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CHAPTER 1
PRINCIPLES OF SUPPLY CHAIN AND PROCUREMENT MANAGEMENT
in terms of buyer behaviour and associated communication needs [21].
• Government
– Government is the biggest of all the customers. It buys to
meet socio-economic objectives and spends billions annually. Government’s
procurement budget is spent on various activities such as public hospitals,
schools and for the running of government departments.
• Institutions
– These include private universities, hospitals and schools [21].
• Public organisations/parastatals
– such as Eskom, Telkom, and the SABC
that buy for operational and production purposes.
1.10 TYPES OF PRODUCTS
Procurement officers buy different kinds of goods and services, which include
the following:
• Raw materials
– These include products that have not been processed
or have only undergone a small degree of processing. They are the
basic materials in the production process. They become part of the final/
manufactured products. Examples include water and coal, which Eskom
uses to generate electricity.
• Semi-finished goods
– Semi-finished products are also known as
manufactured products since they have been processed. They need further
processing before they can be used. These products become visible in the
final product and include products such as steel and rolled wire.
• OEM or component parts
– OEMs are products that are purchased for
resale or are assembled into the final product without any further processing.
An example of this would be an alternator in a motor engine.
• Capital equipment
– Capital items are usually the most expensive purchases
and are also known as installation products. These include large equipment
used in production processes and require significant financial investment. This
may include machines used in the production, power generating equipment
and buildings [10, 12]. For example, Eskom has spent billions building power
stations.
• Accessory equipment
– These are products used to facilitate production
and include products such as personal computers, hand tools, desktop
printers or tool boxes.
• Finished goods
– Finished goods are goods that require no further
processing. They are bought for resale or for use within the organisation,
such as stock bought for resale by a retail organisation.
• Maintenance, Repair and Operating materials (MRO)
– These products
are not directly required for the production process but are important for the
continued operation of the organisation, such as office and cleaning supplies.
• Services
– This includes transportation, advertising, banking andmaintenance
services. Some services, such as transportation, can affect the operation of
an organisation. For example, if a transportation contractor failed to deliver
the organisations’ products on time, the organisation would suffer [12, 23].