PUBLIC FINANCIAL MANAGEMENT
STUDY UNIT 8
Procuring Goods And Services and the
Supply Chain
Mr. J Mokele
06 May 2025
STUDY OUTCOMES
• Understand the significant of procurement management
• Name and explain the goals of procurement management
• Understand principles and broad management issues
• Know categories of expenditure
• Describe unauthorised, fruitless and wasteful, as well as irregular
expenditure
• Describe supply chain and supply chain management
• Name the advantages, the management stages and dimensions of
supply chain
Introduction
Government spends a substantial amounts of resources on goods
they acquire from the private sector.
It is therefore important that government institutions receive the best
supply of required goods and services, at competitive prices while
also ensuring that potential service providers are able to compete for
contracts on a fair and equitable basis.
This must align with government’s intent to readdress the
inequalities of the past.
Public procurement The purchasing of goods and services by
government from the private sector.
Examples of public procurement items
Office stationery
Covid-19 Personal Protective Equipment (PPE)
Office space Delivery of food parcels
Significance of procurement management
• The policy and management areas of procurement are significantly
important because almost every government activity involves the
spending of public monies on goods and services and capital assets.
• For the 2013/14 financial year, the national government spent
R60,037 billion on goods and services plus Rl4,286 billion on
payments for capital assets.
• Any shortcomings or failings in the procurement practices result
losses of money and goods through incompetence, waste, fraud or
corruption. These, in turn, provide their own possibilities for losses
through obsolescence and pilferage.
• The overall goals of public procurement as follows: to obtain the
optimum supply of goods and services from the market 'out there' in
terms of quality, timeliness, and cost while at the same time:
managing risks, accomplishing socio-economic objectives - including
promoting competition, and maintaining integrity
Principles and broad management issues
1) Issues of principle
2) Issues of best practice
3) Issues of economic policy
4) Issues of social policy
5) Issues of working capital
6) E-procurement
7) Computer systems
Procurement through tenders
Diverse inputs are needed by government before the provision of goods and services to
citizens can take place.
All of the resources required by government in order to provide goods and services to
the public may be acquired through procurement.
Two management decisions must be made prior to the procurement of goods/services
by government:
1. Producing the desired goods in-house vs procuring the desired goods through
private commercial vendors.
2. Whether the goods/services need to be acquired through a tender process/
feasibility of undertaking such a process.
The tender process includes:
Calling for tenders
Opening and assessing
Awarding tenders
Calling for tenders
Tender A proposal to provide a good or service in competition with other potential
suppliers.
Treasury regulations dictate that only purchases of R100 000 or more require a formal
tender process.
Firstly, a manager must ensure the availability of funds (budgeting)
Once funds are confirmed, the invitation to tender should be publicized.
Further standard requirements are:
The nature and specifications of the desired good or service must be clearly
communicated.
Information about the required attributes of potential suppliers must be communicated
(e.g. Years of experience)
The closing date and time of the tender must be made clear.
The fact that no late tenders will be accepted must be communicated.
Assessing received tenders
Ideally, tenders must be opened in public, and all those who
submitted tenders should be invited to be present.
Then, a qualified tender selection committee will evaluate the
tenders and then choose a winner.
The committee takes into account:
The quality, suitability, price and abilities of the bidder.
Each proposal is scored by comparing it to a predetermined set of
benchmarks.
Consider which tender offers the best value for money.
The supply reputation and financial standing of the various suppliers.
After careful consideration of the above, a winner is chosen.
Awarding tenders
Before awarding the tender, an audit should confirm that:
The evaluation exercise has in no way been flawed.
Open procedure and non-discriminatory criteria were used.
Managers should immediately make public the winners of a tender.
Then they should draw up a contract with the successful tenderer.
The contract should have a penalty clause covering any possible
failure on the part of the successful bidder to meet the terms of the
tender.
All bidders should be invited to attend the opening and awarding of
tenders.
Routine purchasing
As previously stated, it is not cost effective for all purchases of
government to occur through a tender process.
For purchases of up to R100 000, routine purchasing is the
prescribed method of procurement.
There are two basic steps to routine purchasing:
1. Ordering for routine purchases When making a purchase for
goods and services that do not require a tender, specific steps
need to be followed (see textbook).
2. Receiving for routine purchases There is another procedure
for when the purchased goods are delivered/received. (see
textbook).
General issues in procurement management
Spending in accordance with the budget Budget is an Act of parliament=all
expenditure takes place within law. Sections 52 and 53 of the PFMA legally require
public entities to have detailed budgets in place each year. All procurement therefore
takes place in terms of legislated parameters.
Value for money Line managers, in particular, must constantly be seeking ways of
achieving more than what the budget and its underlying costing called for.
Control principles Helps reduce risk. The most important control principles are:
• The goods we receive must meet the required standard.
• We make payment only for goods we actually need.
• We make payment only for goods we actually receive.
• We record all purchases correctly, both in the accounting and stock records.
Unacceptable expenditure
The PFMA regime takes issue with any procurement transaction that does
not meet the instructions or intentions of the law and of relevant
regulations (“Gruesome threesome” or 3Gs).
• Unauthorised expenditure Any purchase that exceeds the budget limits
of a vote or the main divisions within that vote. Parliament may authorise
for it to be processed through the books of an entity or refuse.
• Fruitless and wasteful expenditure no relevant value was received for a
particular purchase. If the reasons for the expenditure were not accepted,
efforts would be made to recover the money from the guilty official.
• Irregular expenditure happens when a purchase occurs and the process
contravenes provisions of any law or regulation.
Supply chain management
The supply chain can be described as the sequence of identifiable
parties and their activities from the point of origin of a decision to
meet a government objective, right through to the end point of
consumption or possibly disposal of the good or service.
Supply chain management is ultimately concerned with
maximizing affordability and value for money in the procurement
process and disposal of the assets of the organisation.
Procurement is the process of getting the goods your company
requires, while supply chain management is the extensive
infrastructure needed to get you those goods.
The management stages across the supply chain
The various stages in SCM take place within the context of government
policies and legislation. The terms used in the South African SCM
policies are highlighted in the following stages:
• Planning – this incorporates demand management and the defining of
needs.
• Sourcing/procuring – this includes acquisition management and
involves negotiating and contracting.
• Inventory management – this incorporates logistics management.
• Delivery/receiving – this also incorporates logistics management and
depends on good systems and documentation. Storage or warehouse
management is also part of this stage.
• To this is added disposal management representing the last phase in
using a product.
CONCLUSION
The above summarises that SCM consists of:
• Demand management
• Acquisition management
• Logistics management
• Disposal management, and
• Supply chain performance assessment
WHAT IS HAPPENING THIS WEEK ON FRIDAY
Study Unit 9
Further updates
• Home Activity (Deadline)
• Group Assignment and Mid-assessment scripts (Collection)
