Chapter 04. Demand Planning, Acquisition Planning, Procurement Strategy and Requirements Definition

Acquisition planning is an essential phase in the overall acquisition process and a necessary prerequisite to the procurement process. It seeks to effectively and systemically forecast the Organization’s requirements, based on demand plans generated by the end-user/requisitioner. Acquisition planning supports the timely and efficient fulfillment of mandates.

Acquisition planning necessarily includes procurement forecasting geared towards the timely delivery of goods and services. It requires that consideration be given to logistics, finance and resource management. Requisitioners are responsible for developing acquisition plans in cooperation with Procurement Officials in a timely manner. Ideally, acquisition plans should be developed in advance of each budgetary cycle to allow the concerned procurement office the necessary lead time to develop its procurement strategies, including the consolidation of requirements to leverage economies of scale.

Requisitioners may perform short-term acquisition planning for requirements to be fulfilled in the current budgetary period. In order to ensure that the UN obtains high-quality goods and/or services at competitive prices and within the time frame required, Requisitioners need to ensure the optimal use of funds throughout the budgetary period.

In the case of emergencies, such as natural disasters or other situations where there is a risk of injury or loss of life, the timing and sequencing of procurement activities may be modified in order to deal with the emergency (see Chapter 15.4 Emergency Procurement Procedures).

Requisitioners and Procurement Officials shall meet at least annually to review acquisition plans for the forthcoming budgetary period(s) and typically update the acquisition plans on a quarterly basis as required. In certain UN Secretariat entities, such review may be conducted between the Acquisition Management Section or the Supply Chain Planning Service at UNHQ, together with Requisitioner and the Procurement Official through regular Integrated Business Planning (IBP) meetings. The relevant procurement office shall advise on what can be realistically achieved during the acquisition plan period.

The demand plan shall contain the following information:

1. 1. 1. Item number. (i.e., a numerical identifier);
      2. Type of goods or services, using nomenclature according to the UNSPSC;
      3. Estimated quantity (number of units) or term (number of months or years);
      4. Estimated value in US dollars, funding source, and budget reference;
      5. Delivery date or quarter when the goods are required to be delivered or the services are required to commence and be completed;
      6. Any other relevant information, including locations where goods or services are required if different from the Requisitioner’s location.

The planning function of an entity is responsible for the consolidated acquisition plan and will issue appropriate instructions for action. Further, the planning function will initiate and facilitate acquisition planning by establishing a planning template. The acquisition plan is based on estimates of requirements to be procured in the next twelve months. It is understood that some procurement needs cannot be anticipated, and sometimes plans may not be entirely accurate. Nonetheless, entities are expected to provide their best estimates based on available information at the time of reporting.

The Supply Chain Planning Service in LD at UNHQ and equivalent functions in other at UN entities shall be responsible for: i) preparing the operational guidance that drives the formulation of the demand, source and delivery plans, by identifying resource priorities and fit-for-purpose sourcing solutions; ii) compiling and analyzing the data in order to confirm or determine optimal courses of action; iii) enabling the review of such information by the respective procurement and requisitioning offices and taking appropriate action, in alignment with the category management strategy for the respective goods and services. To alert the vendor community of forthcoming procurement requirements and to uphold the basic procurement principles, the consolidated annual acquisition plan will be uploaded to the UNPD website.

4.2 Procurement Strategy

Developing a strategic approach to procurement is a key element for the successful acquisition of goods and services and is necessary for the timely implementation of projects or operations. It requires an understanding of the nature of the requirements, the capacity of the contractors, the complexity of the operating environment, the risks involved, and the available internal UN capacities and resources. Enabling an effective procurement process requires professional judgment as well as an understanding of the above factors.

Procurement planning is the process of scheduling procurement activities per identified procurement strategies and in alignment with the relevant category management strategy. As such, procurement strategy, category strategy development, acquisition planning and procurement planning are closely linked.

4.3 Procurement Planning and Source Selection Plan  

Procurement planning for an individual procurement activity includes establishing the timelines required to perform each step of the procurement process per the identified solicitation method, contract type, and method of solicitation. Advantages of procurement planning include:

1. 1. 1. Improved sourcing, ensuring appropriately qualified vendors and an adequate number of vendors, leading to increased competition, and, potentially stronger offers at lower prices;
      2. Less waste of resources on last-minute actions;
      3. Early identification and management of risks;
      4. Reduction of delays and lead times due to the ability to perform tasks proactively;
      5. Better planning and monitoring of procurement activities;
      6. Identification of time periods when a high percentage of procurement actions are required (which can be useful in planning and distributing the workload);
      7. Early consideration of logistics aspects and factors for the procurement of goods and equipment.

Planning for a single procurement exercise, formal or informal, should be reflected in the corresponding Source Selection Plan (SSP). The SSP describes critical components of the sourcing process and provides justification for sourcing decisions in order to achieve Best Value for Money. It also provides an objective approach to the methodology of selecting the best source to fulfill the established need. (See sample Source Selection Plan in Annex 5).

For complex requirements, procurement planning should begin at least six months before the goods or services are required. Accordingly, Requisitioners and Procurement Officials should communicate with each other early in the planning process.

The SSP is an internal and collaborative document, under the leadership of the Procurement Official, which describes critical components of the procurement process and provides justification for sourcing and procurement decisions in order to achieve the Best Value for Money principle. It documents assumptions, decisions, and justifications and provides an objective approach to the methodology of selecting the best source to fulfill the established need. The Procurement Official and the Requisitioner are jointly responsible for contributing to, preparing, finalizing, and obtaining any required approvals for the SSP before the solicitation documents are issued. The Procurement Official must ensure that the SSP is approved prior to the issuance of any solicitation (excluding LVAs). Amendments or changes to the SSP after signature must be duly justified and placed in the case file.

Depending on the complexity of the procurement, the SSP may be summarized in a few lines or consist of detailed and precise descriptions of the steps of the evaluation necessary to ensure Best Value for Money. The estimated value of the requirement may be an indication for the complexity of the procurement, which would require a more detailed SSP; the technical complexity or nature of the requirement may also warrant a more detailed SSP. The following are elements that would be appropriate to include in the SSP:

1. Description of the requirement (including operational circumstances, timeline, etc.);
2. Solicitation Method and justification thereof;
3. Method for identifying vendors (particular attention should be given to attract vendors from developing countries and from countries with economies in transition) and details thereof of the UNSPSC;
4. The contractual instrument to be used;
5. Evaluation Committees responsible for commercial and technical evaluation;
6. Evaluation Criteria for commercial and technical evaluation and reasonable minimum criteria, such as minimum passing score and mandatory requirements, as well as how optional requirements will be evaluated;
7. Weighting (i.e., the relative importance of each of the Evaluation Criteria), if applicable;
8. Market conditions;
9. Planning and procurement activity schedule;
10. Rating and scoring system;
11. Required level of expertise and Requisitioner resource capacity;
12. Risk factors that should be assessed during the evaluation and potential remedies;
13. Any relevant information with regard to the forthcoming contract management capacity and expertise, staff training, equipment maintenance, after-sale service, disposal, etc.

The evaluation criteria in the SSP shall not unduly disqualify vendors from developing countries and countries with economies in transition and should be based on the principles of fairness and equity. Any rating system for the evaluation of submissions, both commercial and technical, shall include all relevant details determined appropriate by the Procurement Official and Requisitioner.

As the basis of a procurement strategy, the SSP shall be made available to the Headquarters Committee on Contracts (HCC) and/or the relevant Local Committee on Contracts (LCC) for all cases submitted for the Committees’ review. It is therefore critical for Procurement Officials to develop expertise in drafting Source Selection Plans and engage the Requisitioner to fully contribute to this exercise. Please refer to Annex 5 for a sample SSP.

When procurement planning is consolidated for more than one procurement activity, other strategic initiatives can be enacted towards the aim of economies of scale and reductions in transaction costs, such as:

1. Consolidating various requirements into a single tender;
2. Establishing Blanket Purchase Orders (BPOs), or LTAs;
3. Undertaking joint procurement initiatives with other United Nations organizations pursuant to Financial Rule 105.17(a).

4.4 Requirements Definition

Requirements definition is a systematic approach to define the procurement requirements included in the requisition and/or shopping cart, which should be in the form of a Statement of Work, Terms of Reference, with technical specifications outlining the needs of the Organization.

It is the first step in the implementation of procurement activity and an integrated step in its planning. However, it is often done in parallel with sourcing and supply-market research, which includes the assessment of market conditions and industry practices, in order to allow such information to help develop the requirements definition. Significant deviations from standard industry practices shall be justified and documented in the case file. Requirements definition and market research and analysis are also known as pre- solicitation activities.

The Requisitioner carries the sole responsibility for defining the requirements, while the Procurement Official is responsible for the procurement process, the assessment of the requirements, and the evaluation criteria, to ensure that they are generic and appropriate from a competition perspective, unless exceptions apply (e.g. branding without justification, over-specification, unrealistic delivery dates, and restricted competition should not be included in the requirement). Where necessary, the Procurement Official must clearly communicate to the Requisitioner that an adequate SOW/TOR should be provided in order to allow the solicitation exercise to be conducted. Where necessary, the Procurement Official shall advise the Requisitioner of possible better solutions to meet the stated need through the category management approach or other modalities. To incorporate environmental considerations when applicable, the Requisitioner shall consult with the relevant environmental official within their entity, as well as the Environmental Technical Support Unit (ETSU) in UNGSC, when defining the appropriate technical specifications and selection criteria (see Chapter 15.2). To provide an inclusive environment for persons with disabilities, the Requisitioner shall ensure, within reason, that accessibility considerations are factored into the requirements definition and that new acquisitions do not create new barriers.

In addition, if the solicitation process is being undertaken for the purpose of establishing an LTA) or a BPO, it should be explained in the SOW, TOR, SSP or in the Special Instructions as appropriate.

Statement of Works/Requirements may include:

1. 1. 1. Technical specifications, SOWs, and TORs. Depending on the nature of the procurement activity, the requirements are stated in the form of technical specifications, SOWs, and TORs (for guidance on writing requirements, see Chapter 4.4.2 Characteristics of Well-Defined Requirements).
      2. In order to prevent misunderstandings and disagreements with vendors at the time of contract execution, it is important to clearly state and describe the performance expected from the vendor, including any Key Performance Indicators (KPIs) that will be measured during contract execution. Ambiguous performance requirements may also lead to increased costs, as bidders may have to factor into their bid/proposal a contingency or risk buffer.
      3. A confirmed delivery date for goods or starting/completion/mobilization dates for the provision of services/ works if firm requirements exist or time is of the essence.
      4. When procuring goods, the destination(s) and mode(s) of transport shall be included. For services and works, destination/location shall be specified.
      5. When purchasing goods, a copy of the relevant packing and shipping instructions may be included with the solicitation documents. The packing and shipping instructions are important to the vendor when bidding, as they include instructions about packaging, marking and numbering of the shipment, notification of shipment, documentation required for customs clearance and payment purposes, and invoicing. Where the solicitation is for goods of different size and shape, the vendor shall be asked to provide weight, dimensions and volume of each item which does not require packaging. Vendors should be requested to include the number of items and total weight to be loaded in a 20ft container. For packaged items, the vendor shall provide weight, dimensions and volume of the outer package. Containerization, volume and weight details shall be then reflected in the contract to easily estimate freight requirements;
      6. Delivery terms: Incoterms 2010 shall be used to specify the responsibilities regarding the delivery of goods procured by the UN (see Chapter 12 Logistics).

4.4.1 The Purpose of Requirements Definition

All requirements that are determining factors in the evaluation of offers must be clearly stated in the solicitation documents.

All applicable technical, financial, commercial, legal, and operational factors must be stated in the solicitation documents and must be in accordance with the approved SSP.

4.4.2 Characteristics of Well-Defined Requirements

In order to define requirements, there should be an analysis of the goods, and services that are to be procured and of their purpose, performance requirements, characteristics, objectives, and/or expected output.

All requirements definitions should describe the needs without over-specification. Over-specification may increase prices and/or decrease the number of offers, as it leads to offers for more advanced products than those needed. The converse is true of under-specification, and therefore, it is essential for the cost- effective use of funds that the requirements define the minimum requirements considered essential in a manner that provides certainty to the prospective vendors whilst maximizing competition.

Requirements must be generic and defined with the aim of engendering competition; no specific brands, unless for standardization purposes, or other unnecessary restrictions can be requested. However, if brand names are necessary to define functional, performance, and/or conformance requirements, they must only be used to define the required product standard. Further, brand names must never be used without also specifying the minimum requirements of the brand. Finally, the specification should clearly invite offers of equivalent products, i.e., products meeting similar functional, performance, and/or technical standards. In the event that the requirement specifies a particular brand for the purpose of standardization or is related to a requirement for spare parts for existing equipment, the rationale for this requirement should be briefly stated in the solicitation document in order to avoid negative perceptions of any bias on the part of the UN.

Where possible, requirements should include KPIs to be monitored during contract management stage (see Chapter 13 Contract Management and Contract Administration). KPIs and/or Service Level Agreements (SLAs) are essential tools to express and measure performance against agreed targets, and these are particularly recommended for complex contracts of goods and services, including long-term agreements. These have to be identified at the requirements definition stage, in order to be incorporated in the solicitation documents and then into the contract. This will enable monitoring of the KPIs at the contract management stage.

Examples of KPIs for goods and services include:

Delivery/Performance

1. 1. 1. 1. Delivery of goods/services on time;
         2. Delivery of goods/services in full;

Quality

1. Quality of goods/services delivered (in accordance with specifications/TOR);
2. Technical competence;
3. Adherence to warranty provisions;

Communication

1. Responsiveness of vendor (requests, complaints, etc.);
2. Appropriate handling and timely submission of documents (reports, invoices, shipping documents, etc.);
3. Introduction of innovative solutions;
4. Cost savings to the UN initiated by the contractor;

Compliance with Contract Requirements

1. Environmental indicators (e.g. compliance with environmental principles to maximize resources efficiency and minimize risk, waste diverted from landfill via reduction in waste volume, periodic checks on chemicals being used and maintenance of records, reduction in packaging and avoidance of plastic packaging, proportion of recycled/ recyclable / re-usable content, product reuse or take back, minimize use of hazardous substances, reduced air emissions, etc.);
2. Labour indicators (e.g. compliance with minimum wage, etc.).

Best practices in setting up KPIs include:

1. Requisitioner, in consultation with Procurement Official, shall determine KPIs during requirements definition stage;
2. Requisitioner, in consultation with Procurement Official, shall ensure KPIs are SMART (Specific, Measurable, Achievable, Relevant, Time-bound);
3. When issuing the contract, Procurement Official ensures inclusion of KPI targets, as well as performance credits associated (where possible) with such KPIs;
4. Development of KPIs should be specific to a solicitation and the contract should be aligned with the overall Supply Chain Management Performance Management Framework, as developed and maintained by EOS in OSCM.

4.4.3 Technical Specifications

Technical specifications are mainly used for the procurement of goods, but may also apply to straightforward, quantifiable services. Specifications are typically the description of the technical requirements for a material or product. They usually refer to defined requirements for materials or products, but in some instances can also relate to requirements for services. Specifications give a description of what the Organization wants to buy and what the vendor is required to provide. Specifications can be simple or complex, depending on the need.

The specification forms part of the invitation to bid, request for proposal, or request for quotation. Three types of defining needs (or a combination of the three) can be included in the specification:

1. 1. 1. 1. Functional specifications, defining what the goods/services are required to do;
         2. Performance specifications, defining the output of the goods/services; or
         3. Conformance specifications, defining the physical characteristics and dimensions of the goods.

4.4.4 Terms of Reference (TOR)

A TOR is a description of the scope of work for services, generally indicating the work to be performed, the level of quality and effort, the timeline, and the deliverables. TORs are mostly used to define the performance requirements for expert and advisory services, which are not easily quantified, e.g. where a solution to a requirement is offered.

The TOR is often the vendor’s first and main introduction to the requirements. Clear, uncontradictory TORs will limit the risks to the vendor and enable them to prepare a clear and detailed proposal. This should lead to successfully implemented projects and limit the risk of dispute or claims.

The TOR typically includes the following information:

1. 1. 1. 1. Background for requesting the service;