Introduction to Sourcing

In this podcast we are providing an overview and an introduction to the sourcing process, and how vital it is to your business.  Mo is our HPA Procurement Manager and he is joined by Jane, who is an expert in the procurement and supply cycle.

If you would prefer to review the transcript of the podcast, see below.

Mo:

Welcome to Health Procurement Africa. We are here to support businesses in their efforts to help healthcare services reach more people across Africa. This is why we have created the Knowledge Hub, with all the information you need about procurement and supply in one single place. Our insights and advice can connect you with the people, products and services you need.

My name is Mo and today I’m joined by Jane, who is an expert in the procurement and supply cycle. We shall be talking about the sourcing process and how it can help your business.

Mo: Jane, how do you explain what the sourcing process is?

Jane: The sourcing process is about finding the best possible supplier of products and services that your organisation needs and taking steps to achieve good value for money.

Mo: Where and how does sourcing fit in with the procurement cycle?

Jane: The procurement cycle includes all the stages, from identifying what you need through to contract management. Sourcing only involves a specific number of stages through the cycle. It begins with detailing the specification. You must then find suppliers and look into whether they can meet your requirements, at the right price and with the right quality.

Mo: How important is the sourcing to the overall procurement process?

Jane: It is most important. When you have a good long-term plan for sourcing, you will find reliable, quality suppliers at prices you can afford. Good work here makes the whole procurement process more efficient.

Mo: In your experience, what is the biggest challenge?

Jane: For many, the biggest challenge is finding the balance between the quality we require and the budget we have available.  If you spend less on products and services, you can pass the benefits on to customers and to patients and your organisation will do well. But if your quality suffers as a consequence, because you are using inferior products, your customers will complain and your organisation will struggle. This is not good for anyone.

Mo: What is the best way to deal with this challenge?

Jane: You will succeed if you look at sourcing as a process in itself. There are steps you can take that will make decisions about buying products and services more likely to deliver good value for money for your organisation.

Mo: Where do you begin?

Jane: In my experience it is important, right at the beginning, to know the marketplace  and what your organisation needs. The best way to do this is to speak to the end users in your organisation who will know about suppliers and the options available. They use the products and services you buy and they are the experts who know about the technical aspects of the products and potential sources. You could ask some of your end users what exactly they want from you because ultimately they are the ones using the products you source. It is also a good way to build a better relationship with them. This is positive engagement with stakeholders.

Mo: What happens once you know what you need to source from suppliers?

Jane: Before buying anything, make sure have fully researched the market. Make sure you know what is available and at what price. For example, are there new suppliers in the market? Is there plentiful supply? Are prices likely to go up? It is important that you are able to source what you have specified within your budget. You are having to balance obtaining and optimising the 5 Rights of procurement.

Mo: But you don’t always have much of a choice of supplier.

Jane: Sadly, this is true. But there are still things you can do. For example, maybe you can get a better price if you agree to buy a larger quantity over a longer period of time. Or perhaps you can use different materials from an alternative supplier. What is important is to have the information that allows you to be flexible. The better you are at planning and the more information you have about the marketplace allows you to negotiate a better outcome for your organisation.

Mo: What different sorts of information allow you to be flexible?

Jane: It always best to have more than one possible supplier to choose from. It is good for your existing supplier to know that you will review your purchasing arrangements from time to time, and will talk to other suppliers. Know what the ideal balance of the 5 Rights is for your business and hence find the supplier who can offer you the best mix.

Mo: How do you do this?

Jane: You ask potential suppliers to make an offer to supply their products or services, based on what your requirements are. This is what is known as an ‘Invitation to Tender’, which is a more formal approach, or an RFQ, which is an informal approach. The same request is sent to all potential suppliers, so the offers they make are easier to compare. 

Set a deadline so they know how long they have to prepare their bids. Make sure you give them enough time. This will benefit you as well as them.

Mo: Do you use this same approach for all products and services?

Jane: The basic approach is similar, but each organisation will have to adapt its approach, based on their resources and their requirements. If you are buying capital equipment like a scanner or building a large extension, it is a big investment, so it makes good business sense to spend more time researching the market and evaluating suppliers.

For example, when buying capital equipment a buyer will have a different role than they would if buying more routine items. Capital eqipment needs more technical knowledge so in this case a buyer would contribute by trying to make sure that they get the best possible commercial deal rather than an end user choosing their favoured supplier.

A formal approach, or an Invitation to Tender, is likely to be appropriate. However, if you are buying lower-value products or repetitive materials, such as stationery or bottled drinking water, an informal approach, or RFQ, is good.

Mo: At this stage, do you select the supplier with the lowest price?

Jane: Price is very important, of course. But you also need to be confident the supplier will be able to deliver products or services of the quality you expect for that price. Otherwise, it could cost you more in the long run.

Sometimes a supplier will quote a price that is too low just to gain the business. As a result the supplier cannot deliver on time or to the quoted price. It will then cause extensive delivery problems that cause great disruption to the organisation. For example, if you are buying equipment, how much production time will be lost due to repairs and maintenance? Is it easy to obtain spare parts? You must also consider lead times, as these can have an impact on your stocks of materials.  Do ask the supplier for more information if it will help your decision.

Mo: What is the outcome of the sourcing process?

Jane: The outcome is the contract between your organisation, as the buyer, and the supplier. The contract sets out what is to be supplied to you and on what terms. It is an important document. The obligations set out in the contract should be clear and unambiguous and understood by both sides. Once a contract is signed, it can be complicated and expensive to make changes.

Mo: Does the sourcing process end once the contract is agreed and signed?  

Jane: Once the contract has been signed, the process of contract management begins. This is about making sure that deliveries take place as set out in the contract and that suppliers are meeting performance targets.

It is always important to learn from your experience. Did your approach deliver the right product at the right price? This is something you will find out over time, by using the product and by evaluating the performance of your supplier against agreed targets. All this will help you decide whether you should make changes to your sourcing process next time you need to buy something for your organisation. If your existing supplier did not perform well, then this will affect your approach to using them again in the future.

Mo: How does Health Procurement Africa help companies to understand the sourcing process to improve the way they buy products and services?

Jane: HPA supports companies on this journey, drawing on significant knowledge and experience of procurement and supply. Working together to get procurement and supply right, we are also doing our best to ensure that patients get access to the healthcare they need and that the public sector secures value for money.

If you work in healthcare in Africa and are buying products or services on behalf of your organisation, this is the perfect community for you, where you can start learning, sharing and solving your procurement problems today.