2. Procuring an Asset

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email:[email protected]

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Find out more at w

ww

.kodak.com/go/gold

Print eye-catching, margin-driving m

etallic gold with the

Kodak NexPress D

igital Production Color Press

It‘s a Gold Rush!

Add visual im

pact to your comm

unication with

Kodak NexPress G

old Solution — a flexible w

ay to add metallic

sparkle to your digital print applications such as small-form

at packaging, signage, direct m

ail, premium

photo merchandise and m

arketing collateral.

Caroline Coughlan+27 11 688 6116em

ail:[email protected]

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2/'

�DGB(1B��[��BDQWDOLV�LQGG��

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Find out more at www.kodak.com/go/gold

Print eye-catching, margin-driving metallic gold with the

Kodak NexPress Digital Production Color Press

It‘s a Gold Rush!

Add visual impact to your communication with

Kodak NexPress Gold Solution — a flexible way to add metallic

sparkle to your digital print applications such as small-format packaging,

signage, direct mail, premium photo merchandise and marketing collateral.

Caroline Coughlan

+27 11 688 6116

email:[email protected]

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Pro

curing an asset is

almo

st like getting

married

; o

nce the knot is tied

(asset is p

rocured

) there is a ho

st of facto

rs that co

uld co

mp

licate early term

ination. Fo

r this reason

we reco

mm

end that eq

ual attentio

n is directed

to the

evaluation and

planning

as to

the pro

curement o

f the asset.

In a previous series, ‘Precision Printing Series’ we

focused on methods to calculate best levels in a

print room to obtain optim

al availability, minim

um

interaction and premium

quality.

In this article we w

ill provide an overview of

the basic controls and governance within the

procurement process, w

hich if followed, w

ill assist you in a long fruitful relationship w

ith your assets and their suppliers…

until rust do you part.

TENDER GOVERN

ANCE

Tender Governance is generally enforced by law on

State Owned Enterprises. Form

al controls within

procurement processes are subscribed to be in

accordance with a system

which is fair, equitable,

transparent, competitive and cost-effective.

A formal procurem

ent process offers essential value to an organisation and should be adopted by all organisations, irrespective w

hether or not it is required by law.

Listed below are the m

ajor legislative articles for additional reading:

PFMA (M

FMA) – Public (M

unicipal) Finance M

anagement Act – regulate all m

atters relating to public finance m

anagement.

By Rian

van

deR M

eRwe

ASSE

T LIFE

CY

CLE

M

AN

AG

EM

EN

T SER

IES

PRO

CU

RIN

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SSET

A FO

RM

AL P

RO

CU

RE

ME

NT

PR

OC

ESS O

FF

ER

S ESSE

NTIA

L VA

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TO A

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AN

ISATIO

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PROCESS SELECTION

As mentioned above, there is no official

legislation that require private and public com

panies to follow legislative procurem

ent guidelines, how

ever as also stated, we believe

that there is huge value in these processes and they should be investigated seriously.

Well run com

panies have supply chain policies and follow

similar processes w

ith material

acquisitions. These policies would typically state

Section 217 more specifically deals w

ith Procurem

ent Regulations;PPPFA – Preferential Procurem

ent Policy Fram

ework Act – prescribe the policies and

procedures that all state owned entities need

to oblige by when procuring anything above

certain thresholds;

These articles are freely available on the internet and should be studied by organisations that are serious about doing w

ork within the Public

Sector.

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HP

the monetary value above w

hich all acquisitions w

ould be subjected to a tender process, generally referred to as an RFP (Request for Proposal).There are tw

o types of RFP’s : open and closed RFP’s. The rule of thum

b is that a bid should be open, unless for specific reasons w

hich motivate

a closed bid to specific participants only.

When the m

onetary size of a transaction falls below

the minim

um requirem

ent for a form

al tender (generally documented in the

organisation’s procurement policy), organisations

should at least obtain a minim

um of three

quotations, based on a specification sheet provided to the suppliers (RFQ, or Request for Quotation).

DETERM

INE TH

E ASSET REFRESH

RATE

Different assets have different life expectancies. The ‘cost of asset’ reflected in an organisation’s m

onthly income statem

ent has a key bearing on its life expectancy and is therefore essential to understand w

hen selecting a specific financial m

odel.

When the selected period is longer that the

assets life expectancy it would put the asset

at risk of constant failure or early termination.

The initial low fixed cost of an asset w

ill not be sustainable as early term

ination often comes at

a high cost.

There are further often a generally accepted refresh rate on assets. To illustrate this concept, consider m

obile phones – two years, passenger

cars – hundred thousand kilometres, etc.

Refresh rate theories are also defensible using justifications such as: 'Technology changes so fast, you cannot afford to be left behind'.

Make sure to take a close look at the chosen

refresh rate and negotiate the options to sweat

the asset for as long as you still have productive thereof.

COM

MERCIA

L MO

DELLIN

G

There are so many different com

mercial m

odels available in the m

arket. To list but a few:

Outright purchase with a m

aintenance contract

Equipment rental/lease contracts

Outsource, insource, co-source

Pay for use

There are a number of considerations in selecting

the correct comm

ercial model w

hich will differ

amongst com

panies as each organisation has different needs. Selecting the w

rong model could

lead to inflated costs and lack of efficiency.

The following key com

ponents should be considered w

hen selecting a comm

ercial model:

OWN

ERSHIP – does your company have

the appetite, capital, infrastructure and/or cash flow

to own the asset? Or does your

company have the sureties and creditability

to rent?

EXPERTISE – do you have in-house expertise to adm

inistrate and manage the asset?

RISK – can you afford to take the risk associated w

ith the asset within your

business model w

ith your clients?

FLEXIBILITY – should your business suddenly change in volum

e or requirement, can you

adjust and at what cost?

Selecting the right comm

ercial model is key and

organisations should give this a lot of thought. M

ost organisations end up sticking to the model

that is known to them

. This may be the right

decision, however, som

etimes challenging these

core disciplines in one’s business could lead to grow

th and therefore we w

ould recomm

end that you consider your com

mercial m

odel every time

you invest in a material acquisition.

With a com

mercial m

odel selected, the focus should shift to ensuring that the tender includes a costing sheet that enables you to correctly consider all costs associated w

ith the asset, including all hidden costs, escalations, etc.

Without going into details on different

comm

ercial models, there are som

e standard disciplines that w

e can briefly list that a costing sheet should apply w

ith:

Break all costs down into the low

est form. In

other words never negotiate on all-inclusive

costs without understanding the cost broken

down into its rudim

entary form;

Remem

ber to indicate VAT;

Take annual escalations into account;

Make certain that you keep your options

open to make the best decision after having

analysed the bids.

PRE-QU

ALIFICATIO

NS

There is a lot of work required from

both the organisation that advertise the tender as for those responding. For this reason, it is recom

mended

to be extremely clear on pre-qualifications for

a tender. Prospect tenderers should be able to dow

nload the document and clearly see on the

first page what the m

inimum

requirements are to

be accepted in the bid.

Pre-qualifications should therefore be a set of m

andatory conditions without w

hich a tenderer’s bid w

ould not be evaluated technically if not met.

This could include:

A Valid Tax Clearance certificate

Proof of VAT registration

A Valid BBBEE Certification

A letter of good standing from the com

pany’s

bankCertificate of incorporationCopies of share certificatesCertified copies of directors’ ID’sProof of w

orkman com

pensation registrationASGISA registrationSABS/ICASA certificationsAudited Financials

Mandatory inform

ation requirement w

ould bring forw

ard those organisations that can focus on their service delivery and have their key business adm

inistration under control. This process is also essential w

hen you tender for business as you too need to proof your BBBEE procurem

ent spend.

In order to save time, the first step in evaluating a

tender is to confirm the tenderers’ com

pliance to m

andatory information and put bids aside that do

not comply.

SCORIN

G A

ND

WEIG

HTIN

G

Scoring is the process of evaluating different com

ponents on a scorecard between different

bids, where w

eighting is to put a weight on the

different criteria.

An accepted method of scoring a tender is to

break the tender up into components that could

include cost, technical capabilities, BBBEE, organisational capacities, etc. Each of these elem

ents should have a scorecard that is pre-defined in line w

ith what you w

ant to achieve by the tender. This scorecard should ideally have a points system

that allocate points to offerings that com

ply to set requirements.

Weighting is to put a w

eight to each of these categories in order to find a w

ay of selecting the m

ost ideal bid taking all elements into

consideration. In the PPPFA, state owned

enterprises are required to advertise their w

eighting table within the tender.

The final outcome of efficient scoring is to be able

to list offerings on a table, scored with a points

system out of a hundred and have the overall best

bid visible to you.

CLOSE

Tenders involve hard work and require dedicated

focus and attention. Suppliers, on the other hand tend to be m

ore aggressive when tendering on a

formal bid and w

hen hidden costs are excessive and only uncovered after the asset w

as procured. The final conclusion is that com

panies that im

plement strict disciplines w

ill benefit from

lower input costs and be overall m

ore sustainable in the m

arket.

Rian van der Merw

e +27 (0) 83 257 2601, (+27 11) 234 8116

[email protected]

2. Procuring an Asset

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