ZSIC GROUP OF COMPANIES PROCUREMENT PLAN EXCEL VERSION

Transcription

1 ZSIC GROUP OF COMPANIES PROCUREMENT PLAN 2015 EXCEL VERSION 1 P a g e

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3 ZSIC Group Procurement Plan 2015 Contents Page 1. Background 3 2. Introduction 4 3. Executive Summary 5 4. Overall Expenditure Review 6 5. Expenditure and Risk Analysis Quadrant 1: Low Risk Low Value Quadrant 2: Low Risk High Value Quadrant 3: High Risk Low Value Quadrant4: High Risk High Value Procurement Principles 12 (a) Purchasing Limit requirements 12 (b) Taxation Requirements High Level Goals Conclusion 15 Appendices: Appendix I ZSIC Group Procurement Plan 2015 in excel 3 P a g e

4 1. Background Six years ago, the entity then known as Zambia State Insurance Corporation Limited underwent a restructuring program, which saw the unbundling of the once composite company into three separate entities, namely ZSIC Holding Limited (Holding Company), and ZSIC Life Limited and ZSIC General Insurance Limited as subsidiaries, each focusing on its core business. The role of ZSIC Limited as a holding company, amongst others is to ensure that the Group develop policies and complies with public sector procurement law, regulations and policy. In order to fulfill its mandate and achieve its vision, ZSIC Holdings Limited on behalf of ZSIC Group of Companies must procure goods, works and services in accordance with the Public Procurement Act no.12 0f 2008 and Public Procurement Regulation as enshrined in the ZSIC Group Procurement Policy procedure manual of As a public institution entrusted with public funds and committed to supporting the Zambian economy, ZSIC Limited abides by the principles of best value for money, fairness, integrity, transparency and effective competition to the best interest of the ZSIC Group of Companies. ZSIC Holdings Limited as a public institution has to strictly observe procurement regulations and financial rules. While this may sometimes lengthen the procurement process, ZSIC Limited constituted an ad-hoc Committee as a Procurement Planning Committee for planning, drafting and implementation monitoring and evaluation purposes. The company, as part of decentralisation implementation strategy delegates a significant amount of authority within prescribed thresholds to its subsidiaries to improve efficiency and economy in the Group. ZSIC Holdings Limited recently (September, 2013) published detailed procurement policy procedure manual as guidelines and procedures to reflect current best procurement practice in line with the Public Procurement Act No.12 of 2008 and Public Procurement Regulations SI 63 of These procedures have laid down the foundation for the preparation and completion of this Corporate Procurement Plan. As a mandated by the ZSIC Group Procurement Policy Procedure manual in accordance with the Public Procurement Act No.12 of 2008 and Public Procurement Regulations, ZSIC Group of Companies is directed to produce the ZSIC Group Annual Procurement Plan. Late November, 2014, ZSIC Holdings Limited in collaboration with 4 P a g e

5 its subsidiaries commenced the procurement planning process to enhance the following mechanisms:- capacity building which involves building organisational capability to strategically manage procurement effort to achieve maximum savings and benefits. training and education which aims to develop skills and competencies among staff members which result in measurable improvements in procurement performance. Procurement aggregation which endeavours to reduce cost through leveraging public sector demand in certain markets. Risk management to reduce the event failure and improve efficiency through the targeted use of cost effective mechanisms in supporting various aspects of the procurement effort in the Group. Procurement within ZSIC Group of Companies is devolved within the Group with over 200 staff members who have authority to raise purchase requisitions within specified limits as determined by ZSIC Group Procurement Committee at ZSIC Holding Limited and subsidiary level for each entity and appropriate cost centre within each company. Staff undertaking procurement are required to possess the skills and competencies necessary, to employ best practice purchasing techniques in their routine daily procurement activity. 2. Introduction Procurement by definition according to the Public Procurement Act no.12 of 2008 means acquisition by purchase, rental, lease, hire purchase, licence, tenancy, franchise or any combination thereof that is acquiring necessary goods, works and services from external third party suppliers. It incorporates all activities from initial identification of needs, raising of purchase orders, through payment, to the end of a services contract or eventual disposal of an asset. Staff engaged in procurement related activities are required to familiarise themselves and fully comply with, ZSIC Group Procurement Policy Procedures manual and the Public Procurement Act no.12 of 2008 and Public Procurement Regulations SI 63 of The purchasing of goods, services and works are governed by the following key procurement objectives: 5 P a g e

6 Staff engaged in the procurement process should strive to achieve efficiency, effectiveness and best value for money (VFM) at all times. Ensure fairness and engagement with quality suppliers, service providers and contractors. Utilise fully new technological developments eg. Procurement system to streamline existing purchasing and administration processes. Operate in the competitive marketplace in an open, fair and transparent manner. Operate in a professional manner to the highest ethical standards. There must be a clearly identifiable business need for a product or service before a commitment to purchase is entered into with a supplier, on behalf of ZSIC Group of Companies. Staff are required to obtain formal approval from their respective Budget Holder or nominee using the purchase requisition before a completed purchase order for the supply of goods, services or works can be done. Budget holders are accountable for all purchase orders charged against their relevant budget, they are expected to operate within their annual budget allocations, monitor variances from budget limits, take corrective action when necessary and keep up to date on any new or emerging material issues which may have a significant effect on their ability to meet budget targets. Any supplementary budget outside the approved limits requires entity management approval and Board authorisation. 3. Executive Summary The Group Annual Procurement Plan analyses Revenue and capital expenditure within ZSIC Group for the financial year The analysis exclude expenditure on payroll costs. The procurement review commences with an overview of total expenditure incurred by the Group during 2014 with a brief summary of current and capital expenditure by entity in the group. The Expenditure and Risk analysis section of this plan considers seven categories of matrix graphically illustrates the outcome of this analysis, four colour coded quadrants are used to provide a profile of the Group procurement activity. The plan identifies potential areas for procurement improvement within each quadrant and makes recommendations on how these improvements can be achieved. 6 P a g e

7 The plan took into account purchasing limits, procedures for low, medium and high value purchases, taxation matters, Relevant Contracts Tax (RCT) on subcontractors, Public Service Withholding Tax (PSWT) on professional/consultancy services, supplier tax clearance certificate for goods and services and changes in Value Added Tax. The strategic procurement objectives for ZSIC Group of Companies are encapsulated in the four High Level Goals to be accomplished in The first high level goal sets out to provide Directors, Managers and staff with the best procurement practice guidance available on the processes and procedures to be followed when acquiring and receiving goods and services from external third party suppliers. The second goal establishes the need to ensure that all staff engaged in the procurement process recognise their continuing obligation to achieve transparency, accountability, efficiency, effectiveness and best value for money for ZSIC Group of Companies as part of their routine activities. The third goal identifies the requirement to advance the use of information technology systems when feasible, to streamline procurement processing, maximize efficiency and enhance service levels. The fourth and final goal recognises the necessity to support and encourage competition and the use of strategic fewer suppliers for high value/risk supplies when appropriate and promotes the establishment of closer relationships with those suppliers. The Group Procurement Plan concludes with a summary of the analysis undertaken and proposed recommendations. The success of the Group Procurement plan will depend on funds availability raised in the group for budget expenditure through aggressive business drive and Senior Management commitment to communicating and implementing the goals and recommendations of this plan and in securing staff compliance with best procurement procedures and practice in the public sector. 4. Overall Expenditure Review The forecast Statements of Comprehensive Income for the year ending 31 December 2014 shows that out of total expenditure for the Group over 50% of the expenditure is on goods, service and works. Revenue or current expenditure covers the day to day running of the Group and includes real estate maintenance, administration expenses, general expenses etc. Capital expenditure differs significantly from current expenditure in that it is expenditure which results in the creation of an asset beyond the year in which the asset is originally provided such as, the construction of company building, acquisition of fixed assets through outright purchase or lease finance, etc. 7 P a g e

8 5. Expenditure and Risk Analysis The expenditure examination focussed primarily on Revenue expenditure and capital expenditure incurred by ZSIC Group during The sunsystem Financial system provided a summary of expenditure by expense heading for the calendar year. Spend profiling is the analytical mechanism utilised to present a picture of the types of goods and services procured, their relative value and the estimated risk associated with their procurement. The risk mapping process according to the analysis shows a weighting applied to five risk factors for each expenditure heading. The risk factor for Strategic Importance runs on a scale of two extremes, where the supply of the good or service can ranged from being critical (High risk) to the business objectives of the Group to being unimportant or easily substitutable (Very low risk). Risk factors included elements such as the level of market competition, the probability and likely impact of supply failure on business operations, and the overall complexity of the procurement process in acquiring the good or service. The Risk factors and weightings which were considered for each expense heading are : Factor Weighting Strategic Easily Not Low Moderate Important Critical Importance Substitutable Important Importance Importanc e 8 P a g e

9 Supply Failure Impact Very Low Low Medium High Very High Critical Complexity of Procurement Relationship Probability of Supply Failure Nature of Supply Market Very easy Easy Slightly complex Moderatel y complex Complex Highly Complex Very low Low Medium High Very High Certain Highly favours buyer Moderately favours buyer Slightly favours buyer Slightly favours supplier Moderately favours supplier Highly favours supplier LOWER RISK HIGHER One of six weightings as outlined in the table above is applied to each factor during the spend and risk analysis. The spend profile is graphically displayed using the Supply Positioning Matrix as above. 5.1 QUADRANT 1 The Green bottom left quadrant of the Supply Positioning Matrix represents purchases within ZSIC Group of Companies which constitute a very small percentage of overall analysed expenditure. Courier and cleaning services are relatively low cost items which can be sourced from a wide range of suppliers. The primary objective in limiting expenditure in this quadrant is to reduce the administrative burden in processing transactions by using running contracts whenever possible. This will minimise the administrative time spent in processing purchase orders and matching invoices with goods received notes etc. ZSIC Group of Companies anticipates the fully utilisation of information technology of a new sunsystem procurement module in 2015 which is envisaged to process 90% of all purchase transactions in 2015 will leverage a relative expenditure area with lowmoderate difficulty of securing supply. 9 P a g e

10 Recommendations: Low relative spend easy to secure supply To continue to promote the usage of running contracts or framework contracts to manage purchases in this category with a low monetary value within ZSIC Group of Companies. To encourage suppliers to submit all relevant documents such as evidence of receipt of service, invoice and receipts for any payment made towards any transaction cover a greater number of transactions over a one year period, for example monthly invoices rather than single transaction. 5.2 QUADRANT 2 The Blue bottom right quadrant of the Supply Positioning Matrix represents approximately 80% of analysed expenditure for ZSIC Group of Companies. Expenditure on these goods and services are mainly confined to items with a high value but which are relatively easy to source. There are a high number of transactions, but their higher value affords the Group an opportunity to push down total costs, to secure volume discounts from suppliers, and to coordinate administrative and purchasing activities by promoting shared services within the Group. ZSIC Holdings Limited through the Group Administration and Purchasing office on behalf of ZSIC Group of Companies can carry out significant work on the area of shared services, through running contract or framework contracts to ensure rationalisation of pricing and quality in the Group in the area of real estate maintenance and property management, physical security, printed and general stationery within the Group. This is an area of high relative expenditure low-moderate difficulty of securing supply. Recommendations: High relative spend easy to secure supply The shared services concept could be extended to benefit other branches and districts in the Group to enhance the overall combined purchasing power when dealing with suppliers, to achieve synergies when acquiring the same goods or services and to secure more favourable financial terms e.g. through bulk purchases. In addition is meant to reduce administrative cost of the tender process whilst enhancing the transparency and accountability in the procurement system. Promote the use of the framework contracts system and information Technology procurement tools within the Group. 10 P a g e

11 5.3 QUADRANT 3 The Red top left quadrant of the Supply Positioning Matrix highlights services which are low in value, but which because of their specialised nature and limited number of potential suppliers can be difficult to source. ZSIC Group of Companies conduct intracompany insurance and out-source professional consultancy service requirements to suppliers who specialise in the respective areas. These are low relative expenditure high difficulty of securing supply. Recommendations: Low relative spend - Difficult to secure supply Monitor the performance of insurance service providers within the Group, specialist Debt Collection services, subrogation agents, garages, salvage brokers, etc to assess their effectiveness to ensure that value for money is being achieved. Identify alternative suppliers and test their service offering, develop a working relationship so that continuity of service supply can be maintained. 5.4 QUADRANT 4 The yellow top right quadrant of the Supply Positioning Matrix includes goods and services, such as IT (software and hardware), licenses, capital assets and capital improvements which are of high value but which may be more difficult to source. It is important to build long term relationships with suppliers who are positioned in this quadrant as supply failure could have major negative consequences for overall service delivery. Service providers or suppliers need to have a thorough understanding of the local authority sector, the contractual and legal requirements and the necessity to stay within budget, to avoid cost and time over-runs. Supplier selection criteria should be robust and appropriate as documented in ZSIC Group Procurement Policy Procedure manual. Staff with the necessary procurement expertise and contract management skills should be engaged in the supplier selection and tendering process. This is a category of high relative expenditure high difficulty of securing supply. 11 P a g e

12 High relative expenditure High difficulty of securing supply High Risk High Value Category % of total 39.13% Expenditure % of total over 50% Recommendations: High relative spend Difficult to secure supply The fact that some areas have few sector specific suppliers in this quadrant would indicate that there is little competition in the local market place which in turn restricts bargaining power and the choice available to the Local market especially on software. It is critical therefore, to develop good long term working relationships with suppliers and to liaise closely with regulators and Computer Association of Zambia to keep informed on new alternative service providers entering the market. Develop staff skills on procurement by introducing training for staff engaged in raising and approving purchase orders, increase awareness and cost consciousness among managers and budget holders and ensure adherence to and compliance with ZSIC Group Procurement Policy Procedure manual. Promote the use of the Service Level Agreements within the Group. This analysis can be used to coordinate the purchasing of similar goods and services acquired from the same supplier for different departments within the ZSIC Group procurement plan. 12 P a g e

13 There is considerable potential within ZSIC Group to use their combined purchasing power to extract savings from suppliers in terms of better prices and more effective and efficient procurement. Suppliers should be encouraged by the Group to compete for the supply of goods, works and services on the clear understanding that the market is open to fair competition. Suppliers should have full information on, and equal access to the needs and requirements of Group and be in a position to supply, competitively price and meet those requirements when requested to do so. 6. Procurement Principles ZSIC Group of Companies will endeavour to fulfil its obligations under the Public Procurement Act no.12 of 2008, the Public Procurement Regulations, CEEC Preferential regulation, and ZSIC Group Procurement Policy Procedure which underpins public procurement reform. The primary focus for those engaged in the procurement process will be to deliver best value for money outcomes using analysis based purchasing strategies that are consistent with the Public Procurement Act No.12 of 2008 and Public Procurement Regulations of The procurement procedures for ZSIC Group of Companies identifies a number of requirements which must be observed as part of the purchasing process within the Group, these include:- (a) Purchasing Limit requirements The maximum possible monetary value of contracts for the purchase of goods/works/services within the ZPPA prescribed Procurement Financial Thresholds determines which procedure to use in the procurement process. The purchasing procedure will be divided in to three categories, Low value, Medium value and High value purchases. (b) Taxation Requirements It is necessary when procuring on behalf of ZSIC Group of Companies to ensure that all statutory taxation requirements are identified and complied with, these include;- relevant Contracts Tax (RCT) or sub-contractors tax due to ZRA which applies to contractors who carry out work on behalf of the principle, Professional Services Withholding Tax (PSWT) is charged at a rate equivalent to the standard rate of income tax for professional/consultancy services provided to the Group, tax Clearance Certificate and Value Added Tax (VAT) on goods and services procured within Zambia and from abroad. 13 P a g e

14 7. High Level Goals Goal One To provide Directors, Managers and staff in the Group with the best procurement practice guidance available on the processes and procedures to be followed when acquiring and receiving goods, works and services from external third party suppliers. Procurement is a key value adding function in the Group and it is vital that the staff involved in the procurement process, have a thorough understanding of public sector accountability and best practices in the methods and processes involved. The preparation of detailed Procurement Procedures and guidelines for ZSIC Group of Companies provides a consistent and coherent approach which can be applied to all procurement activities across the Group. These documented procurement procedures will support the development of staff procurement skills and knowledge and provide the basis for targeted training and education for existing and new staff joining the organisation in the future. Goal Two To ensure that all staff engaged in the procurement process recognise their continuing obligation to achieve efficiency, effectiveness and best value for money for ZSIC Group of Companies as part of their routine activities. This objective is related to the corporate budget plan and procurement plan for ZSIC Holding Limited to ensure the prudent utilisation of the financial resources that come within the control of the Group and to this end to pursue a culture of achieving value for money in accordance with best practice and consistent with the best interests of Group. Value for money assessment should examine cost related factors such as whole-of-life costs, transaction costs associated with acquisition, use, holding and storage costs, maintenance and disposal costs. The concept of value for money is not restricted to cost alone, it must also consider non-cost factors such as fitness for purpose, quality, supplier service and support, and take account of sustainability considerations. 14 P a g e

15 Goal Three To advance the use of information technology in the Group procurement systems when feasible, to streamline procurement processing, maximize efficiency and enhance service levels The sunsystem procurement module introduction in Group should be viewed as to provide a more efficient, flexible, and cost-effective alternative for purchasing low value routine items. The use of sunsystem procurement module eliminates the need for the labour intensive procedure of matching Purchase Order with Goods Receipt Note and Supplier Invoices allowing purchasing staff to obtain the materials and services they need without unnecessary delays. Low Value Purchase transactions must be made in accordance with established purchasing rules and policies as outlined in the ZSIC Group Procurement Policy Procedure manual. The use of sunsystem procurement module in the Group should be continually reviewed and new opportunities explored to extend their use to other sections where manual procurement processes are still in operation. To achieve this goal, the Group Administration and Purchasing office will continue to work with the Group Information Technology department in accessing and implementing the latest Procurement technology available to the Group within budget. Goal Four To support and encourage competition and the use of reliable suppliers and the establishment of closer relationships with those suppliers Supply base reduction is defined as the process of reducing the number of suppliers which the Group utilises. A reduced supply base is much easier to manage than a large supply base due to, fewer purchase orders, lower transaction costs, fewer contracts to negotiate and fewer suppliers to evaluate and review. It can be easier to resolve problems which arise as the supplier should have a better understanding of the Group requirements and will be more committed to maintaining the long term business relationship. Through this tailor made ZSIC Group Procurement Plan increased volumes of business with fewer suppliers will allow the Group to negotiate and demand cost, quality, delivery, and service level improvements. Shorter delivery times will result in reduced inventory levels and decrease the need to hold replacement stock. 15 P a g e

16 8. Conclusion The Group Procurement planning process has provided ZSIC Group of Companies with an opportunity to identify and review its current procurement policy, procedure and practices. The plan employed the best public procurement practice available on the market to carry out spend profiling on selected types of goods and services procured, their relative value and the estimated risk associated with their procurement. This process has resulted in the identification of a number of procurement strategies and recommendations for each of the four categories of expenditure, and associated risk recorded on the Supply Positioning Matrix. The plan took into account a number of procurement principles, authorisation and requirements which must be observed, purchasing limits, taxation and environmental matters must form part of the procurement decision making process before a contract for supply of goods and services is concluded and agreed with an external supplier. The 2015 ZSIC Group Annual Procurement Plan concludes with the High Level Goals which set the strategic procurement objectives for the Group in the year 2015, these goals compliment and are integrated with the recommendations identified during the budgeting and spend profiling phase of the plan. Senior Management support and participation in implementing the recommendations and strategies highlighted in this plan will be critical to the future success of this ZSIC Group Procurement Plan. Find attached in excel the detailed breakdown of ZSIC Group Procurement Plan document for detailed consideration and implementation. 16 P a g e