Ensuring that the right quality of an item is ordered and delivered may seem a fairly obvious responsibility.
However, as a practical matter doing so entails a fairly sophisticated understanding both of the market conditions and of user requirements.
Successful materials management may require a counter-intuitive approach towards purchasing, but it is an approach that frequently creates risk. Buying something only when it is needed is fine as a general rule.
However, following that rule slavishly can lead to poor materials management practice. Effective lean procurement of this kind requires careful co-ordination of customer and supplier operations.
One important distinction between manufacturing and government operations is that the latter are far more prone to seasonal variation – indeed, certain operations of a municipality may change radically from one season to another.
For certain types of goods and services, annual requirements are less important than seasonal (or perhaps even more frequent) requirements. For instance, purchasing snow-clearing services and materials such as road salt and sand are obviously seasonal activities.
However, the ideal season for purchase is rarely tied to the time of peak consumption. Very often, the only time when supply is available is during the summer, even though (except for municipalities in the extreme North) use will not occur until many months after the time when the purchase is made.
A failure to purchase in summer may mean the municipality is unable to secure such items when winter comes or may expose the municipality to the risk of high spot prices.
At the same time, it is wrong to assume that advance purchase is necessarily the best policy. Anything bought before it is required must be stored (which can be costly, especially for bulk goods) and may become obsolete before it is used, may spoil, is subject to shrinkage and may be damaged.
As the foregoing illustrates, for municipal purchasing departments, a “just in time” approach would not be suitable for this type of commodity.
Thus, it is essential to ensure any private sector practice that is imported into the public sector is suited to the particular type of procurement that must be conducted.
For a municipality, there is no one universal approach that may be employed in relation to all items. It is necessary to identify an appropriate approach to govern procurement for each type of good or service.
In this respect at least, municipal procurement is more challenging than procurement in the private sector.
Beyond seasonal variation in municipal operations, and the frequent benefits of off-season purchasing, when ordering a supply of a particular commodity, the purchasing (and ordering) department should consider:
- market price trends;
- present tax implications, and expected tax changes;
- whether savings may be secured through a volume purchase the cost of handling and storing the items being purchased over time;
- the shelf life of those items; and
- predictable fluctuations in market supply over different seasons or time.
To consider these issues, it is necessary to review past experience. It is also necessary to learn from the experience of others, by monitoring what they are doing.
In government, as in private enterprise, procurement activity is intended to meet some determinable need within the organization. That need must relate to some duty that the municipality is obliged to discharge or some other aspect of its operation.
A purchasing management approach to procurement involves a proactive approach.
In the private sector, it has been determined that by fostering close working relationships with a limited number of suppliers; promoting open communication among supply-chain partners; developing long-term strategic relationships, suppliers and their customers are able to achieve mutual gains.
Benefits flow from enhanced supply management and improved customer responsiveness, leading to improved financial performance of the buying firm.
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.
