We’ve Come a Long Way
By Guy Callender and Darin Matthews
Today’s government procurement professionals account for an estimated 20 percent of the gross domestic product (GDP) in the United States. In recent years, this has amounted to $1.67 trillion in annual spending in the U.S. and over $114 billion within Australia. The decisions made within procurement have a tremendous impact on the government services delivered each day. According to Ivan J. Tether in Government Procurement and Operations (1977, Ballinger Publishing Co.), “so great is the overall volume of government purchasing that it may be considered an implement of social change.”
Public procurement is an influential, cross-disciplinary field that encompasses aspects of finance, information technology, legal, marketing, and customer service, just to name a few. Some may argue as to whether it is an art, a science, or both, but the impact of procurement is undeniable. Its practitioners are involved at all levels of the organization, including strategic planning development, budget preparation, dispute resolution, and e-commerce implementation. Even its critics seem to acknowledge its stature. While Jenny Stewart contends in The Lie of the Level Playing Field (1994, Text Publishing Co.) that procurement features “unglamorous individuals,” she also acknowledges procurement professionals as the “lynchpins of industry.”
The existence of professional rules, ethics, and sense of commitment to the community are indeed indicators that procurement has arrived as a recognized profession. The ethical codes adopted by members of the National Institute of Governmental Purchasing (NIGP) and the Institute for Supply Management (ISM, formerly the National Association of Purchasing Management) are examples of professional standards of conduct the profession embraces.
Seeking only what is best for their organizations, procurement professionals avoid personal gain or even the appearance of impropriety.
History of Procurement
Although it is difficult to set an exact date for the emergence of procurement, clear evidence exists that the colonialist and trading empires of the ancient world relied on some of the most important aspects of procurement. These included the use of negotiation and bargaining, strategic alliances, competitive pricing, and supplier management. The formal practice of procurement can be traced back 2,800 years to the trade relationships between China and parts of Europe.
Procurement was the practice-based administrative process of buying the goods and services required to satisfy the functional needs of an organization. Rules, regulations, and strict procedures were typical of the process. Purchasers stood between the organization and its material requirements. Centralizing the supply task and providing a form of internal control over expenditures placed procurement in a powerful position.
In his History of Rome, the Roman historian Titus Livy wrote that the Roman armies, following their success in Spain during the summer of 215 B.C., used extensive negotiation and bargaining with those who had a contract-based relationship with the state. This arose because at the end of their campaign, the armies needed commodities such as clothing and grain. The winning bidders were promised that they would be the first to be paid when there was actually money in the treasury. A competitive environment existed, as there were three companies that participated in the tendering process. In what may have been the first conditional bid in history, the bidders requested they be exempted from military service if they earned a contract.
A 16th-century example of supplier management is attributed to Gustavus Vasa, King of Sweden. Once the King had placed an order for 1,000 suits of armor and 10,000 arrowheads, he cautioned the contractor about the consequences of non-compliance when they failed to deliver the goods on schedule:
“You have failed to obey this command! At the peril of having your heads fall to the axe, to the amusement of the inhabitants of Stockholm, in the city square one holiday eve at my discretion, I once again command you to comply with my wishes!”
Another example of the importance of procurement in history is the provision of food for the British Navy sailors in the 18th and 19th centuries. Typically, the ship’s purser was responsible for procurement, delivery, receiving, and distribution of food and supplies to the ship’s crew. Undoubtedly, these pursers had to secure quality products if they wished to maintain good rapport with their end users.
In the 20th century, new voices emerged. Public and private organizations began to see the importance of procurement within their respective organizations. According to many industry experts, including John Thomas Madden in Budgetary Control (c1930, Alexander Hamilton Institute), it became apparent that, due to the amount of dollars at stake, purchases were more effectively handled by an individual who could concentrate on the business of procurement. In transforming requests into materials for their organizations, procurement professionals also had to perform market analysis and do product forecasting as well as understand the law of contracts.
A 1995 study by the Center for Advanced Purchasing Studies (CAPS), “Purchasing and Supply Management: Future Directions and Trends,” issued a call to the purchasing and supply management profession to integrate itself within the corporate strategy. While conceding that many organizations did not realize the effect that purchasing could have on the bottom line, the study nevertheless encouraged practitioners to pursue strategic integration. This included the promotion of purchasing within the corporate strategy, particularly in times of rapid change, reliance on suppliers, and increased competition. Purchasing had become a visionary function that required expertise in finance, manufacturing, and marketing.
Another 1998 CAPS study, “A Skills-Based Analysis of the World Class Purchaser,” identified eight attributes that were characteristic of world-class purchasing and supply professionals. These included technical and negotiation skills, communications, team building, analytical problem solving, and computer proficiency. Overall, attributes focused more on value-added and strategic functions as opposed to traditionally accepted technical skills.
As the profession developed, so did independent bodies that supported its members. Along with NIGP and ISM, other organizations included the Purchasing Man-
agement Association of Canada (PMAC) and the Australian Institute of Purchasing and Materials Management. These entities focused on education, professional development, and professional certification, and their programs have aided the profession during the last century.
The Profession Today
According to Rick Grimm, CEO of NIGP and author of “A Shifting Paradigm” in The Public Purchaser (Mar./Apr. 1999), today’s public purchaser enjoys an expanded role, evolving from gatekeeper to strategic player, from controller to collaborator. The shift represents the adoption of a belief that by managing purchasing techniques, suppliers, and related financial and supply arrangements, the financial perfor-
mance of an organization can be revolutionized. As the scope of procurement is more widely explored, there is clearly a greater need for human intervention in the complex, interpersonal roles addressed within the procurement process.
Over time, a routine clerical process designed to control the purchasing policies adopted by an organization began to show a different potential. Procurement practitioners became initiators within the procurement process. Coupled with developing concepts such as total quality management, customer service, supplier performance management, and just-in-time inventory management, imaginative supply managers saw the opportunity to manage their supply chains through the procurement process. Public purchasers began to participate in the extended enterprise, strategizing with other key business functions to meet organizational objectives, thereby adding value to the entire acquisition process. Jerry Baker, past president, ISM, refers to this evolution as an example of the procurement profession going “from the back room to the boardroom.”
Traditional methods of contracting and tendering have given way to situations where suppliers can be assessed prior to submitting a bid to ensure that they meet the requirements of the agency. In some instances, suppliers are granted long-term contracts on the basis of a guarantee that they will reduce the cost of their goods or services to the buyer on an annual basis. Buyers and suppliers now explore ways of minimizing costs through more efficient inventory management, production methods, material sources, and financial assessment to maximize reliability of supply and quality of product or service.
Alternative procurement methods such as request for proposal, request for qualification, and performance-based contracts all have seen increased use within the public sector. Although the invitation to bid and invitation to tender, which typically focus on the lowest dollar offer, historically have been the primary tools for purchasing practitioners, there is a need to consider modern methods. By employing the best practices of their national and international peers, public purchasers can strive for best-value solutions and not simply least cost. According to the National Association of State Procurement Officials (NASPO) 2001 NASPO Survey of State and Local Government Purchasing Practices, many jurisdictions are adopting alternative procurement practices such as revenue sharing, best-value selection, negotiation, and reverse auctions.
Over time, governments have found it necessary to define the rules of procurement to ensure that the procedures needed to protect public money are practiced by procurement staff. For example, the U.S. government in 1788 passed legislation to identify desirable procurement practices. More acts and policies followed, including the Federal Acquisition and Streamlining Act of 1994 that prompted public buyers to consider alternative approaches to procurement as they concentrated on high-dollar, complex acquisitions.
Most states, provinces, and local agencies have adopted similar procedural rules that govern their procurement activities. In many cases, the American Bar Association’s Model Procurement Code, which serves as a recommended guide for public agencies, has been adopted in whole or in part. The ABA Code was incorporated into state statute by the Oregon Legislative Assembly in 2003.
Role of Technology
Indeed, the electronic marketplace has a huge impact on the nature of the profession. Using the Internet for sourcing products and suppliers, implementation of integrated financial systems, and for electronic bidding and online reverse auctions is now commonplace in the public sector. In its 2001 Survey, NASPO states that procurement automation is “a key factor to the success of purchasing in the future.” Besides automating the requisition and bidding process, technology also serves as a way to build, award, and distribute formal contracts and agreements.
The modern state of public procurement demands a strategic focus, a customer service focus, a capacity to interpret financial, political, legal, operational and other supply-chain risks, and the capacity to operate as a senior executive. Industry research indicates that 76 percent of executive managers are committed to minimizing transactional buying and maximizing strategic supply management. The purchase requisition of yesterday has not entirely disappeared. However, within the countless organizations that have switched to electronic commerce, electronic ordering has enabled the purchasing professional to focus on the strategic issues. Embracing technological advancements within the purchasing and supply function is essential to the profession’s future success. According to Russell G. Broeckelmann in Inventory Classification Innovation: Paving the Way for Electronic Commerce and Vendor Managed Inventory (1999, St. Lucie Press), as practitioners look to play a key role in their entity’s strategic goals, technology and the future are, in fact, synonymous.
Alignment With Higher Education
While the field of procurement has been late in aligning itself to institutions of higher education, there has, nonetheless, been much progress in this area. Purchasing has joined the ranks of such disciplines as accounting, law, and business in its efforts to partner with higher education. Many colleges and universities have offered degrees in purchasing and supply management for years. These include Arizona State University and Portland State University, which have established and respected programs in supply management. Although they are geared primarily toward private-sector techniques and trends, these programs still are of considerable value to the procurement field. Additionally, Rutgers University in New Jersey offers courses that lead to state-sponsored certification for public procurement officers.
More recently, NIGP partnered with Florida Atlantic University’s School of Public Administration to create the Public Procurement Research Center. This collaboration led to the formation of a technical publication, the Journal of Public Procurement, as well as the development of new textbooks for NIGP’s educational program. Learning and Education to Advance Procurement (LEAP) officially launched in 2004 and features topical texts such as Legal Aspects of Purchasing and Contract Administration that are written by teams of academic professors and working practitioners. These courses are offered throughout the U.S. and Canada and can culminate in an Advanced Certificate in Public Procurement and eventually an accredited bachelor’s degree.
While the public procurement profession certainly has come a long way, there still is work to do. Striving to improve the efficiency and effectiveness of the procurement function is an ongoing effort. Much work can be accomplished by properly using the technological advances available to the government. Electronic procurement tools can allow practitioners to focus more on the strategic aspects of their jobs and less on the routine matters.
As we see the realization of an accredited college degree in public procurement, this development should serve as an indicator of more accomplishments to come. Many of today’s professionals will acquire such degrees, and this trend will likely increase with tomorrow’s workforce. Who knows? Perhaps the children of today’s government purchasers will be asked by their guidance counselors what field of study they wish to pursue, and they will respond with “public procurement.”
Editor’s Note: Guy Callender and Darin Matthews continue to research, publish, and speak on the topic of public procurement. Their respective travels have taken them throughout the United States, Canada, China, Australia, and Europe, lecturing and consulting on industry trends. Callender is the Chair in Strategic Procurement for the Curtin University of Technology, Perth, Australia. Matthews is the Director, Procurement and Distribution, for the Portland (OR) Public Schools and Second Vice President of the National Institute of Governmental Purchasing (NIGP). For more information, log on to www.govinfo.bz/4590-102.
Broeckelmann, Russell J. Inventory Classification Innovation: Paving the Way for Electronic Commerce and Vendor Managed Inventory. Boca Raton, FL: St. Lucie Press, 1999.
Carter, Joseph R. and Narasimhan, Ram, “Purchasing and Supply Management: Future Directions and Trends.” Center for Advanced Purchasing Studies (CAPS). 1995
Grimm, Rick. “A Shifting Paradigm.” The Public Purchaser. Mar./Apr. 1999.
Guinipero, L. ”A Skills-Based Analysis of the World Class Purchaser.” Center for Advanced Purchasing Studies (CAPS). 1998.
Livy, Titus. History of Rome XXIII, XXI, 1-6. Lewis, Naphtali and Reinhold, Meyer. Roman Civilization: Sourcebook 1, The Republic. New York: Harper and Row, 1966.
Madden, John Thomas. Budgetary Control. New York: Alexander Hamilton Institute [c1930].
National Association of State Procurement Officials. 2001 NASPO Survey of State and Local Government Purchasing Practices. Lexington, KY, 2001.
Stewart, Jenny. The Lie of the Level Playing Field: Industry Policy and Australia’s Future. Melbourne: Text Publishing Co., 1994.
Tether, Ivan J. Government Procurement and Operations. Cambridge, MA: Ballinger Publishing Co., 1977.
Callender, Guy and Matthews, Darin. “Government Purchasing: An Evolving Profession?” Journal of Public Budgeting, Accounting and Financial Management. Summer 2000: 272-290.
Ellram, L. M. and Carr, A. “Strategic
Purchasing: A History and Review of the
Literature.” International Journal of Purchasing and Materials Management. Spring 1994: 10-18.
Karoway, C. “The 21st Century Purchaser.” Purchasing Today. Feb. 1996.
Matthews, Darin and Callender, Guy. “The Economic Context of Government Procurement: New Challenges and New Opportunities.” Journal of Public Procurement. 2002: Vol. 2, No. 2.