Challenges for the Chain Gang: Key Challenges for Public Sector Procurement

Author: Larry Berglund

Talent

Hiring and retaining staff with supply chain competencies is a growing issue for procurement in Canada. Not only have many people left the field, but those who remain are being s-t-r-e-t-c-h-e-d to the limit. The expectations of organizations to deliver value for money is approaching unrealistic levels. Material and labour shortages across all supply lines are exasperating operational conditions. These situations tend to favour the seller, but the public sector has not tempered its plans for moving ahead on so many fronts. These fronts include: affordable housing; infrastructure development; supplier equity and diversity; human rights; trade agreement revisions; and global warming strategies, to name a few.

Skill sets in the public procurement sector around construction projects is underwhelming. There is more attention paid to getting cheaper consumable supplies than developing the best strategy for a costly construction project. The former is quite intuitive for most buyers; the latter has received insufficient attention by supply chain training organizations and industry. The emerging strategy of Integrated Project Delivery models is relatively unknown. Design-Build and its cousin the Design-Bid-Build models are the status quo in most governmental strategies, with an inequity in risk transfer paid for by the taxpayer.

The other side of the talent coin is remuneration. Many public sector organizations have not adjusted salaries to reflect market conditions. Senior procurement positions have been vacant for months in some cases, which defaults to decisions being made by staff with lesser experience and qualifications. The organization’s financial responsibility is exacerbated with an acknowledged risk due to the talent gap.

Digitalization of everything

Artificial Intelligence (AI) is about converting all operational requirements into a digital format. This digital transformation enables technology to replace people in routine and more complex jobs. If factories are running slower due to a lack of employees, then it simply fuels the need for increased use of robotics for volume and accuracy. Public sector procurement strategies need to catch up to this nascent evolution which is changing how goods are made or services are being provided as the physical locale becomes more agnostic. Disruptive technologies have only begun to impact public sector sourcing strategies and their social consequences.

Digitalization may contribute to onshore supply for more goods and services. This model can be scaled to meet demands easier than hiring and training a labour force which is already in short supply. Many entry level jobs in the recycling and recovery of materials, as one example, have been replaced by robotics.

The challenge around digitalization is to ensure it’s not another form of the race to the bottom enabled by public procurement. Which goods or services should be attained at the lowest cost and still provide value to the Canadian taxpayers?

Supplier Performance Evaluations

There are public sector organizations conducting performance evaluations but they are in the minority. One of the best means to assess value for money is to measure the level of satisfaction received by stakeholders as to how the work was performed or as to how the project met the deliverables.

We can learn from success and failure. Performance evaluations acknowledge that leading suppliers are giving full value and encourage others to raise their performance. Benchmarking performance sets expectation standards and has a ripple effect across the sector. Good suppliers like objective feedback. They take pride in their staff and the ability to meet outcomes within the contractual conditions.

ESG

Environmental and Social Governance practices are driven in the supply sector by the largest player on the demand side, public procurement. If the weighting on environmental and social values continues to be overshadowed by pricing, the supply side will not move the needle. Whether they are a small municipality or the Department of National Defence, if governments don’t demand a higher commitment to achieving GHG reductions, waste free water supplies, or resource conservation, the supply side won’t invest in more sustainable solutions.

Sustainable solutions don’t necessarily translate into higher costs. They do contribute to environmental initiatives and social values being realized, which is the long-term desired outcome. We don’t sacrifice safety over cost – why would we try to save money at the expense of other sustainable practices?

Stakeholder interests are growing in the private sector. The challenge is to leverage this shift in favour of more sustainable solutions resides in governments ensuring ESG practices are included in the criteria evaluations with an appropriate level of weighting.

Policies

Procurement policies are the means to communicate the values of a public organization internally and externally. Policy defines how values will be defined, measured, and assessed. With staffing shortages, multiple procurement requests, and resource deficiencies, policies generally receive a lower priority, and yet, represent the mandate for procurement professionals.

This means making apolitical commitments to achieve the organizational objectives following best and leading practices. Procurement plays an oversight role to assess potential risks along with ensuring value for money which aligns with the policy. This challenge requires a working knowledge of competitive bidding obligations, case law, trade agreements, business ethics, concurrent with procurement competencies.

For example, without defining what social procurement means, within a policy statement, it’s subject to interpretation by individuals with good intentions where decisions may not achieve the collective goals and lack accountability.

Summary

Arguably, the challenges to public sector procurement could include more “keep-you-up-at-night” issues. These challenges are not independent of each other. You can’t address one or two and expect overall results to be better from a procurement perspective. There is no expectation of perfection in procurement. There is an implied message that all reasonable best efforts will be taken.

It is encouraging to know that there are procurement professionals who do deliver full value based on their experiential knowledge. There are many procurement professionals available in the market too.

This may be part of the solution for challenges facing procurement – a hybrid version with organizational procurement staff to meet daily exigencies, complemented by external expertise for strategic and specialized services.

Author: Larry Berglund

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