The fundamental purpose of procurement is to acquire appropriate utilityâ€•goods and services for various types of necessities. Today, the social enterprises and organizations are accustomed to the trade concepts. Their procurement process largely depends upon contracts of delivery. Such services help the community and public sector consumers and users. In simple words public procurement means the purchase of goods or services in public domain.
Nowadays public procurement system is one of the highly sensitive financial issues. Until the end of nineteenth century procurement was mainly recognized as independent purchasing. No vivid difference is recorded before the First World War. Till then, it was regarded as a clerical purchasing part of the business in public and private sectors. The function of purchasing system increased between the two World Wars for obtaining raw materials, supplies and services. After the wars, refinement process of purchasing commenced sincerely.
The introduction of public bodies and intergovernmental organizations like United Nations, it developed as a well-recognized science and management subject. The number of trained professionals in this sector increased with the managerial emphasis. By the end of eighties, more emphasis was laid down on various purchasing strategies.
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The Harvard Business Review published a ground-breaking essay written by Peter Kraljic in September 1983. Purchasing strategy is the main theme of this article. It is widely cited today as the inception of transformation of function from mere purchasing to strategic procurement. In addition to many plausible ideas, the author of the article offers pragmatic advice on how top management can recognize the extent of its own supply weakness and treat it with a comprehensive strategy to manage supply. He observes the threats of resource depletion and raw material scarcity, political turbulence and government intervention in supply markets, intensified competition, and accelerating technological change have ended the days of no surprises (Kraljic, 109). It began to be treated as something very much strategic to the business and became highly tactical.
In present scenario, the public procurement system is one of the basic financial needs of government and corporate sectors. The procurement process ensures the acquisition at the best possible price to meet the needs of purchaser in terms of quality and quantity. Time and location of procurement are other major issues to be considered upon. Agencies, whether public sector or private corporation, promote fair and open competition to minimize deception and complicity.
In Europe public procurement is an important sector of economy that accounts for 16.3% of the community GDP. The ever increasing environmental awareness appreciated green public procurement (GPP) scheme. The aim of GPP is to reduce the negative impacts of procurement on human health and nature at large. In this scheme, the contracting authorities take environmental issues into account while tendering for procurement. The European Union proposed political targets for member states for a better environment through the green public procurement process.
In the United States of America, the procurement system is highly regulated. The government agencies may not simply purchase what they want from whomever they wish (Kelman, 3). The bureaucracy of the government plays major role in procurement process. Robert Merton in Social Theory and Social Structure, suggests that bureaucracies became rule bound from devotion to rules by the bureaucrats themselves. To be successful, a bureaucracy must obtain high level of reliability and must undertake routine activities methodically, these means to effective performance and become the goals of the organisation (Merton, 252). One of the most difficult things associated with the performance of public procurement is corruption or bribery. It is negative, uneconomic and even dangerous. Over the last two centuries governments have standardized legal tenders and the range of monetized social transactions has enormously expanded (Zelizer, Economics, 329). Still this is a problem. Bribe is often termed as gift. In fact, when disparaging a monetary quid pro quo, critics call it bribe, whatever its legal status (Ackerman, Economics. 296). The sustainable public procurement practice strives against such practice. But there are no effective obstacles or laws against. The ineffective or inadequate public procurement rules and procedures can even create a multitude of opportunity for bribery (OECD, 17)
In many parts of Europe and United States of America, public procurement is still an underused tool among the local trade. However, the contractor can easily expect better value and quality of services. Such use of suppliers could be further more innovative. Moreover, it develops a healthy and punctual competition for procurement. There are many such types of public sector contracts, mainly small scale regular supplies of goods and services such as catering and cleaning, including various sorts of maintenance and care works.
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The present economy is competitive and demanding. Systematic and continuous profit in business involves efficiency at all levels. The equation of profit reveals that growth of revenue leads growth of profit. Obviously, revenue is money coming into the firm; from the sale of goods or services, from rental fees, from interest income, etc. (Cheremisinoff, 332).
A sound procurement system helps to generate revenue. There are significant challenges to deal with all purchasing decisions. Here, delivery and handling, marginal benefit and price fluctuations are issues of prime concern. The best possible procurement process in itself is a key fÂactor in the success of public and private sector enterprise.
The United Nations Environment Program (UNEP) recommends certain eco-friendly features for sustainable procurement of goods and services. There are certain other directive principles set by the European Union. European laws are implemented by the use of four legal instrumentsâ€•regulation, directives, decisions and recommendations. The directives and laws of European Union are guidelines for the procurement agencies in Europe. The international legal framework as defined in the General Procurement Act of World Trade Organization is another compulsion for public procurement. Switzerland is a party to General Procurement Act, however, not a part of the European Community. In every country there are certain laws related to public procurement.
According to these laws, the sustainability criteria for different goods are different. The directive guidelines are intended for use by procurers who seek to procure most advanced environmentally-friendly and socially-responsible products available in market (unep.org). The aims of environmental directives are to stop harmful and hazardous substances in procurement. According to European Council Directives the goods and services are classified in numerous categories. Even packaging and labeling of substances are governed by these rules. In fact, environmentally preferred packaging is a necessary criterion.
The tender bidders are required to provide a written declaration for its compliance. They may be asked to provide samples of product or documentation from manufacturers of the supplied articles. In case of toxic or recyclable substances, bidders ensure that empty and used articles would be taken back for the purpose of reusing and recycling. The bidder is further required to provide certificates for themselves, their manufacturer and third-party certified environmental management system, such as ISO 14001, European EMAS, U.S. EPA performance track or equivalent. There are many such provisions in the legal framework to ensure the contract to reduce the CO2 emissions associated with the supply of products.
The format of financial statements presentation of public procurement agency is International Accounting Standard (IAS). This standard is drawn from International Accounting Standards Committee (IASC). Although, the International Accounting Standards Board (IASB) and the International Accounting Standards Committee Foundation (IASCF) were established in 2001 to replace the IASC, format of account statement issued by the IASC remain in force until they are amended or withdrawn by the IASB. Adherence to these guidelines is also necessary while accessing eco-friendly key performance indicator of public procurement agency.
The essential element of public procurement is largely dependent upon the good sources of data availability, perfect economic analysis methods such as cost-benefit analysis or cost-utility analysis. One way to achieve incessant economic improvement is to define a flowchart of key performance indicators (KPIs) and abide by its resolutions. The key indicator of public procurement agency denotes a lot of things about the organization and their strategies. It can also help to measure the agency's likelihood for success. The strategic agenda covers many aspects of supply management challenges and approaches, and focuses on the key performance indicators to measure efficiency and effectiveness of public procurement system. The KPI further provides the insight to manage cost compliance. It helps to find a better way to squeeze the chain of demand and supply. Since it's difficult to improve what you can't measure, a KPI program enables a company to measure current performance against goals and benchmarks to understand the organization's strengths and where it's falling short (Kaskinen, 30).
The factors of key performance indicator are powerful supply chain management tools. That works with the bottom line quickly and helps the business to meet the demands of the modern competitive economic needs. There are many landmark factors for advance assessment. Procurement tracking mainly deals with purchasing, while keeping in view how to obtain the product at a better price. Successful negotiations at many platforms and various parties ensure better tracking. The KPI tools are utilized in public procurement to increase the revenue, and to analyze the assignment in respect with the authority, capacity and resources.
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In order to compete with the demands of best performance the corporation and government agencies recruited procurement officers. These officers spend a significant proportion of their time on procurement related works. Mostly this is more than fifty percent. They further divide the business into strategic and operational procurement activities.
There are many benefits of public procurement system. The suppliers benefit from a fair and open tendering process. The public sector buyers have access to larger pool of potential suppliers. This process enables them to exploit economies of scales and expertise of such suppliers across the continent. The competition in this system is drastically enhanced. Consequently, it brings more competitive prices for contracts. In addition to these benefits there are certain obstacles as well. This process of procurement could be complex. The differences of point of view and interpretations of procurement laws could be a hindrance in its true uptake.
The KPI toolkit explains the public sector procurement rules, describes the way procurement by local authorities and others. It is typically carried out to give real examples from social enterprises, their experiences of winning and losing contracts. The toolkit aims to demystify and describe procurement process and provide insight into the steps needed to prepare bids and win contracts. Efficient public procurement is a certain way to help developing economies. It assists the public administration while providing better public services to citizens at a lower cost to taxpayers. In addition to all that, it allows transfer of know-how and technologies. As thus it contribute to better sustainable development.
Effective working across public sector procurement agencies can help to ensure best practice. The aim of this key indicator is to assess the efficacy of establishments through shared procurement means such as consortium arrangements, across government bodies or services centers. The proper and efficient state review encourages public sector to work in collaboration on joint procurement projects that can ensure better efficiency. Collaboration simply increases buying power that leads to create better value.
Recently, government of Scotland provided assistance to create centers of expertise. The purpose of such an effort is to streamline public procurement nationally, sectorally and locally. Best Practice Indicators for Public Procurement in Scotland: Guidance clearly mentions that the Cabinet Secretary set out his expectations for public sector collaboration in the strongest possible terms. At the National Procurement Conference in October he said, "There can be absolutely no excuse for needless duplication of effort, for poor value, for money gone due to disconnected or inefficient contract arrangements. I want to send a clear message to everyone involved in the sector that we want to proceed in the spirit of true collaboration. Individuals or organizations that prefer not to collaborate will have to be able to provide the strongest possible justification on objective business grounds." (17)
The modern maturity of the economics and finance teach us a lesson to preserve the Mother Nature while flourishing financially. The advent of modern scientific advancement taught proper use of available resources for the betterment of human kind with its basic conviction to achieve the best quality of life on the planet (Kishore, 222). The economists, scientists and ecologists of our era support this idea. The introduction of corporate social responsibility and sustainable development system broaden the scope of the eco-friendly key performance indicators in public procurement. The commitment of international community towards climate concerns is primary reasons to introduce eco-friendly guidelines and rules. The new age procurement agencies, whether in public or private domain, needed to be competent to deal with the latest trends in economics and ecology. The eco-friendly key performance indicator of public procurement system ensures the efficiency of cost. Its long term viability in present and future scenario. And performance efficacy to cope with latest financial trends. Again, it must co-ordinate with the national and international laws and economic ethics.
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Cheremisinoff, Nicholas, P., and Val, Avrom, Bendavid. "Financial Planning Tools." Green Profits: the Manager's Handbook for ISO 14001 and pollution prevention, Boston: Butterworth-Heinmann. 2001.
Kaskinen, Jani. "Creating Best-in-Class KPI Program." Strategic Finance (2007). Oct. 29-33
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"Measuring and Recording BPIs-Key Processes." Best Practice Indicators for Public Procurement in Scotland: Guidance. Edinburgh: The Scottish Government Publication. 2008
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