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The History of Procurement and Supply Management:Where are we headed?

Portland State University, ISQA 440

Darin Matthews, CPPO, C.P.M.

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This Presentation looks at...

• Government Procurement defined and examined

• Past Voices of Procurement

• Present Voices of Procurement

• Future Role of Procurement

• Asks: “Where are we headed as a profession?”

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What is Government Procurement?

What is Government Procurement?

“The acquisition and utilization of goods and

services required by government institutions

from conception of the need for the product or

service to its utilization and ultimate disposal” (Callender and Matthews, 2002)

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Principal Goals of Public Procurement

Implementation of a system that demonstrates transparency

Efficiency in procurement operations and achievement of cost minimization (through competition)

Achievement of the strategic goals of the organization while ensuring a fair, equitable process

(Paul Schapper and Guy Callender, 2003)

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Questions for Procurement Questions for Procurement

Science or Art?

Profession?

Do theories of procurement exist or is it just a practice based function?

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Procurement in Government

• Has experienced limited recognition

• Limited opportunities exist for formal education

• Common adoption of least-cost models (i.e. low bid)

• Constant struggle to be “collaborators”

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Procurement in Government

•Significant impact on GDP (20%)

•Translates revenues into expenditures for goods and services

•Annual spend: $1670 billion (US)

Voices of Procurement PastVoices of Procurement Past

Practice of procurement can be traced back 2800 years

Trade between China and parts of Europe

Centralizing supply function, established internal control

Voices of Procurement PastVoices of Procurement Past

Livy (215 BC)Roman armies in Spain Involved negotiating and bargainingContract for furnishing clothes, grainThree bidders came forwardConditions: exempt from military

service and state, government accepted risk of attack

Voices of Procurement PastVoices of Procurement Past

Gustavus Vasa, King of Sweden (16th Century) “By virtue of the grace invested in my royal

office I have decreed you to forge one thousand suits of armor and ten thousand arrowheads.

You have failed to obey this command! At the peril of having your heads fall to the

axe, to the amusement of the inhabitants of Stockholm in the city square one holiday eve at my discretion, I once again command you to comply with my wishes.”

Purchaser CharacteristicsPurchaser Characteristics

Twyford (1915)ReactiveClericalUnimaginative Unglamorous

Voices of Procurement PastVoices of Procurement Past

New voices emerged in 20th centuryThe Engineer as a Purchasing

Agent (1908)Formation of professional

organizations – ISM (1915), NIGP (1944), NCMA, (1959), PMAC (1919), CAPPO (1915)

Procurement has “emerged from being tactical and operational in nature … to being considered …as being of major strategic importance.”(Humphries, 2001, p.604)

Voices From The Present

“from the back room to the board room” (Jerry Baker, ISM)

“from controller to collaborator”(Rick Grimm, NIGP)

Contemporary Voices

Traditional ideology changing (1980’s)Concept of supply chain gaining

importanceProcurement seen as “initiator”Purchasing Multiplier (Jensen)Strategic partnerships with key

business units

Contemporary Thought

“The pressure to perform like the public sector can make the life of the public manager quite difficult.”

Professor Guy Callender

University of Technology

Perth, Western Australia

Voice from Down Under

Top management has viewed purchasing as ancillary support function

HoweverWhen purchasing is proactive and

operating at a strategic level, major opportunities and advantages existSource: Ellram & Carr, 1994

Strategic Procurement

In a recent survey 84% of senior management stated they were committed to maximizing strategic procurement and minimizing transactional buying

Source: Global Supply Chain

Strategic Procurement

Procurement, technology and the future ...

Procurement, technology and the future ...

“..all of us must pay close attention to the technological advancements…it is either that or be left behind in 5 or 10 years because of something that we can’t readily embrace today as being an important factor in our business tomorrow.”

Russell Broeckelmann

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Procurement needs to bridge the gap between demands for efficiency and effectiveness in government and …

• Focus on the clients

• Enhance service quality

• Reduce costs

• Increase speed (cycle time)

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Future Roles for Procurement

Offer a strategic approach Observe developments in the

political landscape Respond to demands of economic,

social, environmental influencesFactor in Total Cost of Ownership

principlesAssume leadership role in supplier

management

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Vision for Public Procurement

2011 study by NIGP and Sci-QuestTop issues for the profession

Lower revenue sourcesDifficult climate for political decision

makingMass retiring of the workforceIncreased focus on buy local and

sustainability

K12 – Do new revenue sources include selling advertising on school buses?

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Role of Procurement

Type 1: Small Decentralized (2‐5 FTE)Majority of purchases done by

departments via p-card. Central contracts are mostly ‘piggybacked’ Construction & professional services bids

done by responsible departmentFocus on efficiency, but lacking control

and central spend data

Source. www.nigp.org

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Role of Procurement

Type 2: Large Centralized (10-15 FTE)All purchases done by PurchasingLarge team buying for entire organizationSourcing is core focus (60% of time) Internal paper process or e-requisitioning Focus on risk avoidance, but lacking

efficiency for internal customers

Source. www.nigp.org

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Opportunities for Procurement

Build a Sustainable Procurement Organization

Good People Drive Good Processes Service Center vs. Process Center Automate, Automate, Automate

Source. www.nigp.org

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Future Roles for Procurement

Makes intelligent use of electronic systems

Seek e-literacy among players in a market

Establish orderly and efficient procedures/guidelines

Begin to take account of “green” issues

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Some continuing trends….

• Outsourcing of many services (procurement becomes even more valuable)

• New management structures (placement of procurement

still being defined)

• Wider use of IT based systems (e-literacy, e-auctions, sometimes e-chaos, e-insecurity)

• Constant talk of re-skilling (people with new skills or new people?)

• Focus on supplier/risk management (how do we make best sourcing decision?)

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Some continuing trends….

•

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Tactical (Historic)

• PO issuance

• Vendor file maintenance

• Excess inventory

• Order tracking

• Unit cost focus

• Local sourcing

Strategic (Leading)

• Supplier alliances

• Cost management

• Global sourcing

• Life cycle costing

• Procurement planning

• Spend management

Continuing Evolution of Purchasing

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A leadership role – seeking new opportunities and driving them

A managerial role – managing systems and relationships

A creator role – identifying new opportunities and making them available to the organization (strategies, supply options, revenue streams)

A needs enabler role – enabling others in the organization to satisfy their own needs

(Joseph Cavinato, 2000)

Procurement professionals must assume

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Future Skills for Profession

CommunicationTeam Building Interpersonal SkillsE-Commerce ProficiencyNegotiationRelationship Management

Source: CAPS Research, www.capsresearch.org

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Future Characteristicsof Procurement

Aligned with higher education institutions (partnerships, degree programs)

Elevated stature (and salary) within organization

Increased importance placed on service contracting and associated risks

Recognized as a respected profession (maybe for our own children)

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Summary Public procurement: an emerging body of

knowledge Increasing responsibility for large

expenditures Demands for increased production in

procurement with less resources Certain aspects (outsourcing) have seen

growing academic attention – more to follow

Desire to be recognized as a profession Development of the strategic nature of

government procurement

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Public Procurement

We’ve came a long way, but there is still work to be done