THE PURCHASE DESCRIPTIONS NOTES

1.1 Introduction
Determining what materials and services
to purchase is the first and one of the most crucial steps in the
procurement process. Responsibility for this determination varies with
the requirement. In many cases, the using department is responsible. For
example, Plant Engineering is responsible for developing equipment
requirements. Plant Operations develops requirements for operating
supplies such as drill bits, lubricating oils, and related items.
Administrative Services initiates requirements for office supplies,
equipment, and services.

The responsibility for determining which component materials to specify
for newly designed products is a complex issue, complicated by the
frequently conflicting interests, orientations, and biases of the many
departments that have an interest in the end item or service. For
example, Engineering may desire design excellence. Marketing may demand
nonstandard and unique features. Operations prefers long production runs
utilizing existing equipment, requiring few operators, and using
high-quality, easy-to-work materials. Purchasing prefers to buy readily
available materials from several dependable sources at reasonable prices.

Historically, Purchasing contributions to the organization’s success
have been seen as being in two basic areas:

ensuring the timely availability of required supplies and services and
Obtaining them at economic prices.

However, these contributions are greatly expanded when purchasing is
included at the beginning of the design process. For instance, as
material requirements are developed, purchasing should ensure that only
essential needs are incorporated in the requirement. The description of
the requirement (usually a specification) should not contain features
that unduly limit competition among qualified suppliers
. Further, purchasing can help the designer to
be sensitive to the relative availability and cost of the alternative
materials that may satisfy product requirements. Timely availability of
required materials and services usually is enhanced by the availability
of two or more qualified sources or carefully structured strategic
alliances.

1.2 Purchase requisitions/statement of work
The most common method of informing purchasing of material needs is
through a purchase requisition. Users may also transmit their needs by
phone, by word of mouth or through a computer generated method. Although
there are a variety of purchase requisition formats, every requisition
should contain the following;
Description of required material or service
Quantity and date required
Estimated unit cost
Operating account to be charged
Date of requisition (this starts the tracking cycle)
Date required
Authorized signature

Although varieties of formats exist, at a minimum a purchase requisition
should include a detailed description of the material or service, the
quantity, date required ,estimated cost and authorization. This form of
communication for a specific
need is called a requisition. A requisition is an electronic or paper
form that provides some critical information about the need. A typical
requisition will provide a description of the product (e.g a valve) the
material and color (brass, red valve), the quantity required (20 red
brass valves), the intended purpose (20 red brass valves to be used in a
maintenance project for equipment XYZ) and the required date for
delivery (three weeks).

Sometimes a service is required. For instance, marketing may want to
purchase an advertising campaign R & D may need a clinical trial or
human resources may need to print a brochure. In this case, the user
will complete a statement of work (SOW) that specifies the work that is
to be completed, when it is need and what type of service provider is
required.

A standard purchase requisition or SOW is used most often for routine,
noncomplex items that are increasingly being transmitted through online
requisitioning systems linking users with purchasing. An online
requisition system is an internal system designed primarily to save time
through efficient communication and tracking of material requests. Users
should use these systems only if
they require purchasing involvement. It is possible that users have
access to other systems that will allow them to purchase an item
directly from a supplier such as corporate procurement card. In that
ease requisitions forwarded to purchasing are unnecessary.

There are wide differences across organizations in the quality and use
of electronic purchase requisition systems. A system that simply
requires users to submit to purchasing what they require for electronic
transmission is similar to electronic mail. This type of system provides
little added value except to speed the request to purchasing.
Conversely, one system was so complex that users were afraid to use it.

This type of system provides little added value except to speed the
request to purchase. They bypassed online requisitioning and relied
instead on the phone or intracompany mail. Exhibit 1.2.1 provides
further details regarding how a purchase requisition is approved,
converted into a purchase order, and ultimately prepared for delivery
and payment. Although the user may suggest a supplier, purchasing has
final selection authority
for routine, off the shelf items, the requisition may contain all the
information that purchasing requires. However, for technically complex
or nonstandard items, Purchasing may require additional information or
specifications with the requisition. Examples of such specifications
include the grade of material method of manufacture and detailed
measurements and tolerance. Purchasing may send an acknowledgment of the
receipt of the purchase requisition to the requestor. This
acknowledgment often takes the form of a confirming order requisition.
The acknowledgement may be a separate form notifying the user that
purchasing has received and is
processing the requisition, or it may he a copy of the original
requisition. The confirmation verifies the accuracy of the user’s
material request.

1.3 Methods of communicating material needs
There are various ways of communicating material needs, namely

1.3.1 Travelling purchase Requisitions/Bar Code
Materials needs are also communicated through a travelling purchase
requisition – a form consisting of a printed card or a bar code with
information about whom the item is purchased from. This method is used
primarily for very small companies that have not automated their
purchasing or inventory management process. Information on the card or
the database entry associated with
the bar code can include the following;

Description of item
List of approved suppliers
Prices paid to suppliers
Reorder points
Record of usage

A travelling requisition can be helpful because it can conserve time
when reordering routine materials and supplies. When stock levels reach
a specific reorder point an employee notifies purchasing by forwarding
the traveling requisition maintained with the inventory or by
electronically scanning the bar code into the ordering system. The
employee notes the current stock level and desired delivery date. To
eliminate the need to research information, the travelling requisition
includes information required for the item on the card (or in the data
base) that otherwise would require research by a buyer. For example the
travelling requisition can include a list of approved suppliers, prices,
a history of usage and ordering and lead time information. Historical
ordering information is noted directly on the record over a period of
time. As inventory systems are used less frequently. With an automated
system, clerks simply enter the order requirement and the system
generates a purchase requisition or automatically places an order.

1.3.2 Forecast and Customer Order
Customer orders can trigger a need for material requirements,
particularly when changes to existing products require new components.
Customer order can also signal the need to obtain existing materials. As
companies increasingly customize products to meet the needs of
individual customers, purchasing must be ready to support new material
requirements. Market forecast can
also signal the need for material. An increasing product forecast, for
example, may signal the need for additional or new material. If a
supplier is already selected to provide that material, then an automated
ordering system such as material requirements planning (MRP) systems may
forward the material request to suppliers automatically.

1.3.3 Reorder Point System
A reorder point system is a widely used way to identify purchase needs.
Such a system uses information regarded order quantity and demand
forecast unique to each item or part number maintained in inventory.
Each item in a reorder point system, which is usually computerized, has
a predetermined order point and order quantity. When inventory is
depleted to a given level the system notifies the materials control
department (or the buyer, in some organizations) to issue a request to a
supplier for inventory replenishment. This signal might be a blinking
light on a screen, a message sent to the materials control departments
e-mail address, or a computer report. Most recorder point systems are
automated using predetermined ordering parameters (such as an economic
order quantity, which considers inventory holding and order.

Most reorder point systems are automated using predetermined ordering
parameters (such as an economic order quantity, which consider inventory
holding and ordering costs). Electronic systems (such as material
requirements planning systems) can instantly calculate reorder point
parameters. Most systems can also calculate the cost tradeoffs between
inventory holding costs, ordering cost
and forecast demand requirements. Reorder point systems are used for
production and nonproduction items. An automated reorder point system
efficiently identifies purchase requirements. This type of system can
routinely provide visibility to current inventory levels and requirement
of thousands of parts number. The reorder point system is the most
common method for transmitting routine
material order requests today, particularly for companies that maintain
spare part distribution centers.

1.3.4 Stock Checks
Stock checks (or cycle counts) involve the physical checking of
inventory to verify that system records (also called the record on hand,
or ROH) match actual on hand inventory levels also called the physical
on-hand (POH) levels. If the physical inventory for an item is below the
system amount, an adjustment to that part record can trigger a reorder
request for additional inventory. Why might physical inventory be less
than what the computerized system indicates should be on hand? Placing
material in an incorrect location, damage that is not properly recorded,
theft and short shipments from the supplier that receiving did not
notice all can contribute to the POH being less than the ROH for
example, at one major hardware retailer, missioning inventory on the
shelf may be located in another area of the store, or may simply be
missing because f a problem with the incorrect item being entered into
the system. Smaller firms that rely on standard, easy-to-obtain items
often use stock checks to determine material ordering requirements. In
this environment, the stock check consists of physically visiting a part
location to determine if there is enough inventories to satisfy user
requirements. No purchase reorder is necessary if there is enough
inventories to satisfy user requirements. No purchase reorder is
necessary if there are enough inventories to cover expected requirements.

1.3.5 Cross-functional New-Product Development Teams
When users contact purchasing with a specific need, we say that
purchasing is operating in a reactive manner. When purchasing works
directly with internal customers to anticipate future requirements, such
as during new product development purchasing is being proactive. What
does it mean to anticipate a requirement? If purchasing is part of new
product development teams, then the opportunity exists to see product
designs at early stages of the process. Purchasing can begin to identify
potential suppliers for expected requirements rather than reacting to an
engineering requirements at a later date anticipating requirements can
contribute to faster products development cycle times and better
supplier evaluation and selection. As firms continue to be forced to
reduce the time required to develop new products cross-functional
interactions will increasingly be the means through which organizations
identify, and hopefully anticipate, materials requirements in the
purchasing process cycle.

However the need is clarified, the point here is that a requisition
document is completed by requisitioner. A requisitioner is someone who
is authorized by purchasing to complete the needs clarification process.
In some cases, the person who expresses the need can also be the
requisitioner. This occurs in case where the supplier has already been
qualified, and the individual who has the need can go to a supplier’s
online catalogue, order the product or service directly and pay for the
item using a company purchasing credit card. In such cases, the item is
typically low cost, and it is not worth the expense and trouble
completing an entire requisition.

1.4 Developing the Right Purchase Description
Within the requisitioning, it is important to include a description of
what is to be sourced. Why? If the time is not spent to describe the
product or service purchasing will have no idea of what to go out and
purchase! How purchasing accomplishes this will defer dramatically from
one situation to the next.

There are two main problems common in the area of purchase descriptions:

Requiring activities frequently fail to consider the cost
implications of alternative proaches to describing their requirements.
Purchasing departments often fail to conduct systematic procurement
research and analysis on alternate materials when appropriate.

The word requirement means “need,” not product or service type, which is
a solution to a need. All purchasing starts with need determination, and
this process eventually is translated into products or services, which
then direct us to potential suppliers and the cost of the solution.
Under appropriate circumstances, need determination may include
carefully screened suppliers. Jumping to a product skips the essential
first step of identifying alternatives and can result in automatic
supplier selection, locked-in high costs, mistakes causing very
expensive change orders, and users doing the buying-all potentially
uneconomical actions. For example, if the need is to join two pieces of
material together, we can weld, bolt, glue, screw, or use other methods
to fasten, that is, the need is
to “fasten together” and the requirement determination process is which
method, then which product, then which supplier.
This kind of thinking also forces the investigation of new methods and
helps prevent the continued use of obsolete products/procedures.

1.5 Classifying an Inventory Catalog
An inventory catalog should be coded according to several
classifications, easily done today with computer data systems. A few
classic classifications are:

Buying-Using Experience. Is the product/service a new buy, modified
rebuy (same product type, slightly different need), or straight rebuy?
This will determine the amount of effort needed to determine the
requirement. Most of the straight rebuys are via systems contracts,
electronic data interchange (EDI), and such; they should be “automated”
with requirements changed as the need dictates.
Value-Volume Relationships. This is the familiar ABC inventory
analysis, which usually starts with a finding that A items account for
80% of the dollars spent but represent just 20% of the physical volume,
B items represent 15% of the dollars spent for 30% of the physical
volume, and C items represent 5% of the dollars for 50% of the physical
volume. This traditional analysis targets candidates for special study.
Critical items that can shut the operation down also qualify as A items.
Requirements for A items are obviously the top priority, for they are
the real cost drivers.
Type of Product or Service. Capital goods, especially production
machine tools, call for a vastly different requirement determination
than most raw materials or maintenance, repair, and operating (MRO)
supplies.

Coding your inventory catalog according to the above classifications
have the following advantages:

facilitate rapid computer
printouts to give direction to purchasing research assignments.
It helps the purchasing department focus activities to achieve the
highest payoff.
It also helps to explore the questions of simplification and
standardization to avoid too many unnecessary requirements and/or
slight variations adding little or nothing to value.
Serving a medium of communication by enabling staff to tell which
items are carried in the inventory, whether interchangeable items
are carried in the inventory for missing items . etc
Acting as an inventory control tool through reduction of duplicate
records for identified parts.

1.6 The Importance of the Purchase Description
Once the buyer has known the need, he or she can now write the purchase
description that forms the heart of any procurement. the process of
describing purchase is known as specification. specification can be
defined as a statement of needs. It defines what the purchaser wants to
buy and, consequently, what the supplier is required to provide.
Specifications can be simple or complex depending on the need. The
success of the purchasing activity relies on the specification being a
true and accurate statement of the buyer’s requirements.

Apart from being a means of identifying the goods or services required,
a specification will form part of any future contract that might result
from offers received. The specification forms part of an “Invitation to
Offer” document. Other elements in the invitation
document include the “Conditions of Offer”, the “Conditions of
Arrangement/Supply/Contract” and “Form of Offer” and response schedules.

Good specifications should:
• state the requirement clearly, concisely and logically in functional
and performance terms unless specific technical requirements are needed;
• for goods, state what the item will be used for;
• contain enough information for offerors to decide and cost the goods
or services they will offer and at what level of quality;
• permit offered goods or services to be evaluated against defined
criteria by examination, trial, test or documentation;
• state the criteria for acceptance of goods or services by examination,
trial, test or documentation;
• provide equal opportunity for all potential suppliers to offer goods
or services which satisfies the needs of the user, including goods or
services incorporating alternative solutions;
• form the fundamental basis of the contract between buyer and seller;
• not over-specify requirements; and
• not contain features that directly or indirectly discriminate against
any suppliers

Whether a purchase order or contract will be performed to the
satisfaction of the buyer frequently is determined at the time the
purchase description is selected or written. In no other form of
communication is there a greater need for clarity and precision of
expression. The extent of this precision has a major bearing on the
successful completion of the procurement.
Purchase descriptions serve a number of purposes. Some of these are used
to do the following:

Communicate to the buyer in the purchasing department what to buy
Communicate to prospective suppliers what is required.
Serve as the heart of the resulting purchase order.
Establish the standard against which inspections, tests, and quality
checks are made.

The purchase description can greatly influence the amount of
competition. The amount of competition has a major impact on the
purchase price. The type of purchase description also may affect the
“depth” of competition: This depth of competition may have an even more
pronounced effect on the purchase price.

1.7 Approaches to Describe What to Purchase (specifications)

Brand or Trade Name
The use of a brand name is the simplest way to describe what to
purchase. A brand name is used by a manufacturer to distinguish a
product and to aid in its promotion. Brand names ensure that the
goodwill developed in satisfied customers is credited to the product.
Such goodwill requires that the manufacturer provide consistent quality.
Using a brand name description implies a reliance on
the integrity and the reputation of the manufacturer. When purchasing by
brand name, the purchaser has every right to expect that follow-on
purchases of the brand name will possess the same quality as the
original. Normally the expression “or equal” should be used immediately
following a brand name to facilitate competition. When using an “or
equal” after a brand name, it is desirable to set forth those salient
physical, functional, or other characteristics of the referenced product
that are essential to the purchaser’s needs. The term or equal means
that any proposed item should be able to perform the function to the
same level of satisfaction as does the specified brand.

Although the use of brand names simplifies the procurement process, it
tends to be expensive. Even when competition is introduced through the
use of the “or equal” provision, higher prices tend to result than when
several of the alternative descriptions of the item are employed.
Brandname products generally are sold at higher prices than unbranded
products of similar quality. There are several advantages and
disadvantages in specifying brand names.

Advantages

Describing the desired item is simple for the requiring department.
Purchasing by brand name is relatively simple.
Brand-name products tend to be more readily available than unbranded
items.
The use of a brand-name purchase description may be the most
efficient method of obtaining a desired level of quality or skill
when this level of quality cannot be defined easily.
The branded item may be advertised so widely and successfully as to
aid in promotion of the product in which it will be incorporated.
Inspection of brand-name items is relatively simple.
Testing of an item may be impractical. The purchaser may avoid such
testing by relying on the brand-name manufacturer’s quality
standards and test reports.
The purchaser is assured that the manufacturer will stand behind his
or her brand-name product.

Disadvantages

Brand-name products usually cost more.
Using brand-name products may mean that the purchaser is not taking
advantage of improvements introduced by competitors of the
brand-name manufacturer.
The use of the “or equal” provision may mean that items are
purchased from a variety of manufacturers. Since each manufacturer
exercises its own quality control, the quality variation probably
will be larger than if the item were purchased from one source only
or purchased by detailed specification. When commonality of items
from purchase to purchase is essential, the use of “or equal” is not
desirable.

Samples
The need to develop a purchase description sometimes is avoided through
the use of samples. Prospective suppliers are invited to match or
duplicate the buyer’s sample. Such an approach may be appropriate when
special, nonrepetitive items are to be purchased and quality
requirements are not a significant factor.

Advantage

Use of samples is a very simple method of communicating what is
required.
It is almost mandatory when purchasing materials requiring a
specific color, feel, finish, or look, such as painted printed
surfaces, fabric, style, film, packaging, signs, letterhead
stationary, and the like.

Disadvantages

Detailed tests and inspections may be required to determine that the
furnished item meets the sample.
The inspection on a requirement such as color may be very subjective.
No definite standards are established either for record-keeping
purposes or as the basis of future purchases.
If the sample is exactly reproduced, all performance warranty
responsibilities shift to the buyer as the supplier has performed as
per the instructions from the buyer.

Standard Specifications
Recurring needs for a consistent level of quality have led industry and
government to develop standard specifications for many items. Standard
specifications include commercial standards, country specifications, and
international specifications. Such standard specifications contain
descriptions of the quality of materials and the quality of workmanship
to be used in manufacturing the item. Testing procedures are included to
ensure that those quality standards are met.

Advantages

The use of standard specifications greatly facilitates
communications. The requirer, purchaser, and supplier all know what
is needed.
The cost of developing a design specification is avoided.
The use of standard specifications results in wider competition and
lower prices.
The use of standard specifications facilitates the firm’s
standardization program, resulting in savings in purchase price,
inspection, materials handling, and inventory carrying costs.
Standardized items tend to be more readily available.
Designs developed by professional societies are often state of the
art and thoroughly tested.

Disadvantages

Standard specifications may be dated. Accordingly, the buyer may not
be taking advantage of the latest technology.
The specification may call for inputs or processes that are
difficult or expensive to achieve.
Testing costs might be higher than with brand-name products, as
there is less performance history.
As with samples, responsibility for the suitability of the purchased
item rests with the purchaser. Normally, the supplier who produces
under a specification cited in a purchase order is not responsible
for ensuring that the item will satisfy the customer’s need. (With a
performance specification, this responsibility is shifted to the
supplier.)
The use of standard specifications results in the purchase of
standardized items. The incorporation of such standardized items in
the purchaser’s end product may conflict with marketing’s desire to
sell a unique product.

Design Specifications
Design specifications* spell out in detail the materials to be used,
their sizes, shapes, and tolerances, exact physical and chemical
characteristics, and how the item is to be fabricated. They provide a
completely defined item capable of manufacture by a competent
manufacturer. They also describe test procedures to be used to verify
that all stated requirements have been met. The specification must meet
the requirements of many departments in the firm: Engineering’s concern
for technical adequacy, Marketing’s concern with consumer acceptance,
Manufacturing’s concern for ease of production, and Purchasing’s concern
for availability and economy. As would be expected, design
specifications often use commercial standards and other standard
specifications.

Since design specifications frequently are the basis of competitive
bidding, they must communicate what is needed without need for further
clarification. Thus, critical dimensions must be spelled out in detail,
and all necessary quality requirements must be fully described.
Concomitantly the specification must avoid imposing unnecessary
conditions that would disqualify an otherwise acceptable product because
it fails to meet a nonessential condition. The design specification must
convey a complete and accurate understanding of what is required. The
same word or expression is subject to different interpretations by
different people. The supplier will
interpret the specification to its own advantage.

A specification essentially is the means of transferring knowledge
between minds. Each mind will test the words of a specification against
its own experience. If the design specification is ambiguous, the
ambiguity will be construed against. Blueprints and engineering drawings
are included under the heading of design specifications. Blueprints and
drawings should include a
statement of function.

When design specifications control performance under a purchase order or
a contract, there is a presumption that the specifications are adequate
for the purposes intended and that, if followed, the desired outcome
will be obtained. There is an implied warranty that the specifications
are adequate. Thus, the supplier who produces under the customer’s
specification is not responsible for the suitability or acceptability of
the resulting product. However, if the supplier knows (or perhaps from
experience should know) that the desired product cannot be obtained, it
cannot make a useless thing and expect to be paid for it. If the
supplier knows (or should have known) that the specification is
defective, it is obligated to notify the customer of the defect. The
supplier discharges this obligation by making the defect known to the
customer.

As might be expected, design specifications must be reviewed
periodically and updated. Unfortunately, the use of design
specifications tends to complicate purchase order administration
(follow-up and expediting) and may increase costs, delay delivery result
in delivery of obsolete items, and sharply increase inventory carrying
costs. The use of design specifications may create a costly storage and
distribution system for items that are not generally commercially
available. There are several advantages and disadvantages in using
design specifications.

Advantages

The purchasing organization avoids having to purchase on a
sole-source basis. savings can be enjoyed by avoiding sole-source
situations.
The purchasing organization avoids paying premium prices on branded
goods.
Design specifications facilitate the corporate standardization
program, and many savings are enjoyed through such a program.
They can solve the problem of “no supplier can design it,” if true.

Disadvantages

Design specifications are expensive to develop. Both time and human
resources are required.
The purchaser is responsible for the adequacy of the specification
and the buying firm may use obsolete technology.
The use of design specifications may deny the purchaser the latest
advances in both technical development and manufacturing processes.
Using a design specification for material that is very similar to an
item covered by a commercial standard may result in higher unit
prices. Further, the item covered by the design specification will
tend to be less readily available.
The use of design specifications restricts competition to one
approach or concept. As we have seen, competition of concepts
resulting from use of a performance specification may lead to
significant financial and time savings.
Purchase through the use of design specifications tends to
complicate the purchase order administration function. Late delivery
of unique items is much more common than it is for standard ones.
The purchaser usually assumes the inventory responsibility for such
unique items.

Performance Specifications
Performance specifications generally describe a product by its capacity,
function, or operation instead of by its physical, chemical, or quality
characteristics. The supplier need only demonstrate acceptable
performance to achieve acceptance of the product. A performance
specification provides a description of the intended use of an item
(whether component, plant, or equipment). A performance specification
may include a statement of the qualitative nature of the item required.
When necessary, it may set forth those minimum essential characteristics
and standards to which such item must conform to satisfy its intended
use. Performance specifications describe in words what the item is to do
instead of describing the item in terms of its physical and chemical
properties.
Although a performance specification is much shorter and easier to
develop than a design specification, caution must be exercised in its
development. Once again, engineering, marketing, manufacturing, and
purchasing requirements must be considered.

The following general principles apply to the development of performance
specifications:

The performance specification must not be so narrow that it stifles
creativity.
While unnecessarily restrictive performance specifications are
undesirable, the performance specification must be sufficiently
specific to obtain desired objectives. If it is written too broadly,
potential suppliers may choose not to respond because of the
uncertainty and risk involved, their inability to relate work
requirements to their talents and capabilities, or difficulties in
estimating costs.
The performance specification serves as the nucleus of the purchase
order or contract. The resulting performance is a direct function of
the quality, clarity, and completeness of the specification.
The element of risk to the supplier inherent in producing under the
performance specification should affect the type of pricing on the
resulting purchase order (e.g., firm fixed price, fixed-price
incentive). As with other approaches to defining and communicating
the requirement, the use of performance specifications has inherent
advantages and disadvantages.

Advantages

Performance specifications are relatively easy to prepare.
Their use tends to avail the purchaser of the latest technology.
Using performance specifications ensures that the purchaser obtains
the specified (desired) level of quality.
When several already designed, developed, and produced items can
meet the performance specification, the depth of competition is
enhanced and purchase costs are reduced.
Performance specifications allow a greater degree of innovation by
suppliers. Under performance specifications, the supplier assumes
the responsibility of providing a product suitable to the
purchaser’s need.

Disadvantages

Marginal suppliers look for loopholes in specifications. Care and
effort must be taken to screen potential suppliers to ensure that
only reputable ones are asked to submit proposals. The use of
performance specifications is restricted by purchasing’s ability to
select capable and ethical suppliers-the kind who do not look for
loopholes.
Competition tends to be reduced when the performance specification
requires potential suppliers to perform considerable engineering in
preparation for submitting a bid or proposal. Reduced competition
may result in higher prices.

1.8 The general process of developing the specifications
Step 1: planning and analysis
The foundation of a good specification is in the planning and analyses
which are undertaken before writing begins. Key people who can help such
as purchasing staff, technical officers, project officers and managers
and end users need to be involved. Planning and analysis will provide a
better understanding of the requirement(s) and may reveal alternative
solutions. Planning and analysis are particularly important when
developing complex requirements. These may take some time to define,
perhaps even years in the case of major equipment. The accuracy and
detail of the definition is likely to improve as information is gathered
and assimilated. Define the requirement(s) and then approach industry to
see what is available to meet the department’s/agency’s needs. If
industry is approached too early in the development process, there is
the risk of deciding the solution to the problem before the
requirement(s) is fully defined.

In some cases potential solutions may be discovered and explored which
may allow refinement of needs. Think in terms of the performance
required or the functions to be performed. In other cases, however,
solutions may not be readily available or there could be the danger in
stating a solution up front that may restrict offers of alternative
solutions. In this situation, a full explanation of the
issue or problem is needed.

Breaking down the requirement(s) in terms of function and performance
will better define the need. Defining the requirement(s) in terms of the
lowest level functions or sub components should also help to discover
conflicts and inconsistencies within the requirement(s). Alternative
solutions, too, may be revealed in the process. Value analysis could be
used to highlight and explore possible solutions. It is a complex cost
analysis technique that requires expertise for its successful use. In
simple terms, value analysis
looks for the optimum way of using materials, designs, equipment etc. to
meet a (functional) requirement while providing savings over the life of
the equipment or at the initial purchase stage. The technique is
particularly useful in identifying potential, innovative solutions.

Step 2: Consultations and information gathering
Developing specifications requires consultation and can be perceived as
an evolutionary process involving close and continuous liaison between
the end-user, technical officers, project officers/managers, purchasing
officers and the specification writer. Valuable information and advice
relating to the requirement can be obtained by discussing it with
purchasing officers, technical officers and other users of similar goods
or services within the department/agency. Purchasing officers should be
involved from the start of the process (that is, the information
gathering and design stages).

Other sources of information include:
• other departments or agencies (including Federal and Local Governments);
• industry – either industry associations or particular companies
(ensure that industry does not assume pre-offer negotiations);
• educational institutions, for example, universities and TAFE Institutes;
•Country standards;
• Industrial Supplies Office Ltd (ISO Queensland) which can assist in
identifying and evaluating appropriate local industry capabilities; and
• other users of the goods or services.
These organizations may help to refine the requirement and also suggest
potential solutions.

Step 3: writing specifications
• Use simple, clear language without jargon (to minimize misinterpretation).
• Define terms, symbols and acronyms (include a “Glossary of Terms”).
• Be concise.
• Do not explain the same requirement in more than one section.
• Define each aspect of the requirement in one or two paragraphs where
possible.
• Adopt a user-friendly format.
• Number the sections and paragraphs.
• Seek feedback from someone unfamiliar with the requirement.
• Discuss the draft and refine it.
There are no fixed rules on formats and structures because each
specification reflects a different requirement or need. A specification
should list the functional, performance and technical characteristics
separately. Refine the structure before writing by discussing with
colleagues and purchasing officers. Include tables, sketches, diagrams,
or statistical matter if these help to make the specification clearer.
Be careful that these types of information do not limit the options for
offerors to provide alternative solutions.

Step 4: Vetting specifications and obtaining approval
After writing the specification, ask a colleague who is unfamiliar with
the requirement to critique it from a potential supplier’s view.
Try to identify improvements by considering:
• readability,
• simplicity of meaning,
• clarity, and
• logic.
Seek approval from the appropriate financial or purchasing delegates in
the department/agency vetting the specification but before issuing it.

Step 5: issuing the specifications
The specification should be included as part of the “Invitation to
Offer” document. The “Invitation to Offer” should target suppliers that
are capable of meeting the specification by direct approach (after
market analysis) or through advertising in newspapers, websites and
industry magazines, etc.

Step 6: managing amendments to the specifications
Should a need arise to amend the specification during the “Invitation to
Offer” process, the amendment should be authorized by the project
manager. The amended specification should be noted in the project files
and all offerors or potential offerors must be given a reasonable
opportunity to offer to the new specification.

Step 7: Revising and storing the specifications
The specification should be reviewed at the end of the purchasing
activity to ensure that it effectively defined the goods or services
that were actually bought. If areas for improvement are identified,
revise the specification with the benefit of hindsight. When the review
of the specification has been completed and if it relates to goods or
services that are likely to be purchased frequently, keep it on file.
Before each purchase, review the specification to ensure that it
reflects your department’s/agency’s needs at that time. Alternatively,
institute a program to review specifications on a regular basis.

1.9 Selecting the Right Approach to Describing Requirements
Although the decision on what type of purchase description to use may
appear to be simple, many factors complicate the issue. For small,
noncritical procurements, brand names or samples frequently best
describe requirements. The use of a brand name as a purchase description
is appropriate to:

Obtain the desired level of quality or skill when these are not
described easily,
Gain the benefits of wide advertising of the brand-name item that
would aid in promotion of the purchaser’s end product,
Accommodate users who have a bias or prejudice (whether founded or
unfounded) in favor of the brand. Such prejudices can be virtually
impossible to overcome.

When brand names or samples are inappropriate for describing
requirements, some type of is employed. When selecting or developing the
specification, consideration must be given to the importance of
competition and the desirability of avoiding unnecessarily restrictive
criteria. Once a need has been identified and functionally described,
and when the size of the contemplated purchase warrants, procurement
research and analysis should be conducted to investigate the
availability of commercial products able to meet the company’s need.
Normally, these commercial products are described by one of the standard
specifications. This research and analysis also should provide
information to aid in selecting a procurement strategy appropriate to
the situation.

Procurement research and analysis involves obtaining the following
information as appropriate:

The availability of products suitable to meet the need (with or
without modification)
The terms, conditions, and prices under which such products are sold
Any applicable trade provisions or restrictions or controlling laws
The performance characteristics and quality of available products,
including quality control and test procedures followed by the
manufacturers
Information on the satisfaction of other users having similar needs
Any costs or problems associated with integrating the item with
those currently used
Industry production practices, such as continuous, periodic, or
batch production
The distribution and support capabilities of potential suppliers

If a suitable commercial product is unavailable at a reasonable price, a
determination should be made on whether to use a design or a performance
specification.

Summary
Once the need or required function is determined, the purchase
description forms the heart of the procurement. The organization’s
satisfaction with the purchased item frequently is determined at the
time the purchase description is selected or developed. Purchase
descriptions communicate to the buyer what to purchase, communicate to
prospective suppliers what is required, serve as the principal element
of the resulting purchase order or contract, and establish standards for
inspection. Five types of purchase descriptions have been described:
brand or trade names, samples, standard specifications, design
specifications, and performance specifications. Each has inherent
advantages and disadvantages; no one approach is right or best in all
circumstances.

THE PURCHASING AND NEW PRODUCT DEVELOPMENT NOTES

THE PURCHASE DESCRIPTIONS NOTES

THE PROCUREMENT PLAN NOTES

STANDARDIZATIONS AND SIMPLIFICATIONS OF MATERIALS AND COMPONENTS NOTES