Implement Procurement System/Process To Save Costs

As accountants, if we want to be cost effective, one area to look out is the purchasing side, hence the need to seriously consider any implementation of procurements system/processess whether it is e-procurement, conventional, open and or closed tendering concept.

In The Star Malaysia, group chief executive officer Datuk Abdul Wahid Omar of Telekom Malaysia Bhd (one of the government linked companies (GLC), shared TM’s experience in the saving or reducing its purchasing cost by 10% to 20% yearly since implementing the new procurement system nearly two years ago. He further advocated that moving forward there should be more improvements and more savings.

A bit of details from Telekom’s experiences on procurement:-

• Procurement was a strategic function and there was a procurement unit. The unit’s head can only approve purchases up to a certain limit and the TM board approves purchases of big-ticket items. 
• The method of procurement depends on the type of product to be purchased, but the procurement team has to ensure that purchases are of the right product, quality, pricing and timing. In some cases, trials are involved, so tenders are called via open and closed bidding processes. 
• Reducing the cost of purchases is necessary which included the continuous challenge as to the need for any purchases.
• When prices of products keep escalating, the group has to look at alternative products and technologies. Two such cases are that of steel poles and copper wires – when the cost of steel has gone up globally, TM resort to buying poles made of concrete and when the price of copper wires is on the rise fibre and wireless options are reviewed for future deployment. 
• Besides the normal checks and balances, the procurement team needs to be vigilant to check the fine prints of contracts. There were some vendors who quoted low prices for initial contracts but would inflate the maintenance contract pricing to make up for the lower initial prices. Or there were other vendors that quoted low prices for initial contracts but for every subsequent order, the price was raised. 
• Procurement at TM is via the conventional and electronic bidding methods and some tenders are based on the open concept of bidding while others, the closed concept. 

Under the government-linked companies’ (GLC) transformation programme, TM and Tenaga Nasional Bhd ran pilot trials on e-procurement. Last year, when the Red Book was launched, Prime Minister Datuk Seri Abdullah Ahmad Badawi said the potential savings by 15 GLCs after a revamp of procurement processes and procedures was RM4bil to RM9bil of the total RM50bil procurement expenditure yearly. 

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