Bottlenecks appear in many forms. External distribution and service capacities to internal business processes. Do you know what it costs your organization to issue a bid and award a contract? You should. Internal process constraints lead to hours of wasted time. We need to look at the touch points or handoffs when drafting and issuing bid documents and the final contracts to get a handle on these costs. A few years ago, one city did a study and found that a relatively simple competitive bid for supplies cost ~$4000-5000! Due to risk averse practices, most contracts required input from either procurement, end users, department heads, budget committees, risk management, and then taken to legal staff and for later approval by elected officials on council. If a typical city awards 400-500 contracts per year, we can extrapolate this figure to include millions of transactions in government, resulting in millions of dollars. The all-important contract management responsibility is left to “no news is good news.”
Bottlenecks can occur in every phase of procurement and its adjunct, operations management. How do we estimate the cost of a bottleneck? One of the fundamental approaches when looking at business process costs is to undertake an activity-based costing study (ABC). An ABC study considers the resources and time deployed in transactional processes. Business process improvement is an area which can be mined for considerable administrative savings and improved productivity. Business schools often provide students to undertake basic ABC studies.
ABCs look at the activities in terms of time or resources which people and or equipment take to complete a task. This could consider a purchase order turn-around-time. That could be the # of hours, minutes, or days from when a request for a good or service is generated to procurement or into an automated system to execute the order and ship the goods. These routine functions form a part of the service satisfaction rating for end users. The overall impetus is to reduce the internal business process costs and meet service demands.
Think about filling an inventory order from stock. What should the optimum time be? Fill rates per hour and fill rate accuracy are two KPIs to consider when looking at removing bottlenecks. Internal reviews examine the system design for opportunities to automate or adapt business processes to improve productivity. This leads to the benchmarking of business processes. A benchmark is the optimal or ideal time required to perform a task. Experienced staff set the benchmarks and it becomes the “norm” for new staff to meet the target fulfilment rate. In the continuum of process improvement, the reviews continue to reduce the time wherever possible. This can be done incrementally or radically.
Corporate credit cards (P-cards) were a result of trying to buy hundreds of low value items without issuing individual orders and making payments to hundreds of suppliers via cheques. P-cards were a relatively low-cost solution, which led to the rebates and cost benefits for partnering with a bank. There had to be a recognition as to what it cost to issue the PO and the accounts payable time to process one-off cheques. E-payments are the outcome of finding more efficiencies in managing payment processes to reduce bottlenecks.
A big advantage within the public sector procurement sector is their ability to benchmark business process costs between public entities. Not to see which organization is better but to promote best and leading practices. Scalable solutions are in everyone’s interests to share and reduce the cost of services in the public sector. When an organization considers hiring more staff (throwing people at the problems) – think twice. This is the opportune time to look at the internal process vampires which suck the hours out of the system.
One large university initiated an internal business process review strategy, where anyone could make a recommendation on a way to reduce bottlenecks or implement efficiencies. This tapped into the expertise of their staff and created a milieu which rewarded innovation. By using their average hourly wage rate, all recommendations were submitted using a one-page business case. Priorities were based on the internal payback for the ideas presented. Within one year, they had eliminated hundreds of hours of activities which wasted time resulting from bottlenecks. This was estimated to save ~$100,000 in annual costs. Some ideas required an investment in technology, which was factored into the business case. Another positive outcome was the improved morale by acknowledging that staff knew where a lot of the problem were but had never been asked for their input before.
Working with strategic suppliers in any government sector can reduce or eliminate the bottlenecks or the bull whip effect on inventory. Sharing demand forecasts between the parties allows for efficiencies to be leveraged and take out non-valued added costs for both parties. Everyone pays for bottlenecks. Collaboration enables efficiencies to be implemented for mutual benefits. Critical to success are the supplier relationships, which can be difficult to forge in the public sector.
A transformational means of removing unnecessary bottlenecks is being found in the increased use of AI. These are nascent days in the application of AI to improve productivity in governmental procurement. Usually, larger organizations could invest in breakthrough or disruptive technologies to improve efficiencies or address capacity constraints. The advent of AI makes it affordable for smaller public sector entities to increase their productivity and reduce costs.
There is another side to AI and that is its potential social impact. There could be a cratering in the supply side due to the demand side accessing lower cost products and bypassing smaller distributors. An example in the US and UK is the shift by many government services to buy digitally from big players and not local suppliers. Bottlenecks are virtually eliminated. The social costs are an uncertainty. Be careful what we wish for. Caveat emptor.
Public Procurement In Canada:
Procurement professionals play a pivotal role in the public procurement world. These experts are well-equipped with the knowledge and skills needed to navigate the intricacies of procurement processes. Whether you’re looking to enhance your procurement acumen through procurement management courses or seeking valuable insights through procurement webinars, the landscape for public procurement offers many opportunities to explore.
The Procurement School encompasses a wide range of activities aimed at achieving the best value for taxpayer money. Procurement service providers work closely with public sector procurement consultants to streamline processes, maintain transparency, and uphold ethical standards. This collaborative effort ensures that the procurement landscape remains fair, competitive, and cost-effective.
Obtaining a procurement certification or a purchasing certificate can be a wise decision for those aspiring to excel in public procurement. These certifications validate your expertise and demonstrate your commitment to professionalism in the procurement arena. Procurement professionals are highly regarded for their ability to make informed decisions that benefit both the public and the government agencies they serve.
Public procurement is not just about acquiring goods and services; it’s about contributing to the well-being of communities and the country. The individuals in this field understand the significance of their roles and strive to uphold the highest standards of ethics and accountability.
Whether you’re a seasoned procurement professional or just starting your journey, the public procurement landscape offers a wealth of opportunities for growth and development. From procurement management courses to ongoing procurement webinars, resources are available to help you stay informed and up-to-date with the ever-evolving world of procurement.
Written by: Larry Berglund