Transactional Procurement Strategies & Procurement Planning

TRANSACTIONAL PROCUREMENT STRATEGIES

1. First and foremost, any procurement activity needs to be aligned with the UNDP Strategic
Plan.

2. Based on the information gathered, potential buying strategies should be identified and
evaluated.

3. All procurement activities require procurement strategies. However, activities designated as

“significant purchases” will require special attention.

4. We can define significant purchases as those that are of high relative expenditure and/or for
which supply is difficult to secure.

5. The relative expenditure of goods and services is defined as their cost relative to the total
purchasing expenditure of the business unit or agency. For UNDP, a transaction of 100,000 USD
or more is considered a significant purchase.

6. The criterion “difficult to secure supply” will be based on the following factors:
 The degree to which the goods or services being purchased present a risk or are critical to
the agency; as well as
 The extent to which there exists a competitive market

7. Significant purchases are:

 High in relative expenditure and easy to ensure supply
 Low in relative expenditure and difficult to secure supply; and
 High in relative expenditure and difficult to secure supply

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 8. Based on the information gathered, an understanding of the nature of the procurement
activities, a knowledge of the market and an understanding of existing risks, UNDP will develop
unique procurement strategies for each project. Potential strategies include:
 A purchase high in relative expenditure and easy to ensure supply may require a strategy
with the aim to ensure that total cost (including the cost of processing large numbers of low
value transactions) are reduced (i.e., demand aggregation).
 A purchase low in relative expenditure and difficult to secure supply may require a strategy
seeking to ensure an ongoing supply, in order to reduce exposure (i.e., carrying an
emergency stock or developing alternative sources of supply).
 A purchase high in relative expenditure and difficult to secure supply may require special
supplier relationship management.

9. Procurement strategies will seek to meet identified project goals and to mitigate existing risks.
For example, in the case of a procurement transaction where quality is critical, UNDP
procurement strategies will not only include clear specifications reflecting national and
international standards, but could also include supplier pre-qualifications, factory visit(s),
sampling and independent laboratory testing, or pre-shipment inspection, among other actions.

10. In the case of a project were delivery is critical (i.e., elections), potential strategies could include
early ordering (if proper planning has been conducted), pre-qualification of suppliers (to ensure
that with all suppliers being considered are reputable and capable), developing alternative
sources, checking manufacturing capacity, requesting performance security and including extra
assurances in the contract as liquidate damages clauses, among others.

11. Procurement is an important function to ensure that UNDP meets its organizational goals. While
Procurement is a support function for the organization, it is nevertheless a core function and
critical to enhancing programme/project delivery. UNDP does not conduct procurement in
isolation, but rather as part of the process of achieving development project outcomes.
Therefore all UNDP procurement activities are framed in the context of UNDP programmes and
projects.

12. Understanding procurement as a managerial discipline (and not an administrative one) implies
the need to acquire and enhance certain managerial skills and tools, including:
 Procurement Risk Management
 Procurement Strategies Development
 Procurement Planning

Understanding…

What do we procure? In which markets do we operate? What are the associated risks?
(Spend Analysis) (Market Analysis) (External, internal, project risks)

We will develop…
Risk Procurement Management Procurement Strategies Procurement Plans

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 13. When we talk about procurement, is it necessary to broaden the concept to include Supply
Chain Management (SCM), as procurement is one of the elements of the Supply Chain.

14. Management of the supply chain also includes:

 Product selection
 Forecasting or quantification
 Procurement, including Quality Assurance
 Inventory management, including Storage (if applicable)
 Distribution (if applicable)
 Return (if applicable)

15. As a working principle, we always need to take into consideration all steps of Supply Chain
Management (SCM) when analyzing procurement risks, defining procurement strategies and
planning. The complexity and length of the supply chain will vary from project to project.

16. Supply Chain Management risk analysis, procurement strategies development and planning are
essential tools to ensure that procurement activities support project outcomes, are conducted
in a timely manner and at a reasonable cost. Early and accurate planning is critical to avoid last
minute procurement, which is contrary to open, efficient and effective procurement.

When does (1) procurement risk analysis (2) procurement strategies and (3) procurement
planning start?

17. SCM cycle is an integrated part of the project cycle, and therefore needs to be aligned and
synchronized with other project activities in order to contribute to achieving identified
outcomes. To this end, the SCM cycle cannot run in isolation. On the contrary, it must be
integrated into the overall project cycle.

18. This implies by definition the need for a constant interaction between operations and
programming.

19. In the project context, SCM risk assessment and procurement strategies development and
planning should start as early as the project definition stage.

20. At this point, important questions will need to be addressed, including:

 What will be the implementing modality? Who will be responsible for procuring and
managing inputs?
 What are the existing risks? Are there risks associated with the nature of the
 products or services to be acquired? Are risks associated with the markets, the
environment or the political context?
 What is the best procurement strategy for achieving the programme/project goals and to
mitigate risk?
 What is the Procurement Plan and what are the associated resources?

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  What are the main acquisition activities to be conducted that will contribute to the
identification of project outputs? Among these activities, will there be acquisition of goods,
services (professional or individual) or works?
 What is the procurement and product expertise required to successfully conduct the
identified procurement activities? Does it exist in house or do we need to outsource it?
Does UNDP or the implementing partner have the capacity to develop
specifications/TOR/SOW, or do we need to hire specialized experts? What about the
evaluation?
 What is the budget required to achieve the identified outcomes? All required activities,
either goods to be procured (i.e., ballot boxes for an electoral project) or services (i.e.,
individual consultants to develop specifications) must be budgeted.

What are the benefits of this approach?

21. Together, procurement risk assessment, procurement strategies development and procurement
planning serve as a bridge to cover the gap between programme and operations. They are also
critical to programme delivery. Benefits of this approach include:
 Best value for money
 Timely procurement
 Avoid unnecessary and unjustifiable emergencies
 Better allocation of existing resources
 Sufficient time to fully explore alternative procurement approaches
 Possibility to aggregate demand

What are the success criteria?

 Joint Planning between programme and procurement in the early stages
 Good flow of communication
 Understanding of the procurement requirements
 Understanding of the market and associated risks
 Live process with structured revisions and feedback mechanisms
TYPES OF PLANNING
 Consolidated planning
 Individual planning

Consolidated Planning

22. Based on the UNDP decentralized structure, consolidated procurement plans will be developed
at different levels, including Corporate, Business Unit and Country Office.

23. All Business Units and Country Offices shall develop Consolidated Plans . They will normally be
prepared annually, though it is a good practice to review them regularly.

24. Analysis of the consolidated Procurement Plan provides an opportunity to identify economies of
scale and better uses of resources, providing an overview of the scale of the procurement

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 activities.

Individual planning
25. Procurement planning will also take place at the project level or even at the activity level,
depending on the complexity of the activity and the number of interrelated procurement
actions.

26. A Requisition Plan shall be developed at the project definition stage. It must be shared with the
Procurement Unit.

27. All “Significant Purchases” of a Requisition Plan (definition is provided in Section 4.2) are subject
to the development of an Individual Procurement Plan.

As SCM (and procurement in general) is a sub-process of the project cycle, different actions will need to
be taken at each stage of this cycle.

The UNDP Project Management Cycle includes the following steps:

 Justifying the project
 Defining the project
 Initiating the project
 Running the project
 Closing the project
28. Below are some of the questions and issues that must be considered at different stages of the
project.

Project Cycle Procurement Cycle/SCM Main Documents

Justifying a
N/A N/A
project
Defining a  Identify internal procurement PRODOC
project resources
PROCUREMENT RISK
 Identify external resources (if ASSESSMENT
required)
PROCUREMENT STRATEGIES
 Identify procurement risks and (including sourcing strategies)
procurement strategies
REQUISITION PLAN
 Product/service selection or
identification SUPPLY CHAIN MANAGEMENT
PLAN (if applicable)
 Forecasting/Quantification
 Budget
 Identify SCM responsibilities

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  Assess SCM implementing partner
capacities
 Develop REQUISITION PLAN
 Identify asset management strategy

 Development of a TRANSACTIONAL
Initiating a PROCUREMENT PLAN TRANSACTIONAL PROCUREMENT
project PLAN
 Develop Specifications/ TOR/SOW

 Monitor and review Procurement

Plan or the Procurement and Supply
Management Plan
 Source Suppliers
 Select Suppliers
MONITORING AND ADJUSTMENT
Running a  Award and Contracting OF THE TRANSACTIONAL
project  Monitor performance and manage PROCUREMENT PLAN/SUPPLY
contracts CHAIN MANAGEMENT PLAN

 Depending on the SCM obligations

indentified during the definition of
the project, UNDP will be responsible
for storage, inventory management
and distribution

 Close project
Closing a
 Dispose/transfer assets .
project
 Identify procurement lessons learned

29. Procurement Risk Assessment, Procurement Strategies Definition and Planning shall be
integrated at the programming stage and not as a back-end process.

FPROCUREMENT RISK ASSESSMENT AND RISK MANAGEMENT

30. UNDP needs to proactively and systematically monitor and manage risks (defined as both
threats and opportunities). Among other risks, UNDP must identify and manage any risks
associated with the conduct of its procurement activities. UNDP must not only be aware of and
monitor the procurement risks it faces, but it must also proactively anticipate and assess those
risks. This chapter deals exclusively with “transactional” procurement risks. Therefore it does
not elaborate on Corporate Procurement risks, which are part of UNDP Corporate Procurement
Strategies.

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 31. UNDP has adopted an Enterprise Risk Management strategy which provides the frame to deal
with all risks, including procurement risks. For further information about ERM, please see
 ERM Policy
 ERM Business Process
32. The Risk Management Cycle includes the following steps:

1. Risk Identification What are the key risks and opportunities?

How does the potential impact relate to our risk tolerance? What is the likelihood
2. Risk Assessment
of a risk event and what would be the impact?
3. Risk Prioritization What are the most critical risk issues that demand our attention?
What is the best course of action? What are our strategies? How will we know
4. Taking Action
that our mitigating actions are effective?
5. Monitoring and Are action plans being implemented? Are they effective in mitigating risk? How
Reporting are we monitoring their implementation?

33. A number of procurement risks must be taken into consideration when defining procurement
strategies. These can be clustered in three main groups:
 Environmental risk, including the political environment, natural environment or delivery
infrastructure environment, among others
 Programme risk, including but not limited to the risk of operating in the market, the
complexity of the Supply Chain Management, or the risk associated with the nature of the
service or goods to be acquired, among others
 Implementation risk, or risk associated with the implementation unit capacity

34. In the table below you will find some examples of potential risks and mitigation activities. Please
note that this list is for reference purposes only and is not exhaustive.

Risk Possible Consequences Possible Solutions

Critical procurement
activity

Failure to secure ongoing Failure to achieve key Develop market knowledge

supply critical to the organizational results
organization Total costs of procurement Identify alternative sources and extra
(i.e., elections) too high due diligences to check he capacity
of suppliers

Plan in advanced

Work closely with beneficiary/

partner to be aware of rapid changes

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 of needs

Apply contractual penalties and

remedies
Selection of procurement
Strategy
Agree on desired
Inadequate or inappropriate outcomes/objectives and have a
results clear understanding of the project
Selection of inappropriate Not achieving best value for objectives
procurement strategy money Develop a good understanding of
Damage project associated risks in order to
implementation incorporate them into procurement
strategies development
Planning
Delay in project
implementation
Early involvement of procurement
Inadequate supplier
officers in project planning
Lack of planning response
Develop and communicate an
Procurement process
accurate Requisition Plan
shortcuts
Higher prices
Inadequate supplier
response
Involve procurement officers in the
Insufficient lead-time Procurement process
project planning phase
shortcuts
Higher prices
Claims of unethical or unfair
dealings
Early involvement of procurement
Delay of project
officers in project implementation
Delay requisitions to implementation
Seek proper justification of
create false emergencies Higher total cost of
emergencies
acquisition
Training of requisitioners
Not achieving Best Value for
Money
Requirements definition
Claims of unethical or unfair
Developed market and product
dealings
understanding
Inadequate suppliers
Restrictive Include generic functional and
response
specifications/TOR/SOW performance specifications
Limits competition
Apply relevant international
Unfair treatment of suppliers
standards where applicable
Lack of transparency

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 Become familiar with requirements
Significant variety in offers
of the specification/TOR/SOW
received
Developed market and product
Insufficient responses
Inadequate understanding
Offer of goods/services that
specifications/TOR/SOW External support (consultant) to
do not meet needs
developed specifications/TOR/ SOW
Difficulty in evaluating
linked to clear deliverables and
competing offers
target time
Include quality in the
Impossibility to achieve best specifications/TOR/SOW, using
value for money international and national standards
Do not include quality Difficulty in comparison and If quality is a critical issue, extra due
requirements in overall evaluation diligence must be used (i.e., check
specifications/TOR/SOW Poor quality of the procured manufacturing process and
items, which may lead to a standards, factory visits, sampling
waste of funds and independent laboratory analysis,
pre-shipment inspection, etc.)
Sourcing
Inadequate or inappropriate
supplier response
Wrong approach to Analyze supply market
Higher prices
market Develop sourcing strategies
Selection of inappropriate
approach
Proper application of the pre-
Identify wrong sourcing Inadequate or inappropriate
qualification or post-qualification,
strategy or do not have supplier response
depending on the identified
sourcing strategy Limit competition
complexity and risk
Contract with unsuitable
Independently verify suppliers’
Misrepresentation of companies
qualifications
facts by potential Claims of unethical or unfair
Conduct supplier reference check
suppliers dealing
and due diligences
Breach of contract
Inadequate suppliers
Outdated information on
response Maintain suppliers roster
potential suppliers
Limit competition
Lack of sourcing strategy
Advertisement of
Limit competition Identify relevant media to post
procurement notices in
Contract with unsuitable procurement notices
inappropriate media
companies
Preparation and issuance
of solicitation documents
Use of inappropriate Inadequate or inappropriate Have clear goal to be achieved as a
evaluation criteria results result of the procurement process
Not achieving best value for Consider implications of evaluation

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 money
criteria
Re-tendering (time/ cost)
Develop strong understanding of
market and industry practices
Loading the cost in offers
Develop commercially acceptable
Unacceptable Limits competition
terms
requirements to suppliers Too few bids
Check that responsibility for risks is
Re-tendering (time/cost)
not allocated to suppliers for factors
outside their control
Loading cost in offers
Great variation in offers
Provisions of inadequate Review documents before issue
Create confusion among
information Know the market
potential suppliers
Re-tendering (time/cost)
Receipt and Evaluation
Composition of the evaluation team
Lack of fair treatment of in line with the project scope and
suppliers complexities
Failure to observe
Inconsistency in evaluation For high tech/highly complex
effective evaluation
of offers procurement activities, ensure
procedures
Subjectivity in outcome of technical expertise
the evaluations Ensure staff are suitably trained and
experienced
Ensure that specifications are
Failure of offers to meet understandable, generic, and in line
Need to re-tender
project needs with what exists in the market
Know the marketplace
Failure of evaluation to
identify a clear winner,
Claims of unethical and Ensure that selection criteria are
leading to subjective
unfair behavior appropriate and aligned with the
discussions or
Need to re-tender project needs
development of “new
criteria”
Reject offers from unacceptable
suppliers and document rationale for
Failure of the supplier to
the rejection
fulfill the contract
Selection of inappropriate Develop clear evaluation criteria
Waste of funds
supplier aligned with the project needs
Contract disputes
Perform technical and financial
Re-tendering (time/cost)
checks on suppliers before awarding
the contract
Select inappropriate Failure of goods/services to Develop proper specifications/
goods/ service meet the project needs TOR/SOW
Waste of funds Have the right technical expertise
Re-tendering (time/cost) during the evaluation process

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 Ensure users are involved
Need to start the Develop strong understanding of
procurement again market
Insufficient number of Delays to procurement Foster international competition
responses schedule Develop supplier rosters
Lack of value for money due Allow for sufficient time for suppliers
to limited competition to prepare offers
Procurement Review and
Award
Proper procurement risk analysis
Proper procurement strategies
(including sourcing strategies)
Market understanding
Proper procurement planning
Delay in the contract award
Clear, generic and complete
Contract approval not Need to re-bid (time/cost)
specifications/TOR/ SOW
obtained Undermine business
Foster international competition
community trust
Ensure adherence throughout
process to rules, regulations and
procedures
Ensure adequate documentation of
process and submission
Contract management
Identify resources for contract
Not achieving best value for managements
money Develop structures for contract
Unstructured or Poor performance of management, including clear roles
nonexistent contract suppliers and responsibilities
management function Delivery delays Identify the right profile and
Possible cost variation competences for contract
Contract disputes management
Develop contract management plans
Ensure proper contract management
Contract monitoring, including
Contract disputes
regular inspections and progress
Failure by either party to Failure or partial failure to
reports
fulfill the conditions of satisfy the project needs
Review past performance records
the contract Delays
Be proactive
Legal actions
Maintain accurate records and
documentations

PROCUREMENT PLANNING

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 35. Procurement planning entails more than the selection of a procurement method for various
goods, civil works and services or when to schedule activities. It is highly dependent the legal
and institutional frameworks in which procurement must be carried out.

REQUISTION PLAN

36. During the definition stage of the project cycle, all relevant activities will need to be identified
and budgeted. Among these activities, considerations must be taken for the acquisition of
goods, services and works in order to achieve the project objectives. Required services identified
should also include any individual consultant services necessary for the successful
implementation of the project (including services for complex/highly technical specifications
development, if applicable). This information will be the groundwork for the establishment of
the Requisition Plan.

37. The Requisition Plan shall be developed at the project definition stage and recorded in Quantum
as part of project activities. The plan will be updated regularly as required.

38. The requisitioner is responsible for developing the Requisition Plan, including the following
minimum information:
 Description of goods, services or works
 Quantities
 Estimated budget
 Expected completion date of activity

39. Low-priority procurement categories can be quantified and budgeted in the Requisition Plan as a
lump sum. For example, “stationary lot” (pens, pencils, pad, other) – QTY 1 – Budget 2,000 USD

40. High/medium priority procurement categories should be carefully quantified and accurately
budgeted.

41. The Requisition Plan is based on estimates of procurement operations to be carried out. While
some procurement needs cannot be anticipated, a Requisition Plan based on estimates is always
better than no planning at all.

SUPPLY CHAIN MANAGEMENT PLAN

42. At the planning stage, it is always necessary to take into consideration the entire SCM, including
the project requirements and UNDP’s roles and responsibilities in terms of the SCM.

43. However, it is only under certain circumstances, and normally due to the extension and
complexity of the SCM, that the Country Office or Business Unit will need to develop a SCM Plan
in writing.

44. For some projects with an extended and complex SCM, we recommend the development of a
SCM Plan before moving into the development of the transactional Procurement Plan. An

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 example of such a project is voter registration support or electoral assistance support, in which
the quantification process, logistics, storage, transportation and distribution are highly
demanding and critical for the overall project success.

45. In these cases, it is important to analyze each step of the SCM, identify roles, responsibilities,
existing infrastructures, potential bottlenecks and actions to be taken.

46. Examples include:

 Inventory management
o Is sufficient storage space available at all level of the distribution chain
(central/regional/ district)?
o Provide estimates of the total storage space that exist. If there is no sufficient space
indicate alternative solution.
o Are there any items that require special storage conditions?
o What are the security conditions? How would sensitive items be treated?
o Who is responsible for coverage against theft, damage, etc.?
o Does any inventory management system exist?
o Does there exist a clear process and procedure for the receipt of goods?
 Distribution
o To approximately how many points are products distributed? Distinguish between
distribution points; for example, central storage, regional, and site storage.
o Are there any significant challenges in distributing to the sites (e.g. lack of roads, conflict
zones, very long distances, seasonal rains, etc.)?
o What are the estimated distribution lead times from central to regional locations (each)
and from regional locations to sites (each)?
o Will a pull or push system be used?
o Who is responsible for the risks encountered during distribution? If UNDP, does
insurance exist?

TRANSACTIONAL PROCUREMENT PLAN

47. Based on the received Requisition Plan and after taking into consideration the market situation
and associated risks, the project and procurement personnel willproceed to develop a
Procurement Plan in Quantum.

48. All Requisition Plans for significant procurement shall be converted to a Procurement Plan.

49. When developing Consolidated or Individual Procurement Plans, it is important to take into
consideration any existing long-term or other arrangements. The minimum information
included in the Procurement Plan should be:
 Type of goods/services/works to be provided
 Method of procurement
 Estimated cost (unitary and total)
 Expected date for specification/TOR/SOW to be finalized
 Sourcing period

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  Bidding period
 Evaluation period
 Award (CAP or ACP if applicable)
 Delivery time

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