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Aung Kyaw Moe / Task 3 Procurement

Memo To: From: Date: RE: Francois Damba Aung Kyaw Moe
29 May 2013

TASK 3 PROCUREMENT

We have a sales contract with Ralem Company for the procurement of sugar and salt at a fixed price but there are still some risks involved in the process of procuring goods. So far, Ralem is continuing to provide us the agreed amount of sugar and salt as per stipulated schedule , therefore there is a little possibility of goods ordered are never delivered and services ordered are not supplied and make default on contract. But according to our Comparative Bids Analysis (CBA) Table, we can see clearly that the price offered by Ralem is not very cheap one since there are other cheaper bidders but we cannot make contract with them by several reasons. In this regards, Ralem appeared as a sole provider of the goods that is completely complied with SCILaids criteria and standards. Therefore there might be the risk that that the price paid for goods and services to Ralem may be too high. We have to consider about it in next bids and must try to organize other suppliers to compete on the same standard and conditions. There is also another risk that the wrong goods or goods that dont meet agreed specification will be delivered or the service provided is not acceptable, but we have done thorough and professional Pre-delivery Inspections and quality control tests of the supplies Ralem provided to us. So far we have been dealing with Ralem, they supply the sugar and salt as per agreed specifications. But we must be always careful about that. Now we are near to the end of this contract and Ralem delivered the supplies on time, but we still have problem of packing we need to change the size of packing from 1 Kg to 25 Kg bags for more efficient distribution and we need to relate more with the Ralem people to reach our desired goal. Because of the nature of SCILaid programmes can bring specific procurement risks. Some are due to the bureaucratic nature of the process for approving activities and agreeing budgets that can prolong unnecessarily the time to carry out the procurement process. When the planning part of procurement takes too much time that will affect on the process of procurement. Sometimes, the complexity of programme has difficult specification and changing of the specs can happen after just short notice. But we can handle that kind of risk because we can clearly specify about our supplies in comparatively detailed specs and Ralem can follows what we need. Another point is that the urgency of our supplies to 3 camps to distribute requires the procurement process to be carried out quickly. So time is also another factor in our list of risks. According to our learning materials, there are four types of Risk and four types of Usage as defined below:

4 Types of Risk 1. High risk, high spend These items rank high in the Pareto analysis of spend but are also difficult to source probably due to low numbers of suppliers. There needs to be a concentrated effort to secure supply of these items, particularly if there is competition and a shortage of supply. 2. High risk, low spend These items would not rate as important when analysing spend alone, but due to difficulties in sourcing there would need to be concentrated effort to secure supply of these items. 3. Low risk, high spend There would be a need to create competition in the market place for these items to drive down price. 4. Low risk, low spend Minimal effort would need to be applied to sourcing these items due to the relatively low impact purchasing can make on reducing costs. 4 Type of Usage 1. High risk, high usage These items rank high in the ABC analysis of usage but are also difficult to source. As with high risk, high value items, it is essential to concentrate effort on securing a supply of these items particularly if there are a low number of suppliers. Effort needs to be put into identifying new sources of supply. 2. High risk, low usage Usage is very low on these items but they are vital to customer service. Even though usage is low, it is essential that these items can be made available to customers when they are needed. If we dont hold stocks of items, it is important to have suppliers who can respond quickly to orders. 3. Low risk, high usage These items are easily sourced but due to their recurrent use require a guaranteed supply. 4. Low risk, low usage These items do not pose a risk in terms of sourcing and have little stock turn. Procurement effort and time should be put into other items before these items. If we cross-check with these above mentioned types of risk and usage, our supplies provided by Ralem is matched with the Third Type of risk and usage. We have to spend a lot of budget for procurement of these supplies which are the staple food of our beneficiaries, but the type of supplies are of low risk category since they can be easily sourced and we can have many potential suppliers to get our prices down. This is very important analysis that for next year bidding we should not contented with Ralem but we have to organize previous other companies to compete on the same ground of specifications, terms and conditions and mode of currency of payment. How to manage these Risks 1. 2. 3. 4. Identify the risk (Type and characteristics of risk) Analyze the risk (source and immediate causes, and potential tools of control) Inform Customers about the Risk (types of risk, impacts of risk and Identify a strategy to control risk that will consist of: (a) Procurement strategies. Depending upon the type of supplies we have to procure, we can decide on the procurement strategy. Since our supplies are food product and need timely delivery, we have to use regular sourcing rather than trying to test a new one. (b) Procurement process, procedures, rules and guidelines. In order to avoid risk, we should use standardized procurement process and procedure, in-house rules and guidelines. In this way, there should not be any delay in process and that can guarantee the transparency of process in which any form of fraud and abuse can happen.

(c) Legal contract We have a formal legal procurement contract with Ralem Co Ltd that can reduce certain risk. This contract clearly mention the type and quantity of supplies SCILaid want to buy from Ralem and all detail information about delivery schedule and location to deliver, added up with other terms and conditions such as delay in offloading. In this way both parties can see clearly the respective responsibilities and accountabilities. (d) Ethical standards To our knowledge, it is not so sure that Ralem is following the expected standards of code of conduct of the reliable and sincere supplier who behaves in the way of Good Business Practice. So far related with this company, there are still no clues of frauds and corrupt practices in supplying goods to us. (e) Role of procurement. Our Procurement staff must be involved early in the assessment process of our SCILaid aid operations in order to reduce the risks of: 1. Late supply 2. goods and services not meeting the needs of the customer 3. The goods and services are not over-specified and specifications are paid for those are not needed. By using these above-mentioned strategic components, we can reduce the undesirable risks factors in our procurement process. Best Regards, Aung Kyaw Moe Logistics Officer Sub-Office (SCILaid Betaland)