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

The History of Procurement and Supply Management: Where are we headed?. Portland State University, ISQA 440 Darin Matthews, CPPO, C.P.M. This Presentation looks at... Government Procurement defined and examined Past Voices of Procurement Present Voices of Procurement

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

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  1. The History of Procurement and Supply Management: Where are we headed? Portland State University, ISQA 440 Darin Matthews, CPPO, C.P.M.

  2. 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?”

  3. 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)

  4. Principal Goals of PublicProcurement • 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)

  5. Questions for Procurement • Science or Art? • Profession? • Do theories of procurement exist or is it just a practice based function?

  6. 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”

  7. Procurement in Government • Significant impact on GDP (20%) • Translates revenues into expenditures for goods and services • Annual spend: $1670 billion (US)

  8. Voices 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

  9. Voices of Procurement Past • Livy (215 BC) • Roman armies in Spain • Involved negotiating and bargaining • Contract for furnishing clothes, grain • Three bidders came forward • Conditions: exempt from military service and state, government accepted risk of attack

  10. Voices 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.”

  11. Purchaser Characteristics • Twyford (1915) • Reactive • Clerical • Unimaginative • Unglamorous

  12. Voices of Procurement Past • New voices emerged in 20th century • The Engineer as a Purchasing Agent (1908) • Formation of professional organizations – ISM (1915), NIGP (1944), NCMA, (1959), PMAC (1919), CAPPO (1915)

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

  14. Contemporary Voices • “from the back room to the board room” (Jerry Baker, ISM) • “from controller to collaborator” (Rick Grimm, NIGP)

  15. Contemporary Thought • Traditional ideology changing (1980’s) • Concept of supply chain gaining importance • Procurement seen as “initiator” • Purchasing Multiplier (Jensen) • Strategic partnerships with key business units

  16. Voice from Down Under “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

  17. Strategic Procurement • Top management has viewed purchasing as ancillary support function However • When purchasing is proactive and operating at a strategic level, major opportunities and advantages exist Source: Ellram & Carr, 1994

  18. 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

  19. 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

  20. 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)

  21. Future Roles for Procurement • Offer a strategic approach • Observe developments in the political landscape • Respond to demands of economic, social, environmental influences • Factor in Total Cost of Ownership principles • Assume leadership role in supplier management

  22. Vision for Public Procurement • 2011 study by NIGP and Sci-Quest • Top issues for the profession • Lower revenue sources • Difficult climate for political decision making • Mass retiring of the workforce • Increased focus on buy local and sustainability • K12 – Do new revenue sources include selling advertising on school buses?

  23. 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 department • Focus on efficiency, but lacking control and central spend data Source. www.nigp.org

  24. Role of Procurement • Type 2: Large Centralized (10-15 FTE) • All purchases done by Purchasing • Large team buying for entire organization • Sourcing 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

  25. 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

  26. Future Roles for Procurement • Makes intelligent use of electronic systems • Seeke-literacy among players in a market • Establish orderly and efficient procedures/guidelines • Begin to take account of “green” issues

  27. 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?)

  28. Some continuing trends….

  29. Continuing Evolution of Purchasing • 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

  30. Procurement professionals must assume • 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)

  31. Future Skills for Profession Communication Team Building Interpersonal Skills E-Commerce Proficiency Negotiation Relationship Management Source: CAPS Research, www.capsresearch.org

  32. 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)

  33. 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

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

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