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THEME:“IMPROVING THE EFFICIENCY OF THE PUBLIC PROCUREMENT IN

THE EAST AFRICAN COMMUNITY FOR ECONOMIC GROWTH”

TOPIC: PUBLIC SECTOR VIEWS ON THE PERFORMANCE OF SUPPLIERS

TANZANIA EXPERIENCE

A PAPER PRESENTED TO THE 4TH EAST AFRICAN PUBLIC PROCUREMENT FORUM IN KIGALI – RWANDA (14TH NOVEMBER – 17 NOVEMBER, 2011)

PRESENTED BY:

Y. NYONGERAAG. HEAD OF DEPARTMENT FOR PROCUREMENT AND ADVISORY SERVICES-GOVERNMENT PROCUREMENT SERVICES AGENCY

NOVEMBER, 2011

THEME:“IMPROVING THE EFFICIENCY OF THE PUBLIC PROCUREMENT IN

THE EAST AFRICAN COMMUNITY FOR ECONOMIC GROWTH”

TOPIC: PUBLIC SECTOR VIEWS ON THE PERFORMANCE OF SUPPLIERS

TANZANIA EXPERIENCE

A PAPER PRESENTED TO THE 4TH EAST AFRICAN PUBLIC PROCUREMENT FORUM IN KIGALI – RWANDA (14TH NOVEMBER – 17 NOVEMBER, 2011)

PRESENTED BY:

Y. NYONGERAAG. HEAD OF DEPARTMENT FOR PROCUREMENT AND ADVISORY SERVICES-GOVERNMENT PROCUREMENT SERVICES AGENCY

NOVEMBER, 2011

PRESENTATION OUTLINE

1. Introduction2. General aspects of supplier performance3. Legal aspects on suppliers’ performance4. Public sector experience on suppliers’ performance5. Conclusion

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1. INTRODUCTION

• Good performance of suppliers is vital to the efficiency and success of the public procurement sector and contributes to the best value of money spent by any organization.

• Supplier performance is one of the supply chain performance measures that involve cost, quality, time and customer satisfaction. In order to assess supplier performance there should be a systematic way of measuring performance which establishes what to measure, methods and systems to collect information and use of measurement data.

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Introduction Cont..

• Unfortunately many organizations in the public sector have not instituted formal procedures for measuring supplier performance as result no records to support their views on supplier performance.

• This paper has attempted to view best practices of measuring supplier performance and the practical experiences of the public sector on supplier performance basing on various reports, authors experience in public procurement and publications in Tanzania

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Introduction Cont..

• The author has tried to limit the scope of discussion by focusing on suppliers for goods and service providers for non consultant services. Public sector in this context refers to Procuring entities in Tanzania

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2. GENERAL ASPECTS OF SUPPLIER PERFORMANCE

• Once a supplier is selected the focus shifts from evaluation to the continuous measurement of supplier performance.

• To improve performance and manage costs, quality and delivery time an organization must be able not only to select the right supplier, but also to monitor and manage performance of supplier over time.

• Measuring supplier performance is among the ways of measuring supply chain performance.

• Some measures asses supply base, others assess the purchasing department, while still others may be used to monitor the interfaces between purchasing and other internal functions.

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Cont……….

• The most effective performance systems will asses performance across the entire length of the firms supply chain, from suppliers through internal process to customers.

• Major categories of Supply chain performance measurement are illustrated in the figure bellow:-

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Figure 1: Categories of performance measurement

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SUPPLY CHAIN PERFORMANCE MEASURESSUPPLY CHAIN PERFORMANCE MEASURES

COSTCOST QUALITYQUALITYTIMETIME SUPPLIER

PERFORMANCESUPPLIER

PERFORMANCECUSTOMER

SATISFACTIONCUSTOMER

SATISFACTION

cont…• The most important factors used to measure supplier

performance are quality, delivery and price. Other factors include quality management, partnering, Customer services, vendor co-operation and problem resolution ability.

• Some of these factors are quantitative and some qualitative.

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cont…• Measuring supplier performance is an important tool

that is very useful to improve supplier performance, improve supplier communication, and recognize exceptional performance and identify suppliers with developmental needs.

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cont…Supplier performance measurement• Supplier Performance Measurement is the process of

measuring, analyzing and managing supplier performance for the purpose of reducing costs, mitigating risks and driving continuous improvements in value and operations.

• A supplier in this context refers to a party that supplies goods or services, and may be distinguished from a contractor or sub-contractor/manufacturer who commonly adds specialized input to deliverables also called vender.

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cont…• Supplier performance measurement includes the

methods and systems to collect and provide information to measure, rate, or rank supplier performance on a continuous basis. Measurement of supplier performance should be done on each delivery and routine reporting of supplier performance usually occurs monthly or quarterly

• Buyers are advised to meet with suppliers at least once per annum to review performance results. However a buyer should never delay reporting a supplier’s poor performance, particularly when it affects day-to-day operations.

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cont…• What to measure? • The most important factors that should be used to

measure supplier performance fall into two main categories namely Quantitative (objective) and Qualitative (subjective). Most of the objective, quantitative variables lie within the following three parameters:-

Delivery Performance• Orders or material request sent to a supplier have a

quantity and material due date commitment. • Quantity, Lead-time requirements and due date

compliance help define a suppliers delivery performance.

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cont…• Measuring supplier on time delivery can take

different ways and some of the important factors to consider are:-

Should all orders be measured?Should on time delivery be based on shipment date

or receipt date?What window should be used, (Allowable time of

tolerance -days or Hours?)What calculation method should be used?

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cont… Quality Performance• Quality Performance is critical component to any

supplier measurement system.• There are a number of ways to measure supplier’s

quality performance;• some of those are number of deviation (substitutes,

similarity) request, accuracy of paperwork, field campaigns and suppliers cost of quality inspection data and warranty data are used for measuring supplier performance.

• The inspection measures are based on the number of rejects versus lines/Quantity inspected. e.g If 100 items are inspected and 4 are rejected the reject rate is 4%

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cont…Supplier cost reduction/supplier value performance

• Buyers often rely on suppliers for cost – reduction assistance.

• A buyer looks at a total acquisition cost not just price. Total acquisition cost considers all costs, freight, handling, quality and administrative.

• cost reductions such as cycle time reduction, inventory reduction, Electronic data interchange (EDI) transactions are to be considered.

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cont…• One common method is to track a suppliers real cost

after adjustment for inflation. • Another way is to compare a suppliers cost against

other suppliers within the same industry.• Buyers can also use a number of qualitative factors to

assess supplier performance.

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cont…• Possible Qualitative service factors include the

following:-

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Factor Description

Problem resolution ability Supplier attentiveness to problem solution

Technical ability Suppliers manufacturing ability compared with other industry supplier

On going progress reporting Suppliers on going report of existing problems or recognizing and communicating a potential problem

Correction action response Suppliers solutions and timely response to request for corrective actions including suppliers response to engineering change request

Suppliers cost reduction ideas Suppliers willingness to help a buyer find ways to reduce purchase cost

Supplier new product support

Supplier ability to help a buying firm reduce new product development cycle time or to help with product design.

Buyer /seller compatibility Subjective rating concerning how well a buying firm and supplier work together.

cont…Type of Supplier Measurement Techniques• Organizations may use one of three supplier

measurement techniques or systems.• These systems differ in their ease of use, level of

decision subjectivity required resources to use the system and implementation costs.

• These three systems are categorical system, weighted point system and cost based system.

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cont…Categorical system• This system requires the assignment of rating to each

selected performance category.• Examples of possible ratings include excellent, good,

fair or poor. Internal users often provide input when determining the rating.

• Receiving personnel may provide input about suppliers’ delivery performance while quality personnel provide input about quality performance.

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cont…Weighted Point system• A weighted-Point system weighs and quantifies scores

across different performance categories.• This approach to supplier measurement usually

features higher reliability and moderate implementation costs.

Cost-based system• This approach qualifies the total cost of doing

business with a supplier.• The lowest purchase price is not always the lowest

total cost for an item or service.21

cont…• Other non performance cost elements include late

deliveries, returns to supplier, scrap labour costs, rework costs etc.

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2.1 Measurement of Service Providers Performance• Service delivery is distinguished from supplies

delivery and the approach of control and performance measurement is quite different.

• The scope of service industry is broad and diversified. The author focuses on non- consultant services such as cleaning, security, catering, security etc, which are common to public bodies.

• Services of that nature are characterized by:-SimultaneityPerishabilityHeterogenity and Intangibility

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Cont….• Simultaneity- production and consumption of many

services are simultaneous.• For example;catering services;serving meals is

accompanied with the manner in which it is served,language used etc.

• Most services,therefore can not be counted,measured,inspected,tested or verified.

• Perishability-If service cannot be stored they are perishable.

• This perisharibility removes the aspect of future verification/testing (eg.cleaning)

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Cont….• Heterogeneity-Many services have high labor

content.• Consequently the standard of service may vary, the

service outputs are heterogenous.• This places particular pressure on the measurement

and control systems to try to ensure consistent quality from the same employee from day to day and to get comparability of performance between employees (service providers)

• Intangibility-Most service outputs unlike supplies are intangible and some mix of tangible goods and intangible services.

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Cont….• Identifying what to measure from the mix of tangible

goods and intangible services makes the process of measuring performance difficult.

• Despite the complexity of measuring performance of services providers as compared to suppliers the common approach of measuring services providers of that nature is by setting Service Level Agreement/ Standards under which actual performance should be benchmarked.

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3. LEGAL ASPECTS ON SUPPLIERS’ PERFORMANCE

• The Public Procurement (Goods, works, Non-Consultant Services and Disposal of Public Assets by Tender) Regulations, 2005, requires the Accounting officer to appoint a goods inspection and acceptance committee whose duties shall be to ascertain that delivered goods are of required quality and quantity as stipulated in the contract document.

• The condition of contract, however, explains in detail how the inspection shall be conducted and it provides for rejection of the supplied goods in case they fall short of the requirements.

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Cont…• The conditions of contract further captures important

information with regard to timely and safe delivery of goods failure of which shall attract liquidated damages from the supplier or forfeiture of performance bond, timely payment by the PEs and resolution of disputes.

• It also provides for warranty on the delivered goods.

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4. PUBLIC SECTOR EXPERIENCE ON SUPPLIERS’ PERFORMANCE

• Public sector is part of the National economy concerned with providing basic government services.

• In this context the public sector comprises of Procuring entities which are MDAs,LGAs, parastatal organizations, anybody corporate or statutory body or authority established for the purpose of the Government, and according to PPRA records the number of registered PEs is about 380.

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Cont….

• On the other hand supplier has been defined by the PPA No.21 of 2004 as a company, corporation, organization, partnership or individual person supplying goods or services, hiring equipment or providing transport services and who is according to the contract a potential party to a procurement contract with the procuring entity.

• A supplier in this context refers to a part that supplies goods and services and may be distinguished from a contractor or subcontractor /manufacturer who commonly adds specialized inputs to deliverables also called vendor.

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Cont….

Supplier performance follow-up• One important aspect of supplier performance is to

comply with terms and conditions as stipulated in the contract.

• Follow up on the state of what has been bought has been delivered, to ensure that the procuring entity is satisfied.

• The extent of the follow-up may vary depending on the contract value or the commodity involved.

• Responsible procuring entity staff should establish any expected delivery follow-up requirements at the time the contract is being set up.

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Cont….

• In many cases problems arise during implementation because mitigating measures were not taken into account during the preparation of the bidding documents and contract.

• It is normally required to deal with report of unsatisfactory delivery immediately.

• Decision must be made on a supplier who has not delivered goods of the expected quality or who has not delivered on time on whether it should be considered as in contract default and what steps should be taken.

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Cont….

• Supplier performance follow-up is also responsible for dealing with suppliers whose goods, during the warranty period, become defective or fail to meet contract requirements as a result of faulty manufacture, material or workmanship.

• The scope of the public sector is large and diversified, thus becoming difficult to assess all performance factors. The most common factors used to assess supplier performance are:-

Quality performance• Experience from the public sector has shown the

following on quality performance;33

Cont….

Lack of knowledge on technical specifications • Although renderers agree to comply with technical

specifications at a tendering stage and signing the contract, upon Supply of technical goods such as IT equipment and other accessories of sophisticated nature most of deliveries do not conform to the specifications, as result the whole consignment or part of it is rejected causing unnecessary delays and add costs to the operations of the organization.

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Cont….

Poor Performance of the service providers • Most of the service providers have no capacity to

provide services as per contracts, for instance collection of solid wastes (SW) in cities and Municipality is critical problem as a result the amount of solid wastes in big cities and municipalities threatens the public health.

• This was revealed in the report of the Controller and auditor general for the year ending 30th, June 2009 on big cities and Municipal councils of Tanzania.

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Cont….

• The performance Audit revealed that most of the community based organizations (CBOs) which are procured abandon their work after a short time or for those who keep on working are under performing.

• Most of them, small or newly established companies have limited financial resources or they consist of small groups of people with no or little experience in the field.

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Cont….

Delivery performanceGoods Procured and paid for but not delivered• The law provides that where receipts of goods is

delayed or seems likely to be delayed beyond the time for delivery stated in the contract, the procuring entity shall seek reports and explanations from the suppliers or their agents and may institute liquidated damages/changes as may be provided (PRR, 122 (2) Goods, non-consultant services and disposal of public assets by tender).

• It is revealed in practice that some suppliers have been paid but no delivery has been made.

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Cont….

Supplier cost reduction performance• Most of suppliers for routine items are SMEs whose

capital base is small to run the business. Lack of initial capital for procurement usually compels suppliers to request advance payment to facilitate procurement of supplies, make partial deliveries or fail to deliver

Other factors affecting supplier performanceLimitation on product information• Many SMEs have limited access to information as

regard to new products and supply market trends as such no update information or advice can be provided

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Cont….

Language Barrier• English language used in tendering process and other

procurement transactions hinder common understanding on some important issues during contract implementation.

• A critical scenario is when the goods are supplied from countries whose languages are not common e.g Chinese, Japanes etc. This poses a challenge in communication between the two parties

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5. CONCLUSION• Public sector views on supplier performance are not

supported by statistics, the author is of opinion that supplier performance should be measured systematically and use records for improvement

• Since SMEs form big part of the public sector supplier base, It is therefore important to develop capacity building strategy to improve their performance.

• The experiences on supplier performance highlighted may not be exhaustive .It is however the expectation of the author that delegates of this conference may have more to share from their own experience.

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THANK YOU THANK YOU FOR LISTENINGFOR LISTENING

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