The award of the contract does not bring the responsibilities of the procurement to an end.
It is also responsible to ensure the ordered suppliers and services are delivered or performed on a timely basis (at the time specified in the contract), that deliveries are properly processed, the materials received or services performed are acceptable (i.e., they conform to all specifications governing the supply), that invoices are properly paid and that warranty and other ongoing obligations of the supplier are discharged.
The post-documentation responsibilities of the purchasing department constitute one of its most important value added contributions to municipal operations.
A frequent question raised in government relates to what added value support department (such as purchasing) add to the government process.
In view of this question, I would pause momentarily to discuss the meaning of “value added” as a concept.
The term has become nearly a meaningless phrase, which meanders through business writings. As originally conceived, value added was defined as the surplus of sales over cost bought-in goods and services.
It was a measure of how much value a company added to its products by its own efforts, even if those “efforts” amounted to no more than passively holding the goods in question until such time as a buyer wandered along.
This definition of value added is closely related to the definition of the Gross National Product (GNP). However, in recent years, the term has been used so generally it now lacks any precision at all.
For private business, value added may be defined as sales less bought-in materials, components and services. It can be calculated from profit before interest and tax by adding back employee costs, depreciation and amortization.
It is thus a measure of the wealth created by a business activity, which is available for distribution among the providers of capital, whether in the form of debt or equity, to workers as salaries, wages and pensions, to governments as taxes and for internal investment by the business itself to sustain, grow and develop the business.
When considering from the perspective of an individual aspect of any organization, conceptually, it describes the following types of contribution to the production or service operations of that organization:
- The positive difference between a statistically-predicted performance (based on prior attainment and the general pattern in the data) that would likely be encountered if a particular measure or process was not put into place, and the actual performance after that process is put into place;
- A measure of relative process achieved in the value of each key stage of production or delivery process;
- Innovative ideas, and other forms of technical assistance, which improve the efficiency of an operation – i.e., increase its income earnings potential or reduce its cost, or improve the amount of utility derived from the same amount of expenditure. Alternatively stated, it includes any technical or professional support provided to an organization which enhances that organization’s ability to capture, derive or create a net gain in value from the assets at its disposal.
As should be fairly clear from the discussion so far, there are a number of ways in which a purchasing department can add value to the operations of any organization, including a municipality.
I would consider such value-added services as file maintenance, improvement to the procurement function, supplier assessment and streamlining of the procurement process and project management.
The purchasing function is a critical part of the management infrastructure supporting the business operations of municipal government. It provides the goods and services essential for the effective delivery of municipal programs and services.
It is charged with doing so in a manner that is time and cost efficient and effective from a service delivery perspective.
Stephen Bauld is a government procurement expert and can be reached at [email protected]. Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.
