The purpose of this study is to
determine the benefits of developing a centralized procurement body for the
government. One of the expected roles of this body is to conduct all the
necessary processes from research to bid evaluation to identify the best
options for consulting services and other resources for the public sector. The
following concise study will determine the benefits of such an initiative by analyzing
the procurement bodies of the United Kingdom (UK) and South Korea as benchmarks.
A survey conducted by C. Herbert with
the organizers of the eWorld conference in 2013 showed that the majority of
survey takers believe that the public sector falls behind the private sector in
terms of efficiency and cost saving. By adopting a dedicated department for
procurement, governments can bridge this gap and reap more benefits. These
includes a shift from procurement that is “too routine” and has strict
adherence to rules and regulations to a process that exhibits flexibility.
Furthermore, many agree that having a dedicated procurement function transforms
the process from one that is merely a part of daily operations and a means to
an end to a process that is a major factor in allowing organizations to reach
their full potential and corporate objectives. This change has seen to improve
the quality of leadership and top level support for the procurement unit, increase
cost-saving initiatives and achieve higher coordination in many governments.
In the United Kingdom (UK), government procurement
expenditure made up 13% of Gross Domestic Product (£238billion) and demand made
up 16.3% of the entire economy in 2010 according to the Department for
Business, Innovation & Skills (BIS). As such, the Cabinet Office in the UK began
a procurement reform in 2010 by establishing a new body; the Government Procurement
Services (GPS), whose objective is to improve procurement spend management by providing
centralized procurement services to the UK public sector. It was determined
that the following points are instrumental in improving the impact of public
procurement on the nation.By cultivating the aforementioned
impact points, the GPS has been able to support governmental entities to
achieve a total demand savings of £1.1bn in 2012/13 (excl. contingent labor)
where more than 50% of suppliers were Subject Matter Experts (SMEs).1
Such savings were realized due to the GPS’s role in:
1. Delivering the centralized procurement strategy to governmental institutions.
2. Providing centralized sourcing, category and data management.
3. Implementing policy to deliver savings and drive efficiency.
4. Establishing strategic alliances with buying organizations.
5. Combining purchasing volumes among different departments.
In order to ensure that the most
suitable models, methods and strategies are developed and implemented in a
stream-lined and efficient manner, having a separate body take reign of
procurement is key. The United Kingdom has benefited extremely from the GPS
which continues to engineer ways to fuel continuous improvement.
Providing both efficiency and
transparency simultaneously is extremely vital yet difficult owing to how both
can clash against one another. Therefore, governments are usually hesitant to
adopt a similar procurement process to that of the private sector. Times are
changing, however, and many governments are beginning to shift towards a more
cost saving and quality assurance vision for public procurement. In South Korea,
where public procurement made up 10% of GDP expenditure in 20082,
the Korean Public Procurement Service (PPS) began improving the procurement
function to reduce the cost of procurement by utilizing best practices and
innovation such as supply chain optimization, competitive bidding, power
negotiation and full digitalization. The Korean PPS has overcome the challenge
of efficiency and transparency by digitalizing their procurement system through
the Korean Online e-Procurement Systems (KONEPS) where transactions are
dictated by transparent and clear procedures and best practices. By allowing
the procurement arm to change from an operational function to one that it is
guided by efficiency, government procurement in South Korea now promotes social
responsibilities, industry innovation, eco-friendly activities and leadership
in government officials while also contributing to the national economy.
The Korean PPS not only
negotiates best prices with numerous suppliers but also monitors critical
procurement processes in the country. South Korea is a nation that does not
possess an abundance of natural resources yet rely heavily on raw materials consumption
for production. In fact, South Korea is the fifth largest nation that uses
aluminum as a raw material in production. As such, any shortage or crisis in
raw materials can have dire consequences on the South Korean national economy.
As a centralized procurement service, the PPS conducts risk management of raw
material shortage and other essential resources to develop plans to prevent a
national crisis and contribute to the economy. Such plans range from purchasing
reserves of raw materials and resources, deploy varying sourcing strategies to
mitigate risk, conduct stockpiling operations, prepare contingency plans and establish
buying consortiums with other nations when possible. In conclusion, public procurement
is a major function in the government and provides a window of opportunity for
improvement. As such, more and more nations are adopting a centralized
procurement function to streamline operations, reduce costs and propel public
procurement to the next level. By doing so, procurement is becoming a chief
department in the realization of national savings and improvement of risk
management by supporting the different governmental organizations and entities.