
Captive supply is a term for that part of the supply that is not owned by a company but is
used by the company to maximize its own profits often at the unknowing expense of those who
In certain business situations a buyer may give preference to a supplier who also happens to be his
customer. This relationship is known as reciprocity. It is something like "I buy from you if you buy
from me"
A supplier association
A supplier association is a business term which refers to a customer company bringing together a
group of its suppliers on a formal and regular basis in order to achieve strategic and operational
alignment.
Market structure
Monopsony: where there is a single dominant buyer or (market situation in which there is only
Oligopoly: is the present where several sellers co-operate to dominate the market.
Partnership source
on clear mutually agreed objectives to strive for would class capability and
4.0 DEFINITIONS
A contract is basically an agreement between two parties creating a legal obligation for both of
them to perform specific acts. Each party is legally bound to perform the specified duties such as
In order for the contract to be enforceable, each party must exchange something of value (called
“consideration”).
A contract may be used for various transactions, including the sale of land or goods, or the
provision of services. They may be either oral or written, though courts prefer that agreements be
put in writing.
Supply contract
An agreement by which a seller promises to supply all of the specified goods or services that a
buyer needs over a certain time and at a fixed price, and the buyer agrees to purchase such goods or
In order for an agreement to be binding in a court of law, a contract must contain the following
elements:
Mutual Assent: Each party must have a shared understanding regarding what the subject matter of
the contract is. For example, for a delivery contract, both parties must understand that the word
“ship” does not refer to a sea vessel, but rather means “to deliver”.
Offer and Acceptance: One party must make an offer by clearly communicating their intent to be
bound in a contract. Likewise, the other party must render their acceptance in unambiguous terms.
Consideration: This where both parties mutually exchange something of value in order to make the
agreement binding. The consideration may simply be a formality, such as giving $1. Sometimes
contracts can be enforced in a one-sided promise where only one party renders consideration.
Contract claims are best thought of in a timeline. The entire formation of the contract begins with
negotiations and may undergo several modifications before a final agreement is reached. This
means that there are several points in time when the contract may be breached. A breach of contract
means that one or both parties has failed to perform their duty.
Some common types of breach include: non-performance of duties, impossibility (one party makes
the other party’s duties impossible to perform), breach of an implied duty, and anticipatory breach.
A breach may either be total or partial, and each will yield different legal consequences.
Contracts are legal agreements between two parties or more. Legally binding contracts must have
essential elements in order to be enforced in court. Some contracts that are missing one or two of
these essentials will still hold up in a court, but it's best to have them all covered.
A contract is made basically any time one entity offers something to another and the offer is
accepted. Think of the last time you accepted a job offer. The company offered you a job and you
accepted, therefore a contract was formed. Employment contracts are one of the most common
Usually, the types of contracts you'll come across in the business world are classified as simple
In writing
Verbally
With action
Bilateral contracts are one of the basics where both parties act to uphold the agreement. If one
person promises something to someone else and that person agrees to give something in return,
they've entered into a bilateral contract. When a product or service is sold and the customer
provides payment, the company selling the item and the customer entered into a bilateral contract.
Unilateral contracts are agreements where one party promises something in return for the action of
the other. If you've even returned a lost dog for a reward, you've entered into a unilateral contract.
The dog owner paid you a reward for the action of finding their pet.
Deeds are required to be handwritten and sealed with the signatures of both involved parties under
Transferring land
Mortgages
Conveyances
Offer
First, an offer must be extended in order to begin a contract. This should include details of the
agreement and its terms and conditions. Simply put, the offer is the offeror's attempt at entering into
Sometimes businesses will look for contractors through an invitation to treat by letting people know
Acceptance
Once the offer is extended, it's in the hands of the offeree to either accept or reject the proposal and
its terms and conditions. Offerees can accept offers via mail, email, or verbally.
Most states use the mailbox rule meaning that, if an offer is accepted via mail or email, the moment
the acceptance is placed in a mailbox to be mailed or sent via email, it has officially been accepted.
This holds true even if the offerer never receives the acceptance. Within this acceptance, there
needs to be a clear statement that the terms of the agreement are all accepted.
The meeting of the minds in contract law refers to the moment when both parties have recognized
the contract and both agreed to enter into its obligations. This is also called:
Genuine agreement
Mutual agreement
Mutual assent
Consensus ad idem
Even after the parties have entered into the contract, it can be voided a few different ways including
Consideration
Something of value must be exchanged in order to have a valid legal agreement. Usually, things like
products, property, protection, or services are offered for the exchange of money.
If not trading in money at all, the parties should be sure that the court would view whatever they are
Capacity
Each party must be fully able or have the legal capacity to enter into the contract in order for it to be
considered valid. For instance, you cannot enter into a legal contract with a three-year-old. Both
parties must be of their right mind in order to form a contract, so a valid agreement could not take
place if one of the parties is under the influence of any mind-altering substance.
This also includes the desire of both parties to enter into the agreement free from coercion.
Legality
Contracts cannot be created to govern the trade of illegal products or services. A drug dealer cannot
enforce a contract with their buyer if their buyer doesn't pay them.
Each party must show legal intent, meaning that they intend for the results of their agreement to be
completely legal.
verbally or in writing. Once an express contract has been established and agreed upon, an identical
An implied contract is one in which the terms and conditions are inferred by the actions of the
parties involved.
In an express contract, words, either written or verbal, are used to bring the contract to fruition,
whereas an implied contract comes into existence as the result of actions. Sometimes, the age-old
Either type of contract is viewed as legally binding insofar as the courts are concerned, as any
contract is one that has been entered into willingly, by the involved parties via an offer and
acceptance. With that said, it is obviously much easier to define and then enforce an express
The contract for the sale of goods is a particular type of contract which is different from other types
of contract.
A transfer of property in goods is a necessary element in the contract for the sale of goods.
The transfer of property means that ownership in goods must pass from the seller to the buyer to
complete a contract for the sale of goods. If property, or ownership in the goods has not passed the
Section 1 (1) of the Sale of Goods Act, 1962, Act 137 posits that a contract for the sale of goods is a
“contract whereby the seller agrees to transfer the property in the goods to the buyer for a
Goods Act 1962, Act 137 was enacted and before this enactment, the British Sale of Goods Act
Section 80 of the Act postulates that “the rules of the common law and of customary law, save in so
far as they are in consistent with the provisions with this Act, shall continue to apply to contracts for
4.7 NATURE OF GOODS AND THE CONTRACT FOR THE SALE OF GOODS
The Sale of Goods Act posits that ‘goods means movable property of every description, and
includes growing crops or plants and other things attached to or forming part of the land which are
Goods are things that can be moved from one place or position to another.
Chattel personal are subdivided into things in possession and things in action.
Excluded from the definition of ‘goods’ is land and anything forming part or attached to land. Land
In Halaby v Wiredu (1973), Koranteng-Addo J. said, “The sale of a business is a sale of more than
the goods that are sold by the business man. It includes for instance the sale of goodwill and the sale
of a whole business organization… what was sold consisted also of an interest in land. The sale of
A contract of sale is about the delivery of chattels. It includes a sale and an agreement to sell.
SALE
Where under a contract of sale the property in the goods is transferred from the seller to the buyer
AGREEMENT TO SELL
Where under the contract of sale the transfer of the property in the goods is to take place at a future
time or subject to some condition later to be fulfilled the contract is said called an agreement to sell.
Section 1 (1) of the Sale of Goods Act, 1962, Act 137 posits that a contract for the sale of goods is a
“contract whereby the seller agrees to transfer the property in the goods to the buyer for a
Section 81 (10) defines property as the general property in the goods and not merely a special
property.
These are contracts in which persons are contracted to do some work and they need to purchase
some materials that are essential for the work to be done. It is the contract of work and materials
because the contract is to do some work. Such contracts are not contracts for the sale of goods.
If you hire something you pay money to the owner so that you can use it for a period of time. Since
the thing you requested for and used would have to be returned, property does not pass to you. A
Hire-purchase contract
The Sale of Goods Act states that, ‘hire-purchase contract means a contract of sale of goods in
A hire-purchase agreement therefore occurs when the buyer obtains possession of the goods, and
Barter
Barter is the practice of exchanging goods for goods or services. The goods are not sold for money.
Money consideration is very important for the contract for the sale of goods as stated in section 1
Section 1 (3) of Act 137 postulates that there may be a contract of sale between one part owner and
another.
Section 1 (4) of Act 137 provides that a contract of sale may be absolute or conditional.
Section 3 of the Sale of Goods Act, 1962 provides that a contract for the sale of goods can be:
(i) In writing;
Consideration
Reality of consent
Legality of object
Capacity
Section 2 (1) posits that capacity relates to capacity to contract and to transfer and acquire property.
P 120-121.
Auction sales
Specific goods
These are goods that are in existence, able to be identified and agreed upon at the time the contract
These are the goods that are not identified at the date of formation of the contract and may or may
not be future goods. These goods are sold under description that does not identify particular goods
20 bags out of a lot of 40 bags of groundnut. Until the 20 bags are identified the they remain
Ascertained goods
Section 81 of the Act 137 provides that, ‘ascertained goods are goods identified and agreed upon
Property in goods cannot pass if the goods are unascertained. The goods must become ascertained
Existing goods
These are goods that are physically in existence and owned by the seller . They are goods that exist
at the time of formation of the contract. Existing goods can either be owned or possessed by the
Future goods
Section 5 (2) posits that future goods are goods to be manufactured or grown or acquired by the
seller after making the contract. The are future goods when they are not yet owned by the seller, or
Contingent goods
Section 5 (3) postulates that these are goods the acquisition of which depends upon a contingency
which may or may not happen.
The sale will take place on or after something has happened.
4.11 PRICE OF GOODS
Section 1 (1) of the Sale of Goods Act, 1962, Act 137 posits that a contract for the sale of goods is a
“contract whereby the seller agrees to transfer the property in the goods to the buyer for a
Section 6 (1): fixed by the contract or left to be fixed in a manner thereby agreed, or may be
Valuation of price
A valuation is a judgment that someone make about how much money something is worth. And it is
Two parties can agree that a third party should value the goods. If the third party does not make
such a valuation, the agreement is avoided. And where one party prevents the third party from
making the valuation, the other party can maintain an action in damages against the defaulting
party.
4.12 PURPOSE OF TERMS AND CONDITIONS
1. Coverage of Terms
Without terms and conditions, things may be overlooked, especially those that are a little less
obvious. For non-lawyers, they are probably only considering including delivery costs, price and
payment terms; however, they may miss on essential aspects—disclaiming liability for delay,
limiting liability and protecting intellectual property rights. You may also miss on the passing of
But with a well-drafted terms and conditions, you won’t miss any of these and you can protect your
2. Certainty
An oral contract is enforceable, but it is hard to prove with certainty and evidence when a dispute is
filed or a problem arises. In fact, both or either parties may forget the terms you have agreed
beforehand.
But if T&C is written, there is no chance that either of you will forget what are stated in the contract
because it was written. Also, emailing back and forth is hard, especially when locating the specific
On the other hand, you may have to pay more of legal fees to a lawyer if he has to consume time in
This problem can be prevented if you have drafted it in the written contract, in plain English.
3. Payment Terms
If you have an online business, it is integral that you include payment terms in the written/published
contract. A specific section in the T&C referring to the payment terms can improve trust on the part
They will have more confidence on your business because they can perceive you are a professional
Terms of service are extremely for your website, but you may also create them using terms of
4. Court Action
With a written terms and conditions, you can avoid any trouble of being taken to court during a
All the terms covering important aspects of your provisions of goods and services will minimize
legal dispute. The other party’s lawyer will advise his client that there are clear terms on the issue
on hand.
In this case, they will only have a little chance to win if they choose filing a case in court.
5. Agreement Enforcement
Without T&C, it will be hard to enforce your policies and find out if a user or customer has violated
or has breached the contract. You can avoid any of these problems with written contracts, which can
be easily enforced, if you have to take a customer to court due to non-payment or violation of
6. Law Compliance
It’s almost always considered important to have your written contract outlined and published on
certain rules and regulations that apply to a specific industry that your business is about and for as
well.
In the ecommerce industry, the law mandates that businesses provide information to the customers
prior to the contract’s conclusion. This is a provision commonly stated in the written contract.
It specifically refers to the Provision of Services Regulations (*2009), which states that service
suppliers has to provide buyers or customers with specific information. This aspect has to be well in
7. Customer Service
Written contracts improve customer satisfaction. These are not only easily implementable but they
One reason is that T&C gives them confidence to do business with you because these written
On your part, you will have protection, especially when you seek enforcing a section in the terms.
8. Expectations
Written contracts can avoid any wrong expectations about your business. For example, you have to
import goods from abroad, so it will take about three weeks before the item is delivered. In this
case, you’re customer will not be expecting ordered items to arrive in two days.
If you spelled delivery terms in the contract out, your customers will not have mismatched
expectations about your business. Additionally, this can save time on the part of your customer
support that is less likely to attend to calls from customers who are asking when the product/s will
arrive.
The same goes if you supply or provide a service. The terms and conditions are very important for
this matter. If you’re a writing service provider, then it will help you have all the terms outlined
9. Protection
Terms and conditions can block future disputes or complaints. When everything has been laid out in
the page, your customers may have to think twice first before filing a court action because they have
agreed to the policies and terms stated in the T&C. If ever they still pursue a case against you, they
might not be able to win because a specific area of concern has been clearly stated in the published
10. Trust
This may seem obvious, but a written contract improves your credibility.
Customers will find you trustworthy. They’ll feel confident in transacting with you because they are
also protected by a T&C. With it, they learn of their rights that can make them feel at ease. Also, it
clearly defines their responsibilities to your company, and vice versa. Both parties are given greater
Dispute resolution or dispute settlement is the process of resolving disputes between parties. The
term dispute resolution is sometimes used interchangeably with conflict resolution, although
conflicts are generally more deep-rooted and lengthy than disputes.[1] Dispute resolution techniques
assist the resolution of antagonisms between parties that can include citizens, corporations, and
governments.
communication between the parties of the conflict with the goal of trying to find a solution.
The Process: You may negotiate directly with the other person. You may hire an attorney to
negotiate directly with the other side on your behalf. There are no specific procedures to follow -
you can determine your own - but it works best if all parties agree to remain calm and not talk at the
same time. Depending on your situation, you can negotiate in the board room of a big company, in
Negotiation allows you to participate directly in decisions that affect you. In the most successful
negotiations, the needs of both parties are considered. A negotiated agreement can become a
When and How Negotiation Is Used: Most people negotiate every day. In some circumstances you
may want the help of a lawyer to help you negotiate a fair deal. Negotiation is the first method of
choice for problem-solving and trying to reach a mutually acceptable agreement. If no agreement is
reached, you may pursue any of the other options suggested here. This process can be appropriately
used at any stage of the conflict - before a lawsuit is filed, while a lawsuit is in progress, at the
Characteristics of Negotiation:
Voluntary
B.MEDIATION
Definition: Mediation is a voluntary process in which an impartial person (the mediator) helps with
communication and promotes reconciliation between the parties which will allow them to reach a
mutually acceptable agreement. Mediation often is the next step if negotiation proves unsuccessful.
The Process: The mediator manages the process and helps facilitate negotiation between the parties.
A mediator does not make a decision nor force an agreement. The parties directly participate and
At the beginning of the mediation session, the mediator will describe the process and the ground
rules. The parties or their attorneys have an opportunity to explain their view of the dispute.
Mediation helps each side better understand the other’s point of view. Sometimes the mediator will
meet separately with each side. Separate “caucusing” can help address emotional and factual issues
as well as allow time for receiving legal advice from your attorney. Mediations are generally held in
Agreements can be creative. You could reach a solution that might not be available from a court of
law. For example, if you owe someone money but don’t have the cash, rather than be sued and get a
judgment against you, settlement options could include trading something you have for something
the other wants. If an agreement is reached, it will generally be reduced to writing. Most people
uphold a mediated agreement because they were a part of making it. It can become a contract and
be enforceable. If there is no agreement, you have not lost any of your rights and you can pursue
When and How Mediation Is Used: When you and the other person are unable to negotiate a
resolution to your dispute by yourselves, you may seek the assistance of a mediator who will help
you and the other party explore ways of resolving your differences. You may choose to go to
mediation with or without a lawyer depending upon the type of problem you have. You may always
consult with an attorney prior to finalizing an agreement to be sure that you have made fully
informed decisions and that all your rights are protected. Sometimes mediators will suggest that you
do this. Mediation can be used in most conflicts ranging from disputes between consumers and
merchants, landlords and tenants, employers and employees, family members in such areas as
divorce, child custody and visitation rights, eldercare and probate as well as simple or complex
business disputes or personal injury matters. Mediation can also be used at any stage of the conflict
Attorneys and other professionals provide private mediation for a fee. If you have an attorney, you
can work together to select a mediator of your choice. You may want a mediator who is
knowledgeable about the subject matter of your dispute. You may wish to use a for-fee mediator in
the first instance or if Early Settlement mediation has not resulted in a resolution of your dispute.
You may also find mediators or mediation services listed in the telephone directory or available on
lists provided by some courts or private professional organizations. When selecting a mediator, you
Characteristics of Mediation:
Allows you to avoid the uncertainty, time, cost and stress of going to trial
Allows you to make mutually acceptable agreements tailored to meet your needs
C.ARBITRATION
Definition: Arbitration is the submission of a disputed matter to an impartial person (the arbitrator)
for decision.
The Process: Arbitration is typically an out-of-court method for resolving a dispute. The arbitrator
controls the process, will listen to both sides and make a decision. Like a trial, only one side will
In a more formal setting, the arbitrator will conduct a hearing where all of the parties present
evidence through documents, exhibits and testimony. The parties may agree to, in some instances,
establish their own procedure; or an administrating organization may provide procedures. There can
be either one arbitrator or a panel of three arbitrators. An arbitration hearing is usually held in
The result can be binding if all parties have previously agreed to be bound by the decision. In that
case, the right to appeal the arbitrator’s decision is very limited. An arbitrator’s award can be
reduced to judgment in a court and thus be enforceable. In nonbinding arbitration, a decision may
become final if all parties agree to accept it or it may serve to help you evaluate the case and be a
between fire fighters and the city in wage disputes, for example. You will usually be represented by
an attorney in arbitration.
Many contracts have clauses which require that disputes arising out of that contract be arbitrated.
You may have seen such a provision when you applied for a credit card or opened a retirement
account or other account with a stock broker. You may want to explore using this process if you and
the other side agree that the problem needs to have someone make a decision but you do not want
the expense of going through the court process. If you agree to arbitrate or sign a contract with an
arbitration clause, you should understand that the arbitrator may make the final decision and that
Who Provides This Service: Many attorneys, other professionals or professional associations offer
their services as arbitrators. Typically your attorney will select the arbitrator based upon the
particular type of the dispute. In complex and highly technical cases, often an arbitrator who is
Some courts offer court-sponsored, nonbinding arbitration and have specific procedural rules to
follow.
Characteristics of Arbitration:
Maybe less formal and structured than going to court, depending on applicable arbitration rules
Usually quicker and less expensive than going to court, depending on applicable arbitration rules
Each party will have the opportunity to present evidence and make arguments
May have a right to choose an arbitrator with specialized expertise
A decision will be made by the arbitrator which may resolve the dispute and be final
Definition: Litigation is the use of the courts and civil justice system to resolve legal controversies.
The Process: Litigation is begun by filing a lawsuit in a court. Specific rules of procedure,
discovery and presentation of evidence must be followed. The attorney for the other side will want
to take your deposition to learn more about the facts as you see them and your position in the case.
There can be a number of court appearances by you and/or your lawyer. If the parties cannot agree
how to settle the case, either the judge or a jury will decide the dispute for you through a trial.
A trial is a formal judicial proceeding allowing full examination and determination of all the issues
between the parties with each side presenting its case to either a jury or a judge. The decision is
made by applying the facts of the case to the applicable law. That verdict or decision can conclude
the litigation process and be enforceable; however, if appropriate, the loser can appeal the decision
to a higher court. In some cases, the losing party may have to pay the costs of the lawsuit and may
How and When Litigation Is Used: Our American civil justice system is one of the best in the
world. Our Constitution gives us the right to a fair trial. If you want your day in court with a judge
or jury of your peers deciding the outcome, then the pursuit of litigation and trial of the case is for
you.
You may be in a municipal court, state district court or a federal court depending on the type of
dispute you have and where your attorney files your case or where you get sued. State court trial
judges are elected on a nonpartisan ballot, though vacancies are filled through an appointment
process from highly qualified applicants. The district courts also appoint special judges, who handle
certain kinds of cases, such as small claims and divorces. These judges are selected by the district
In all courts, cases are randomly assigned to the various judges. You have no choice concerning
which judge will hear your case. Juries are randomly selected from a jury wheel. If you cannot
settle your differences through negotiation, mediation, arbitration or some other means, then you
Characteristics of Litigation:
Each party has the opportunity to present its evidence and argument and cross-examine the other
BUYING METHODS
1. Purchasing by Requirement:
This method refers to those goods which are purchased only when needed and in required quantity.
The goods which are not regularly required are purchased in this way. On the other hand it refers to
the purchase of emergency goods. These goods are not kept in store. Purchasing department must
be in knowledge of the suppliers of such goods so that these are purchased without loss of time.
2. Market Purchasing:
Market purchasing refers to buying goods for taking advantages of favourable market situations.
Purchases are not made to meet immediate needs but are acquired as per the future requirements.
This method will be useful if future needs are estimated accurately and purchases are made
whenever favourable market situations arise. The market situation is constantly studied for
The advantages of this method are: lower purchase prices, more margin on finished products due to
lower material cost and saving in purchase expenses. This method suffers from some limitations:
losses in case of wrong judgment, fear of obsolescence, higher storing expenses due to more
purchases.
3. Speculative Purchasing:
Speculative purchasing refers to purchases at lower prices with a view to sell them at higher prices
in future. The attention in this method is to earn profits out of price rises later on. The purchases are
not made as per the production needs of the plant rather these are far in excess of such
requirements. A cloth mill may purchase cotton in the market when prices are low with the attention
Speculative purchasing should not be confused with market purchasing. The former is done to earn
profits out of future price rises whereas the latter is concerned with purchasing for own needs when
favourable market situations exist. Though speculative purchasing may result in profits but there are
chances of prices going down in future, fear of obsolescence and incurring higher storage costs.
This method is used for the purchase of those goods which are regularly required. These goods are
needed in small quantity and chances of price fluctuations are negligible. The needs for specific
period are assessed and purchases made accordingly. The requirements for such purchases may be
assessed on the basis of past experience, period for which supplies are needed, carrying cost of
inventory etc.
5. Contract Purchasing:
In the words of Spriegel it is “the purchasing under contract, usually formal, of needed materials,
delivery of which is frequently spread over a period of time.” Under this method a specific quantity
of materials is contracted to be purchased and delivery is taken in future. Even though the goods are
procured in future but the price and other terms and conditions are fixed at the time of contract. This
method may be useful when price rises in future may be expected and material requirements for
6. Scheduled Purchasing:
Under this method the suppliers are supplied a probable time schedule for material requirements so
that they are in a position to arrange these in time. An accurate production schedule is prepared for
estimating future material needs. The suppliers are informed of probable needs and orders are sent
accordingly. The schedule provided by the purchaser to the vendor is not a contract. This is only a
gentleman’s agreement for terms and conditions of purchases. The main objectives of this method
are: minimum inventory, prompt service. low prices, quality goods etc.
Sometimes a number of small items are required to be purchased. The prices of these items are so
small that costs of placing orders may be more than prices. In such situations the buyer places order
with a vendor for all these items. The purchase price is agreed to be by adding some percentage of
profit in the dealer’s cost. This method will be used only when dealer’s records are open to
inspection for determining his cost. This type of purchasing reduces the cost of the buyer by
8. Co-operative Purchasing:
Small industrial units may join to pool their requirements and then place bulk orders with dealers.
This will help them in availing rebates on large quantity purchases, cash discounts and savings in
transportation costs. After receiving the materials these are divided among the member units. Co-
operative purchasing helps small units in availing the benefits of bulk purchasing
5.1 WHAT IS TENDERING?
Tendering is a process where are an organisation responds to a request for information or pricing
related to the supply of goods and services from another organisation. Organisations typically solicit
tenders from more than one organisation and will evaluate and accept tenders that meet their needs
and offer the best value for money. The acceptance of a tender results in a contract between the
organisations.
A tender is a formal offer to perform work in return for payment. Payment maybe in the form of a
fixed price or via a schedule of rates. Work may include the supply of goods or services or both. To
win a tender you should understand the tendering process and what the buyer expects.
An effective bid management and tender process provides a positive evaluation approach that leads
not only to the appointment of appropriate suppliers but to ensure that the ongoing relationship is a
mutually beneficial. A wholly balanced and highly efficient bid and tender management process
improves the quality of the supply chain while reducing costs and managing risks.
makes an offer for the supply of goods or services. As procurement routes have become more
complex, tenders may be sought for a wide range of goods and services (for example, on a
construction management contract the works are constructed by a number of different trade
contractors each contracted to the client) and contractors may take on additional functions such as
Open tender
Selective tender
Negotiated tender
Open tender
Open tendering is the main tendering procedures employed by both the government and private
sector. Open tendering allows anyone to submit a tender to supply the goods or services required
and offers an equal opportunity to any organisation to submit a tender. This type of tender is most
Open tendering provides the greatest competition among suppliers and has the advantage of
creating opportunities for new or emerging suppliers to try to secure work. However, not all those
who bid may be suitable for the contract and more time is required to evaluate the tenders.
Selective tender
Selective tendering only allows suppliers to submit tenders by invitation. These suppliers are those
who are known by their track record to be suitable for a contract of that size, nature and complexity
required. Selective tendering gives clients greater confidence that their requirements will be
satisfied. It may be particularly appropriate for specialist or complex contracts, or contracts where
there are only a few suitable firms. However, it can exclude smaller suppliers or those trying to
Negotiated tender
Negotiated tenders are extensively used in the engineering and construction industry commencing
from tendering till dispute resolutions. Negotiating with a single supplier may be appropriate for
highly specialist contracts, or for extending the scope of an existing contract. Costs are reduced and
allows early contractor involvement. Since the contractor is part of the project team at a very stage
Single-stage tendering is used when all the information necessary to calculate a realistic price is
tenders are prepared and returned, a preferred tenderer is selected and following negotiations they
may be appointed.
Two-stage tendering is used to allow early appointment of a supplier, prior to the completion of all
the information required to enable them to offer a fixed price. In the first stage, a limited
appointment is agreed to allow work to begin and in the second stage a fixed price is negotiated for
the contract.
Other types of tender include serial tendering, framework tendering and public procurement. Serial
tendering involves the preparation of tenders based on a typical or notional bill of quantities or
schedule of works. Framework tendering allow the client to invite tenders from suppliers of goods
and services to be carried out over a period on a call-off basis as and when required. Lastly, public
Practice of using one supply source without a competitive bidding process for a justifiable reason. it
can also be said to be the award for supply of a good or service that can only be purchased from one
A sole source is defined as the only supplier that can provide you with the goods or products you
need. The sole source has either established a monopoly or is the only provider within a geographic
region from which business owners can obtain what they need. In some instances, the sole source is
the choice because it is the only vendor available at a specific time that can handle what a business
owner requires, or it is the only vendor that carries that product. For example, a vendor who carries
automobile parts that are no longer manufactured is considered a sole source because any company
that needs that part must sign a contract with that specific vendor.
The request for quotations is a procurement method that is used for small value procurements of
readily available off-the-shelf goods, small value construction works, or small value services
procurements.
This procurement method is also known as invitation to quote and shopping, and it does not require
the preparation of tender documents to the same extent as open tendering, request for proposals or
two-stage tendering.
The invitations are not complex, and this method is considered non-competitive because the
procuring entity determines which contractors, suppliers or service providers to request quotations
This procurement method is used under conditions stipulated in the procurement legal and
regulatory framework and, accordingly, can be requested in writing: email, fax, courier, but not
telephonically. Sometimes there are limitations set on the period of time and frequency within
which this method can be used for the procurement of similar goods, work or services. This is to
prevent the procuring entity from splitting requirements in order for them to fall within the
threshold level where the request for quotation method can be applied.
Quotations received in response to a request for quotation should be first evaluated to determine
compliance with the technical specifications or scope of work of the requirement and also for
compliance with administrative requirements of the request for quotations. Only after the
administrative and technical compliance determination, a price comparison is made between firms
found to be compliant, and then a purchase order is signed with the bidder submitting the lowest
• Procurement lead-time is significantly reduced given that there’s no need to prepare solicitation
documents, or to advertise requirements. And the period for quotations submission is also equally
reduced.
• The number of quotations received is limited to the number of bidders quotations were requested
• The procuring and/or requesting entities would usually have a pretty good idea of where and from
whom the goods, services or works can be procured, so there’s a higher probability of response to
Disadvantages
• Lends itself to irregularities because the procuring entity decides which suppliers, contractors or
service providers to send request for quotations to, and competition is very limited.
• Could be abused as a result of the breaking of requirements into smaller sizes in order to apply this
method of procurement.
• Could easily lead to requesting quotes from a limited number of firms even if the goods, services
PURCHASING IN ORGANISATIONS
6.0 DEFINTION
The purchasing organization is an organizational unit which procures articles and negotiates general
purchase price conditions with vendors. It is responsible for all purchasing transactions in the
company.
In the construction industry, organization types of purchasing units, which are in the position of
heart of the projects, show differences due to distinctive structures of every company. I will try to
examine the various pros and cons of purchasing organizations in which many variables are
effectual.
A.Central Purchase
This type of organization is the one in which all purchase activities are conducted by a single
central unit. This is an organization created by firms that perform buying/selling for more than one
project/workplace to make purchases in better conditions (price, delivery time, transportation fee,
etc.). There is no purchasing agent in the projects. This type is used more when number of
purchases with common subjects. Thus, they provide better conditions for purchase by benefiting
from economy of scale, and enabling the group companies to focus on their business by clearing of
This type, intending to minimize the cons of the central purchase organization and to provide quick
response times, is applied by making big-budget purchases by the central group, and small
purchases by the project. The majority of purchase activity is performed by the purchasing agents in
As the generally-used organization type, this one is conducted entirely by the project (except for the
Procurement unit in energy projects). In this organization, burocracy is in the minimal level as there
are not procedures such as sending documents to the central group and receiving approval.
D.Independent + Active Consultant Style Purchase (Regional)
In my opinion, this is the type of organization that large-scale, project-based firms should use. I
have combined the the Coordinated and Independent purchase approaches here. In this type of
organization, there is a regional active consultant along with the independent purchase type. The
role of the active consultant here, is to link the contracts of big-budget purchases with high discount
rates according to ABC analysis by using the firm-wide control opportunity, and to constantly
investigate purchase activities of the projects remotely in coordination with the central quality
group.
6.2 TYPES OF PURCHASES
Organizations buy many different goods and services. As previously indicated, the challenge for
purchasing is deciding on the supplier that offers the best opportunity for items an organization
must purchase externally. Table 1-5 lists and describes many of the items that a purchasing
department is responsible for buying. Services are a special category of spend and the involvement
Raw materials Items with a lack of processing by the Petroleum, coal, lumber, copper, zinc,
Semi-finished products
All items purchased from a supplier required
Components, subassemblies,
shipping.
flows.
Public Procurement:
This is procurement that is completed within the context of not-for-profit organizations (NFP’s).
Also known as the public sector, the procurement that occurs in this context is typically government
Private Procurement:
This is procurement that is completed within the context of for-profit organizations (FP’s). Private
procurement happens within privately owned companies; also known as the private sector (Surbhi
2015)