6.3: Strengthening the Effectiveness of the Procurement Function in the Public Sector

Good procurement practice and business efficacy require the purchaser to find a supplier who will be both reliable and able to provide products or services that are good value for money (Brown, Bessant, and Lamming, 2013). Good value for money does not simply mean the cheapest but will include a variety of other factors such as quality, compliance with tendering criteria and after-sale service. Handfield (2011) notes that public procurement professionals are accountable to the public whose money is spent, including disappointed tenderers and potential suppliers. As such, they must produce procedures and practices that will stand up to scrutiny during either government audits or challenges through the courts regarding any purchasing decision that is deemed to be unprocedural. The primary purpose of public accountability is to prevent abuses of taxpayer money.

Procurement processes experience challenges the world over. This occurs even in developed countries, and some of the challenges are related to internal and external factors as well as poor communication between departments.

Thai (2011) identified the following seven challenges facing public sector procurement: (i) setting clear objectives at the outset of all projects and for all strategic procurement units; (ii) developing a procurement strategy for every public sector organization; (iii) focusing strategic procurement on outcomes not processes; (iv) embracing collaboration as a strategic tool; (v) recognizing that sustainability has become a strategic driver for professional procurement; (vi) positioning the public sector as a customer of choice, and (vii) resolving the talent scarcity problem.

Public procurement practitioners have always walked a tightrope. Their ability to accomplish procurement objectives and policies is influenced very much by internal forces, including interactions between various users from different departments demanding different goods and, in most cases, are not predictable (Arora, 2014). Staffing levels and budget resources are possible challenges, considering that funds are not available at the time of planning. Procurement planning enables departments to anticipate recurring contract requirements and be in a better position to take anticipatory actions aimed at ensuring compliance, but in most cases, the plan is not achieved due to a lack of sufficient funds (Arora, 2014; Handfield, 2011; Thai, 2011; Neals 2011).

Another challenge identified by the literature is excessive documentation. Public procurement is usually characterized by too much paperwork meant to communicate information from one function to another to facilitate action, indicate requirements to suppliers, and obtain the necessary goods and services in a timely manner and according to specifications (Baily et al., 2008). To address this problem, Baily, Farmer, Crocker, Jessop, and Jone (2008) recommend the use of e-procurement in the public sector. On their part, Lewis and Roehrich (2009) put an emphasis on the importance of supplier selection. They stress that selecting the right suppliers has an immediate and long-term effect on the organization’s ability to serve its clients. A wrong supplier may supply poor goods or sub-standard materials, which will then lead to poor customer service or may result in delays and require extensive corrective work, thereby affecting the product or service cost.

It is imperative that management recognizes weaknesses in the procurement function and adjusts to the dynamic global environment and socio-economic changes. Effective buying involves six “rights:” buying goods and services at the right price, from the right source, in the right quantity, at the right time, at the right specifications that meet users’ needs and to the right internal customer (Handfield, 2011). Researchers (such as Thai, 2011; Neals, 2011) noted that the performance of the procurement function is influenced by the interactions between various elements, including professionalism, staffing levels and budget resources, procurement organizational structure, procurement regulations, rules and guidance and internal control policies.

Organizational Processes

Organizational processes can be broadly defined as structured, measured sets of activities that together — and only together — transform inputs into outputs (Dumas et al., 2013). In contemporary organizations, organizational processes have become one of the most important — if not the most important — management paradigm (Jenabati et al., 2014). By providing adequate information flow — both vertically and horizontally, organizational resources are a vital element in ensuring that an organization’s goals are effectively achieved (Dumas et al., 2013, p.4).

Procurement professionals should develop integrated purchasing processes that support organizational goals and objectives. According to Handfield (2011), these strategies involve developing and maintaining policies and processes; monitoring supply markets and trends in terms of material prices, supply shortages and supplier changes; and interpreting the effect of these trends on company strategies supporting the organization’s need for a diverse and globally competitive supply base by identifying the critical materials and services required to support company strategies in key performance areas — predominantly during new product development.

Although the effectiveness of organizational processes is constantly associated with improved organizational performance, few studies have empirically investigated that relationship. The study by Jenabati et al. (2014, p.119), which was aimed at exploring the correlation between effective organizational processes and improved organizational performance, found that processes are essential in fostering an environment of reduced conflict and increased connectedness in an organization, thereby enhancing organizational performance. A surprisingly strong association was revealed by the findings of their study between organizational processes and overall performance.

Skills Development

Skills development denotes the “planned and systematic modification of behaviour through learning events, programmes and instruction, which enable individuals to achieve the levels of knowledge, skill and competence needed to carry out their work effectively” (Jehanzeb and Bashir, 2013, p.246). According to Hameed and Waheed (2011, p. 227) and Jehanzeb and Bashir (2013, p.247), skills development is concerned with the development of people’s expertise and knowledge. Skills development has also been referred to as a situation where an expert works with a learner to transfer to them certain areas of knowledge and skills in order to help them improve performance in their current job (Hameed and Waheed, 2011, p.226).

Irrespective of how long one has been working for a certain organization, sustained skills development can be a crucial element for the enhancement of employee effectiveness (Jehanzeb and Bashir, 2013, p.244). What is interesting is the characteristic of the process, which is underlined by Hameed and Waheed (2011, p.226), with regards to attitude modification, knowledge improvement, and skill or behaviour adjustment through learning involvements for the achievement of enhanced performance. Through the process of skills development, employees acquire new — and enhance their existing — skills, practises and approaches, which help them to establish and maintain their jobs.

The focus of several employee skills development programs is novel skills, methods, and notions that may have been unknown or unavailable at the time of initial recruitment. However, effective programs in this regard need to focus not only on job-related skills but also on emotional reinforcement to handle wide-ranging circumstances (Hameed and Waheed, 2011, p.227). For example, one important aspect that should be emphasized is confidence-building, as this can be beneficial in all aspects of one’s life. It has been demonstrated that organizations that invest adequately in programs for employee skills development enjoy improved organizational performance (Jehanzeb and Bashir, 2013; Hameed and Waheed, 2011).

Personnel handling the procurement function should exhibit a high level of purchasing knowledge and skills (Neals, 2011). They should be qualified and possess the skills to examine and interpret supply and demand changes, as well as handle aspects of relationships with suppliers. Lack of updated knowledge and skills toward local and international purchasing is a risk because it may destroy the firm’s relationship with other immediate stakeholders such as customers, the production department and suppliers, to mention a few, in addition to exposure to legal or regulatory non-compliance. Unprofessional practices in purchasing might result in poorly handled orders and shipments, which may lead to unnecessary expenses, delays, anger and frustration and reflect organizational incompetence and untrustworthiness (Neals, 2011). Organizations that commit adequate investment to employee skills development achieve enhanced productivity, quality, and performance (Evans and Lindsay, 1999).

Organizational Resources

Organizational resources refer to the “assets, knowledge, capabilities, and process of an organization” (Ombaka et al, 2015, p.13). Organizational resources are subdivided into tangible or intangible categories. The category of tangible resources consists of physical and financial assets such as land, machinery, furniture and capital (Jugdev and Mathur, 2012, p.107). Intangible resources include brand name, reputation of the organization, knowledge, skills, and experiences of employees, as well as organizational procedures. When an order is placed, a number of different costs can be incurred while processing and handling the order. Procurement costs include the cost of processing an order through the accounting and purchasing department, transmitting the order from the supplier, transporting the order when transportation charges are not included in the purchased goods and material handling or processing of the order at the receiving dock.

For international buying, it may be difficult for most procurement organizations engaged in international trade to fulfil their obligation to meet all the procurement requirements stipulated in the purchasing contract because of limited foreign currency (Hypo Group Alpe-Adria, 2010). International buying involves large cash transactions and is associated with high procurement costs. Procurement professionals may be forced to reduce their orders as a result of these costs. However, this decision may result in failure to meet the demand for goods and services in the receiving country (Hypo Group Alpe-Adria 2010). Thus, procurement professionals must be able to predict the costs associated with international buying. Strategic management academics have underlined the influence of an organization’s resources on its performance (Barney, 1991).

Information Technology

Information Technology (IT) is a broad subject concerned with all aspects of managing and processing information, especially within a large organization (Jean et al., 2008, p.564). While IT is often used to describe computers and computer networks, it actually includes all layers of all systems within an organization, from the physical hardware to the operating systems, applications, databases, storage, servers and more. Telecommunication technologies, including Internet and business phones, are also part of an organization’s IT infrastructure (Jean et al., 2008). Technology is a dynamic process. Changes in technology are associated with high set-up costs. Financial constraints are a major drawback, especially in some developing economies, when it comes to capital projects.

Modern procurement is now taking place online (Savage et al., 2013), yet many companies in developing economies are still lagging behind. For instance, most procurement functions in some less developed countries are still being done manually. Poor infrastructure, weak strategic alliances, and reluctance to change have resulted in the poor or even non-adoption of technologies such as electronic data interchange (EDI). In their study, Jean et al. (2008) found evidence that IT capabilities directly contribute to improved organizational processes such as coordination, transaction-specific investment, absorptive capacity and monitoring, and this, in turn, contributes to strategic and operational performance outcomes.

Attributions

“6.3 Strengthening the Effectiveness of the Procurement Function in the Public Sector” is adapted from “Strengthening the Effectiveness of the Procurement Function in the Public Sector,”  copyright © 2019 by Jean Bosco Nzitunga from Journal of Logistics Management, licensed under the Creative Commons Attribution International License (CC BY), except where otherwise noted.

“Practical Procurement: Scenarios and Solutions” box was created with the assistance of Microsoft Copilot and is shared under the Creative Commons – CC0 1.0 Universal License.

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.