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QUESTION 3

Describe five ways in which the objective of economic viability in a private sector organization will impact on its procurement activities

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Economic viability defined

Economic viability refers to the ability of a business, project, or investment to generate sufficient revenue and profit to be financially sustainable and worthwhile over the long term.

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Private sector defined

A sector of the economy that is owned, financed and run by private individuals (CIPS, 2023:91)

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1. Supplier selection

  • Procurement professionals will evaluate the financial stability and long-term viability of potential suppliers.
  • They will also want to ensure that the prospective suppliers can reliably deliver goods/services at the agreed cost over the long term.

Carter`s 10 Cs can also be applied:- (Refer to page 78)

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Competency

Cash

Capacity

Commitment

Control

Cash

Cost

Consistency

Control

Culture

Clean

Communication

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2. Contract negotiation

A process through which parties move from their initially divergent positions to a point where agreement may be reached (Steele & Beaser, 1999)

The bargaining power and terms in procurement contracts are heavily influenced by the relative economic viability of the buyer vs. the supplier.

  • Price
  • Quality
  • Payment terms

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3. Supplier evaluation

  • Supplier evaluation is the formal process of assessing potential and existing suppliers to determine if they are a good fit for your business needs.
  • It's essentially a way to identify the best suppliers to partner with.

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4. Supply Market Analysis

  • Supply market analysis is a technique used to identify market characteristics for specific goods or services.
  • It provides information that is critical to developing effective procurement strategies, in the context of planning for significant procurement
  • Number of suppliers on the market
  • Price

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5. Service Level Agreements

  • These sets out the minimum expected level to be met by the supplier
  • It defines how the service delivered will be measured and how any conflicts will be dealt with should the service levels not be acceptable (See page 88)

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Negative implication

  • Negative externality of production
  • Morden slavery
  • Production of poor quality or substandard goods