Title page

Title page

Salmat Procurement Policy

Purchasing and Approval Policy

Document version:1.01.0

Status:Draft

Issue date:18-Jul-2014( Copyright 2014Salmat Information Technology Group1416 Chandos StreetSt Leonards NSW 2065

The information in this document is for the sole use of Salmat Pty Limited staff. It contains Company Confidential information. No part of it may be copied, reproduced, translated or reduced to any electronic medium or machine-readable form without prior written consent from Salmat Pty Limited.

This document should not be circulated outside Salmat without the written consent of the release authority listed below. Where no release authority is listed, the State Managers written consent must be obtained before the document is circulated outside Salmat.

Change history

VersionDateChangeBy

1.0Geoff Taylor

Sidebars can be used to indicate the last changes.

Release authorisation

File nameprocurement policy manual

Version1.0

Release date1 December 2014

Release authorityManager, Planning and Financial Control

Release approval number

All hard copies of this document are uncontrolled. Refer to the file held on the relevant server for the authorised version.

Contents

1Title page

1Introduction41.1Purpose and Scope41.2Scope41.3Documentation41.4References41.5Definitions51.6JD Edwards OneWorld System52Vision73Employee Obligations84Responsibility of Management94.1Training and Communication94.2Responsibility and Authority95Procurement Policy105.1Procurement Principles105.1.1Efficient procurement processes105.1.2Value for money115.1.3Effective competition115.2Procurement Methods125.3Goods requiring a Capex125.4Goods not requiring a Capex135.5Purchasing Authority levels135.5.1Capital Expenditure135.5.2Operating Expenditure146Procurement Process156.1Overview156.2Process Flowcharts16

1 Introduction

1.1 Purpose and Scope

This document defines the procurement policies in place throughout the Salmat organisation. The policies in this document are to ensure that:

Salmat operates with honesty, integrity and fairness

Salmat consistently meets and exceeds client expectations

Salmat operates in accordance with applicable laws.

This policy document is to be read in conjunction with other relevant policy documents within Salmat.

1.2 Scope

This procedure applies to all products and services procured within Salmat, including operating expenditure and capital expenditure.

1.3 Documentation

All relevant documentation and templates can be found on the Salmat Intranet.

1.4 References

Capital Expenditure Request forms

Purchase Orders

Incoming Stock Registration from

Purchase Order Request form

Purchase Order form

Corrective Action Request

Corporate Capital Expenditure procedure

Server installation control form (ITG related)

PC installation control form (ITG related)

1.5 Definitions

TermDefinition

Con NoteConsignment Note used in transit.

PurchaserAn employee of Salmat who identifies a need to make a purchase.

Procurement OfficerA person appointed to a senior manager who has authority to generate purchase orders.

Departmental ManagerA Department Manager is a person who, irrespective of job title, has the necessary authority and responsibility to run a department, or team, within a business of Salmat.

Fixed AssetAn item that is not a consumable or repair. Fixed assets can include:

plant and machinery

office equipment

motor vehicles

Furniture

Buildings

ConsumableA item purchased for an employee

Capital ExpenditureAny expenditure over $1,000 for new fixed assets or any purchase of computer hardware and software.

CapexAbbreviated form of Capital Expenditure Request

Sub-contractorA supplier who contracts to provide a product and / or service.

1.6 JD Edwards OneWorld System

XE "MIMS" The JD Edwards (JDE) OneWOrld product is the computer system that Salmat is introducing to manage many aspects of its operation. The following JDE modules will be used in relation to procurement include the following:

Purchasing

Accounts Payable

Fixed Assets

The key functionality of the OneWorld system in relation to procurement is as follows:

Vendor details

Purchase orders

Purchase order approvals

Invoice details

Payment information

JDE generates a range of useful reports that will allow Salmat to effectively monitor procurement activities and trends. Some aspects of procurement, such as the required levels of approval, will still have to be done manually.

All staff required to use the JDE Purchasing Module will receive specific JDE training. This manual does not describe how to use JDE for procurement.

For additional information on JDE, refer to the JDE User Manuals or call the ITG Help Desk.

2 Vision

Salmat was listed on the Australian Stock Exchange on 2nd December 2002 and operates in an increasingly competitive environment.

Salmat continues to focus on opportunities to minimse cost and maximise value. This is being done through a number of business strategies, one of which is the new Procurement Policy XE "Procurement Policy" designed to enhance the efficiency of the procurement process.

The Procurement Policy:

aims to generate effective and efficient procurements

introduces flexibility to the procurement process by making a number of procurement methods available

empowers staff to select a procurement method which is suitable to the type of procurement

streamlines the approvals process and allows for feedback.

3 Employee Obligations

Employees of Salmat who procure or approve the procurement of goods and services are expected to be familiar with the policies embodied in this document. Employees are also required to be aware of and understand the policies and procedures that directly relate to their roles.

Employees are responsible for complying with procurement policies to the extent to which they relate to their role. Employees are encouraged to ask questions, seek guidance, and express any concerns they may have with regard to Salmat procurement policies.

4 Responsibility of Management

Managers are responsible for ensuring that the intent of the Salmat Procurement Policy are reflected in business transactions initiated by their organisational unit. It is essential that management are committed to ensuring compliance with the Salmat Procurement Policy and associated procedures.

Managers are responsible for communicating the intent of the Salmat Procurement Policy to all staff involved in the procurement process.

4.1 Training and Communication

Business Unit Managers are responsible for ensuring that the intent of the Salmat Procurement Policy is reflected throughout the business management systems (such as JD Edwards) and practices within each Business Unit. Changes to the Procurement Policy are to be communicated to all staff involved in the procurement process.

4.2 Responsibility and Authority

Details of responsibilities and authorities for all personnel are defined in procedures and / or job descriptions maintained by the relevant Salmat business.

In the absence of an employee with designated responsibility and authority, responsibility and authority is designated upwardsa as per the relevant organisation chart for re-delegation.

5 Procurement Policy

5.1 Procurement Principles

XE "Procurement Principles" Salmatss Procurement Policy relies on the following principles:

efficient procurement processes;

value for money; and XE "value for money" effective competition XE "effective competition" .

5.1.1 Efficient procurement processesEfficient procurement processes XE "Efficient procurement processes" will help Salmat achieve its corporate objective to operate as a successful business and to maximise profitability.

Salmat will improve existing procurement process by:

closer relationships with strategic suppliers through a range of preferred supplier arrangements; and

introducing new streamlined procedures as part of the JD Edwards financial management system implementation project.

Creating preferred supplier arrangements allows Salmat to leverage its significant buying power to achieve price and volume discounts and to ensure consistent quality and service levels across the organisation.

Through a process of strategic sourcing Salmat will reduce the number of vendors it deals with and reduce the administrative overhead of creating and maintaining vendors on the system.

Salmat will also streamline its purchasing procedures, including the introduction of purchase orders for a range of transactions. By requiring approval for transactions before the commitment is made, Salmat will ensure costs are minimised.

5.1.2 Value for money

XE "Value for money" Salmat will achieve value for money by purchasing products and services according to the following criteria:

fitness for purpose;

quality;

whole-of-life-cycle costs;

price;

after sales support; and

suppliers past performance record.

It is important to highlight that price and quality are not the only factors to be taken into account when purchasing goods and services. For example, it is essential that whole-of-life-cycle

5.1.3 Effective competition

Effective competition XE "Effective competition" requires a trade off between the level of effort required to create a competitive environment and the benefits to be achieved from obtaining a lower price.

In the case of low value items, it will be sufficient for staff to source goods and services at typical open market rates. As the value of the goods and services rise it is necessary to use a more formal approach. The relevant authority levels that apply are outlined in Section 5.5.

5.2 Procurement Methods

The key procurement methods within Salmat include the following:

Petty Cash for items less than $100.

Corporate Card (Amex and Diners) to be used by senior managers for travel, accommodation, meals, entertainment and other related expenditure.

Purchasing Card (Pilot from 1st January 2004) to be used for ad hoc purchases of less than $1,000 where an existing vendor relationship does not exist with Salmat. The Purchasing Card will ultimately replace Amex and Diners cards and will then be used for travel, accommodation, meals, entertainment where the holder is authorised to use the card for those purposes.

Voucher where a payment is made based on an invoice or statement received from a vendor. No purchase order is created. Types of expenses that will be paid using the voucher only approach include telecommunications costs, utilities, council rates and office rent.

2-way matching where a purchase order is raised to trigger the purchase of a good or service and the payment is made based on the invoice matching the purchase order.

3-way matching where a purchase order is raised to trigger the purchase of a good or service and the payment is made when (a) the goods or services are receipted into the system and (b) the invoice is received and matches both the good receipt note and the original purchase order.

Payroll in respect of services provided by employees and the reimbursement of expenses claimed on Salmat.

The use of purchase orders it mandatory in respect of items that are purchased under 2-way and 3-way matching arrangements. A full list of procurement methods by vendor are included in Appendix A.

5.3 Goods requiring a Capex

All Salmat employees requesting the purchase of capital items or technology related goods are required to follow the Corporate Capital Expenditure Procedure.

All technology related goods are to be purchased through Information Technology Group by using a Capital Expenditure Request form.

A capex is required for the purcahse of all technology related goods if the value is great than $1,000. Purchasing authority levels are outlined in the following sections.

5.4 Goods not requiring a Capex

Goods with a value of less than $1,000 can be purchased without a Capital Expenditure Request. Wherever possible, a Purchase Order should be used to trigger the purchase of goods or services.

5.5 Purchasing Authority levels

5.5.1 Capital Expenditure

The Salmat Purchasing Authority levels for capital expenditure are as follows:

RangeAuthorityDetails

Up to $1,000Treat as expense refer to above authority levels Prices must be considered reasonable and consistent with normal market rates for items of a like nature.

Requirements must not be split into components nor succession of orders for the same goods or services for the purpose of avoiding the Salmat purchasing policy.

$1,000 to $5,000Executive Director / CFO / Business Unit Manager / State or General Manager / HO Function Manager Minimum of three (3) verbal quotations should be obtained for non preferred supplier purchases.

$5,001 to $10,000Capital Expediture Committee Minimum of three (3) verbal quotations should be obtained for non preferred supplier purchases.

Greater than $10,000Managing Director Minimum of three (3) written quotations should be obtained for non preferred supplier purchases.

5.5.2 Operating Expenditure

The Salmat Purchasing Authority levels for operating expenditure are as follows:

RangeAuthorityDetails

Up to $100Designated employees (such as secretaries, PAs etc.) approved by business unit managers Prices must be considered reasonable and consistent with normal market rates for items of a like nature.

Reimbursement via Petty Cash.

$101 to $1,000Designated employees (such as secretaries, PAs etc.) approved by business unit managers Rates must be considered reasonable and consistent with normal market rates for items of a like nature.

Requirements must not be split into components nor succession of orders for the same goods or services for the purpose of avoiding the Salmat purchasing policy.

$1,000 to $5,000Sales Manager / Operations Manager Minimum of three (3) verbal quotations should be obtained for non preferred supplier purchases.

$5,001 to $20,000Departmental Manager (with allocated budget responsibility) As above.

$20,001 to $50,000Business Unit Manager / State Manager / HO Function Manager Minimum of three (3) written quotations should be obtained for non preferred supplier purchases.

$50,001 to $100,000Executive Director / CFO As above

Greater than $100,000Managing Director Documentation at the discretion of the Managing Director.

NB: Monetary figures are inclusive of GST.

6 Procurement Process

6.1 Overview

The characteristics of the non stock procurement process are typically that:

The details of the product or service being purchased are known

The product is readily available in the market

The product has been purchased previously by Salmat

There is a competitive market

The primary selection criteria is price and availability

There are low risks associated with the purchase.

The high level procurement process is summarised as follows:

Define the need and specification

Establish potential sources of supply

Determine the procurement method (buying from Salmat preferred supplier, verbal or written quotations, purchase without quotations)

Obtain the appropriate approval

Invite offers / quotations

Evaluate responses and select the service provider

Obtain approval for the decision

Monitor performance of the service provider.

6.2 Process Flowcharts

The purchasing process for items that are acquired without a purchase order (e.g. telecommunications, utilities, council rates and rent etc.) is as follows:

Under this scenario, it is assumed that a relationship already exists with the vendor and that the purchase of the goods or services have been approved before the invoice is received.

The main tasks under this process are to establish whether the invoice is correct and to process the payment. If the invoice is not correct the manager or an authorised staff member needs to contact the vendor. If the invoice is correct a payment should be processed. If the invoice is not correct an adusted invoice should be requested from the vendor.

The purchasing process for services (2-way matching) is as follows:

The procurement process for services involves a 2-way matching i.e. matching the purchase order raised by Salmat (using JDE) and the invoice issued by the vendor.

The process begins with identifying the need and the specification for the service to be provided. The next step is to identify the supplier to be used. In many cases the supplier chosen will have an existing relationship with Salmat and may be a preferred supplier of Salmat. Once the supplier has been selected a purchase order is raised in JDE. The purchase order is routed electronically to a manager for approval. The manager has three choices in how he/she deals with the purchase order:

1. Approve the purchase order

2. Recycle the purchase order. In this case the manager may request more information or may ask the requester to use a different supplier.

3. Deny the purchase order. In this case the transaction will not proceed.

The purchase order may be despatched to the supplier by fax direct from JDE or may be printed by the requester and forwarded to the supplier.

Once the service has been delivered the vendor will forward an invoice to Salmat for payment. The invoice is scanned, indexed and linked to JDE. If there is a match between the purchase order and invoice the amount can be paid by the Accounts Payable area.

Where there is not a match further processing will be required. In the event that the invoice is incorrect the requester needs to contact the supplier and request a fresh invoice.

Where the invoice is correct and is for a different amount to that which was originally approved, the manager needs to approve the change. If the manager choose not to approve the adjustment he/she will have to contact the supplier to sort out the discrepancy. The agreed resolution may be for the supplier to submit an amended invoice for payment. On the second iteration the invoice should match the invoice and a payment will be processed.

The purchasing process for goods is done using a 3-way matching approach. The process is as follows:

The process is similar to the 2-way matching process except that there is a third item of documentation involved the Goods Received Note (GRN) or Delivery Docket.

Under this process, a 3-way match is required after task 10. If there is a 3-way match the vendor is paid. If there is not a 3-way match then various actions may follow. In the event that the mismatch resulted from goods being partially delivered, the authorised staff member needs to determine whether a further delivery is likely. If there is a further delivery to be made, the transaction will be held in the system until the balance of the goods have been received. If not a payment can be made in respect of the part receipt. This will result in the transaction being completed in the system.

If the GRN and the purchase order match and the invoice does not, either the invoice is incorrect and should amended by the supplier or the invoice is correct and the manager needs to either accept or reject the change.

Once the adjustment has been processed (either in JDE or by the supplier) the 3-way match can occur and payment to the vendor can be made.

Commercial in Confidence ( Copyright 2014 Salmat

_1122108622.vsd

_1122121085.vsd

_1122122249.vsd

_1122107743.vsd