Ask the Expert - Sourcing - Fundamentals 3 July 2020

Ask the Expert - Sourcing Fundamentals Q&A

Q 1 - Does market research make any sense when sourcing during this COVID-19 Pandemic?

A – Yes, Market research is important since it enables us perform a SWOT Analysis of our business environment. It identifies the types of markets available for example, competitive, Oligopolies and monopolies. It is an integral component in managing your purchases and is crucial to effective procurement. The research enables us to answer:

• What to buy
• Where to buy it from
• When to buy it
• What price to pay
• How to buy it

However, it is possible and feasible to carry out the market research process under normal circumstances. Under the Covid-19 situation we know what we want to buy and it will be faster and reasonable to buy it from the existing suppliers or from available sources. We are dealing with an unprecedented circumstances where our negotiation power for better pricing is also dented. Suppliers are experiencing difficulties in sourcing and financing materials. Delivering the supplies is even harder due to travel and health restrictions.

Q 2 - What are some of the challenges buyers are likely to face when they try to shift their sources of supplies during this pandemic?

A – Shifting sourcing would be the most tempting thing to do considering the panicky circumstances created by the pandemic. However, it comes with a lot of risks and delays. The risks include dealing with new suppliers on whom you may have little or no time to carry out background checks. Some new companies have sprung up whose core competence is not production of PPEs but are now producing them because there is demand and they have to remain afloat. This is likely to lead to quality challenges that may exacerbate an already bad situation. We have car-makers diversifying their production lines to produce ventilators but may not have the capacity for after-sales support. Switching may also mean ending existing contracts which may lead to disputes or litigation in worst case scenarios.

Acquiring new sources means subjecting them to the vigorous pre-qualification processes beyond the background checks. These include their ability to meet any of the following:

• Provide the required goods and services
• Economical or cost effective prices
• Meet delivery deadlines and other delivery requirements (deliver to specific address, use certain packaging, etc)
• Provide installation, training, maintenance
• History of prior performance
• Unique ability

Additionally,

• A legally registered entity
• Financially sound
• Reputable
• Technically competent
• Comply with labour requirements and other operating laws
• Quality reputation
• Etc

Q 3 - Is there supposed to be a contract of duties between health specialist and a procurement officer in choosing supplier OR there should be an engagement plan between the two departments to avoid disputes of duties on an appropriate supplier to choose?

A – In most organisations, there is an internal control mechanism, as part of the financial rules and regulations, that defines the duties between a health specialist and a procurement officer. This is the Segregation of Duties (SOD). It defines the split of roles and tasks between different departments in order to reduce the likelihood for fraud and error, but also conflicts.

A large majority of organisations separate the requisition, procurement, and finance functions, and best practice encourages also splitting the technical and commercial evaluations. It is good practice to separate the determining of the need (e.g. the requisition or equivalent, specification, budget, etc.), the undertaking of the procurement (e.g. sourcing and commitment), and the financial authorisation (e.g. authorising payment, invoicing).

Several case studies in public sector1 (governments in both developing and developed countries e.g. Austria, Germany, and many other countries; International Financial Institutions e.g. UN, EU, OECD, Development Banks) demonstrate a clear consensus around the importance to separate the requisitioning entities (entities that require specific goods and services) and the procuring entities (entities that source suppliers and place purchase orders). It is strongly encouraged to conduct the technical and commercial evaluations of procurement exercises separately and to recommend independently suppliers for contract award. This prevents conflict of interests and undue influence. Organisations with a mature procurement function and sufficient staff resources hire the right expertise for technical and commercial evaluations. Organisations with limited resources ensure at least a separate scoring of technical and commercial offers from suppliers.

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