Comprehensive Analysis of Procurement Process

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A comprehensive analysis of the Procurement Process at

Dinesh Appavoo (200610111)
20 April 2006

1. Introduction

Discovery Health established itself as a successful and innovative company with currently the largest open medical scheme in South Africa with 1.8 million members (Discovery A, 2006: on-line). Discovery is a specialist insurance company with five strong and distinct businesses. The businesses are Discovery Health, Discovery Life, Discovery Vitality, Prudential Health (UK) and Destiny Health (USA).

Discovery listed on the JSE in 1999. The company’s strategy is to grow the business organically by building a strong foundation of innovation and engaging people in the management of their health in order to achieve better social and financial outcomes (Discovery A, 2006: on-line). While a medical aid would be an essential ‘commodity’ which consumers would not normally aspire to buy, Discovery positioned itself as a value-adding company that provides products and services that consumers want to buy. For an organisation that has approximately 4000 employees, the procurement process plays an important role in ensuring that the organization’s everyday business in not hindered in anyway. Being a service organization, Discovery believes in its people and thus ensures that they have all the tools to carry on its day-to day function without any hindrance

Procurement is the “process of buying”. One way to view the supply chain for a company such as Discovery is to divide its logistics system into inbound logistics (materials management and procurement) and outbound logistics (customer service and channels and distribution). Procurement is the department within materials management which is concerned with the process of ascertaining the organisation’s material and service needs, selecting suppliers, agreeing terms, placing orders and receiving goods and services. Discovery would like to obtain the right material, in the right quantities, with the right delivery (time and place), from the right source, and at the right price of a particular good or service it requires. It is by nature a “service “function, orientated to providing a complete supply-function service for users within the organisations.

Materials management can be described as the planning and control of the flow of materials that are a part of the inbound logistics system. Choosing the right material requires input from the business unit, marketing and procurement departments. The procurement function continues to grow in importance and complexity. As the world markets open to new sourcing networks and companies learn to link critical business functions across business enterprises, the procurement process will become a primary element of any successful company’s strategy.

Procurement is responsible for establishing the flow of materials into the firm, following –up with the supplier and expediting delivery. The procurement process at Discovery can be divided into the following categories: Procurement Cycle, Selecting Suppliers and Price Determination which would be discussed below.

2. Procurement Cycle

The activities of the procurement process apply to the purchase of both goods and services. The procurement cycle consist of the eleven points which are discussed below.

1.Identifying its needs. A procurement transaction is usually initiated by a need for a good or service by the business unit.
2.Define and evaluate the end user requirements. Once the need has been determined, the requirement has to be represented by the same type of measurable criteria which the procurement department can communicate the user’s needs to the potential suppliers. 3.Identifying the type of purchase. Purchase requisitions start with the business unit who will be the ultimate user. Depending on the price of the good or service required, the procurement department decides whether to either, get a...
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