Supplier Selection Criteria in Public Procurement

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Abstract

Selecting and evaluating the right suppliers is important for organizations’ global marketplace competitiveness. The need to improve organisational efficiency, reduce waste, overcome supply chain risk, and achieve competitive position has made companies to start considering appropriate factors for supplier selection and evaluation. To this extent, environmental and sustainability management is playing an increasingly important role in business supply chain management in a dynamic global business environment. Consequently in today’s competitive business environment the choice of the best supplier have become a major strategic issue that needs scientific, rational and efficient evaluation criteria. The need for comprehensive criteria and methods that conform to environmental and sustainable concern prompted this study. The study used structured questionnaire to ascertain the importance that public institutions attach to supplier evaluation criteria. The data was analysed using descriptive statistics and scale ranking. The findings revealed that many public institutions rate delivery (4.48), quality (4.48) price (4.27), and warranties claims (4.09) criteria high and important for supplier selection and evaluation relative to the other sustainable criteria for example reusable and recyclable materials which were rated 1.94 and 1.85 respectively. This suggests that the use of these modern business criteria is not yet fully integrated into Ghanaian business practices. This study offers recommendations to public procuring entities and the PPA to review procurement practices to include modern business criteria of environmental and sustainability concerns. 

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1.      Background to the Study 

According to (Završnik 1998) the activity that in a sense underlies the realisation of all other objectives of a good purchase decision in procurement is the selection of the supplier. He said even when a buyer might have done his homework in identifying the right product to meet his needs; the achievement of the buyer’s objective will ultimately depend on how well his selection of the supplier has been. Thus, the importance of selecting a dependable and reliable supplier is self-evident. He concluded that it is in this context that supplier assessment and evaluation has received great attention in procurement management and the procurement task has become more complex including the need for sourcing for reliable and dependable suppliers which he said has become more important than even before. 

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The business dictionary defines a supplier as a party that supplies goods or services.A supplier may be distinguished from a contractor or subcontractor,who commonly adds specialized input to deliverables.This study adopts both sides of the definition, combining a supplier to be a party that supplies goods or services and may add a specialized input to the deliverables and also perform the assignment. Therefore a supplier will mean a contractor/subcontractor, a producer, tenderer or a seller of some items or service. The Australian competition and consumer commission define suppliers as manufacturers, importers, wholesalers, retailers and hire companies who the commission  recognises a part the of the supply chain who has a role to play in ensuring products meet safety standards and unsafe goods do not go on the market.  Acknowledging the important roles of suppliers, Gary and Reaume (n.d) said, suppliers have roles to ensuring superior quality, cost, service and technology by ensuring that their direct material/service suppliers comply with the requirements of ISO/TS 16949:2002 and adopt the standards of Zero Defects and 100% On Time delivery. Beil (2009) also defined supplier selection as the processes by which firms identify, evaluate and contract.

Certain of these important roles in the supply chain and the contribution to the economy, Asamoah et al. (2012) agree that in as much as supplier evaluation and selection has become a very important area of consideration for purchasing managers in today’s highly competitive environment, organizations stand to reduce costs of the purchasing processes and improve the company’s overall competitive advantage when the opportunity to select the right supplier is taken seriously. They therefore advised that organizations integrate into their core strategic decisions, supplier selection process and evaluation as key activities to help in supplier assessment and evaluation to ensure that the full benefit of suppliers’ in the supply chain is achieved. In a study by Rowlinson (1999b) cited by  (Miller et al, 2009), they said the primary issue that is often generally raised for example within the construction industry relates to what clients want in order to be satisfied with their buildings and the means by which those buildings have been procured. Consequently, they said it is important to evaluate the clients’ criteria, their importance and then seek performance to match those criteria. All clients require their buildings to be completed on time, within budget and to the highest quality he concluded.

Procurement Guidance material (2009) mentioned that, supplier selection is a complicated decision problem that involves balancing many tradeoffs where any set of criteria must be considered in light of real-life constraints. Confirming the above statement, the United Nations Development Programme (2010) advised that, in selecting suppliers for bid for contracts, the selection method needs to be logical and structured to avoid any criticism or implication of impropriety.

According to (SAP 2010) modern procurement organizations are now viewed as key to enabling the organization as a whole in achieving its strategic objectives of cost-cutting, meeting corporate social commitments, and ensuring that strategies are sustainable and can pave the way to the future. Although there continues to be intense pressures on procurement organizations to continue to deliver savings, control costs, and drive operational and process efficiencies, the issues of sustainability and corporate social responsibility continue to grow in importance. The survey said the focus is not only on internal policies but also on ensuring that suppliers are instituting their own aligned policies for sustainability and social responsibility. 

In a recent study of the Ghanaian pharmaceutical industry by (Asamoah et al 2012) on supplier selection criteria for evaluation, it revealed that, regulatory compliance, quality, cost, service, supplier profile and risk were the common criteria most buyers consider before selecting suppliers. Their study discovered that, the 74 articles reviewed show that net price, delivery and quality were discussed in 80%, 59% and 54% of the articles reviewed respectively, and that these three criteria were rated as having extreme or considerable importance. Moreover, production facilities and capability and technical capability criteria were discussed in 31% and 20% of the articles respectively and were also rated as having considerable importance. They concluded that, geographical location was discussed in 22% of the articles and was rated as having average importance too.

 In Ghana, the PPA Act 663 of 2003 serves as a guide that provides guidelines and procurement procedure for public procurement entities to ensure a judicious, economic and efficient use of state resources ensuring that public procurement is carried out in a fair, transparent and non-discriminatory manner. Among other criteria, the Act 663 states that tenderers/ suppliers possess the necessary professional and technical qualifications and competence; financial resources; equipment and other physical facilities; managerial capability, reliability, experience in the procurement object and reputation; and the personnel to perform the procurement contract (PPA Act 663 of 2003). 

Green et al (1996) said green/sustainable supply refers to the way in which innovations in supply chain management and industrial purchasing may be considered in the context of the environment. They added that, environmental impacts, either actual or potential should be distributed throughout the chain including in design/specification, through tendering, purchasing and distribution, rather than just in production and although the product is in use or being disposed of. Meanwhile, they predicted some level of difficulty for companies striving for environmental improvement in the supply chain in the absence of an environmental management system. However, they suggested such companies begin to integrate environmental criteria into their purchasing policies and procedures which they mentioned involves designing management information systems and supplier assessment procedures which take account of supplier environmental performance and changes in performance over time.

 Definition of Terminologies

According to Ghana Integrity Initiative (2007), Public Procurement is the acquisition of goods and services at the best possible total cost of ownership, in the right quantity and quality, at the right time, in the right place for the direct benefit or use of government, corporation or individuals, generally via a contract. It can be said to be the purchases of goods, services and public works by government and public institutions. It has both an important effect on the economy and a direct impact on the daily lives of people as it is a way in which public policies are implemented.

Oppong (2013) also define public procurement as the process by which large amounts of public funds are utilized by public entities to purchase goods and services from the private sector. He said it therefore involves the acquisition of goods and/or services at the best possible total cost of ownership, in the right quantity, quality, time and place for use by government and public organizations.

Procurement is the overarching function that describes the activities and processes to acquire goods and services (www.NextLevelPurchasing.com). Supplier selection is the process by which firms identify, evaluate, and contract (Beil 2009).

2. Problem Statement 

The Ghanaian Public procurement is directed toward achieving judicious, economic and efficient use of state resources. It is therefore an economic instrument that assures of national development. The main objective of the Public Procurement Act 663 is to harmonize public procurement processes in the public service, secure judicious, economic and efficient use of state resources, ensures fair public procurement, transparent and non-discriminatory and to reduce or eliminate corruption in the procurement process (Public Procurement Act 663, 2003).

Despite the important role played by the Procurement Act to ensure that the above is achieved, it appears that the factors set out in the Act for the selection and evaluation of suppliers are not comprehensive enough. The focus for the selection and evaluation is based on the lowest evaluated price and this method exhibit an inherent weakness. In that, the Act ignores current business climate criteria, environmental, waste and all other sustainability issues. Researchers and practitioners have realized that lowest-price is not the promising approach to attain the overall lowest project cost upon project completion (Awal, 2003). This research work is therefore an attempt to collect data to examine modern criteria for supplier selection and evaluation that can be adopted by procurement entities to factor in criteria that are of current business environmental issues with globalization and sustainability concerns. This should place Ghanaian companies in a competitive position to compete favourably in an increasingly global competitive market.

 3. Research Questions 

The following questions will be addressed in this research: 

        i.            What are the factors considered in the selection and evaluation of suppliers that help achieve public procurement objectives?

      ii.            What leads to the preference for one criterion for supplier selection to the other?

    iii.            What constitute comprehensive criteria that align with modern business conditions of globalization and sustainability?

4. Aim and Objectives

The aim of the study is to identify the comprehensive criteria that align with modern business climate and the importance buyers attached to the evaluation criteria for supplier selection and evaluation.

The objectives of the study will be as follows:

1.      To identify the factors considered in the selecting and evaluating of suppliers that help achieve public procurement objectives 

2.      To ascertain the weight/importance placed on the various factors use for supplier selection and evaluation.

3.      To identify other comprehensive criteria considered in modern business climate use for supplier selection and evaluation.

5. Justification for the Study  

In order to ensure regulated procedures in the Ghanaian public procurement process, the Public Procurement Act, Act 663 of 2003 was established to make administration and institutional arrangement for proper procurement. Although the Act has some criteria to be followed by the public entities, these criteria are not comprehensive enough to consider current business climate conditions where environment and sustainability issues are at the heart of many governments and businesses. Issues of the environment and society concerning recyclable and reusable materials are total ignore while much concentration is given to the economical benefits where the least evaluated supplier is awarded the contract. It is this inherent weakness of lack of comprehensive modern business criteria in the Act 663 of 2003 that this study is important to be able to unearth modern business criteria to achieve procurement objective that considers in whole, the environment, society and the economy objective. 

This study additionally provides to policy makers and other interested individuals information on comprehensive factors for supplier selection and evaluation that align with modern business climate. Finally, the study creates a document that could be useful to individuals who will undertake research on supplier selection and evaluation and the Public Procurement Act.  

6. Key Findings

a.        Most respondents considered quality, delivery, financial position, Price, Technical capability and Warranties and Claims policies as criteria for supplier evaluation because these factors offer value for money. 

b.      Cost, quality and timely delivery play more important role than other environmental and sustainable criteria, hence no much attention is given to supplier sustainability assessment. 

c.       Respondents gave little or no attention to current business environmental issues such as whole-life cost, the use of biodegradable, recyclable and reusable materials, environmental and sustainable policies, packaging ability etc in their supplier evaluation criteria. 

d.      The greater parts of the Ghanaian public institutions believe the public procurement Act 663 of 2003 is helpful in the selecting and evaluating suppliers since it helps to achieve procurement objectives. These institutions however think opening up the current criteria to consider modern business environmental and sustainable criteria will enable Ghanaian companies to compete favourably in the increasingly global competitive business market.

7. Conclusions

The criteria use in the selection and evaluation of suppliers and the importance placed on these criteria in achieving procurement objectives cannot be underestimated. Proper selection and evaluation criteria are a prerequisite for working with the right suppliers for the promotion of sustainable procurement. That is, the kind of procurement that considers all factors that has the environment, the society and the economy all included. The literature reviewed revealed current business criteria that can be considered with the common criteria like quality, price and delivery. This study revealed that public organizations consider criteria like quality, price, delivery time, technical capabilities among many other criteria foremost in the evaluation of suppliers.

The study revealed that organizations attached much importance to criteria like quality, delivery, performance history, warranties and claims policies, price, technical capabilities, financial position and compliance with national regulations in the evaluation of supplier. These criteria all had a mean of more than 3.5 and close to the highest score on the likert scale of 1-5.Contrarily to the much importance attached to these criteria by the public sector organization, recyclable and reusable materials, environmental and sustainable policies and biodegradable materials were of little importance to these organizations. They rated them below 3.0 with others like the use of recyclable materials being as low as 1.85.

The preliminary literature reviewed exposed several modern business environmental criteria that should be considered. The literature provided this study criterion like environmental capacity, green supply chain management, whole-life cost, the use of bio-degradable, recyclable and reusable materials, environmental and sustainable policies, packaging ability as criteria that are complimentary to the traditional criteria making comprehensive criteria that consider all other criteria in needed for today’s business environment. 

How to Cite the above post (APA style):

Amonoo, L. A. (2014). An evaluation of the importance that institutions Attach to supplier selection criteria in public procurement practices in Ghana. Kwame Nkrumah University of Science and Technology. Available at http://thesisexamples.blogspot.com/2017/02/supplier-selection-criteria-public-procurement.html

Key Terms
importance of supplier selection
importance of public procurement act 663 of 2003

References

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