Ethiopian Civil Service University

CollegeofFinance, Management and Development

Department of Development management

Procurement practice and challenges in Ethiopia. (In case of

Ethiopian civil service university)

Prepared
GROUP
 ABSTRACT

The purpose of the study was to assess of procurement administration practice at Ethiopian Civil
Service University. The study was conducted to assess procurement process management,
institutional procurement structure, institutional capacity and buyer supplier relationship and
communication on procurement performance. Descriptive research design was used in executing
the study, and quantitative and qualitative data was collected related with the extent of Ethiopian
Civil Service University procurement practice using structured questionnaires. The targeted group
of the study was administration staffs who are linked with the process, function and decision
making of procurement. 60 samples are taken from administration staff. The sampling technique
was purposive sampling. The study used both primary and secondary source of data to achieve its
objective .To collect relevant data, structured questionnaire and personal interview was conducted.
The collected data was analyzed using descriptive statistics. The result indicates that there is a
limitation regarding the preparation of annual purchasing plan, description of specification, terms
of reference and bill of quantity, long delivery time to receive items, lack of adequate and
competent employees in the staff and absence of using e-procurement systems that reduce the
problem of efficiency, effectiveness and value for money. The study recommended that the
procurement department is advised to carryout periodic market research and prepare proactive
procurement plan, and the procurement department is advised to use information technology tools
like e procurement. Internal user section should describe their needs early and prepare clear
specification, bill of quantity and terms of reference.

Key words: procurement practice and public procurement system

 CHAPTERONE
INTRODUCTION

Background of the Study.

Procurement practices are a set of activities undertaken by an organization to promote

effective management of its supply chain (Sollish&Semanik, 2012). Thai(2001)
describes two types of goals in the procurement system non procurement goals and
procurement goals. Procurement goals are primarily associated with quality, reduction
of financial and technical risks, and protection over competition and integrity in the
system. Non procurement goals usually involve the economic, social, and political
goals within the system. Thai and Grimm(2000) estimated government’s collective
purchasing at around 20 percent of Gross Domestic Product(GDP),and for
developing countries, Nicol (2003) put the figure at15percent of GDP. According to
Iloranta ,Pajunen-Muhonen(2012,49),most terminologies used in procurement are
usually unclear without official explanationsand sometimes used interchangeably in
verbal or oral. Therefore, it is important to recognize the philosophies of different
terms which are closely mistaken with procurement. For example, in business, the
term procurement is often switched with purchasing if the speaker wants to mention
about the buying activities. However, the term purchasing relates more to the daily
transactional activities within the procurement including buying and ordering goods
and services. Meanwhile, “Procurement is a wider term than purchasing” and consists
of both strategic supplier management and operational purchasing (Lysons&
Farrington 2014, 8). (Hyttinen2013,) define; Procurement is a term that describes the
whole process and responsibility of acquiring products or services from external
suppliers to satisfy thedemand of production and operation in an organization.The
reason is that almostevery organization needs to outsource to external parties to
purchase the products or services to run the business economically and efficiently
Statement of the Problem.

The key function of procurement is to expand the organization’s productivity and profit
ability by maximizing the cost-savings or in another way, minimize the purchasing costs
(Baily, Farmer, Jessop & Jones 1998, 3). In other words, all the costs which generated from
procurement activity directly influence the bottom-line of business financial performance.
(Iloranta, Pajunen-Muhonen 2012, 25). However, the cost factor is not the only consideration
for the success so procurement functions. Other considerations such as quality and delivery
also contribute to the successful procurement.(Weele 2014, 4-5).
Obviously, procurement plays a tremendous amount of contribution in helping the
Public sector achieves the pre primary objectives. Achieving efficiency and effectiveness

In public procurement is an ambitious task, as procurement faces numerous challenges,

especially due to the market structure, the legal frame work and the political environment
that procurers face (Thai,2004).To achieve the goal, the government allocates and disburse
huge amount of money to fixed asset, working capital and other service operation expenses.
Procurement practices are asset of activities under taken by an organization to promote
effective management of Is supply chain (Sollish&Semanik, 2012). Public procurement is
witnessed between centralized and decentralized purchasing organizations. Thai (2009)
describes the tradeoffs between centralized and decentralized organizational forms, such that
the emergence of a perfect decentralized or centralized structure is very unlikely.
Goods, construction, consultation service and other services are purchased by using
competitive bidding. Even if competitive biddings are giving equal chances to all potential
suppliers, its complex process and long bid floating period to receive goods and services.
Meanwhile interruption of supply of goods and services, quality problem are happen. This
research aimed to assess the procurement practice of ECSU and recommend possible solution
for those identified problems.
Research Questions.

1. What is the extent of procurement process management practice at ECSU?

2. What is the extent of institutional procurement structure practice at ECSU?

3. How efficient is the of institutional capacity of ECSU’s procurement performance?

4. Are supplier and client communication and relationship management activities

well established to ensure success?
5. What are the major causes of poor procurement performance in ECSU?

Objective of the Study.

General Objective of the Study

The main objective of this study was assessment of procurement practice and
challenges at Ethiopian Civil Service University.
Specific Objective of the Study.

 To assess the practice of procurement process management by ECSU.

 To assess the practice of institutional procurement structure on ECSU

institutional Program accomplishment.
 To assess the effects of institutional capacity on procurement performance.

 To describe the extent of supplier relationship and communication

management practice by ECSU.
 To identify most critical challenges of procurement in ECSU.
 Significance of the Study.

The study will have a great significance for the ECSU and MOFED. ECSU will benefit from
the result of the study to identify major procurement related problems totake corrective
actions in the future that can enhance their performance of quality education and better
service delivery. Thai and Grimm(2000)estimated developing countries put 15 % percent of
Gross Domestic Product (GDP) for procurement. (Nicol,2003).The government
(FDREMOFED) allocates a huge amount of budget each year .But efficiency and
effectiveness, accountability, transparency and value for money face numerous challenges
like quality problem,
Long lead time and embezzlement. This research will pinpoint major problems or

Areas of improvement relating to procurement for the government, university and also policy
makers.
Scope of the Study.

This study was conducted on Ethiopian Civil Service University. Federal Democratic
Ministry of Finance and Economic Development (MOFED) disburse a large sum of money
for higher institution every year to enhance uninterrupted flow of materials, parts,
intermediate goods, furniture, tools equipment and machinery etc. and help the university to
provide quality education to students, to the community, enhance efficient and effective
technology transfer to either local micro and small business enterprise or large scale industry
and involve in research and development that help to solve the problem that face the society.
These research study selected ECSU. Since ECSU involves in the practices of procurement
process management. Currently public procurement practice faces numerous challenges like
quality problem, long delivery time and corruptions are the prominent one.
Delimitation of the Study.

This research was limited and focused on Ethiopian Civil Service University administration
staff only and it doesn’t cover academic staff and other government higher education
institution. Since, the research is focus on assessment of procurement administration practice
on Ethiopian Civil Service University and its impact on the supply of uninterrupted flow of
goods and services. It is difficult to generalize the finding of the study to all government
higher education institutions. So to improve generalize ability the study can be replicated in
other government higher education institution.
 Definition of Terms.

Procurement is referred to as acquisition of goods, services, capabilities and knowledge

required by businesses, from the right source, the right quality, in the right

Quantity at the right price and at the right time to maintain and manage a company is primary
and support activities (Giuniperoetal.2006;Hines,2006;Porter1998;Trianta fillou

(2007),Van,2000).

Procurement practices are a set of activities undertaken by an organization to promote

effective management of its supply chain (Sollish&Semanik,2012).

Public Procurement System: the process in which public sector institutions acquire goods and
services. (Bovis, 2007).
 CHAPTERTWO፡

LITERATUREREVIEW

Procurement begins with the planning decision to make the purchase and this will involve in
the first place, deciding whether there is a need for the particular goods or services, ensuring
that the purchaser has the powers to undertake the transaction, obtaining any relevant
approvals with in the organization hierarchy and arranging the necessary funding. It critical
for a thorough procurement planning as firms are always facing budget constraints that can
not satisfy all capital acquisition needs (Knudsen, D.1999).Procurement process can be
divided in to four different activities, or phases: planning, formalization, implementation, and
evaluation. Procurement planning calls for early involvement of the purchasing office. so that
options and alternatives can be explored with the requesting user. Issues such as purchase
estimates, product specifications, make or buy decisions, and out sourcing opportunities may
very well be on the agenda. The process begins with procurement planning and ends with it
after being formalized, implemented and evaluated (Thai,2004).Indeed a mistake in
procurement planning has far reaching implication so each and every other function of an
organization and finally impact negatively on the overall performance of the firm.
In private sector organizations where profitability is the primary motive, a little percentage of
cost saving in procurement can lead to big contribution to the accomplishment of company
objective. But, as public sector organizations or higher education institutions; do not usually
deal with profitability; the main purpose of procurement is to achieve value for money
(economy, efficiency and effectiveness).

Principles of Purchasing.

There are „six rights‟ in procurement and they can be achieved through following specific
objectives of procurement (Benslimaneetal, 2005).
i. Right price: -a right price should not necessary be the list price ,rather it is a
Kind of price that is reasonable and fair both to the buyer and the
seller.(Benslimaneet al, 2005).

ii. The right place:- a vendor located at a relatively far of place as compared to
local stockiest or short distance supplier is likely to cause much more problem
in processing the purchase activities and making follow up. (Benslimane et
al,2005).
iii. Right time of buying: - there is a considerable time gap created between the
identification of need for an item until it is approved for use after placing an
order, manufacturing, (Benslimaneetal,2005).
iv. Right quality: -From purchasing point of view, quality denotes conformity
or suitability of a product to its intended purposes. The best quality product
may not necessarily be the right quality if it doesn’t conform to the purpose
intended for. (Benslimaneet al, 2005).
v. Right quantity: - the right quantity is the right level of quantity that is not too
much, or too few but a moderate one. If the company orders an item with large
quantity, the inventory caring cost will go up, and if the order is small size, the
company may face high ordering cost and a possibility of interruption of
operation.(Benslimane et al, 2005).
vi. Right source: - Development of sources of supply plays a great role in the
purchasing strategy of the organization and this, in turn will undoubtedly,
have a bearing on the corporate long term strategy analysis.(Benslimane et
al,2005).

Procurement from managerial perspective.

The standard statement of the overall objectives of purchasing function is that obtaining the
right material, in the right quantity, at the right time, right place, right source and right price
in the short term and long term.

Purchasing systems.
Purchasing department should adopt systems that align or integrate with organization goals.
The purchasing department may sometimes fail due to insufficiency in the integration of its
plans and strategies with overall plans; strategies due to improper selection and training of
purchase personnel, poor material management; lack of cost reduction strategies, slow
recognition of the benefits that a progressive procurement function can provide and not
participating in the procurement planning process can bean hindrance to and effective
organizational structure. Therefore, efficient purchasing department should actively
participate in maintaining and adopting a well framed procurement system (Swan,2000).
Organizational Structure and Procurement Performance decision making concerning new
business opportunities, products, customers suppliers, market and technical development
enable the organization to survive and compete in dynamic and competitive situations
(DeAnis&Haggins 2001).
Procurement Performance.

Link between Procurement Process, Efficiency, Effectiveness and Performance.

Knudsen,(1999)suggested that procurement performance starts from purchasing

efficiency and effectiveness in the procurement function in order to change from
being reactive to being pro active to attain set performance levels in an entity.
According to Van Weele (2006) purchasing performance is considered to be the result
of two elements: purchasing effectiveness and purchasing efficiency. Performance
provides the basis for an organization to assess how well it is progressing towards its
predetermined objectives, identifies areas of strengths and weaknesses and decides on
future initiatives with the goal of how to initiate performance improvements. This
means that purchasing performance is not an end in itself but a means to effective and
efficient control and monitoring of the purchasing function (Lardenoije, Van Raaij,
&VanWeele,2006 Staff Competence in Procurement.
Principles of Public Procurement and Property Administration of Ethiopia and the Practice of
ECSU.

Public procurement and property administration shall have to comply with the
following principles: Ensure value for money in the use of public fund for
procurement, non discrimination among candidates on grounds of nationality or any
other criteria not having to do with their qualification, except in cases of preference
specifically provided for in this Proclamation, transparency and fairness of the criteria
on the basis of which decisions are given in public procurement as well as of
 decisions in each procurement, accountability for decisions made and measures taken
with regard to public procurement and property administration and Careful handling
and proper use of public property. (EFGPPAPNO.649/2009).
Methods of Procurement in the public sector.

According to (EFGPPAPNO. 649/2009, the following methods shall be used in public

procurement: Open Bidding, Request for Proposals (RFP),Two stage Tendering,
Restricted Tendering, and Request for Quotation (RFQ) and Direct Procurement.
Except as otherwise provided in this Proclamation, public bodies shall use open
bidding as the preferred procedure of procurement.
Procurement of Open Tendering

Invitation to bid shall be advertised in at least one times in a national newspaper of

general circulation which is published in the language the bidding document is
prepared. A part from containing the following particulars, the invitation to bid shall
be prepared in accordance with the standard bidding document to be developed by the
Agency.
Procurement by Restricted Bidding

Procurement made by means of restricted tendering shall be carried out in compliance with
the following rules. The invitation to bid shall be sent directly to the address of the candidate
and if the required object of procurement is available only with limited suppliers, the
invitation to bid shall be sent directly to the respective addresses of those suppliers; at least
five candidates shall be selected in a fairly manner from the suppliers list if the value of the
procurement falls within the threshold. The total contract value of a procurement made by
restricted bidding in accordance with article

49.2 of the proclamation shall not exceed the following

a) for Procurement of works Birr................................2,000,000.00

b) For Goods Birr............................................................500,000.00

c) For Consultancy Service Birr.....................................300,000.00

 d) For Services Birr..........................................................400,000.00

Procurement Administration Practice of ECSU.

As we know the main objective of procurement department is providing uninterrupted supply

of items to the organization. As a regard the procurement department play a great roll by
supporting the overall operation of the university, there is also a gap relating to achieving
efficiency, effectiveness and value for money, and administering the procurement practice
effectively.
ECSU purchased items from frame work agreement. Framework Contract mean a general
agreement of procurement establishing unit price and other terms and conditions of contract
which serves as a basis for supplies to be delivered under future specific contract. Items
purchased from federal procurement and property disposal agency through frame work
agreement include, those common user items like furniture, stationery items, cleaning and
sanitary items, electronics (desktop computer, laptop computer, scanner, copier machine
etc.), uniform, types for vehicle and insurance service are the prominent one. The university
procurement department, purchase all items which is not included by framework agreement
and needed by user. When we see the practice of ECSU relating to framework agreement, it
is not as such beneficiary from frame work agreement. This is mostly the problem of the
university. The university expected to collect need requisition from user and preparing annual
buying plan. In ability to identify need and sent annual buying plan to
Procurement agency lead stout of quota from frame work agreement. The procurement
agency invites international competitive bidding by considering the collected needs from all
users. At that time, procurement agency can’t serve ECSU. Because the buying need is not
present to the agency. As a practice the procurement agency communicate with supplier and
if the supplier is the capability to respond the needs of the university and accept the purchase
order, the procurement department load and deliver items from the seller warehouse. This
leads to additional expense to the university. In a sense, if ECSU sent annual buying plan to
procurement agency on time, ECSU is beneficial. Because the framework agreement supplier
deliver items to the university warehouse. This responsibility is included from frame work
agreement. ECSU purchase different laboratory equipment and other machinery or items by
investing a large amount of money through domestic and international competitive bidding.
After all the items are procured by making advance payment and other costs, the item is
placed on corridors and workshops without use for more than two years. as a reason, this is
because of the building. The university building is not suitable to install this lab equipment
and machinery. When they intend to modify the building, this also requires additional cost
and loss efficiency, effectiveness and value for money. Also for those items purchased by the
framework agreement, the procurement department purchase only those items presented by
frame work agreement supplier, without considering individual buying un it need
requirement. The government allocates a large budget to public procurement. In order to
enhance efficiency, effectiveness and value for money the university procurement department
purchaseonly needed and usable items. The users also complain about quality of purchased
items and price of purchased items.
Conceptual Frame work of the Study.

According to Mathieson,(2001),a conceptual frame work is a written or virtual product that

explains, either in narrative or in graphically form, the main things to be studied, the key
elements being variables, concepts and the presumed relationships among them. Conceptual
frame work, according to (Stratman&Roth,2004),are structured from a set of broad theories
and ideas that help a researcher in properly identifying the problem they are looking at, frame
their research questions and find suitable literature. Specifically, the study sought to assess
the procurement practice on Ethiopian Civil Service University.

Fig.1.Conceptualframeworkofthestudy.

Independentvariabl

Procurement process management

Procurement planning
procurement method and their application

Institutional procurement structure

Centralized procurement
Decentralized procurement
Hybrid system

Dependent variable
Institutional performance
Institutional capacity Quality service
Competency of procurement staff Customer satisfaction
Use of information technology(eprocurement) Value for money
 CHAPTERTHREE:

RESEARCH METHODOLOGY

Research Type Approach.

The proposed study employed a descriptive type of research design. The researcher has tried
to survey and involve fact finding enquiries of procurement practice. The major purpose is to
describe the current state of procurement practice Ethiopian Civil Service University. So the
study was used both qualitative and quantitative research approaches, and this help the
researcher to investigate and answer research questions effectively.

Data Analysis

The Data analysis for this study is finance and procurement directorate and users of the
service from different section of Ethiopian Civil Service University. The reason behind this is
due to that finance and procurement department are directly responsible in the management
of public procurement.
Sampling Technique.

The main objective of the study was to assess the procurement management practice of
ECSU. The total population of the study is 451, administration staff only. This study used
non probability of purposive sampling. Non-probability purposive sampling technique does
not give equal chance. The sample units are selected at the discretion of the researcher. The
reasons behind for selecting such techniques were:-It enables the researcher freely select any
respondent that he/she thinks best to fit the question.
Sample Size Determination
In order to get reliable and additional information it is better to discuss personal interview
with managers and senior to gain insight about procurement administration practice. Hence,
managers and senior officers were appropriate to elaborate a qualitative aspect. The total
number of respondents selected is 60.Out of this 35 questionnaire are distributed to
procurement and finance department and the remaining 25 questionnaires are distributed too
the administration staff. But the returned questionnaires are 32 from procurement and finance
department and 22 from
No Population Low Medium High
1 51- 90 5 13 20
2 91-150 8 20 32
3 151-280 13 32 50
4 281-500 20 50 80
5 501-1200 32 80 125
6 1201-3200 50 125 200
7 3201-10000 8 0 200 315
8 10001-35000 125 315 500
9 35001-45000 200 500 800

Users .The participants were selected purposively based on the criterions suggested by
Carvalho of sampling procedure. The sampling criterions are listed in the below table,

Table3.3. (Carvalho,1984).
Table1:Sample Size Selection , (Carvalho,1984)
 Sources of Data and Collection Techniques.

The study used both primary and secondary source of data to achieve its
objective. To collect relevant data for this type of descriptive research structured
questionnaire and personal interview was conducted. In addition, secondary data
was collected from books.
Method of Data Analysis and Interpretation.

To conduct this research both qualitative and quantitative data was collected, and
analyzed according to its type. Mean and standard deviations are calculated to show the
participant response and to assess the procurement practice of ECSU and challenges
relating to procurement. The data was finally interpreted based on statistical findings.
After the data is analyzed, the data was been interpreted clearly and unbiased of result
and appropriate recommendations are made.
CHAPTER FOR

BUDGET AND SCHEDULE

time schedule
No Activities Jan Feb Mar April May

1 Data collection x X
2 Further literature review X X

3 Data processing and classification x

4 Data analysis and interpretation X X
5 Typing analyzed data on the ordinal X
Paper
6 Final paper submission X
 Budget
No Description Measurement Unit cost Total cost
Birr Cent Birr Cent
1 Transpiration Distance 200 00 200 00
2 Paper Package 300 00 300 00
Typing Ream 150 00 150 00
Binding 10 00 20 00
Pen 10 00 10 00
Pencil 5 00 5 00
Paper (Questionnaire 40 00
duplicating)
Miscellaneous expenses 100 00
Total 835 00
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