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Procurement Models

Procurement Models

                                                                                             NIGP: The Institute for Public Procurement defines the models as follows:

Ad Hoc model

The term ad hoc implies that procurement is carried out without clear consideration or planning. An organization carrying out procurement in this way will not have defined procurement policies, procedures or processes. Typically, a variety of staff in different departments will undertake ‘buying’ activity for the agency and this will probably only be co-ordinated through the accounting system. There will be no anticipation of the procurement requirements for the agency and suppliers will be able to dictate their own terms and conditions. The language and philosophy of procurement will be absent. Buying will be perceived as a simple task and, at best, a basic clerical activity.

Consequences

An Ad hoc approach to procurement will provide a government agency with a level of agility, but you will not be operating according to principles of best practice. It will be very difficult to ensure purchasing decisions have been made rationally, ethically and in the best interests of your organization. It will be challenging to assess whether procurement has met the needs of the agency without clear purchasing plans and whether or not the procurement was carried out in the most efficient way, i.e. with the least possible waste of resources. If your organization has created a Purchasing Department and some procurement procedures, it is unlikely that your organisation is operating within an Ad hoc model.

Process model

Organizations operating within a Process model view procurement as a number of actions which bring about a series of results. An agency managing procurement in this way will still not have clear policies, but will have a set of formal ‘buying’ processes. Procurement decisions will tend to be made in the absence of any formal procurement structure. The language and philosophy of procurement still remains immature with procurement not being seen as a core competence, but as a minor element of finance.

Consequences

‘Buyers’ will be accountable to the departmental managers who have created the specifications, and will be constrained by requirements to purely follow the stated procurement process. No clear or consistent policies will exist, causing difficulties in monitoring practices and measuring success. It is unlikely the organization is benefiting from any consolidation of buy or aggregation savings. Supply chain risk is unlikely to be monitored which could lead to increased costs of acquisition, missed deadlines and quality failures.

Policy model

An organization operating within a policy model will view procurement as a regulated activity. The agency will recognize the importance of procurement as an activity with established procurement plans and policies. Although there will be clear evidence of a procurement department managing procurement activities, there will be limited and/or inconsistent co-ordination. The language and philosophy of procurement will be accepted as formal procurement processes will exist.However, formal training of procurement staff is not given priority.

Consequences

Procurement decisions will be left to ‘buyers’ whose delegations are unclear and therefore ‘maverick’ spend will be high. Purchases will typically be made to solve a short-term problem with little thought of the long-term impact on the agency or its stakeholders. This could lead to increased supplier-related costs through price changes, contract scope creep and limited understanding as supplier management is very limited and the ability to manage the procurement process is limited.

Tactical model

An organization operating within the Tactical model will have recognised the importance of procurement and it will be seen as a distinct function. Reliable procurement processes will exist to ensure that procurement activity is carried out in accordance with standard practices across the agency and there will be established methods of mandating approved procurement practices that reduce ‘maverick’ spend and other anomalous buying behaviour. Procurement policies will be established across all major aspects of procurement. The language and philosophy of procurement will now be maturing with procurement recognised as a value-adding function and represented at senior level by a Chief Procurement Officer (or similar title).

Consequences

A Tactical approach to procurement implies that procurement decisions are made according to procedural rules rather than the strategic significance of buying decisions. Although well-defined procurement processes will be in place covering major issues, such as tendering, supplier selection and contract management, there may still be significant amounts of ‘maverick’ spend. Typically, supplier evaluation will focus on just financial analysis and contracts will be awarded to lowest-priced offers as product or supplier market intelligence is unlikely to be undertaken and there will be very little consideration of the overall benefits of the buying decision.

Strategic model

An organization operating at a Strategic level of maturity will have a well-designed and established procurement function. The organisation will see procurement as a strategic activity that is aligned with the strategic goals and longer-term plans of the agency. Supplier selection procedures, supplier relationship management and contract management processes will have been developed to ensure that the outcomes of buying decisions match the strategic intent of the original buying decision. All positions within the procurement team will be filled with staff possessing recognized training and education in addition to relevant experience. Continuous professional development will be encouraged throughout the team and cross-disciplinary and cross-functional interactions between staff and end–users will be seen as the norm. The language and philosophy of procurement will be mature within the agency with procurement decisions governed by an overarching set of procurement policies.

Consequences

Although it is likely the procurement process will take longer and be less agile, the positive consequences of aligning procurement decisions to agency strategy will outweigh the negatives. Uniform policies and processes adopted across the organisation will provide clear data and information in order to make strategic procurement decisions. There will be a focus on maximizing end-user satisfaction, whilst managing costs and minimizing supply chain risk. The procurement department will be strongly led at executive level and will have a clear understanding of its impact on the success of the agency.

Professional model

An organization attaining a professional level of procurement maturity recognises both the strategic contribution and the need to have a professionalized approach to managing and conducting procurement across the agency. The organization executive will intuitively recognise the contribution of procurement to commercial decisions by the agency. This knowledge will be supported by the appointment of suitably qualified and educated staff at all levels of procurement who will be expected to maintain professional currency through compulsory CPD. There will be strong evidence of consistent use of supply market intelligence, spend analysis, supplier performance measurement and management, and continuous supply chain performance and risk assessment. The language and philosophy of procurement will be fully integrated into management practices within the agency and will be consistently applied by staff in their dealings with end users and suppliers. This means that procurement senior management and organization executives act in accordance with procurement policies, philosophies and practice. The organization will typically have a Chief Procurement Officer, appointed at executive level, who along with the senior members of the procurement team will have extensive links into the knowledge community of procurement, its professional bodies and centres of learning. In an agency operating at this level, procurement staff will engage in a constant search for improved methodologies for initiating and managing procurement decisions and suppliers.

Consequences

The professional model of procurement is the highest maturity level, taking all the good aspects of the strategic model and executing them in a highly developed and well-governed way. Decisions will be made based on accurate analysis of the supply markets and the most appropriate approach to market chosen by the highly educated and experienced procurement team. This will lead to sustainable cost savings and risk mitigation. Ethical procurement practices will be embedded into governance rules at Board level, leading to the profile of the procurement team being elevated within the organisation. Suppliers will perceive the organisation as a ‘buyer of choice’ and its procurement operations will be valued as professional and competent.