Chandramouli Sarkar
Cluster Head-East India, ESAF Small Finance Bank,
Former Vice President, Axis Bank

Procurement Policy – A Perspective

Almost all business establishments have to source at least one or a combination of inputs like goods, services, technologies, management consultation, office space, etc., from external sources. The procurement processes are as diverse as the number of industries and within the same industry, it varies from one company to the other. The differences in procurement criteria of raw material, machinery, services, etc., influence the corporates to have different policies for sourcing of each of these resources.

Purchase decision of inventory is influenced by various factors like number of suppliers, delivery time, price fluctuations, quality, technical compatibility, operational efficiency, and risk appetite of the entity while the investment in capital goods and infrastructure depends on market opportunities, strategy, and vision of the company. While cost of holding of raw materials is a major impediment, the business has to ensure that its capacity in terms of both machine and man power does not remain idle for want of sufficient inputs. However, the procurement policy of government and public sector undertakings is quite often influenced by certain factors outside the common commercial considerations. One of the important guiding factors is the fundamental principle of public finance, which states that certain goods and services are so meritorious in nature that their supplies cannot be left to private hands. Encouragement to small enterprises, supporting the farm and non-farm producers, capability building of the nation, and employment generation are some of the important factors that may influence sourcing policy of a government. In India, the procurement policy of government organizations is governed by the guidelines mentioned in the Manual of Procurement (revised in 2017) in conformity with the General Financial Rules (GFR 2017). The purchase policy of social and humanitarian organizations may also be directed toward achieving their goals like UNICEF’s policy prohibiting purchase from companies employing child labor.

Industries involved in generation of natural resources like extraction of coal, petroleum, and natural gas, distribution of important services like telecom and electricity, or firms dealing with security of the country and matters of strategic importance like defense equipment manufacturing, etc., are often highly regulated though the level and nature of regulation varies among the countries. Hence, their procurement policies are controlled to a great extent by these regulations and may not be through open tendering always.

In contrast, the procurement policy of a purely commercial institution is influenced by the objective of deriving the best value for money through an open and effective competition.

Purchase of technology, technical capabilities, or pure technical products like software, hardware, peripherals, etc., depends on the compatibility with the existing system, future plan of the entity, and the availability of after-sales service.

Successful implementation of a project depends among other factors upon the availability of right inputs at the right time. There are various techniques, viz., Project Evaluation & Review Technique (PERT), Critical Path Method (CPM), etc., for project planning and management. While the analysis of these techniques is beyond the scope of our present discussion, nevertheless, these techniques help in assessing the requirement of various inputs at various stages of the project and depending upon the time taken to acquire an input, the project manager can initiate his procurement process for the same at an appropriate point in time. It is quite evident that procurement plans are as divergent as the number of items and services to be purchased, the types of industries, the strategies of the entities, and what not but one thing is common for all successful entities – a lot of time and mind share of the senior management goes into refining the procurement policy to make it efficient by reducing the holding time and cost of inventory or by ensuring timely completion of projects.

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