Spec­i­fi­ca­tion cru­cial in pur­chas­ing process

New Straits Times - - Business - LBB pro­vides lo­gis­tics di­ag­nos­tics, sup­ply chain de­sign and so­lu­tions and mar­ket re­search in Asia, Europe and the Mid­dle East.

THE pur­chas­ing process is re­ceiv­ing in­creas­ing at­ten­tion by top man­age­ment as it has more im­pact on the prof­itabil­ity and sup­ply chain per­for­mance than any other depart­ment.

Pur­chas­ing is pro­fes­sional buy­ing by an or­gan­i­sa­tion and in­volves ev­ery­thing you re­ceive an ex­ter­nal in­voice for. This can be goods (ma­te­ri­als, of­fice sup­plies), ser­vices (tem­po­rary labour, ac­coun­tancy ser­vices), and works (ren­o­va­tion of fac­tory or of­fice). The pur­chas­ing process con­sists of six steps: spec­i­fi­ca­tion, sup­plier se­lec­tion, con­tract­ing, or­der­ing, ex­pe­dit­ing and fol­low-up.

In a se­ries of col­umns, I will ad­dress each step in de­tail.

This col­umn looks at the first step: spec­i­fi­ca­tion. A spec­i­fi­ca­tion is a state­ment of at­tributes and/or user re­quire­ments of a prod­uct, ser­vice or works. Spec­i­fi­ca­tion is part of the first three pur­chas­ing process steps, bet­ter known as the tac­ti­cal pur­chas­ing process.

In this first step, the ex­act needs are de­ter­mined, such as qual­ity, lo­gis­tics, main­te­nance, le­gal, en­vi­ron­ment, and bud­get.

Who makes the spec­i­fi­ca­tions?

The user or bud­get holder is re­spon­si­ble for spec­i­fy­ing the pur­chase or­der re­quire­ments. It is the task of pur­chas­ing to en­sure that the spec­i­fi­ca­tion is drawn up in ob­jec­tive and sup­plier-neu­tral terms.

How­ever, in draft­ing the spec­i­fi­ca­tions, other peo­ple or de­part­ments can be con­sulted, such as re­search and de­vel­op­ment, qual­ity, ha­lal com­mit­tee, lab­o­ra­tory and in some cases, even the cus­tomer. It is im­por­tant that each spec­i­fi­ca­tion is signed off by pur­chas­ing be­fore it is re­leased to a sup­plier.

What needs to be cov­ered in

spec­i­fi­ca­tion? Spec­i­fi­ca­tions cover both func­tional and tech­ni­cal spec­i­fi­ca­tions.

A func­tional spec­i­fi­ca­tion de­scribes the func­tion­al­ity that the prod­uct, ser­vice or works must have for its user. It stim­u­lates the sup­pli­ers to con­trib­ute their ex­per­tise and new tech­nol­ogy to meet the needs of the buy­ers.

In the case of ser­vices, it could de­scribe the in­put, through­put, out­put and out­come.

In con­tract­ing, this can be fur­ther de­tailed in a so-called ser­vice level agree­ment.

Tech­ni­cal re­quire­ments pro­vide de­tails on the phys­i­cal or chem­i­cal prop­er­ties as well as the ac­tiv­i­ties per­formed by the sup­plier. These could be laid down in de­tailed tech­ni­cal draw­ing and ac­tiv­ity sched­ules.

The longer the re­la­tion­ship or higher level of trust with a sup­plier, the more em­pha­sis there will be on the func­tional re­quire­ments as com­pared to the tech­ni­cal re­quire­ments.

The spec­i­fi­ca­tion stage pro­vides the largest in­flu­ence on to­tal costs of own­er­ship. Early in­volve­ment by pur­chas­ing at the stage of spec­i­fi­ca­tion is there­fore cru­cial.

One of the rea­sons is that in this par­tic­u­lar step, there is the op­por­tu­nity to stan­dard­ise, hereby re­duc­ing the num­ber of dif­fer­ent prod­ucts, sub­assem­blies and parts. Re­search shows that suc­cess­ful com­pa­nies have four to five times less dif­fer­ent com­po­nents than less suc­cess­ful com­pa­nies. In­depth knowl­edge of the sup­plier mar­ket by pur­chas­ing makes this pos­si­ble.

Lessons learnt

What of­ten goes wrong is that the spec­i­fi­ca­tion phase is skipped.

Or­gan­i­sa­tions go straight to sup­plier se­lec­tion step with­out clearly un­der­stand­ing their needs. Se­condly, or­gan­i­sa­tions for­get the con­sum­ables, spare parts or sup­port ser­vices re­lated to a pur­chase.

Third, there is too much em­pha­sis on the tech­ni­cal re­quire­ments, whereas func­tional re­quire­ments are for­got­ten.

Fi­nally it is im­por­tant to clearly iden­tify who is re­spon­si­ble in writ­ing the spec­i­fi­ca­tions as well as who is re­spon­si­ble for ap­prov­ing the spec­i­fi­ca­tions.

Although de­vel­op­ing and chang­ing spec­i­fi­ca­tions cost time and money, buy­ing the wrong prod­ucts and ser­vices is even more ex­pen­sive! The writer is founder and CEO of LBB In­ter­na­tional, the lo­gis­tics con­sult­ing and re­search firm that spe­cialises in agri-food sup­ply chains, in­dus­trial lo­gis­tics and third-party lo­gis­tics.

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