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The primary concept of government procurement is that through advanced planning, scheduling, and group buying, a large organization can save money and increase the efficiency of the daily business operation. The level of compliance with these concepts varies widely across all levels of government, and sometimes even within a government agency. Government purchasing activity has a huge impact on the local economy, due to the sheer size and variety of impact.
There are four steps incorporated into most government procurement policies: group buying, just in time delivery, negotiated bulk pricing, and reduced administrative overhead. In addition to these items, all government agencies and departments have written procurement policies and guidelines to follow. Procedure surrounding the selection of vendors, tendering guidelines for high dollar value contracts, and payment terms are often public documents. Another aspect of government procurement are the rules surrounding business relationships. Many procurement policies forbid the acceptance of gifts from suppliers and have strict rules surrounding meeting frequency and locations.
Group buying is the process of combining the total resource requirements for different departments and creating one purchase order. The departments can be physically located in different places and have different delivery deadlines. Coordination and cooperation is required to take advantage of group buying opportunities. Large government agencies may mandate compliance with certain purchasing contracts, typically for widely used generic products. Photocopy or printing paper is a common product for this type of contract, as the basic product requirements are the same for everyone.
Just in time delivery is a management technique, where the supplier is responsible for ensuring the purchased quantities of materials are ready and available for delivery at the specified dates and times. This type of delivery requirement is typically combined with group buying, keeping storage costs down for the customer. The downside of this type of agreement is a lack of flexibility to deal with emergencies and reliance on a delivery network.
Bulk pricing and negotiating is very important when completing government procurement. Negotiations are typically completed by the procurement director or senior buying agent on behalf of a large agency or department. This is where true value for dollar can be achieved, saving taxpayers money without compromising on service.
Administrative overhead is the cost to the organization for the entire procurement to pay cycle. This includes the salaries and support costs for procurement staff, invoice processing, check production, and resolving of vendor inquiries. Many government agencies maintain a central procurement department as part of a cost reducing program. This type of organizational structure increases the opportunities for cooperative buying and monitoring of purchasing activity.