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CERT MBA IN PROCUREMENT,

LOGISTICS AND SUPPLY CHAIN


MANAGEMENT

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by

PHIDELIS EBLEDZI -
Accredited CILT Lecturer

(HND P/S, MILT, MISM, MBA Logistics Management)

Managing Partner
Integrity Logistics and Educational Consult

0240999639/0267300177
lifeide76@gmail.com

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LEARNING OUTCOMES
The main aim of this session is to provide participants with an in-depth
knowledge of logistics and supply chain management. Specifically,
participants will be able to:
identify and discuss a range of logistics and supply chain management
practices applied across different industries and geographical
situations;
appraise the linkage between business strategy and purchasing
strategy; and
appreciate how logistics and supply chain management can be applied
both strategically and practically in an industrial organizational
context.
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Outline of Presentation
This presentation covers:
Overview of logistics and supply chain management
Procurement
E-procurement
Contract management
Professional ethics

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Methods of
Presentation
It is a 6 hours presentation.

Participatory and interactive approaches will be used to

enable participants to share their experiences. Also, adult

learning approach will be adopted.

Small groups may be employed for group exercises.

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RULES

You are expected to behave in a professional


manner.
All mobile phones should be off/silent.
Lectures start promptly.

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Overview of Logistics and Supply Chain
Management
Logistics is the process of planning, implementing, and controlling the
efficient, effective flow and storage of goods, services, and related
information from point of origin to point of consumption for the purpose of
conforming to customer requirements (Council of Logistics management).

The principles underpinning logistics is the effective flow of materials and


information to meet the requirements of customers.
Logistics management must balance 2 basic targets:
quality of service; and
low cost.
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Key Components of Logistics
The key logistics activities include:
Customer service and order processing;
inventory control;
materials handling;
Transportation ; and
Warehousing (Frazelle, 2002b).
These core activities contribute to the total cost of logistics or they are essential to
the effective coordination and completion of the logistics task.

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Overview of Logistics and Supply Chain
Management
The supply chain includes all activities Contd
associated with the flow and
transformation of goods from the raw materials stage to the end user (along
with the associated information flow).
The key players in a supply chain are:
suppliers/vendors;
manufacturers;
Wholesalers/ retailers; and
customers

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The Scope of Logistics and Supply Chain in
Business
Logistics and supply chain in a business aim to the following

contributions:
achieve maximum customer service level;
ensure high product quality;
achieve minimum (possible) cost; and
be flexible in the constant market changes.

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Procurement
The term procurement is often used interchangeable with purchasing.
Procurement is much broader concept than purchasing process of obtaining goods or
services in any way including hiring, leasing, borrowing; and taking account of whole life
costs.
Procurement covers the totality of acquisition; starting from the identification of a
requirement through to its disposal at the end of the product life cycle. Its relates to
goods, works and service(s) requirement.
Purchasing describes the process of buying: learning of need, locating and selecting a
supplier, negotiating price and other pertinent obtaining or acquiring goods or services in
return for monetary or equivalent payment. It consists of activities such as ordering,
expediting, receiving and payment.
Purchasing is just one component of the wider function of procurement.
Procurement therefore goes beyond just acquisition.
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Basic Objectives of Procurement
The basic objectives for good procurement is obtaining the:
right quality goods, works or services;
in the right quantity from a reliable source;
delivery at the right time and;
delivered to the right place;
paying the right price whilst achieving value for money (VFM);
the right way (i.e. in line with the Public Procurement Act and in
an ethical manner) and
with consideration to rights (for example, labour standards in
construction contracts).
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General Objectives of
Procurement

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Types of Procurement Set-up
Procurement can be set-up in three ways:
Full centralization: Procurement is fully centralized when all the
relevant decisions (what, how and when) to purchase products,
whether by competitive tendering procedures or by negotiations, are in
the hands of a company headquarters or a central public unit
dedicated to buying products to satisfy the needs of the company or
public offices.
Centralization can help reduce costs, even considerably, with its benefits
essentially being due to (i) synergies (economies of scale, no effort
duplication), (ii) specialization, and, (iii) knowledge and resource sharing.

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Types of Procurement Set-up
Contd
Full decentralization: This is when divisions or local administrations
are delegated the power to decide how, what and when to procure.
This set-up responds quickly to the needs of their individual units than
centralized purchasing and they are aware of differing local needs.
Where locations are widely dispersed, it may be able to save on
transportation costs by buying locally, which has the added attraction of
creating goodwill in the community.
However, there will be a lack of compliance on national purchasing
contracts apart from high transaction costs as a result of a large supply
base.
Sometimes, the same or similar items can be obtained at different price(s).
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Types of Procurement Set-up
Contd
Hybrid models: In between full centralization and full delegation, there
is a wide range of intermediate procurement models where central and
local purchasing units share the power on purchasing decisions.
This set-up permits individual units to handle small and rush orders whilst
centralized purchasing handle high-volume, high-value items
The extent of both policies may be given in terms of thresholds

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Factors that Influence Procurement
Set-up
Regardless of the sector (public/private ) organizations have to consider the
following factors to guide the choice between the two possibilities -
centralize procurement (in the hands of a single body) or decentralize
(divisions/branches and local public administrations).
efficiency: savings and cost control;
product standardization;
favouritism;
strategic procurement;
network effect and standards;
market dynamics;
emergencies;
decision information costs;
bargaining power;
mmonitoring contractors performance;
e-procurement.
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The Procurement Process
The procurement cycle is more or less a road map of the activities within a
procurement function.

It establishes key activities required at every stage of the


procurement process while at the same time providing a benchmark
for the monitoring and evaluation of the process by procurement
monitors and evaluators.
The procurement cycle model emphasizes activities occurring within
the entire supply chain and not just procurement cycle below:

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The Procurement Process
Contd

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Methods of Procurement
The various methods of procurement are detailed below:
Competitive/restricted/2-stage tendering;
International/national;
Request for Quotations or Single Source Procurement; and
Request for Proposals for consultancy services

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Specification
Specification can be defined as "a statement of needs to be satisfied by the
procurement of external resources.
It therefore defines what the purchaser wishes to procure or acquire and,
consequently, what the supplier is expected to provide.
Specifications communicates:
what to buy;
prospective suppliers understand what is required
a basis of the resulting procurement contract/purchase order; and
establishes the standard against which inspections, tests, and quality
are made.

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Approaches to Specification
Basically, there are two approaches to specification:
Conformance specifications - strict technical specifications laid down by the
buying organization in a clear and unambiguous terms, e. g. items for incorporation
in an assembly, chemical product etc.
Performance specifications a clear identification of the purpose, function,
application and performance expected of the supplied material (requirement) or
service. In this case, the specification is in the hands of the supplier. Therefore, it
allows for a wider competition because the supplier can suggest new or improved
ways of meeting the requirement.
Specification shall be based on the objective, technical and quality characteristics of the
goods, works or service to be procured.
This could include drawings, plans and design that provide the technical or quality
characteristics of goods, works or services to be purchased
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Types of Specification
There are many different ways of specifying requirements and they vary
from industry to industry or in different environments,
Technical specs - define indicative technical and physical characteristics of a
product in relation to physical dimensions, capacity parameters, input and output,
chemical formula, printing format, type of material to be used in manufacture, the
location and purpose among others.
Functional specs - state the function(s) to be performed by the product, for
instance, .machine tool, a medical operating block, automated records keeping
system.
Performance specs - describe the performance expected of the requirement
(item/service), example, a compressor, a meat grinder suitable to grind three
kilograms of fresh meat trimmings per minute through a cutter plate with 0.25cm
holes.
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Examples of
Specification
performance specifications;
technical specifications;
functional specifications:
physical properties;
commercial standards;
design specifications;
engineering drawings;
material and method-of-manufacture specifications;
brand or trade names;
samples; and
market grades
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Importance of Technical
Specifications of itemsSpecifications
have to correspond to these objectives in accordance
with basic procurement principles:
define with precision and clarity the products, works, services or
performance capacity which the buyer wishes to procure;
drafted in a manner that they will promote competition; and
enable the purchaser to compare and evaluate tenders in an objective and
transparent manner, since the products, works or services proposed by the
tenderer in its tender must substantially comply with the specifications.
In situations where organizations find it extremely difficult to prepare technical
specifications, they should engage the services of experts (this should be done at
the initial stages of the project preparation) to prepare satisfactory specifications
for them.
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Writing of Specifications
The following factors and characteristics should be considered when writing
specifications:
A description of the goods to be supplied;
The out put required, in amount and quantity (and where appropriate, related
to time);
Quality and performance standards to be achieved;
When and how the performance of the product will be measured in
quantitative terms;
Any ancillary services, e. g. training, maintenance, that will be required after
delivery; and
If the contract is for periodic supply of products.

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Characteristics of a Good
Specification
A good specification should have the following characteristics:
state the requirement clearly, concisely, logically and unambiguously;
contain enough information for potential suppliers to decide and cost the
goods or services they will offer, but contain only the essential features or
characteristics of the requirement;
state the criteria for acceptance of goods and services and permit offered
goods or services to be evaluated against these criteria;
Provide equal opportunity for all potential suppliers to offer a product or
service which satisfies the needs of the user;
Use internationally recognized standards and;
Comply with any legal obligations.
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Group Discussion
Using the three types of specifications, write a detailed specification for the
bicycle below:

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The Role of Procurement Officer
During development and review of the specification, the role of the
procurement officer is to:
provide expertise in procurement procedures and practices;
Advise on the most appropriate type of specification and on any legal or
other constraints; provide access to existing specifications;
Assist with market research;
develop contractual clauses to complement the specification; advise on
improvements to the specification.

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Criteria to Assess Compliance of
Tenders
What ever methods are used to define the requirement, criteria to assess

compliance of tenders with the specification will be required.

These may include inspection, testing, performance criteria and should be

developed in parallel with the specification.

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Group Discussion
Using the three types of specifications, write a
detailed specification for a 4 x 4 pickup that your
company is planning to purchase.

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Sourcing Strategy
The common sourcing strategies to adopt are:
Competitive or adversarial model; and
Partnership sourcing model.
The main features of competitive or adversarial model are:
An arms length nature , formal communication approach rather than
personal contact;
Short-term competitive sourcing approach;
Lack of trust;
Aggressive, win-lose approach in negotiations price focus;
The main characteristics partnership sourcing model include:
A high frequency of both formal and informal communications;
Relatively restricted or closed in its relationships;
Open sharing of information by multi-functional teams;
Long term business arrangements; and
Driven by considerations of total cost, quality and delivery.
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Sources of Supply
The various sources of supply include:
registered suppliers;
existing suppliers;
trade sources or website; and
pre-qualification or expressions of interest.

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Supplier Relationships
An adequate supplier base is essential to the economic well being of a firm.
The type of relationship between the supplier and the purchaser is often
linked to the length of a contract.
The commonest types of supplier relationships are detailed below:
Short term - This tends to be adversarial, one-off, no relationship
building, minimum commitment.
Short to medium term - It includes negotiation, collaborative, and
relationship building.
Medium to long term There is increased emphasis on
relationship and service benefits.
Long term The parties involved in the relationship work towards
partnership approach, relationship critical, shared ideas and
objectives.

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Benefits of Long-term
Relationship
The type of relationship between the supplier and the purchaser is often
Development of mutual trust;
It provides an opportunity for buyers to evaluate which suppliers
should receive longer-term contracts;
An incentive for a supplier to invest in new plants and equipment;
It leads to joint development of technology, risk sharing and
identification of problems and offering solutions;
It brings about improvement within the supply chain with purchasers
focusing their cost-cutting and quality improvement goals;
Supplier flexibility in terms of accepting changes in productive
specifications, delivery schedules, quality, and quantities;
Improvement in quality and increased delivery speed and reliability
Improved operations including fewer inventories, lower costs; and
Joint information sharing on forecasts, sales data, problem alerts.

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Supplier Assessment
Supplier assessment and appraisal can be undertaken by a combination of
the following:
Desk research; and
Field research.

The following are the original 7 Cs for supplier selection:


Competency - all staff, all the time (requires evidence);
Capacity - sufficient and flexible;
Commitment - to quality (quality systems);
Control - control of process;
Cash - sufficient funds for the business;
Cost - cost/price relationships and total cost of ownership; and
Consistency - consistent production of goods or services (ISO
9000).

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Supplier Assessment Contd
Apart from the original 7Cs, some buyers/procurers/purchasers
apply the following three additional Cs to their supplier assessment
criteria;
Culture - compatible with similar values;
Clean - environmentally sound (conforming with legislative
requirements); and
Communications - the supplier is fully integrated with
information and communication technology (ICT).

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Supplier Development
Modern thinking on supplier relationships has been influenced by a number of
factors, but above all by the urgency of achieving total quality in delivering of
products and services.
An adequate supplier base is essential to the economic well being of a firm.
Supplier development (SD) is defined as any activity undertaken by a purchaser
to improve a suppliers performance and/or capabilities to meet the purchasers
short to long term goals (Monczkaet al., 2002).
It requires total commitment of a firms resources, thus technical support,
quality, training, and supplier facility visits by management among others.
The rationale for undertaken supplier development is either to:
Improve existing supplier performance capability or
Develop new performance capability.
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Supplier Development Contd
Lenders and Fearon (1999) indicate that contrary for certification of
suppliers, there is a general believe that the criteria used by one
company to develop suppliers may not be satisfactory with others.
They therefore suggested the use of standard Institution, for example,
British Standard Institute (BSI), and International Standard
Organization (ISO) 9000 among others.
However, the use of standards have been criticized because standards
once given takes time for review therefore frequent visits and
companies own review is highly recommended

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Elements of Supplier Development
Strategy
The elements of supplier development strategy include the following:
Sourcing strategy;
Analysis strategy ;
Communication strategy;
Infrastructure strategy;
Motivation strategy;
Standards strategy ; and
Development strategy.

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Ways of Developing a Supplier
The supplier base is especially critical in high technological industry and in
industries where scarcity of raw materials and components are a potential
occurrence and hence the need to develop suppliers.
Therefore, it is important for the buyer/procurer to obtain information on
the suppliers capabilities, resources and product line for analysis and
decision to be taken on the possible areas of development and corporation.
The support for development may take one or all of the following areas:
Management support advice on production scheduling, planning
and control;
Extension of financial support granting of loans for purchases of
equipment for special payment arrangements.
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Ways of Developing a Supplier
Contd
Purchasing assistance placing the purchasing facilities of the
buyer at the disposal of the supplier and vice versa. E. g. hiring,
leasing or giving freely to the buyer, equipment to support suppliers
production process.
Shared facilities inspection equipment for quality.
Supplier development might come in one or all of the following practices:
Early supplier involvement (ESI);
Single sourcing management decision to use one supplier for the
supply of components, parts, raw materials, goods and services; and
Reciprocal buying the practice of buying from suppliers who are
also customers.
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Risks of Changing a Supplier
Out of the frying pan into the fire - the new supplier is not able to
meet targets, for example, price, quality, and delivery among
others;
Having to return to original supplier and renegotiate contract;
Losing the benefits of a long-term relationship; and
Risks are usually greater for a strategic critical supplier than a
tactical one.

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Electronic Procurement (E-
Procurement)
Globalization and increasing pressures from customers, competitors and
dynamically volatile markets has meant that many organizations are
rethinking their strategies in order to maintain their competitiveness.
E-procurement is when businesses sell products or services to other
businesses. It is also referred to as business-to-business (B2B).
E-Procurement involves business transactions between organizations.
This sector involves both upstream and downstream business partners of
the chain, and therefore contains a variety of elements which are not
applicable to the business-to-consumer (B2C) market.

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Key Elements of E-Procurement
Nowadays, e-procurement accounts for a significant amount of
maintenance, repair and operating systems (MROs).
E-tendering - sending requests for information (RFI) and prices to suppliers
and receiving the responses of suppliers using internet technology.
Hubs, where several networks can be connected together.
Exchanges, a B2B website where buyers and sellers meet to transact
business.
E-catalogues facilitate real-time, two-way communication between buyers
and suppliers and allow for improved vendor relationships through
improved vendor services and information to purchasers

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Key Elements of E-Procurement
Marketplaces, vertical Contd
or horizontal e-markets, either
supplier/purchaser owned or neutral.
E-catalogues facilitate real-time, two-way communication between
buyers and suppliers and allow for improved vendor relationships
through improved vendor services and information to purchasers.
E-auctions.
Reverse auctions

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Automated Process
Some of the automate processes used in e-procurement include:
Electronic Data Interchange (EDI);
Bar code;
Electronic Point of Sale (EPOS);
Automated payment schemes , e. g. BACS, CHAPS.

Other ways of exchanging information in e-procurement are:


Video teleconferencing;
Data sharing ;
Document sharing;
Shared whiteboards;
Chat;
Instant messaging ; and
Bulletin boards.

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Benefits of E-Procurement
E-procurement increases speed and efficiency by reducing the cost of
human resources in purchasing offices and administrative (time-consuming)
paper-based procedures.
It also allows the buyer to employ a large variety of procurement tools such
as requests for quotation (RFI), on-line auctions and many other e-sourcing
solutions.
Improved information flow and service.
Reduced transaction costs.
The ability to aggregate purchasing across the organisation.

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Contract Management
Contract Management is the monitoring and control of performance,
reviewing progress and making payments, recommending
modifications and approving contractors actions to ensure
compliance with contractual terms during contract execution.
In relation to goods, works and services, contract agreements are
usually supplemented by contract documents which spell out what is
expected of the parties to the contract and how the contract will be
managed.

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The Management of the Contract

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Contract Management Context
Contractual agreement -may be part of a wider project or linked to other
contracts;
It could cover goods, works or services;
It is linked to wider objectives, example, delivery of a project or public
services;
It has a budget, time constraints and targets;
It is essential to avoiding risk; and
Requires effective management to reduce inefficiencies and opportunity for
corrupt activity.

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Elements of Contract
Planning Management
and enforcement (that is following procedures);
Setting up of roles and responsibilities;
Identification of risks and responses;
Setting of standards and monitoring;
Approvals and acceptance procedures;
Payment and progress; and
Review and report.

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Factors to Consider in Contract Management
Administration ;
Management and approvals;
Monitoring (for example, financial, time, quantity, and quality);
Variations/changes/risk -impact/justification/approvals;
Evidence of completion;
Payment; and
Problems and disputes .

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Approach and Tools Used in Contract
Management
Systematic - checklists, records, spread-sheets, cash flow,
calendar, project plans, critical paths, regular reviews and
reports.
Active - expediting, inspection, appointment of independent
engineer/supervisor, stores management and stock control
Team - clearly defined roles and responsibilities (administration,
control, management, and review).

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Challenges in Contract
Management
Lack of knowledge and understanding of the contract management
context , scope and processes;
Corruption.
Lack of understanding of risks;
Lack of preparation and inadequate records;
Failure to communicate;
Lack of commitment, accountability and responsibility;

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Challenges in Contract Management
Contd
Lack of will to enforce contractual provisions (example, liquidated
damages and interest payment clauses) by parties.
Lack of resources for effective follow up.
Inaccurate assumptions/unexpected events;
Mistakes in supervision and management;
Changes in needs after work is understood;

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Ways of Reducing Problems in the
Contract
Skills development and professionalization.
Adherence to procedures and clear understanding or contract
management process.
Early detection and communication.
Clear roles and responsibilities.
Regular reviews of programme.
Agreed procedures for change.
All parties fully informed of action being taken.
Sharing lessons learned

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Effective Contract Management
Effective management of contracts is essential to ensure that the
objectives of the procurement process are achieved and that all
contractual obligations and activities are completed efficiently by both
parties to the contract.
Effective contract management will:
ensure value for money once contract has been awarded;
Improve effectiveness and efficiency in the management of
public procurement;
Enhance credibility of the procurement function;
Minimize risk to procurement entities and the Government of
Ghana

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Professional Ethics
According to the Chartered Management Institute
(formerly the Institute of Management) (Cole, 1996)
a code of ethics is: a set of moral principles or
values, used by organisations to steer the conduct
both of the organisation itself and its employees.
a set of moral principles or values, used
by organisations to steer the conduct both
of the organisation itself and its
employees, in all their business activities,
both internal and in relation to the outside
world.

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Professional Ethics
Purchasing staff are the representatives of the organization in its dealings
with suppliers.
Purchasing ethics is concerned with the moral principles and values which
govern belief options and decisions of the professionals.
The CIPS ethical code stipulates that:
Members are forbidden to use their position for personal gain, and
should maintain an impeachable standard of integrity in all their
business relationships both inside and outside the organization in
which they are employed.
Members much comply with the laws of the country in which they
practice.
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Professional Ethics Contd
Members should reject any business practice, which might
reasonably be deemed improper.
Members should disclose any personal interest that might impinge,
or appear to impinge on their impartiality.
Members must respect confidentiality of information.
Modest hospitality is acceptable, but members should avoid
position where they might be influenced or appear to be influenced
in the impartiality of their decisions.
Members should foster the highest possible standards of
professional competence amongst those for whom they are
responsible.
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Unethical Behaviour in
Procurement
Gift and hospitality This is perhaps the most common problem area of all.
Stealing
A market is misrepresented by a buyer who places in competition the prices
of seconds, odd lots, or distress merchandise.
Competitive bids are obtained; disclosure of one firms bid to another could
well lead to a lower overall price.
Bids are solicited from unqualified suppliers whom the buyer would not
patronise in any case.
Providing information to suppliers, e. g. leaving copies of bids, or other
confidential correspondence where a supplier can see them.

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Assignment
1. (a) State and explain in detail the interests of FIVE (5) external
stakeholders that a procurement function might need to consider [15
Marks].

(b) Describe THREE (3) ways in which contract management can add
value after the contract award stage of the sourcing process. [10 Marks].

REQUIREMENT
Your answer should not ne more than three and a half page (3). All answers
are to be submitted electronically to lifeide76@gmail.com not later than
Friday 20, 2014.
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END OF LECTURE
NICE TO BE WITH YOU

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