2. Determine How The Need is
Identified
Any purchase originates with the recognition of a definite need by someone or some
system in the organization. The person responsible for a particular activity should
know what the requirements of the unit are – what, how much and when it is needed.
Effective supply requires a full understanding of the function the acquisition is to
fulfil, how the need is described, and how its quality is determined and measured
The supply department is responsible for helping to anticipate the needs of using
departments. Greatest opportunity to affect value is in the need-recognition and
description stages (product conception and design), and later in the acquisition
process.
Participation by both critical suppliers and supply management can contribute in the
development of clear specifications which is required for an organization to evolve to
World Class Supply Management. Early supply involvement and early supply
involvement (ESI) help assure that what is specified is also procurable and represent
good value
When specifications for the tangible product are fixed, the final design of the product
is also fixed. When the final design is fixed, the product’s competitive stance and its
profit potential are also fixed.
Specifications form what is called the purchase description.
3. Determine what is needed and why?
Every organization performs three roles: customer, converter and
supplier.
As a converter, every organization needs to add value as its part of
the chain.
The opportunity for value improvement lies in the first two phases of
the acquisition process: (1) need identification and (2) Specification.
A three-step process.
1. The organization’s needs are established by focussing on the
needs of its customers.
2. It is determined what market can supply and meet those
requirements.
3. A conclusion is reached as to what constitutes good value under
the circumstances.
4. Development of Specifications
Purchase specification forms the heart of the procurement. Purchase
specifications serve a number of purposes, among them to:
1. Communicate to professionals in the supply management department
what to buy.
2. Communicate to prospective suppliers what is required.
3. Establish the tangible goods to be provided.
4. Establish the intangible services to be provided, such as warranty,
maintenance, and support.
5. Establish the standards against which inspections, tests and quality checks
are made.
6. Balance the specification goals of the individual departments, relevant
suppliers, desired product or service performance and cost.
5. Development of Specifications
Specification constitutes one of the best known of all methods
employed.
Traditional advantages of buying with specifications include:
1. Evidence exists that thought and careful study have been given to
the need and the ways in which it may be satisfied.
2. A standard is established for measuring and checking materials as
supplied, preventing delay and waste that would occur with
improper materials.
3. An opportunity exists to purchase identical requirements from a
number of different sources of supply.
4. The potential exists for equitable competition. This is why public
agencies place such a premium on specification writing. In securing
bids from various suppliers, a buyer must be sure that the suppliers
are quoting for exactly the same material or service.
5. The seller will be responsible for performance when the buyer
specifies performance.
6. Categories of Specifications
Purchase specifications can be classified into two broad categories – simple and
complex – also referred to as low detail and high detail.
Simple Specifications:
Simple specifications require less resources and time to develop than complex
specifications.
The six categories of simple specifications are:
1. Performance Specifications: A performance specification, in theory, is the
perfect method of describing a requirement.
2. Function and fit Specifications: Such purchase descriptions are a variation
of performance specifications and are used in early supplier involvement
(ESI) programmes.
3. Brand or Trade Names: When manufacturers develop and market a new
product, they must decide whether or not to brand it.
4. Samples : Samples have been called the lazy person’s method of
describing requirements.
5. Market Grades: Grading is a method of determining the quality of
commodities.
6. Quality Products: In some situations, it is necessary to determine in
advance of a purchase whether a product can meet specifications.
7. Categories of Specifications
Complex Specifications:
Complex of detailed specifications are descriptions that tell the seller exactly
what the buyer wants to purchase.
Four Principle Types of Complex Specifications:
1. Commercial Standards: Recurring needs for the same materials have led
industry and government to develop commercial standards for these
materials. A commercial standard is nothing more than a complete
description of the item standardized.
2. Design Specifications: A large number of buying firms prepare their own
specifications.
3. Engineering Drawings: Engineering drawings and prints are occasionally
used alone, but more typically in conjunction with other physical purchase
descriptions.
4. Material and Method-of-Manufacture: These specifications are used most
appropriately by technically sophisticated large companies or organizations
dealing with small suppliers having limited research and development
staffs.
8. Miscellaneous Methods of
Descitpion
Combination of Methods:
Many products cannot adequately be described by a single method. In such
cases, a combination of two or more methods of description should be used.
Organizational Approaches:
1. Informal Approach: The informal approach emphasizes the concept of a
supply manager’s responsibility to “challenge” materials requests.
2. Supply Management Coordinator Approach: One or more positions are
created in the supply department for individuals, frequently called
materials engineers, to serve in a liaison capacity with the design
department.
3. Early Supply management Involvement: Progressive firms increasingly are
creating design policies to involve supply management in the early stages
of new product development.
4. Early Supplier Involvement: Early supplier involvement, or ESI, is widely
used in industry.
5. Consensus Development Approach: Consensus development calls for
specifications to be agreed upon by the department managers.
6. Cross-Functional Team Approach: The cross-functional team (CFT)
approach recognizes that a good specification is a compromise among
9. Limitations and Problems in Using
specifications
Seven Limitations in using specifications are:
1. There are requirements for which it is practically impossible to draw adequate
specifications.
2. The use of specifications adds to the immediate cost.
3. The specification may not be better than a standard product, readily available.
4. The cost is increased by testing to ensure that the specifications have been met.
5. Unduly elaborate specifications sometimes result in discouraging potential
suppliers from placing bids in response to inquiries.
6. Unless the specifications are of the performance type, the responsibility for the
adaptability of the item to the use intended rests wholly with the buyer.
7. The minimum specifications set up by the buyer are likely to be the maximum
furnished by the supplier.
Common Specifications Problems:
Several problems that are caused by the specifications themselves. Three of these
common problems are given below:
Lack of clarity can result in unpleasant surprises.
Limiting Competition: Care must be exercised to ensure that specifications are not
written around a specific product, so as to limit competition.
Unreasonable Tolerances: Specifying an unreasonable tolerance is another common
specification mistake. Unnecessary precision pyramids costs.
10. Sources of Specification Data
There are three major sources from which specifications may be derived:
(1) Individual standards set up by the buyer- require extensive consultation
among users, engineering, purchasing, quality control, suppliers, marketing
and possibly, ultimate consumers
(2) Standards established by certain private agencies, either other users,
suppliers, or technical societies-They may be applied to raw or semi-
manufactured products, to component parts, or to the composition of
material. The well-known SAE steels, for instance, are a series of alloy
steels of specified composition and known properties, carefully defined and
identified by individual numbers.
.
(3) Government, Legal and Environmental Requirements-Legislation concerning
environmental factors, employee health and safety, security and consumer
product safety requires vigilance on the part of the purchasing personnel to be
sure that products purchased meet government requirements.
11. Writing Specifications
After the design of a product is determined, the next step is to translate the
individual part and materials specifications into written form.
A specification must satisfy many requirements:
• Design and marketing requirements for functional characteristics, chemical
properties, dimensions and appearance.
• Manufacturing requirements for workability of materials and manufacturability.
• Inspection’s requirements to test materials for compliance with the
specifications.
• Stores’ requirement to receive, store and issue the material economically.
• Supply management’s requirement to procure material without difficulty and
with adequate competition from reliable sources of supply.
• Production control’s and supply management’s requirement to substitute
materials when such action becomes necessary.
• The total firm’s requirements for suitable quality at the lowest overall cost.
• The total firm’s requirement to use commercial and industrial standard material
whenever possible and to establish company standards in all other cases in
which non- standard material is used repetitively.
