SCM NETWORKS: CREATING EFFICIENCY AND EFFECTIVENESS

SCM NETWORKS: CREATING EFFICIENCY AND EFFECTIVENESS

Abstract

This paper examines the existence of clearly defined networks in a supply chain. An effort directed towards creating, maintaining and facilitating mesh structure to perform a range of activities through various organizations from completely different but interdependent industries. The entire supply chain seeks to attain customer satisfaction; this is achieved through unit value from the contribution of the various organizations in performing specialized activities

In striving to achieve high levels of performance, organizations seek to attain effectiveness and effectiveness. This among other reasons is affected by difference in organizational goals, control requirements and minimal commitment towards Supply Chain interests.

Introduction

In the modern global economy, Supply chain networks have evolved, becoming critical structures in the production and dissemination of goods in today’s modern as well as growing economies. Supply chains comprise of manufacturers, distributors, retailers, as well as consumers, all of whom are spatially dispersed and must respond to the change requirements (Nagurney2003). 

Supply chains function as open networks, where organizations in the downstream and those in the upstream operate interdependently to support the procurement, manufacture, distribution, handling, warehousing, packaging, tracking and final delivery of customer requirements

The supply chain is defined as a part of a network that supplies a specific product from raw material to final customer – it is a whole commercial chain embedded in the network (Hertz 2001). According to Ostrovsky (2008) networks are relationships between the nodes are represented by contracts.

Most often supply chain efficiency concerns the managing of financial flows in supply chains.

Financial flows in a supply chain are viewed to possess high potential for reducing processing costs. The efforts here are directed to reducing lead times; optimizing inventories. And on the other hand supply chain effectiveness focuses on customer value through increased responsiveness, value addition and satisfaction

Supply chain networks

These are combinations of demand and supply tiers that are connected to a collection processing point. Organizations exist to meet customer needs, these customers are immediate and also distant customers; this structure of clientele makes up a sequence of customers for a given product of an organization.  As organizations strive to meet the demand of their customers, they do so by getting in touch with suppliers. These could be suppliers of services, raw materials, components, semi finished or finished goods

Therefore the network is the mesh of organizations through which a range of activities are performed to ensure that customer demand is satisfied through provision of supplies at a margin for the supplier. Such activities are of an interrelated nature including procurement, production, distribution, warehousing, and consumption.

Creating effectiveness and efficiency in a SC

Organizations dedicated to attaining and sustaining SC effectiveness as well as effectiveness, introduce deliberate efforts designed to achieve this, this takes the following forms;

 SC network alignment and rationalization; suppliers, customers and all partners that make up a given supply chain are considered to impact on the performance of an organization’s goals in one way or another.  Rationalization aims at ensuring alignment of partners with organizational goals, elimination of Inconsistence in planning, operations and implementation. This can also be used as a strategic approach to reduce large numbers of suppliers to manageable few whose value to the organization is both visible and tangible.

Cost management; this includes identification of all, cost drivers and strategies to reduce cost throughout the product supply chain from sourcing, production, purchasing to customer order-fulfillment and service.
The cost management process is a combination of strategic efforts that are critical part of any firm’s overall competitiveness. All variable and fixed costs need to be analyzed for specific products and services, cost drivers determined and appropriate improvement strategies developed throughout the supply chain. In this case all aggregative costs should be both identified and classified into value-add for example direct labour, materials and non-value-add for example idle time, redundant inventory. Those costs that are non value adding to the organization’s supply chain then systematically be eliminated from the supply chain through combined concession by all concerned supply chain stakeholders. It is important for the organization to involve customers and suppliers within its cost management process to ensure that all decisions reached do benefit all fairly.

SC Relationships and cooperation; this facilities the smooth flow of supply chain activities through increased Information sharing, joint planning, and alignment of organizational interests.

Scholars Cannon and Perreault (1999), Lee and Whang (2000), Henriott (1999) suggest that a successful buyer-supplier relationship is connected with high levels of information sharing.

Close buyer-supplier relationships are also responsible for increased flexibility, lead time reduction, and reduced non value adding activities within the supply chain.

Reverse logistics networks management; Reverse logistics is concerned with the requirement to plan the flow of surplus and unwanted material back through the supply chain after or before meeting customer demand. Return systems can take the form of recycling, product recalls. Managing return can help control the escalation of unplanned costs in terms of defects, reputation, financial reinvestments, and loss of time. The principal drivers of in reverse logistics include; the increased importance attached to the environmental aspects of waste disposal and recognition of the potential returns that can be obtained from the reuse of products through innovative efforts

Conclusion

From the smallest of units to large organizational structures, well aligned, rationalized supply chains are important in increasing profitability, achieving cost efficiency and improving customer value thus efficiency and effectiveness

References;

Hertz, S. (2001), “Dynamics of alliances in highly integrated supply chain networks”, International Journal of Logistics: Research & Applications, Vol. 4 No. 2, pp. 237-56.

Michael Ostrovsky (2008), Stability in Supply Chain Networks American Economic Review

Anna Nagurney and Jose Cruz , June Dong and Ding Zhang, Supply Chain Networks, Electronic Commerce, and Supply Side and Demand Side Risk revised October, 2003; appears in European Journal of Operational Research (2005), 164, pp. 120-142.

Stanley E. Fawcett and Gregory M. Magnan (2001) Achieving World-Class Supply Chain Alignment: Benefits, Barriers, and Bridges

Cannon, J.P. and W.D. Perrault (1999), “Buyer-Seller Relationships in Business Markets, “Journal of Marketing Research, 36, 3, 439 - 460

Lee, H. L. and S. Whang (2000). 'Information Sharing in a Supply Chain' International Journal of Technology Management Vol 20 No 3/4 pp 373-387

Henriott, L. (1999), "Transforming supply chains into e-chains", Supply Chain

Management Review, Global Supplement, No.Spring, pp.15-18

By Ronald TUMUHAIRWE

BPSCM (MUK), MPSM (Student, MUK), MCIPS (UK), CSCMP (US)

PUBLIC PROCUREMENT AUDITING:

SCOPE OF PUBLIC PROCUREMNET AUDIT AND COMPLIANCE

Ø  Procurement Structures	Ø  Procurement Planning
Ø  Solicitation Document s	Ø  Record Keeping
Ø  Bidding procedures	Ø  Evaluation procedures
Ø  Contract placement, award and management	Ø  Reporting Requirements
Ø  Performance of the Contracts Committees	Ø  Value For Money - Price relative to market price & whole life cycle cost
Ø  Follow up on implementation of recommendations

OBJECTIVE OF PUBLIC PROCUREMNET AUDITING

Ensure the application of fair, competitive, transparent, and non-discriminatory and value for money procurement and disposal standards and practices. The Department’s mandate is also spelt out under Regulation 6 and 12 of the PPDA Regulations No 70 0f 2003.

DEFINITION OF PUBLIC PROCUREMENT

Public Procurement, as per the Public Procurement and Disposal of Public Assets Act 2003 (PPDA 2003)can be defined as the acquisition of goods, works and consultancy services with the Government appropriated fund for public use through the Ministries, Departments and Agencies (MDAs) and the disposal of Government assets on behalf of the Government.

WHAT IS PUBLIC PROCUREMENT AUDITING?

Public Procurement Auditing can be summarily defined as a statutorily approved examination or investigation of public procurement processes and practice over a given period of time by an appointed and qualified Procurement Auditor. It is very important to emphasize that the purpose of Public Procurement Auditing is not to indict any concerned Entity but to simply ascertain whether or not, the public procurement Law, policies and practice have adhered to within the public procurement framework.

WHO UNDERTAKES THE PUBLIC PROCUREMENT AUDITING?

The PPDA and other third party firms after qualifying through a rigorous due diligence process are allowed to carry out Public Procurement Audit in Entities by virtue of the PPDA Act 2003, which gives the authority the power to perform procurement audits and submit such report to the user i.e. Auditor General office, IGG’s office ,National Assembly etc.

WHO IS A PUBLIC PROCUREMENT AUDITOR?

In order to comply with the law and guarantee effectiveness and efficiency in carrying out the auditing assignment, a Public Procurement Auditor shall:-

Ø  Be procurement expert

Ø  Be staff of the authority (PPDA) or an external expert or a firm but not personnel to the procuring entity or the MDA where the procurement activities took place within the year under investigation. This is meant to ensure independent and objective examination of the procurement processes therein.

Ø  Be knowledgeable in the Public Procurement processes, guidelines and practice and the relevant provisions of the PPDA Act 2003.

Ø  Be a person of high integrity and principle. This means that he must have the wherewithal to protect his name, profession, the public whose fund has been expended and have the guts to maintain his ground when tempted or threatened.

Ø  Be a person of inquisitive and analytical disposition combined with perseverance. These professionally developed virtues will enable the expert to probe, critically but objectively assess records and in a calm, objective and enduring manner.

CRITICAL ISSUES THAT ARE ADDRESSED BY THE PUBLIC PROCUREMENT AUDITING

These are the important areas and issues that the Auditors must ascertain that Entities adhered to while carrying out their procurement activities within the period under examination. These areas include:-

Project Planning

The Auditor is expected to investigate and establish that the procurement being audited was originally planned for. By extension, there must be evidence that there was needs assessment for it, that there was a design or drawing if it is for the procurement of works, if there was an in-house estimates for it, that it was duly budgeted for and that an agreed procurement method was employed.

Placement of the procurement advertisement

Advertisement is a critical element employed in procurement to ensure competitiveness, transparency, value for money. As such, the Auditor shall investigate that the procuring entity, depending on the prior threshold, placed the advertisement in a national and/or local newspaper or notice board as the case may be. The said advertisement shall describe the procurement and its scope in a manner that those expressing interest will be properly guided and also state all the criteria that was used to pre-qualify the bids. Furthermore, he must see evidence that there was a stated deadline for the submission of bids in terms of date, time and where the bids were to be dropped. If there was an extension of bid submission period, for any reason(s), its proof shall be sighted by the Auditor. The essence of this exercise is to ensure that the procurement was not discriminatory.

Evidence of pre-qualification

Another issue is that the Auditor shall examine the records of the procuring entity to establish the evidence of pre-qualification for the procurement. In this regard, he shall see records that there were, at least, three companies or bidders for the procurement, including where the bidders registered their bids. The Auditor shall also authenticate that the pre-qualification criteria were openly stated and in unambiguous manner, that there were records of documents submitted by each bidder for the procurement. In other to establish the legitimacy of the bidders, the Auditor shall examine evidence of the bidders’ compliance with the statutory requirements; these include evidence of incorporation/registration with the Registrar of companies, Audited Accounts, Tax Clearance and VAT registration with the Uganda Revenue Service, payment of the contributory pension scheme of its Staff, where the business entity has 5 or more Staff, among others. It is extremely important that the Auditor shall authenticate by seeing a report that the bids were collated and duly evaluated by constituted Committee.

Evidence of bidding process

The Auditor has an important duty to establish that all the pre-qualified bidders were duly invited to bid with such a letter issued to them. He shall see the actual blank bid documents/priced BOQ, project designs/drawings or full specifications issued to the bidders. There must be records or register, also, of all returned bids and amendment to bid(s), if any. In other to establish that there was no conflict of interest within the Entity, the Auditor must see a document to that effect, if any.

Evidence of Bid Opening

Bid opening is an important issue in procurement of which the Auditor shall ensure that it took place during his examination of the books/records of the procuring entity within the year under review. In order to authenticate this, he must see evidence of the advertisement of the bid opening and even investigate that the date stated therein was actually the date the bid was opened. In this perspective, he must see the bid return sheet duly signed by representatives of the procuring entity and the bidders, evidence of the invitation sent to representatives of the statutorily known Observers, register of all the people who attended the bid opening and the comments and minutes of the bid opening.

Evidence of Bid evaluation

Bid evaluation is very critical in determining an award of contract. It is also extremely technical and sensitive because the fate of bidders is almost determined at this stage. As a result, the Auditor shall see and examine the list of bids evaluated, responsive issues raised, if any. The responsive issues may be whether the bids were properly signed; power of attorney, if there is need, etc. The Auditor shall also obtain from the procuring entity the evaluation report, record(s) of errors allowed or not, if any, record of currency conversion, if any, record of bid rejection and its reason, if any, and singular or general compliant(s) and how it was resolved, if any.

Evidence of Award

The Public Procurement Auditor is expected to ascertain here, whether the lowest responsive bidder was awarded the contract or not and the reason for the decision. He has to also ascertain if the winning bid specify realistic or unrealistic rate as the lowest bidder. Furthermore, he must see evidence that the award approval is from the competent committee, may be, the Contracts Committee or not, the date of award, and a duly signed and sealed contract agreement.

Evidence of payment to the Contractor/Consultant

It is the responsibility of the Public Procurement Auditor to ascertain what, how and when the Contractor/Consultant was paid for the job executed or being executed. In view of this scenario, the Auditor is expected to find out whether the Contractor was mobilized. If yes, at what percentage, when and the stated operational clause(s). He is expected to see evidence of progress report(s) on the contract by the Consultant or Supervision Team, report(s) from the resident/internal Auditors for payment(s) and whether payments were actually made in accordance to approved bill or stated contractual clauses. He is equally empowered to ascertain if there was a review of payment or the contract sum or delay in payment and the reason(s) for such decision or occurrence(s).

Typical Risks to a Procurement System

Listed below are common risks identified at the outset of a procurement audit:

Ø  Goods ordered are not required by the organisation.

Ø  Goods ordered do not comply with corporate policy.

Ø  Goods ordered do not provide value for money.

Ø  Goods are not received by the organisation.

Ø  Lack of a central purchasing policy may not provide the opportunity to negotiate discounts and best prices.

Common Issues

In reality, the main risks identified above may not materialise. Detailed below are issues that usually arise in an organisation as a result of a procurement audit.

Ø  New employees do not have access to purchasing procedures.

Ø  No formal vetting of contractors.

Ø  Lack of a coordinated approach to purchasing.

Ø  Use of out-of-date or incorrect order forms.

Ø  Authorisation of orders by individuals who do not have the authority to do so.

Ø  Use of alternative suppliers as opposed to the preferred suppliers catalogue.

Ø  Non-compliance with Financial Regulations, for example the number of quotes obtained.

Controls

In light of these issues, the internal auditor should make the following recommendations:

Ø  Management should ensure that new employees responsible for purchasing are provided with purchasing procedures and are required to sign a statement stating that they have read and understand the procedures.

Ø  Formal vetting of contractors should take place by way of credit checking and obtaining references.

Ø  Departments should return all old order forms to the Purchasing Officer. The purchasing procedures should include a section that all old order forms used will be returned to the individual making the order.

Ø  A Purchasing Officer should be appointed to coordinate the purchasing policy (this is particularly relevant if the organisation has recently devolved it’s purchasing system).

Ø  The officer checking the order form should ensure that the signatory who signed the order form is actually authorised to do so.

Ø  Where alternative suppliers are used as opposed to preferred suppliers, a record should be kept of the reason for use (for example, if the alternative supplier quoted a lower price). This recommendation could be further enforced by inclusion in the purchasing procedures.

The list above details common issues that usually occur within an organisation. The issues all depend on the findings of the audit and on the robustness of the internal controls in the system.

CHALLENGES OF PUBLIC PROCUREMENT AUDITING

The challenges facing the public procurement auditing are many and daunting at the moment and therefore need collective efforts of the Stakeholders to solve them. The challenges include but not limited to:-

Lack of adequate personnel/experts

The experts required to carry out public procurement auditing in all the entities in Uganda, over a given period, are grossly inadequate at the moment. The PPDA as the regulatory public procurement body do not have enough personnel to carry out the function and as such most often hire external Consultant/Auditors to carry out the duty. Besides, there are few procurement Consultants who have detailed knowledge of the scope and dynamics of public procurement auditing as required by the PPDA Act 2003.

Attitude of the Entity’s Procurement Officers

Most of the Entity’s Procurement and other Officers erroneously believe that the aim of the auditing is to indict them for the purpose of reporting them to the Security Agencies for prosecution. This situation has often resulted to the said Officers not co-operating with the Auditors or perceiving the Auditors as enemies.

Lack of procurement expertise by the Entity’s Procurement Officers

Evidence has shown that most procurement Officers at the Entity’s, at the moment, do not understand in details, the technicalities of the public procurement practice as enshrined in the PPDA Act 2003. As a result, they do not maintain the required records/books that will aid the Auditors to carry out their assignments.

Ugandan Factor/operational environmental challenges

The Ugandan factor also plays a great role in trying to frustrate the Auditor. In most cases, Entity’s Staff do not keep good records, do not have conducive environment to carry out the assignment, do not keep to scheduled appointments for the assignment, etc, resulting to date lines not being met.

Unnecessary attempts to influence the Auditors

Most Procurement Officers in the Entity’s prefer to attempt to influence the Auditors instead of presenting their procurement books/records for auditing. At arrival at some Entity’s, Auditors are confronted with promises if they would write favourable reports without even looking at the appropriate books.

Non commensurate honorarium payment to the Auditors

 At the moment, public procurement Auditors are not being adequately remunerated. Since they are often engaged to audit procurements worth millions or billions of shillings and still being paid pittance, they should be adequately remunerated to avoid succumbing to the ‘‘juicy financial’’ temptations of the procuring entities.

Improper maintenance of procurement records by the Entity’s

It is evident that most Entity’s do not have good record management system that will ensure effective and efficient performance of public procurement auditing. In most cases, the records/books are not kept or half hazardly kept to the extent that the Auditors cannot sufficiently extract required information and therefore usually frustrated. Sometimes, it has been established that these are ploys adopted by Entity’s Officers to ensure non-auditing of their books; which unfortunately is detrimental to the concerned Entity.

Conclusion

The Public Procurement Auditing is one of the veritable instrument of ensuring efficient and effective Public Procurement system and practice in Uganda. It is a statutory function of PPDA that is undertaken periodically to ascertain to what extent the Public Procurement activities in the Entity’s have adhered to the laid down Public Procurement policies, guidelines and practice. To a large extent, the exercise is gaining ground fairly in the country, though with great challenges and promises for a rosy future for the Procurement system, the country and procurement experts.

By Jimmy Ameny

BPSCM - MUK,MCIPS - UK

A PRESENTATION ON EXPERIENCES IN LOGISTICS AND TRANSPORT MANAGEMENT INDUSTRY IN UGANDA

Globalization of the world economy and our supply chains has advanced at an almost unbelievable speed. Growth in world trade, and corresponding cargo container movements, continues to substantially exceed overall economic growth, meaning that trade volumes are doubling every 5-7 years

Logistics management is an interesting field though with challenges. It’s one of the areas that is not yet fully utilized.

Logistics is all about the management of goods and information along the supply chain. It involves management of the movement of goods on all the major modes of transport that is road, rail, air and water transport. 

From my experience it normally involves the following activities;

• Sourcing and management of transporters
• Transportation mode and carrier selection
• Production of status reports on the movement of cargo
• Update on truck arrivals
• Preparing local shunting return & payments.
• Cargo tracking
• Monitor long distance truck turn around
• Supervise all Rail Loadings for exports & empty containers.
• Maintain various spread sheets related to rail.
• Vehicle Load and Route optimization
• Transport costs and scheme simulation
• Track/follow exports loaded till arrival Mombasa.
• Collects T1s, IM8s & other documents and also export documents/FRTS & delivers to respective parties.

Challenges

• Pressure from the clients
• Theft of cargo by transporters
• Loss of cargo through accidents
• Delays related to customs clearance especially with cargo moving across countries
• Unstable fuel prices that raise transport charges
• Lack of enough facilities like forklifts and other machinery necessary for loading and offloading cargo
• Lack of facilities related to storage as there is need for storage of cargo as you process documentation for the transported goods.
• Also the field is still highly manual as little information technology is being applied in this area.

Key success factors for logistics management

• Total Delivered Cost Management - involves the ability to analyze and predict the total supply chain costs from the source of supply to its final point of distribution
• Global Logistics Process Automation - Technology that greatly automates many of these manual booking processes, managing global transportation carriers, rates, and execution in a single environment
• End-to-End Visibility
• Supplier Portals and ASN Capabilities - Accurate Advance Ship Notices (ASNs) from overseas suppliers is critical for both effective inventory planning and to streamline the inbound flow of goods
• Total Product Identification and Regulatory Compliance
• Dynamic Routing
• Variability Management
• Integrated International and Domestic Workflow - Logistics leaders need to deploy technology that enables them to have a single “work space” that contains both functionality and data across the full international planning and execution lifecycle.
• Integrated Planning and Execution Platform - Logistics leaders need to deploy technology that enables them to have a single “work space” that contains both functionality and data across the full international planning and execution lifecycle.
• Financial Supply Chain  Management    

 By Bonny Bagenda

(Msc.Trasport & Logistics mgt - Dar Univ,BPSCM - Mak,CIPS)