Specification can be aptly described as a list of the characteristics or requirements set out for the materials, components, process or resources that go into the making of a product. It can also be seen as the qualitative description of product’s design. It serves two poses, namely;
(i) It helps communicate in unambiguous term, what the buyer/buying company actually wants to buy in terms of product quality requirements, and
(ii) it provides the criteria against which the materials or services supplied by the supplier will be assessed.
The preparation of specification for a product involves four distinct major considerations, namely:
(a) Design consideration of function
(b) Sales consideration of consumer acceptance
(c) Manufacturing consideration of economic production
(d) Procurement considerations of markets, material availability and prices
Specification of products or their components can be carried out in the ways indicated above (on Methods of describing Needs)
In order to develop specification that will equitably balance product quality characteristics with products cost, the company must co-ordinate its business and technical know-how. In this regard, three approaches are traditionally being used to achieve this objective namely:
(a) The formal committee approach: Whereby a specification review committee is constituted and all the necessary departments are adequately represented. All design proposals must be approved by the committee before it is adopted.
(b) The informal approach: Here, the emphasis is more on concept of a buyer’s responsibility to challenge material requests. Emphasis at all times is placed on person-to-person communication and co-operation between individual buyers and designers. If this approach is adopted, a company oriented cost-conscious attitude is developed at the grass roots level throughout the organisation.
(c) The purchasing coordinator’s approach, this entails creating one or more position in the purchasing department for individuals to serve in a nerve-wracking capacity with other departments with the coordinator from purchasing overseeing the whole operation and taking the final decision.
When the specification is to be written, a very great deal of care is required. It must be written in a way that will serve the rightful needs of many departments of the organisation. They all depends on it, in order to have a broad based acceptable specification, it must satisfy the following basic requirements:
(1) Engineering and sales physical characteristics, chemical properties and dimensions.
(2) Procurement and production availability and workability of materials.
(3) Inspection’s responsibility of testing materials for conformity with drawn-up requirement
(4) Stores ability to receive, store and issue the material.
(5) Production control’s requirement to schedule the material economically and manufacturing’s requirement to recast it without is being costly.
(6) Purchasing ability to procure material without difficulty and with adequate competition from reliable suppliers. production control’s and purchasing’s ability to provide substitute materials where necessary
(8) The company’s overall requirement to use commercial and industrially acceptable standard material where it is possible and to enact standards in other cases where non-standard items are used continuously.
A uniform identification for a particular materials as regards its specification which is meant for recurrent usage is referred to as standard. It should be noted that while every standard is a specification, not every specification is a standard. What accounts for the difference is the recurrent use.
The scope of standardization is wide and is determined by the following:
(a) Subject matter relating to its areas of economic activity.
(b) Purpose relating to some aspect of the item’s quality such as dimensions, performance requirements, design requirements and safety requirements.
(c) Range of applicability relating to whether it may be individual, as prepared by the user; company, as agreed upon by various departments, association or trade; like Standards organisation of Nigeria (SON);
International, such as the International Standards organisation (ISO), standards have the following benefits:
(i) They make for increase efficiency, reduced wastage of human and material resources and boost in productivity,
(ii) They relieve designers and engineers of boring routine duties, allowing them to concentrate all their efforts in creative activities.
(iii) Availability of good standards substantially reduces paperwork in the offices, simplifies buying, costing and cataloguing
(iv) Standard make for easier stocking in shops, warehouses and factories.
This shows standardization can facilitate simpler buying, better stock control, easier cataloguing and less paper work. It can lead to fewer stocking of items and less waste of materials, alternative sources and more competition as well as buyer ordering at lower prices. This is manifested in the activities of the Standard Organisation of Nigeria. The organisation monitors standards of all locally manufactured goods and even gives awards to organisations that excel in their quality performances on yearly basis. It is affiliated to the International Standards Organisation which is coordinating the activities of the national standards organisations all over the world.
This helps local buyers, as well as importers and exporters, in their various trading activities in ensuring that, they deal in standardized and highly quality goods.
Whether in period of inflation, or price stability, or recession, obtaining materials at the right price can literally mean the difference between a firm’s success or failure. Hence, the right price is of importance to every organisation, profit or nonprofit.
Professional buyers interpret the right price to mean a price that is fair and reasonable to both the buyer and seller. Unfortunately, no single set of pricing principles or criteria exist for calculating precisely what constitutes a “fair and reasonable price”. The right price from one suppliers is not necessarily the right price from all other suppliers, at either the same or different point in time. To determine the right price, for any specific purchase, a number of constantly changing variables and relationships must be evaluated. This evaluation must be made in consonance with the total circumstances surrounding a specific purchase at a specific point in time.
Purchasing and Economics
Due to its nature and relationship with purchasing every buyer should have a good knowledge of economics. Even though, the theory of economics often seems to be abstract and far away from the real world situation, it generally provides a clear understanding of market forces and appropriate strategies to deal with them.
Price has been defined variously but, Salawu (1998) regards price as “the value of a commodity or service measure in terms of the standard monetary units”. Price can also be defined as the sum or amount of money or its equivalent for which anything is bought, sold or offered for. In comparing two or more quotations, price enables us to appreciate the relative value offered by each suppliers.
Meanwhile, we shall take a cursory look at the economic principles that relate to pricing.
There are three types of economic principles that relate to pricing namely: pure (perfect), imperfect and monopolistic competition. Economic theory indicates that demand and supply are balanced by the influence of price whereby the equilibrium price indicates the point at which demand and supply are equal.
At a specific period, the market price tends to be different from the equilibrium price because the effect of temporary influences may not have had an opportunity to sort themselves out, but when these factors eventually stabilise, a normal price i.e, equilibrium price, will then apply. In the analysis above, some degree of influence in terms of elasticity or degree of responsiveness of demand or supply to changes in price will affect or influence the shape of the curves. A very slight change in price will cause a substantial change in demand, then this is said to be elastic. However where a substantial change in price only results in a little difference in the quantity demanded, the demand is then said to be inelastic.
It must be noted, however, that the above concept of a perfect competition is based on the following conditions:
(i) The material in question must be homogeneous so that one can buy from any seller. In other words, there is an absence of trade of proprietary names or restriction.
(ii) The material should be easy to transport from one place to another.
(iii) There must be present in the market place many buyers and sellers so as not to create artificial scarcity or restriction.
(iv) There should be no preferential treatment or discrimination of/or against any buyer or seller.
(v) There should be free flow of communication between buyers and sellers as to the happenings in the market.
Under this concept, there is only one single price at which the entire quantity available in the market can be sold.
It needs be noted that perfect competition operate essentially in the commodity markets whereas most buyers operate under imperfect competitive conditions. Under the latter, there is no imposition of a single selling price for an item. This competition can take several forms depending on the number of suppliers and the ease with which additional suppliers come into the market. There are three major types of imperfect competition namely:
Type No. Of Suppliers Entry of suppliers to the market No entry
(1) Monopoly One No Entry
(ii) Oligopoly Two Limited entry
(iii) Monopolistic Competition Many Competition between suppliers
It may be difficult to deal with each of these in details. However, reference to any standard economics textbook will provide a full answer:
A point of note to buyers here is that monopolistic suppliers is not an octopus, that is all that powerful. The supplier here can either control the price or the quantity to be sold out, but not both. Thus, he is still subjected to the ‘sovereignty’ of the buyer. If he over-exploits the monopoly power, it will provoke a search for alternative products.