Donald L. Woods, J.D., C.P.M.
Donald L. Woods, J.D., C.P.M., CEO, International Consulting & Contracting, Las Vegas, NV 89117, 702-254-6606, www.donwoods.com, email@example.com
Bramby Tollen, C.P.M.
Bramby Tollen, C.P.M., Clark County School District, Las Vegas, NV 89121, 702-799-5270
Abstract. Cost containment, right sizing, tight budgets and just plain better management forces government purchasing to become more efficient with less people. Gone are the days when Purchasing could throw people and money at a problem.
Many entities like to staff up to conduct all of their own purchasing. But that is becoming less efficient because of not being able to take advantage of large quantity discounts, small staffs, the lack of time or expertise to write defect-free bids and contracts, handle customer complaints and provide the contract administration.
Re-Engineering. Most Purchasing departments or systems are still wrought with excessive paperwork and approval processes, most of which can be eliminated with very little effort. Look for day-to-day procedures that are task orientated, and refocus on functionality by simply asking staff if the process adds value to the employee's job or to the entity's or company's product or service.
Take a look at Purchasing staffing. When purchasing professionals must do their own typing, filing, faxing, etc., their salaries are being wasted on low-value functions. There are many ways to address this issue, but before additional staff is employed, there should be an analysis of all current and future tasks to determine which are really necessary, elimination of those that are not mandatory, and then utilization of other support staff on a part-time basis to accomplish repetitive procedures. Remember that an employee subconsciously adds work to fill a work day, so you must be constantly vigil and eliminate nonessential, no-added-value tasks at least weekly.
Reduce the number of POs, even to the point of eliminating them all together. Reassign purchase order processing to the user departments or automate it. Once the all encompassing major contract is in place, use draw down slips, the telephone, procurement cards or EDI to place the order.
When the products needed are covered by an existing contract, Purchasing should not be involved with the order or payment processes. Purchasing professionals should be kept busy establishing new master agreements, training users, administering existing contracts, identifying items for long term contracts, keeping abreast of current and future concepts, and their continuing education.
Purchasing, in conjunction with a cross-functional team, can identify the major suppliers, then bid or negotiate an all-encompassing agreement that can be utilized by the user. Purchasing should be responsible for monitoring or administrating these major agreements.
Purchasing should remain responsible for procurement of all items not contained in the major contracts. These procurements should fall within existing buyer authority, or be so small that the item may even be purchased without competition by a user via a credit card or petty cash.
To be effective, Purchasing must be included in the planning stages of all major projects and acquisitions. They are the best source of cross-functional information for the entire plant or entity, and should be able to offer procurement expertise on how to accomplish the purchase efficiently, timely and at the best cost.
Purchasing should receive invitations to high level meetings, be included on the circulation list of written information, and make and receive daily one-minute oral updates to help the Purchasing staff be an effective contributor to the success of the entity or company. The Purchasing Manager needs to cultivate information opportunities with all individuals in upper management. This valuable asset is gained through trust and confidence.
Joinder. Joining onto or utilizing another entity's contract should actually be the buyer's second choice after reviewing all in-house existing agreements [see flow chart]. Statutes typically allow entities to purchase off existing contracts from other governments within the state. So before a buyer "competes" a contract for a requisitioned item, they should determine whether a contract already exists. If it does, confirm that its terms and the supplier will allow the buyer's entity access to the pricing structure.
Outsourcing/Privatization. In addition to obtaining expertise and experience for a particular project, outsourcing to a consultant or expert provides the employing party with the following benefits:
Outsourcing contracts tend to have broad scopes and be general in nature with payment normally couched in per-hour costs. A specific producible product can be on a flat fee basis, provided that the scope of the contract work is in minute detail and the deliverables are described in total specificity. It is even appropriate to describe what the consultant is NOT required to provide or do if it makes the description of the work easier to comprehend.
Some contracting authorities like to lay blame upon the outsourced contractor when something goes wrong. But if probed deeply enough, true responsibility normally comes back to bite the "CYA" activist.
Note: The City of Washington, D.C., hired a private firm to do their purchasing.
Cooperatives. One of the most immediate and effective tools being utilized is COOPERATIVE (COOP) purchasing. Quantifiable requirements type supplies are ideal for these projects. Every participant identifies the number of items they will utilize for each year of the contract. Some degree of accuracy is needed, and estimates should be on the conservative side so as not to take advantage of the supplier who stretches their prices based upon your promise to purchase at least a particular or minimum quantity. An assigned buyer from one entity then conducts the bid process and provides the subsequent contract administration. Once the contract is awarded, then all can place orders or purchase orders with the same supplier.
There are at least three approaches to establishing a COOP. The most common is the informal organization where all entities combine their quantities for a formal bid, then each entity approves an award of the contract for their respective requirements. Each entity is also their own contract administrator.
The second method is to officially form the COOP with prior approval and signature authority by each entity so that the entity that writes and controls the bid can award the contract on behalf of all other participants. This same buyer also administrates the contract.
The third method is a variation on the official COOP wherein a team made up of members from each entity is assigned to each bid project to make sure that the resulting contracts include each entity's requirements, any special contract terms and conditions, along with limited supervision. However, the team idea loses the effectiveness of the manpower efficiency every time they meet to discuss specifications, quantities or disputes.
A by-product of any COOP is the reduced utilization of new or small local vendors, especially disadvantaged businesses that do not have the financial backing, bonding ability or other resources to service the larger contracts. Also, many entity managers view the loss of control at award or during administration as not being in their best interest because they cannot directly address their citizens' complaints.
Cross-Functional Team. Many consider this term a misused "buzz word", but our experience is that it is the concept itself that is misused or not understood.
A "Purchasing" orientated team should have members from each affected/using department(s), the supplier realm, as well as at least one from Purchasing. To enhance the cross-functionality, other members or ad hoc contributors from the following fields can be considered for attending the meeting:
Partnering. All major players to a project or agreement utilize this concept to form a group of committed members to enhance communication and cooperation. Trust in each other is a significant by-product.
Most of the time the parties sign a nonbinding document, "charter", that indicates each party will perform their respective obligations in good faith. The key to successful partnering is the initial meeting, "workshop", where each party identifies their problem areas, while the team designs its lines of communication and a decision-making hierarchy.
The members develop a system of rapid resolution of problems at the lowest level to avoid going up the ladder for a decision. It fosters better morale, fair dealing, respect and trust, while doing away with the "them and us" attitudes.
Contract Administration. As the emphasis on eliminating transactional activities becomes more popular, there will be an equal and reactive interest in focusing on purchasing functions and contract administration. A good example is the eliminating of purchase order processing by a professional purchaser so they can now be responsible for initiating and monitoring large, long term contracts with just a few "suppliers". Purchasing professionals, or their staff, normally by default, should become the administrators of service-type contracts, such as maintenance, warranty, janitorial services, and copying or printing.
Administration of agreements starts with a good "system" of filing and organized follow up procedures.
Schedule. At the commencement of the contract, the administrator must schedule each and every contract event. As new items appear, they must be noted in this schedule.
A schedule can be as simple as a calendar with the event noted on the appropriate date. But it can and should be a computer program that indicates the daily tasks, as well as references back to the appropriate section of the agreement. This schedule must be reviewed each day, and the appropriate follow up conducted timely. As problems occur, they should be noted in an Occurrence File, while the date(s) for correction or follow up are added to the schedule.
Occurrence File. This file is a systematic collection of all inspections, events observed, notes, change orders or amendments, and what action was taken. It is normally in a chronological format, with references back and forth between incident, remedy or follow up. Again, this should be on a computer, but to have a duplicate history, the field computer must be able to download the information on a daily basis to a host system.
Please note that the administrator oversees agreements, whereas the contract manager or the construction manager is actually involved in the project ostensibly to make sure the project is completed properly and expediently. Administrators may or may not have been involved in the wording of the agreement, but do have a duty to see that all parties live up to the written terms and conditions of the agreement.
Contract File. The original agreement and all official documents are lodged here, with modifications indexed and tabbed. This file also contains all correspondence concerning the project.
In order to send out status reports and correction notices, the Administrator should have a complete list of all participants that includes the name/entity, address, fax number, phone number, cell phone number, and e-mail address.
Boilerplate letters are a necessity for expediency. All correspondence, especially correction notices, must be done timely and currently in order to be effective, and should be in writing via certified mail.
Consolidation. This concept joins two or more entities or purchasing functions into a single unit under one leader in order to take advantage of the centralized purchasing power and expertise.