Home' Trinidad and Tobago Guardian : October 11th 2015 Contents OCTOBER 11 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
FINANCE | SBG13
In its simplest form, procurement is
defined as the act of obtaining or buy-
ing goods and services.
Households/individuals make buying
decisions every day by managing their
expenses vs income generated in any
given period of time (ie monthly, weekly or
If we spent all that we earned, then there
will be nothing left for emergency expenses,
rainy day provisions or retirement. Thus, it s
important to set aside money for these con-
tingencies, and one of the options available is
investing in financial instruments, like mutual
funds for example.
In a small country such as T&T where,
when and how we buy goods and services is
of particular concern, on an individual, cor-
porate, government and national level. The
purchase of goods and services for pure con-
sumption vs production, can lead to a net
drain on the economy (trade imbalance) espe-
cially when foreign exchange outflows are
greater than inflows.
Additionally, greater pressures are being
brought to bear on the economy because of
our consumption preference for imported ver-
sus local goods and services.
At the personal level, most expenses can be
categorised as either needs or wants. These
needs or wants can be further stratified/dis-
aggregated based on a person s health, lifestyle,
growth objective, saving, investment strategies
for retirement,education, child rearing, etc.
Nonetheless, some people have problems dis-
tinguishing between what is a true need vs a
While these examples may be as clear as
daylight for the average individual, when we
try to apply these principles in the workplace,
things sometimes get lost in the transition.
In the workplace, the procurement process
includes the preparation and processing of a
demand; as well as the end receipt and approval
of payment. Procurement often involves:
(1) purchase planning,
(2) standards determination,
(3) specifications development,
(4) supplier research and selection,
(5) value analysis,
(7) price negotiation,
(8) making the purchase,
(9) supply contract administration,
(10) inventory control and stores, and
(11) disposals and other related functions.
Source: http://www.business dictionary.com /
The process of procurement is often part
of a company s strategy, because the ability
to purchase certain materials will determine
if operations will continue or fail. It should
be noted that a business will not be able to
survive if its price of acquisition (procurement)
is more than the profit it makes on selling the
During times of plenty few individuals, com-
panies, organisations or even governments
take the time or energy to continuously assess
whether their purchasing initiatives are con-
stantly seeking to achieve value for money.
Hence, under good market conditions, policies
and procedures tend to be relaxed in favour
Yet, when economic fortunes change, that
laxity comes back to haunt them, especially
when provisions are not made for rainy days.
As such, the first casualty is normally the
workforce by way of layoffs and non-renewal
of contracts, when revenues fall.
If you accept the adage that "a dollar saved,
is a dollar earned" then the procurement func-
tion is a critical component of sound business
practice and plays a significant role in defining
the disposable income, profit margins and
savings, retained earnings that can be made
available for investments, acquisitions or as
buffer in the event of downturn in the econ-
When purchasing decisions are well exe-
cuted, procurement professionals can earn
their weight in gold. If it s done badly, they
can cripple an organisation or, in extreme cir-
cumstances, lead it to bankruptcy and even
closure of the business.
In the last few years, public procurement
legislation has been at the forefront of national
So let s examine what should and should
not happen in the workplace.
Responsible procurement practices:
The responsible procurement professional
must consider, inter alia, the following issues
when purchasing goods and services:
• Useful life of the product or service (eg
SaaS software as a service).
• Total lifecycle cost of the product or serv-
ice including the acquisition costs, mainte-
nance and disposal costs
• Buying quality may require a higher
upfront cost, but it can yield a lower cost of
ownership in the long term. Hence buying
cheap is not always buying smart.
• Strength and stability of the suppliers
• Quality of the product or service.
• Lease vs buy decisions
• Delivery and expiry dates
• Number of competitors in the market
• Shelf life and rate of obsolescence of the
product or service
• The underlying warrantees and guarantees
that support the product or service
Secondary consideration must be given,
inter alia, to the company s cash-flow, regional
and international constraints for delivery,
local issues (eg strikes), social unrest and
Overall, responsible procurement practices
will be evidenced by competitive and open
tendering process that facilitates the inclusion
of the widest number of competent and
What happens when
things go wrong?
Since the economy is the sum of the con-
stituent parts, the cumulative effect of the
bad procurement can have a negative impact
on the country as a whole.
When goods and services are consistently
bought at prices that are significantly beyond
the usual and customary charges, it will always
have a deleterious effect on the cash flows,
retained earnings (reserves) and foreign cur-
rency available to individuals, organisations
and the government to conduct international
A company may experience supply side
constraints for the timely purchasing of raw
materials, stock and supplies. At the individual
level, a parent may not be able to support a
child studying abroad by paying school fees
on a timely basis.
Therefore, as a precautionary note, the fol-
lowing should be considered as sign posts that
the procurement practices of your organisation,
may not be healthy.
Bad or corrupt procurement
Symptoms of the aforementioned include;
• Badly defined contracts that underpin a
commercial arrangement to acquire goods
• Poorly defined requirements, facilitated
by the use of poor specification, which makes
selection of a predetermined tenderer seem
• Changing evaluation criteria after the ten-
der has been closed, but before an award has
• Using selection criteria that was not part
of the tender documents.
• Paying too much for items, by consistently
ignoring lower internal estimates.
• Use of multiple companies with the same
business address or owners/directors.
• Single sourcing of items when alternative
• Non procurement staff communicating
with vendors about requirements, before or
while a tender/bidding process is open, without
• Tailoring specifications so that only one
client is selected
• Inflating internal estimates and colluding
with bidders to receive kickbacks.
• Undue influence from above or below to
select a particular contractor.
• Shortened tender periods and refusal to
grant extensions of the closing date, despite
a number of requests for extension by two or
While proper procurement principles
should be followed during times of lean and
times of abundance, it would be naïve to
suggest that this occurs in practice.
Now that the national economy is not as
strong as it used to be, because of the fall in
oil and gas prices, a critical review must be
taken of all spending and consumption activ-
Imprudent procurement activities that
occurred when revenues and income were
high, will come home to roost when there is
a drastic fall in revenue and income.
We each have a responsibility to ensure
that the deleterious effects of bad procure-
ment are avoided by taking proactive steps
that will change, in a positive way, how we
Unit Trust Corporation
The importance of
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