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Learn the classifications of private and public sectors, functions of public sector organizations, differences in purchasing between sectors, third sector objectives & characteristics, and Lallatin's service categorization.
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Procurement andSupply Functions Certificate in Procurement and Supply Operations
Classifying organisations • By structure and ownership • By primary objective • By activity • By size
Private and public sectors Private sector: Public sector: Organisations are owned by the government on behalf of the State, which represents the public Activity is financed by the state, mainly via taxation – as well as any revenue the organisation’s activities may generate The primary purpose is achieving defined service levels There has traditionally been little or no competition The ‘constituency’ of concerned stakeholders is wider and more diverse, including government, taxpayers, funding bodies, those who consume services – and society as a whole • Organisations are owned by their investors, and controlled by directors or managers on their behalf • Activity is funded by a combination of investment, revenue and debt • The primary purpose is the achievement of commercial objectives • Competition is a key factor • The core ‘constituency’ served by firms is shareholders, customers and employees
Functions of the public sector in a mixed economy • To provide essential goods and services which might not be provided by the private sector, owing to ‘market failure’ • To redistribute wealth, via taxation, in order to provide financial support for non-wage earners such as the sick, pensioners and the unemployed • To regulate private sector activity in the public interest, eg in the case of bodies such as the Competition Commission or the Health and Safety Executive • To ‘bail out’ private enterprises, where necessary in the public interest
Public sector organisation types • Government departments • Local government authorities • Quasi-Autonomous National Government Organisations (QUANGOs) • Public corporations • Municipal enterprises
The functions of public sector organisations • To deliver essential public services • To encourage national and community development • To pursue socio-economic goals
Differences between public and private sector purchasing • Objectives • Responsibility • Stakeholders • Activity or process • Legal restrictions • Competition • Value for money • Diversity of items • Publicity • Budgetary limits • Information exchange • Procurement policies and procedures • Supplier relationships
Objectives of third sector organisations • Raising public awareness of a cause or issue • Political lobbying and advocacy on behalf of a cause, issue or group • Raising funds to carry out activities • Providing material aid and services to the public or specific beneficiaries • Providing services to members • Mobilising and involving members of the public in community projects, for mutual benefit
Charities Commission objectives • To register charities (in a similar way to the registration of companies) • To ensure that charities meet the legal requirements for being a charity, and are equipped to operate properly and within the law • To check that charities are run for public benefit, and not for private advantage • To ensure that charities are independent and that their trustees take their decisions free of control or undue influence from outside agencies • To detect and remedy serious mismanagement or deliberate abuse by or within charities • To work with charities and other regulators, to enhance public confidence in charities and the work they do
Key drivers for third sector procurement policy • The values of internal and external stakeholders • The need to align procurement policies and procedures with the core values, cause, issue or theme promoted by the organisation • The management of reputation and reputational risk • The need to source inputs for a very wide range of activities • The need to act as retail or merchandise buyers, if goods are resold to raise funds • The need for differentiation • Limited resources • The need for economic sustainability. • The need for transparency, accountability and stewardship in the management of funds
Distinctive characteristics of services • Impracticability of storage • Lack of inspectability • Uncertainties in contractual agreements • Complexity
Departmental, team and individual work objectives • Quantified output or improvement targets • Performance standards, whether quantified or qualitative • Projects to be completed • Standing objectives
Effective objectives are ‘SMART’ • Specific precise, clear and well-defined • Measurable related to quantified measures (reduce errors or costs by x% over x months) or qualitative measures (increase expressed customer satisfaction) • Attainable achievable, given the time and resources available • Relevant to the strategic objectives of the business unit and the organisation as a whole • Time-bounded given a defined time-scale over which the objective will be achieved
What shapes an organisation’s structure? • The strategic objectives or mission of the organisation • The task or ‘business’ of the organisation • The technology of the task • The size of the organisation • Geographical dispersion • The environment of the organisation • The culture and management style of the organisation
Factors influencing the span • The capabilities of the manager to plan, organise, co-ordinate and control activities, resources and people, and to manage his own time effectively • The nature of the manager’s workload • The capabilities of the subordinates • The nature and technology of the task • The dynamics of teamworking • The co-ordinatory mechanisms of the organisation
Informal organisation When people work together, they establish: • Social networks and groups the boundaries of units established by the formal organisation. • Informal ways of getting things done often different from the formal rules and procedures of the organisation. • Informal communication networks often bypassing formal communication channels. This is sometimes called the ‘grapevine’ or ‘bush telegraph’. • Informal authority structures often different from the formal position-based scalar chain of command. Non-managerial individuals may have informal influence over their colleagues (and even over their superiors).
Organisational behaviour • People (not organisations) have purposes or goals • People have to come together to co-ordinate their different activities and thus create an organisation • The effectiveness of an organisation depends on how well people’s needs are satisfied by their planned transactions with their particular environment
Typical functions in organisations • Production • Operations • Marketing and sales • Customer support • Human resource management/personnel • Finance • IT and engineering • Technical functions
Hierarchical levels at which purchasing may operate • At the lowest level, purchasing is a routine clerical function • As purchasing advances, it may become a middle management function • At the highest level, the head of purchasing may be a member of senior management
Management by objectives (MbO) • Develop a coherent strategic plan, with clear organisational goals and objectives • Collaboratively define each individual’s major areas of responsibility and the purpose of their role within the corporate plan • Jointly define and agree the key tasks which are directly related to the achievement of the objectives, and in which any performance shortfall would negatively impact on success • Jointly define and agree, for each key task, key results and methods of monitoring and measuring performance in these areas • Agree individual (or unit) performance improvement plans for a defined planning period • Implement monitoring, self-evaluation and periodic review of performance at agreed intervals, and revise objectives, targets and action plans as required
Purchasing roles and corporate objectives • Contribution of individuals to an organisation’s profitability • Management of basic purchasing workload • Development of purchasing infrastructure and competency
Corporate mission statement • Usually a brief statement of not more than a page in length • A very general statement of entity culture • States the aims or purposes of the organisation • States the business areas in which the organisation intends to operate • Open-ended (not stated in quantifiable terms) • Does not include commercial terms, such as profit • Not time-assigned • Forms a basis of communication to the people inside the organisation and to people outside • Used as a starting point for formulating goals, objectives and short-term targets
Supply chain management • A strategic SCM approach implies the need to develop strategies for: • The role and positioning of an organisation • The configuration of the chain or network • The selection of strategic supply chain partners • Internal and trans-organisational processes for materials and information flow • Collaborative and integrative arrangements
Procurement job titles • Procurement officer • Buyer • Supply chain manager • Supplier relationship manager • Contract manager • Category buyer • Purchasing manager • E-procurement manager • Assistant buyer
Guidance for other functions • The purchasing function may adopt an internal consultancy role in an organisation when: • Procurement activity is undertaken by ‘part-time’ buyers or non-purchasing staff in user departments or budget-holder departments • Procurement is required for a multi-functional project • Specific disciplines, skills or information are required by other functions, project teams or managers, which purchasing is in a position to contribute • Purchasing lacks the formal organisational authority (mandate) to impose purchasing disciplines, procedures or decisions on other departments
Procurement tasks for other functions • Purchasing • Managing resources • Advising on purchasing and supply systems • Building supply chain relationships • Policy development • Quality • Cost reduction and control • Innovation • Delivery
Measures to evaluate purchasing’s effectiveness • Average lapse of time between requisition and delivery • Average cost of processing a requisition through to delivery • Number of complaints from user departments • Cost savings achieved for user departments
Policy and procedure • Organisations may need to develop effective policies in regard to procurement and supply chain issues such as: • An intention to comply with all relevant laws, regulations, standards, codes of practice and best practice benchmarks • Responsibilities for procurement at different stages of the procurement process; or in cross-functional procurement teams • Levels of delegated authority for procurement • The use of defined procurement procedures, decision rules or guidelines to support consistent good practice • Sourcing decisions • Ethical and sustainable procurement
Compliance • Law and regulation places certain requirements on products and services which may need to be taken into account • Quality standards and tolerances required to be accredited by various international quality standards • Quality standards and tolerances required for product safety • Controls on the use, storage and transport of substances and materials which may be dangerous to health • Environmental protection law and regulation
Authorisations and sign-offs Authorisations or sign-offs may be required: • When a requisition is originated in a user department • Before a specification is released to a supplier • When the purchase order is completed • When the supplier’s invoice is received • Contract changes must be authorised by the relevant contract manager
Procurement decisions • Make/do internally or source from outside? • Sourcing policy: single or multiple sourcing, or a combination depending on the materials concerned? • Local or international sourcing? • Centralise or decentralise purchasing decisions, or a combination of both? • What kind of systems to capture, analyse and share purchasing information? • How to ensure compliance with relevant law, regulation and policy? • What key performance indicators (KPIs), standards, targets and schedules will be used to measure and manage performance? • What resources (including staff and skills) will be required to achieve objectives?
Purchasing management audits • To verify the extent to which purchasing policies are being adhered to • To ensure that procedures and methods conform to best working practice • To monitor and measure the extent to which resources are used efficiently and effectively • To assist in the detection of fraud
