The Contribution of mainstreamed Procurement Practice

Report
By
Niyi Fadipe, FCIPSMN, MCIPS (Lond), MNIM
Chairman, CIPSMN Board of Fellows.
Transformation:
 During 2011-2105, the policies and programmes of
Federal Government of Nigeria are directed at
addressing governance and will focus especially on
the public services, security, law and order, the
legislature, anti- corruption measures and institutions,
the judiciary, economic co-ordination, and support for
private investment.
Federal Government
Transformation economic agenda
 Creation of 3 million new jobs in the economy.
 Increasing Foreign Direct Investment (FDI) inflow by
at least 300 percent by year 2015.
 Improving Ease of doing Business ranking by a
minimum of 103 points.
 Enhancing the corruption perception ranking by a
minimum89 points by Year 2015.
 Improving Nigeria Global Competitiveness ranking by
75 points and growing the country's enabling trade
ranking by 77 points by Year 2015.
Transformation:
This can be defined as a thorough and dramatic change
in form or appearance.
If one keeps on doing the same thing while expecting
different results is a sign of madness, according to the
genius, Albert Einstein.
Transformation plan:
 Develop partnership and secure expertise, forge links
with the World Bank and international financial
agencies, monitor key reform indicators, identify and
implement high – impact quick wins, strengthen and
publicize ongoing reforms and build momentum
across the board.
Transformation:
Transformation is a strong word that portends a radical,
structural and fundamental reappraisal of the basic
assumptions that underlie our reforms and
developmental efforts. The challenge before government
is how to move the nation away from an oil-dominated
economy, institute the basics for a private –sector driven
economy, build the local economy on international best
practices, transform a passive oil industry to a more
pro- active one, and restructure the country along the
lines of more decentralized federalism.
Transformation:
But beyond this, there are management and leadership
challenges to contend with building an efficient and
effective polity, inspiring a shared vision, remodeling a
corrupt polity, building character and integrity in our
leaders , redefining the imperatives of transformation
leadership, and creating the Nigerian dram that will
inspire patriotism and commitment in the citizenry.
( Prof. Benjamin C. Osisioma)
Comment on PHCN
 18 companies emerged from the privatized PHCN.
 6 Generating , 11 Distribution companies and 1 TCN.
 Dayo Salami , Economist and Faculty member at Lagos
Business School stated that we need $3.5 billion to
achieve 40,000 megawatts by Year 2020.
 Currently, we generate at peak period 3,849
megawatts. South Africa generates 41,000 megawatts.
 Federal Ministry of Power stated that 6,000 mws are
generated through diesel and petrol generators.
Comment on PHCN
 Global Business Integrity stated that the country
spent $455 million (N705 billion naira ) on generators
in Year 2011.
Procurement practice- private
sector:
 Risk Management.
 Vendor managed Inventory.
 Supplier base Development.
 Procurement Ethics.
Procurement risk management:
 The ultimate goal of risk management is to protect and
enhance what the enterprise is primarily there to do. In
the private sector the aim is profitable survival. The
public sector equivalent is to deliver maximum service
and organizational effectiveness within the constraints
of the resources provided to do it. This includes money.
But is the risk – catching net being cast wide enough?
Focusing on risks external to the company tells only
half the story. What is less well known is that risks
exposures also exist inside the company and can just as
damaging.
The “Risk Catcher”
 External dependencies ( e.g. supply chain robustness,
supplier viability;
 Market conditions and behaviours ( e.g. competitive or
not; supply availability);
 Procurement process;
 Management controls;
Risk Management:
 CIPS, UK defined risk as “the probability of an
unwanted outcome happening”. Risk management
involves three key activities: risk analysis, risk
assessment and risk mitigation all of which facilitate
the taking of decisions and actions to control risk
appropriately by providing a disciplined and objective
approach
Risk Analysis
This is the process of identifying all the potential things
that can go wrong with an activity, and then estimating the
probability of each happening. Risk analysis is part of the
strategy development process.
 Risk management is a process including the identification
and analysis of risk, and the decision to either accept or
mitigate the exposure to such risk when compared to the
potential impact on the achievement of the organization's
objectives.
Risk Assessment:
This is the process of assessing
the likely impact of a risk on the
organization.
Risk mitigation:
Having assessed all the risks and identified those that
require action, plans need to be drawn up and
responsibilities assigned to control and mitigate these
risks. Risks then should be allocated an owner, who is
responsible for managing them, and possibly with help of
other team members.
Role of procurement personnel in
risk management
 Identify and promote the business need for risk
management in procurement.
 Identify who in their organization is / should be
responsible for this.
 Work with them in analyzing and assessing the risks.
 How is the supplier managing its risks.
Role of procurement personnel:
 Make a value – added input to commercial risk
assessment
 Be fully conversant with a range of contract strategies
that can be applied when setting up contracts to
achieve best value in meeting organizational
objectives.
Identifying where risk is located:
strategic
 Political.
 Economic
 Social
 Technological
 Legislative / Regulatory
 competitive
Operational risk:
 Professional.
 Financial
 Legal
 Physical
 Contractual
 Technological
 Environment
Types of Risk Factors:
 Escalating costs of fuel, energy, and raw materials.
 General lack of internal risk management capability
on the part of the supplier.
 Exchange rate fluctuations.
 Financial instability of the suppliers leading to
suppliers failure.
 Conflicts in supply chain caused by cost cutting and
survival activities.
Types of risk factors:
 The amount of emphasis on cost cutting over quality
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improvement.
Supplier failure to deliver on contracted obligations.
Sole sourcing arrangements.
Changes in environment or legislation that affect the
supply base.
Product with no available alternatives.
Changes that result in obsolete technology and / or
products, or new unproven technology or products.
Methods and Tools to Identify Risk:
 Brainstorming sessions to identify risks.
 Establishment of cross- functional teams.
 Risk registers.
 Total Risk Profiling.
 SWOT Analysis.
 Balance sheet analysis.
 Site observation.
 Close collaborative working with suppliers.
Vendor Managed Inventory,
Purpose:
 A way to reduce inventory.
 Integration of suppliers by giving them a good
visibility.
 When a company implements a VMI, then the company
transfers stock /inventory management and associate
risks to suppliers.
VMI requirements
 Supplier mature enough to accept a supply chain project.
 Supplier integrity.
 Distance with the supplier plant.
 Flexibility of the supplier.
 Lead time.
 Determination of stock levels.
 Define a VMI contract.
VMI Implementation:
 select the supplier.
 Select a product.
 Define the mini/ maximum stock levels.
 Agree on the information flows.
 Define the storage areas.
 Agree on a VMI contract.
 Define a test period for the VMI
 Define other products to go to VMI if needed.
Procurement Ethics:
 Ethics is concerned with the moral principles and values
which govern our beliefs, actions and decisions.
Ethics is important in supplies chain management since:
 Supplies staff are the representative of their
organisations in its dealing with suppliers.
 Sound ethical conduct in dealing with suppliers is
essential to the creation of long – term relationships and
the establishment of supplier goodwill.
 Supplies staff are probably more exposed to the
temptation to act unethically than most employees.
 It is impossible to claim professional status without
reference to a consideration of its ethical aspects.
Procurement Ethics:
 Ethics is primarily concerned with such issues as
bribery and confidentiality. However, ethics is also
concerned with values. Values are concerned with
questions relating to what is right, good and just,
and the basis on which make ethical decisions. Thus
individual behaviour will defer according to whether
we base our ethical decisions on :

The utilitarian view – conduct is good which
secures the greatest number.
Ethics:
 The individualistic view – conduct is good which
promotes my personal interests or my organisation
irrespective or my organisation irrespective of how
this affects the interests of other people or
organisations.

The human rights view – conduct is good which
respects fundamental human rights shared by all
human beings.

The justice view. Justice is standard for
judging legal and moral questions. Conduct is just
which is impartial, equal and fair.
Ethics:
 They remind staff of aspects of their work where they
may experience conflicts of interest between their self
interests and duties to their employers.
 They highlight practices which may compromise the
professional objectivity and integrity of staff.
 They provide standards for the staff to attain.
Ethics:
 Be open as possible within commercial and legal constraints.
 Do not disclose suppliers confidential information to third
parties.
 Do not withhold important bidding information.
 Unsuccessful suppliers should be told why they have failed.
 Suppliers should not be asked to incur costs if there is little
chance of obtaining the business.
Ethics:
 Supplies staff are forbidden to accept gifts of any kind and
those received must be returned.
 Staff may retain gifts that are clearly of an advertising
nature, e.g calendars, diaries etc
 Staff are allowed to decide for themselves whether a proffered
gift of hospitality is an appreciation of cordial business
relationships or an attempt at commercial bribery.
Equity:
 Fairness and impartiality towards all
concerned, based on the principles of
evenhanded dealing. Equity implies giving
as much advantage, consideration, or
latitude to one party as it is given to another.
References:
 Nexans, France, VMI with a Supplier.
 Public Procurement Practice, Risk Management .
 A Short Guide to Procurement Risk by Richard Russil,
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Gower publication.
Managing Risk in the Procurement Process, by Kenneth E.
Barden.
Supplier Risk Management, Presentation to CIPS Harrow
branch, May 2011, Ernst & Young.
CIPS, UK Knowledge Summary, “Risk management in
Purchasing and Supply Management.
NIM publication; Nigeria's transformation Agenda, The
Management and Leadership Challenges, by Prof. Benjamin
C. Osisioma

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