Approaches to Describe What to Purchase (specifications)

Brand or Trade Name
The use of a brand name is the simplest way to describe what to purchase. A brand name is used by a manufacturer to distinguish a product and to aid in its promotion. Brand names ensure that the goodwill developed in satisfied customers is credited to the product. Such goodwill requires that the manufacturer provide consistent quality. Using a brand name description implies a reliance on
the integrity and the reputation of the manufacturer. When purchasing by brand name, the purchaser has every right to expect that follow-on purchases of the brand name will possess the same quality as the original.

Normally the expression “or equal” should be used immediately following a brand name to facilitate competition. When using an “or equal” after a brand name, it is desirable to set forth those salient physical, functional, or other characteristics of the referenced product that are essential to the purchaser’s needs. The term or equal means that any proposed item should be able to perform the function to the same level of satisfaction as does the specified brand.

Although the use of brand names simplifies the procurement process, it tends to be expensive. Even when competition is introduced through the use of the “or equal” provision, higher prices tend to result than when several of the alternative descriptions of the item are employed. Brand name products generally are sold at higher prices than unbranded products of similar quality. There are several advantages and disadvantages in specifying brand names.

Advantages

1. Describing the desired item is simple for the requiring department.
2. Purchasing by brand name is relatively simple.
3. Brand-name products tend to be more readily available than unbranded items.
4. The use of a brand-name purchase description may be the most efficient method of obtaining a desired level of quality or skill when this level of quality cannot be defined easily.
5. The branded item may be advertised so widely and successfully as to aid in promotion of the product in which it will be incorporated.
6. Inspection of brand-name items is relatively simple.
7. Testing of an item may be impractical. The purchaser may avoid such testing by relying on the brand-name manufacturer’s quality standards and test reports.
8. The purchaser is assured that the manufacturer will stand behind his or her brand-name product.

Disadvantages

1. Brand-name products usually cost more.
2. Using brand-name products may mean that the purchaser is not taking advantage of improvements introduced by competitors of the brand-name manufacturer.
3. The use of the “or equal” provision may mean that items are purchased from a variety of manufacturers. Since each manufacturer exercises its own quality control, the quality variation probably will be larger than if the item were purchased from one source only or purchased by detailed specification. When commonality of items from purchase to purchase is essential, the use of “or equal” is not desirable.

Samples
The need to develop a purchase description sometimes is avoided through the use of samples. Prospective suppliers are invited to match or duplicate the buyer’s sample. Such an approach may be appropriate when special, nonrepetitive items are to be purchased and quality requirements are not a significant factor.

Advantage

1. Use of samples is a very simple method of communicating what is required.
2. It is almost mandatory when purchasing materials requiring a specific color, feel, finish, or look, such as painted printed surfaces, fabric, style, film, packaging, signs, letterhead stationary, and the like.

Disadvantages

1. Detailed tests and inspections may be required to determine that the furnished item meets the sample.
2. The inspection on a requirement such as color may be very subjective.
3.  No definite standards are established either for record-keeping purposes or as the basis of future purchases.
4. If the sample is exactly reproduced, all performance warranty responsibilities shift to the buyer as the supplier has performed as per the instructions from the buyer.

Standard Specifications
Recurring needs for a consistent level of quality have led industry and government to develop standard specifications for many items. Standard specifications include commercial standards, country specifications, and international specifications. Such standard specifications contain descriptions of the quality of materials and the quality of workmanship to be used in manufacturing the item. Testing procedures are included to ensure that those quality standards are met.

Advantages

1. The use of standard specifications greatly facilitates communications. The require, purchaser, and supplier all know what is needed.
2. The cost of developing a design specification is avoided.
3. The use of standard specifications results in wider competition and lower prices.
4. The use of standard specifications facilitates the firm’s standardization program, resulting in savings in purchase price, inspection, materials handling, and inventory carrying costs.
5. Standardized items tend to be more readily available.
6. Designs developed by professional societies are often state of the art and thoroughly tested.

Disadvantages

1. Standard specifications may be dated. Accordingly, the buyer may not be taking advantage of the latest technology.
2. The specification may call for inputs or processes that are difficult or expensive to achieve.
3. Testing costs might be higher than with brand-name products, as there is less performance history.
4. As with samples, responsibility for the suitability of the purchased item rests with the purchaser. Normally, the supplier who produces under a specification cited in a purchase order is not responsible for ensuring that the item will satisfy the customer’s need. (With a performance specification, this responsibility is shifted to the supplier.)
5. The use of standard specifications results in the purchase of standardized items. The incorporation of such standardized items in the purchaser’s end product may conflict with marketing’s desire to sell a unique product.

Design Specifications
Design specifications* spell out in detail the materials to be used, their sizes, shapes, and tolerances, exact physical and chemical characteristics, and how the item is to be fabricated. They provide a completely defined item capable of manufacture by a competent manufacturer. They also describe test procedures to be used to verify that all stated requirements have been met. The specification must meet the requirements of many departments in the firm: Engineering’s concern for technical adequacy, Marketing’s concern with consumer acceptance, Manufacturing’s concern for ease of production, and Purchasing’s concern for availability and economy. As would be expected, design specifications often use commercial standards and other standard specifications.

Since design specifications frequently are the basis of competitive bidding, they must communicate what is needed without need for further clarification. Thus, critical dimensions must be spelled out in detail, and all necessary quality requirements must be fully described. Concomitantly the specification must avoid imposing unnecessary conditions that would disqualify an otherwise acceptable product because it fails to meet a nonessential condition. The design specification must convey a complete and accurate understanding of what is required. The same word or expression is subject to different interpretations by different people. The supplier will
interpret the specification to its own advantage.

A specification essentially is the means of transferring knowledge between minds. Each mind will test the words of a specification against its own experience. If the design specification is ambiguous, the ambiguity will be construed against. Blueprints and engineering drawings are included under the heading of design specifications. Blueprints and drawings should include a statement of function. When design specifications control performance under a purchase order or a contract, there is a presumption that the specifications are adequate for the purposes intended and that, if followed, the desired outcome will be obtained. There is an implied warranty that the specifications are adequate. Thus, the supplier who produces under the customer’s specification is not responsible for the suitability or acceptability of the resulting product.

However, if the supplier knows (or perhaps from experience should know) that the desired product cannot be obtained, it cannot make a useless thing and expect to be paid for it. If the supplier knows (or should have known) that the specification is defective, it is obligated to notify the customer of the defect. The supplier discharges this obligation by making the defect known to the customer.
As might be expected, design specifications must be reviewed periodically and updated. Unfortunately, the use of design specifications tends to complicate purchase order administration (follow-up and expediting) and may increase costs, delay delivery result in delivery of obsolete items, and sharply increase inventory carrying costs. The use of design specifications may create a costly storage and distribution system for items that are not generally commercially available.

There are several advantages and disadvantages in using design specifications.

Advantages

1. The purchasing organization avoids having to purchase on a sole-source basis. savings can be enjoyed by avoiding sole-source situations.
2. The purchasing organization avoids paying premium prices on branded goods.
3. Design specifications facilitate the corporate standardization program, and many savings are enjoyed through such a program.
4. They can solve the problem of “no supplier can design it,” if true.

Disadvantages

1. Design specifications are expensive to develop. Both time and human resources are required.
2. The purchaser is responsible for the adequacy of the specification and the buying firm may use obsolete technology.
3. The use of design specifications may deny the purchaser the latest advances in both technical development and manufacturing processes.
4. Using a design specification for material that is very similar to an item covered by a commercial standard may result in higher unit prices. Further, the item covered by the design specification will tend to be less readily available.
5. The use of design specifications restricts competition to one approach or concept. As we have seen, competition of concepts resulting from use of a performance specification may lead to significant financial and time savings.
6. Purchase through the use of design specifications tends to complicate the purchase order administration function. Late delivery of unique items is much more common than it is for standard ones.
7. The purchaser usually assumes the inventory responsibility for such unique items.

Performance Specifications
Performance specifications generally describe a product by its capacity, function, or operation instead of by its physical, chemical, or quality characteristics. The supplier need only demonstrate acceptable performance to achieve acceptance of the product. A performance specification provides a description of the intended use of an item (whether component, plant, or equipment). A performance specification may include a statement of the qualitative nature of the item required. When necessary, it may set forth those minimum essential characteristics and standards to which such item must conform to satisfy its intended use.

Performance specifications describe in words what the item is to do instead of describing the item in terms of its physical and chemical properties. Although a performance specification is much shorter and easier to develop than a design specification, caution must be exercised in its development. Once again, engineering, marketing, manufacturing, and purchasing requirements must be considered.
The following general principles apply to the development of performance specifications:

• The performance specification must not be so narrow that it stifles creativity.
• While unnecessarily restrictive performance specifications are undesirable, the performance specification must be sufficiently specific to obtain desired objectives. If it is written too broadly, potential suppliers may choose not to respond because of the uncertainty and risk involved, their inability to relate work requirements to their talents and capabilities, or difficulties in estimating costs.
• The performance specification serves as the nucleus of the purchase order or contract. The resulting performance is a direct function of the quality, clarity, and completeness of the specification.
• The element of risk to the supplier inherent in producing under the performance specification should affect the type of pricing on the resulting purchase order (e.g., firm fixed price, fixed-price incentive). As with other approaches to defining and communicating the requirement, the use of performance specifications has inherent advantages and disadvantages.

Advantages

1. Performance specifications are relatively easy to prepare.
2. Their use tends to avail the purchaser of the latest technology.
3. Using performance specifications ensures that the purchaser obtains the specified (desired) level of quality.
4. When several already designed, developed, and produced items can meet the performance specification, the depth of competition is enhanced and purchase costs are reduced.
5. Performance specifications allow a greater degree of innovation by suppliers. Under performance specifications, the supplier assumes the responsibility of providing a product suitable to the purchaser’s need.

Disadvantages

1. Marginal suppliers look for loopholes in specifications. Care and effort must be taken to screen potential suppliers to ensure that only reputable ones are asked to submit proposals. The use of performance specifications is restricted by purchasing’s ability to select capable and ethical suppliers-the kind who do not look for loopholes.
2. Competition tends to be reduced when the performance specification requires potential suppliers to perform considerable engineering in preparation for submitting a bid or proposal. Reduced competition may result in higher prices.