Daily Archives: October 2, 2008

Public Sector vs. Private Sector Procurement : Does One Size Fit All? I

If you were looking for a way to quickly and easily segregate the vast array of companies offering procurement solutions in the marketplace, you’d quickly find that they could quickly be divided into those that almost exclusively serve the public sector and those that almost exclusively serve the private sector. And if you’re like me, you’d wonder Why Is That?

It’s true that public sector organizations operate quite differently than their private sector enterprise counterparts, and that’s good, because they’re supposed to. A public sector organization is supposed to first and foremost serve the public good, a private sector organization is supposed to first and foremost bring value to its shareholders. Public sector organizations need to be fair when awarding contracts in terms of minimum minority awards, small business awards, disadvantaged business awards, and woman-owned business awards, especially when all else is equal. Private sector organizations need to select the best vendor for the job — every time, as that is their duty to their shareholders.

But does it mean that the solutions have to be different? Are not the fundamentals of good end-to-end e-procurement the same whether you’re public sector or private sector? I guess that’s the Trillion Dollar Question, isn’t it.

Let’s start by examining your average public sector procurement organization a little more closely. Public sector is not only very policy driven, it’s very stake-holder driven. In the private sector, most purchases don’t require more than two approvals — the procurement specialist and, if the dollar value is high enough, her boss. Yes, the stakeholders need to be consulted and have to be given a chance to provide their input, but the contract can be inked once the procurement manager, and her supervisor with enough fiscal authority, sign off. In the public sector, most procurements require no less than four or five signatures. You have the procurement (or contract) specialist, her supervisor, the project/program/department manager who needs the product or service, the Equality Awards Office (EAO) responsible for insuring that enough awards are made to MWBE and disadvantaged vendors, and, if any clause or term in the agreement is non-standard, legal. If the procurement carries risk, you might need the signature of the officer responsible for risk management, if the procurement will result in recurring payments, you might need the approval of accounts payable or finance, and if the spend is significant enough, you might need a senior VP in addition to your boss’s signature. But all of this can be handled by a flexible workflow with a configurable approval chain.

In the public sector you primarily have RFPs and sealed bids where the award often HAS to be given to the lowest bidder who can fulfill the demand at the minimum level of quality, safety, and performance, whereas private sector organizations can select the bidder that they believe will generate the most value for them in the long run. This means that the public sector requires an extensive RFX application with weighted scorecards and good comparison reports … the same thing that the private sector has gotten for years since GE implemented the reverse auction and FreeMarkets made it famous.

The public sector needs to support the lowest common denominator in terms of issuance of POs and receipt of invoices. If a supplier still operates out of a 1970’s production plant and can only accept and receive faxes, then the organization has to deal with paper for part of its procurement process whereas a private sector organization can dictate that it will only accept invoices electronically. But e-Procurement solutions have been accepting attachments for over a decade, and allowing the user to define the appropriate meta-data (vendor, po #, contract #, line items, quantity, amount, taxes, total invoice amount, etc.) for just as long. So it’s still easy for a data entry clerk to create an e-invoice in the system on behalf of a vendor and print, and fax, an e-PO on behalf of the public sector organization.

And so on.

So what’s the difference?

Come back tomorrow for Part II!