4.1: Importance of Supply Chain Management in the Public Sector
Supply chains and their associated management processes often remain invisible to the
public sector client. The government has traditionally focused on contracting with first-tier suppliers, the supply chain members with whom the procuring organization directly contracts. Within supplier selection, very few public agencies analyze their suppliers’ supply chains as part of their selection criteria. Thus, public agencies lack assurance about the reliability and resilience of their key suppliers’ subcontractors. Looking at the public sector procedures, limited information is known about their main suppliers and how they manage their internal supply chain and subcontractors.
Planning and governance are two of the weaker areas of contract management in the public sector, and many existing suppliers have not completed any form of risk register or assessment. The lack of internal control mechanisms and inconsistent interpretations of the government’s objectives and strategies create a disadvantage in contracts and procurement framework agreements. Competitive tendering fails, and the management of public funds for government purchasing becomes questionable when procurement best practices are not followed and targets are not met.
Public sector procurement has been slow in making changes to improve its visibility of the supply chain and understand how to manage this chain. The limited effort to improve supply chain performance could be due to resource constraints, a lack of understanding or perceived need for understanding, or perhaps even a perception on the client side that policy and legal framework do not allow for such activities. Increasingly, the complexity of many projects, a greater appreciation of the need to improve competition and innovation, and an increasing awareness of the impacts of terrorism or natural disasters on supply chains and business continuity mean that wider supply chain issues need to be taken into account when seeking improved efficiency and value for money. The supply chain is important to an organization due to the significant percentage of overall cost it accounts for. But is it strategic? In the commercial world, companies seek to create a competitive advantage by lowering their cost base to contribute to their bottom line: profit. In the public sector, the cost advantage gained through the procurement function contributes to lower costs for the organization, enabling funds to be diverted to frontline services such as hospitals and schools. This means better value for money for public sector shareholders who are taxpayers.
Supply chain management differs significantly between the private and public sectors. From a public sector perspective, the goal of service supply chain management is to deliver high-quality public services, not to profit from selling services. Public sector supply chains operate within the scope that legal regulations establish and implement their initiatives through taxes, fees, and public involvement (e.g., voluntary work). Private supply chains operate through business models that they implement with hired labour and the profits they generate. The public sector supply chain functions are also transparent in their processes. As a result, their structure and the relations between their links are open and implemented on the basis of applicable legal regulations, system solutions and partnership agreements. An important feature that distinguishes the public from the private is also the publicness of the investments they make and the results they achieve. (Sienkiewicz-Małyjurek, K. & Szymczak, M., 2024.)
The public sector supply chain comprises multilevel networks with stakeholders from different organizations. The participants in the chain may include i) private firms, which receive orders from public procurement officers; ii) accounting and financial departments; iii) policy-makers or regulatory bodies. The supply chain function is not only responsible for the procurement of goods and services but also for how these stakeholders are involved with others operating at different levels.
The goal of the supply chain management framework is to promote consistency in the application of processes throughout the government. Ensuring value for money, open and effective competition, ethics and accountability also enhances the standard of government procurement legislation and policies. The complete cycle in all SCM-related functions is accountable to financial departments and governing authorities.
Checkpoint 4.1
Attribution
The multiple choice questions in the Checkpoint boxes were created using the output from the Arizona State University Question Generator tool and are shared under the Creative Commons – CC0 1.0 Universal License.
