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Research Paper: The Fraud/Red Tape Dilemma in Public Procurement 1

The Fraud/Red Tape Dilemma in Public Procurement: A Study of U.S. State and Local Governments

Clifford P. McCue, Ph.D.

Associate Professor Florida Atlantic University

[email protected]

Kirk W. Buffington, C.P.M., MBA Manager, Procurement and Materials Management

City of Fort Lauderdale [email protected]

Aaron D. Howell, C.P.M., CPPO Manager, Procurement and Construction Contracting (PaCC)/

Contracts Officer Oregon State University

[email protected] * This paper is being presented at the Public Sector purchasing and Supply Research Study Symposium, Budapest, Hungary, April 10-12, 2003. This DRAFT is not for citation without prior approval from the authors. ** The authors would like to thank the National Institute of Governmental Purchasing and the Public Procurement Research Center at Florida Atlantic University for their financial support of this paper.

mailto:[email protected]

mailto:[email protected] lauderdale.fl.us

mailto:[email protected]


The Fraud/Red Tape Dilemma in Public Procurement: A Study of U.S. State and Local Governments

Abstract

Procurement systems in state and local governments across the United States are in transition. Growing uneasiness by elected officials, service delivery managers, and citizens about rule driven processes, inefficient delivery systems, and poor management of resources have resulted in a number of changes to the procurement function. Currently, state and local government purchasing professionals in the U.S. are being challenged to develop new dynamic, adaptable structures and processes that devolve purchasing responsibility, yet maintain accountability and control; what we term the procurement fraud/red tape dilemma. For this case study, the current state of the dilemma is examined and the roles of purchasing professionals in the transition of the purchasing process are presented. Specifically, this case study attempts to answer the following questions: What reform efforts have governments initiated in procurement policy, organization structure, personnel recruitment and training, expenditure authorization levels, review and oversight as they continue to attempt to decentralize purchasing control? And, what are the projected trends that will impact the success or failure of the decentralization issues over the next decade?

U.S. state and local governments provide a rich body of potential theory development given that there is sufficient variances in both control and accountability structures – each state has a unique procurement process, and this is even more manifest at the local level where little procurement guidance is provided. Through this research effort we have found that there is no generally agreed upon framework for determining the utility of devolution/decentralization, nor is there any particular answer to the fraud/red tape dilemma. Procurement professionals will be continually called upon to balance the inherent tensions with no direct guidance on establishing control structures which facilitate decentralization. We propose a framework for decentralization that can be applied in state and local governments in the U.S.

Introduction

The international community’s concern with procurement reform is not a passing

phenomenon, limited to the rhetorical comments of a few elected officials. Today, both developed

and developing nations recognize that poor procurement practices hinder sustainable development

and negatively impacts economic growth. For reform efforts to succeed, a firm commitment from all


stakeholders – governments, businesses, and society – is required to develop and implement

solutions. Such reform solutions within government procurement systems must include concrete

measures – preventative as well as punitive – that address issues of accountability, transparency and

inequity at various levels of the social, political, and economic systems. In this respect, the

international community has a role to play both as catalyst and supporter for reform. The particularly

complex nature of procurement reform makes international cooperation and coordination even more

critical to the successful implementation of procurement strategies that promote accountability and

improve governance.

Public Sector Procurement Reform

Within the broad policy concerns identified above, procurement reform over the last few

decades has focused on four primary areas; 1) structural challenges confronting procurement

processes, 2) value for money improvements and bench-marking procedures and performance to

world class/within class standards, 3) professionalization and education of procurement personnel,

and 4) redefining procurement processes (including information technology) to focus on procedural

and substantive outcomes rather than process outputs (typically described as transaction costs). Each

of the major reforms will be briefly discussed below.

Structural Reform:

To achieve the ideals of good procurement practices some fundamental structural reforms

have taken place within systems. A major issue concerning structural reform is where to locate

procurement accountability and control; the issue of centralization and decentralization of the

procurement function. The question reformers must attend is how to balance the inherent tensions

between service delivery managers requests to loosen the bonds of procurement regulations (red


tape) against the organizations need to maintain control against fraud/mismanagement in

procurement. Traditionally, control is exercised by legislative bodies and central management

through budgetary, financial, accounting, personnel, and purchasing systems. Reformers suggest that

controls on the use of inputs – i.e., the factors of production – constrain the ability of service

managers to meet service demands efficiently and effectively. Decentralizing the purchasing function

is beginning to receive some attention in government.

Value-for-money and bench-marking:

The second reform effort has focused on increasing value-for-money in procurement and

bench-marking procurement practices against a given set of standards. In the private sector these

standards are promulgated through a host of generally recognized international and national

professionals associations, and trade associations. The public sector is not so fortunate. The

determination of value-for-money is often neglected in the procurement process and the accounting

and control systems currently in place often inhibit effective cast analysis. Bench-marking

procurement practices is also waning. In both cases a number of public sector professional

associations and organizations are attempting to establish standards to judge the utility of public

procurement. We have not at this juncture reached agreement as to what the standards should

constitute, but a number of advanced analytical techniques have been developed to evaluate

procurement spend.

Professionalism and education:

The third major reform initiative regards the need to develop professionalism in procurement

agencies by enhancing the knowledge, skills, and abilities of procurement personnel. Not to

minimize the value of procurement training, but procurement personnel are typically sent to training


for one day and it is anticipated that they will, hence, have the requisite skills and abilities to

effectuate sound procurement practices. The only way to raise the standards of procurement, both

procedurally and ethically, is to insure that those charged with the delivery of procurement are

provided with the education necessary to make sound (rational) decisions. Through an education

process, where procurement personnel are constantly exposed to sound procurement practices and

critical thinking, will both buyers and officers become more proficient in procurement and enhance

organizational efficiency.

Technology:

The fourth reform effort looks at the impact that technology has on procurement. Over the

last two decades many have contended that technology has transformed the purchasing process, in

some cases moving procurement from a tactical to a strategic position within the organization. With

the demise of the dot.coms and the virtual dismantling of the e-procurement industry (where only a

couple of firms still exist) a number of governments have frozen their e-procurement initiatives.

What we are finding is that rather than “off-the-shelf” packages that supposedly link the entire

procurement system, governments are now slowly examining e-procurement solutions in a sequential

and deliberate manner.

The U.S. Context

Procurement systems across the U.S. have established control systems and accountability

standards attempting to balance the inherent tensions manifest in the procurement process. A major

challenge confronting the procurement profession is how to effectively address the fraud/red tape

dilemma: that is, at what point do rules become too burdensome to control against the potential for

fraud (i.e. maintain accountability), and at what point is the risk for fraud too high (establish control


systems). The question that public procurement professionals must attend, is, how do we develop

systems and process that balance the inherent tensions in procurement?

Given that research into the area is particularly arid, many organizations simply attempt to

institutionalize internal control processes that become, in many situations, too burdensome for

service delivery managers to effectuate the organizational value-chain, and inhibit public

procurement professionals attempting to loosen controls and identify accountability networks

throughout the procurement function. In contrast, some organizations fail to properly identify areas

that are ripe for fraud, and perpetuate loosely-coupled procurement processes. Therefore, it is

incumbent on the organization to articulate both processes and procedures to balance these inherent

tensions, establish training and education processes for key stakeholders (not only procurement

personnel, but elected officials, administrators, suppliers, and line services personnel), and to

establish monitoring and evaluation systems to insure accountability is maintained and the controls

on the factors of production are not overly burdensome.

The environment of public sector procurement has become much more complex than ever

before. Purchasing is no longer simply a clerical function performed independently by various people

throughout a governmental entity. Today, the procurement professional confronts world-class

competition, rapidly emerging technologies, increasing product choice, environmental concerns and

the growing emphasis on quality and best value (not simply lowest price). They have to balance the

dynamic tension between competing socioeconomic objectives, provide a consistent agency face to

suppliers of goods and services, satisfy the requirements of fairness, equity and transparency, and at

the same time, maintain an overarching focus on maximizing competition and satisfying

stakeholders.


At its most fundamental level, the job of purchasing is that of managing the business re-

lationship between the end user and the supplier of goods and services. In other words, the buyer is

inserted between the definition of a requirement or need and the satisfaction of that need. In carrying

out their responsibilities, buyers are simultaneously pushed and pulled in a number of directions

because of the pressures of balancing costs and risks (not only the risks of not meeting basic buying

objectives, but also the risks of not optimizing socioeconomic, regulatory and political

requirements). These are the elements that make a purchasing job so challenging and interesting.

In most agencies, the scope of the purchasing activity may be defined as providing all of the

materials and services that are required by the organization, beginning with the determination of

requirements and usually ending with the disposal of the materials acquired. People speak of

purchasing, procurement and materials management almost interchangeably. It is useful at this point

to consider three basic definitions taken directly from the NIGP Dictionary of Purchasing Terms:

Procurement: 1. (US)(CN) purchasing, renting, leasing, or otherwise acquiring any supplies,

services, or construction; includes all functions that pertain to the acquisition, including

description of requirements, selection and solicitation of sources, preparation and award of

contract, and all phases of contract administration. 2. the combined functions of purchasing,

inventory control, traffic and transportation, receiving, receiving inspection, store keeping,

and salvage and disposal operations

Purchasing: the act and the function of responsibility for the acquisition of equipment,

materials, supplies, and services. In a narrow sense, the term describes the process of buying.

In a broader sense, the term describes determining the need, selecting the vendor or

contractor, arriving at fair and reasonable price and terms, preparing the contract or purchase


order, and following up to ensure timely delivery.

Material Management: embraces all functions related to the control and coordination of the

movement of goods, and maintenance, repair and operating items to, through, and out of the

organization, including purchasing, storage, disposal, material forecasting, inventory control,

preparing requisitions, developing specifications, receiving, quality control and inspection.

It can be seen that purchasing is encompassed within the broader definition of procurement which

includes not just acquisition activities, but also those activities before actual purchasing takes place

(e.g, requirements description or definition), as well as those activities after purchasing (receiving,

inspection. inventory control or disposal). In turn, procurement is a sub-set of material management

that includes all process activities relating to the movement and control of goods and services

through an organization. This parallels the focus of the NIGP professional development program: a

progression from purchasing through material management, just as purchasing positions evolve from

buying responsibilities through the enhanced responsibilities of procurement and supervision and

then to material management and management functions.

There is an ongoing debate about whether the ideal purchasing person should be an expert in

the process of contracting or rather an expert in a specific commodity area There is a need for both;

indeed, this distinction represents the two ends of the spectrum of skills and knowledge required.

Specific job expectations and the organizational structure of the agency will determine the correct

mix for each situation. However, the attributes of purchasing professionals must include business

knowledge, effective business communications, adaptability to rapidly changing priorities and the

ability to negotiate (to effectively manage relationships within the agency and between end users and

suppliers). The goal of every buyer should be to achieve best value (not necessarily lowest cost) in


the face of the pressures, uncertainty, competing objectives and public accountability entailed in

balancing costs and risks. If that goal is met, then all of the buyer's "clients" have been satisfied.

Those clients include end users, suppliers and the public.

Until very recently, the performance of public purchasing groups was measured on the basis

of transaction counts and contract costs, document throughput time and the cost of running the

purchasing department. These measures have evolved to more closely parallel those seen in the

private sector. This is the concept of "value-adding benefits" which are added to the traditional focus

on purchase price and continuity of supply. Dobler and Burt point out that purchasing groups in

private sector companies should be pro active and focus on five value-adding outputs:'

Quality. The quality of purchased materials and services should be virtually defect-free.

Cost. The material management function must focus on reducing the total cost of acquiring,

moving, holding and converting goods and services throughout the supply chain.

Time. Purchasing must play an active role in reducing the time required to bring new

products to market... the time required to bring a new product to market can be reduced by

20% to 40% through the establishment and implementation of a world-class strategic supply

system.

Technology. [Purchasing] must ensure that the firm's supply base provides appropriate

technology in a timely manner.

Continuity of Supply. The purchasing and supply management function must monitor

supply trends, develop appropriate supplier alliances, and take such other actions as are

required to reduce the risk of supply disruptions.

For public purchasing, value-adding benefits are very similar-quality, cost (including total cost of


ownership), service, continuity of supply and time. All of these factors directly impact costs. For

example, there is a considerable cost associated with keeping inventory, since inventory can be

considered as a type of insurance against exigencies. In the private sector, it is estimated to cost firms

25% to 30% of average inventory value per year to maintain stock; in a recent audit of material

management in a large federal department conducted by the Auditor General of Canada, it was

estimated that inventory holding costs were 25%. This serves as a dramatic illustration of the value

of a good public purchasing organization, one that seeks the best combination of quality, service and

price relative to the end user's needs.

Case Description

Government Structure in the U.S.

The structure of government in the U.S. stem from over two decades of debate and

compromise by the founding fathers. The driving force regarding how the U.S. government was to be

structured was based on the notion of separation of powers and “checks and balances.” Separation of

powers and checks and balances were viewed by the founders as a necessary “evil” to guard against

tyranny. That is, the notion of efficiency was never a concept warranting attention of the creators of

the U.S. government. As a result, we currently have one national government (the Federal

Government), 50 sub-national governments (states), and 87,525 local governments. Each level of

government has its own responsibilities, and yet many of the functions performed duplicate other

levels.

The federal government is primarily responsible for “national” concerns, ranging from food

and drug administration, education, and interstate commerce, to name only a few. State governments


are, as the U.S. Constitution states, concerned with all the rights and responsibilities not expressly

enumerated in the U.S. constitution. Each state has its own constitution, and the majority of state

constitutions emulate the federal system; where there is a chief executive (governor), a legislative

branch (typically a House and Senate) and a judicial branch. On the local level, local governments

are typically divided into counties, cities, towns/townships, and villages (although there are

differences among the states – for example, New York has boughs rather than counties, even though

they serve the same purposes).

At the local level governments can be divided into general governments and special

governments. All those entities performing general government duties (such as law enforcement, fire,

education, recreation, and the like) are considered general purpose governments. All other local

governments are considered special districts. Special districts are typically defined as a local unit of

government created pursuant to general or special law for the purpose of performing prescribed

specialized functions including urban functions, within limited boundaries. A Dependent Special

District means a special district whose governing head is the local governing authority, ex officio or

otherwise, or whose budget is established by the local governing authority. An Independent Special

District means a special district whose governing head is an independent body, either appointed or

elected, and whose budget is established independently of the local governing authority, even though

there may be appropriation of funds generally available to a local governing authority involved.

As figure 1 shows, in 2002 there were 50 state governments and 87,525 local governments in

the United States. Of these local governments, 38,967 are general purpose local governments (3,034

county governments, 19,429 municipal governments, 16,504 town or township governments). The


remaining 48,558 are special purpose local governments, including 13,506 school district

governments and 35,052 special district governments.

Table 1.

Type and Number of Sub-National Governments in the U.S.

June 2002

Level of Government

As of June 30th 2002

State Government 50 Local Government:

87,525

County Government

3,034

Municipal Government

19,429

Town/Township Government

16,504

Special District Government;

48,558

School Districts

13,506

Other Special Districts

35,052

Given that the focus of this case study is on state and local government procurement processes in the

U.S. in 2000 the combined revenues for all governments (state and local) were 1,942,328,438,000.

Of that amount, 1,260,829,249,000 was received by state governments while 1,013,824,631,000 was

collected by local governments (the revenue of local governments also includes revenues from the


state through intergovernmental revenue sharing). Expenditures were 1,746,942,699,000, where

states spent 1,084,097,152,000 and local governments spent 996,266,752,000 (again, the difference

reflects the receipt of state intergovernmental revenue sharing expenditures). Table 2 provides a

breakdown of state and local government expenditures for 1999-2000 (the most recent data).

Table 2.

State and Local Governments

Expenditures by Function

1999-2000

States

Local Governments

Direct Expenditures:

Current Operations

Capital Outlays

Assistance and Subsidies

Interest on Debt

Insurance Benefits and Repayments

(Salaries and Wages)

757,027,323,000

523,113,684,000

76,232,509,000

22,136,147,000

30,089,074

105,455,909,000

154,503,994,000

985,996,303,000

765,632,776,000

140,830,321,000

9,239,297,000

50,410,148,000

19,773,761,000

394,291,958,000

Debt Outstanding:

Short-term Debt

Long-term Debt

547,875,824,000

6,378,753,00

541,497,071,000

903,939,398,000

17,912,661,000

886,026,737,000


Source: U.S. Bureau of Census, Table 1. State and Local Government Finances by Level of

Government and by State: 1999-2000.

Total Procurement Spend in State and Local Governments in the U.S.

A question that typically can’t be answered by state and local government officials is, how

much money the government spends for all of its purchased materials and services in a given fiscal

year? Some budget and finance professionals may venture a guess that approximately 30 percent of

the operating budget is spent on these purchases. This answer is typically based on the notion that 70

percent of all government expenditures are related to personnel expenditures, therefore, the

remaining must be on materials and supplies. From their perspective, knowing the exact dollar value

is the task of the procurement officer and of no particular interest to their daily activities – after all

they are managing what they know best. If this were true, then we would simply ask the procurement

professional to find out how much money is spent annually on goods and services – but again we

probably would not receive a dollar value, instead we would be referred to the finance and budget

professional – it is their job to know this information. After all, the procurement professional is

concerned with acquiring the goods and services needed to make the government function in a timely

and efficient manner, and to make sure that supplies are available when needed and at the right place.

In all honesty, most probably don’t have any idea how much is spent, let alone know how it’s spent

or among how many suppliers. Or even more problematic, how does the government know that it is

getting the most from it’s tax revenues through the procurement process?

The simple fact that we can’t even venture a guess is symptomatic of the basic problem in

government fiscal operations: Nobody really cares about this very critical governmental function!


We might become more concerned if we had an idea just how much government spends on the

purchase of goods and supplies. Very simply, state and local governments are spending,

conservatively, 25 to 40 percent of every tax dollar on purchased materials and supplies for

governmental funds, 60-70 percent for special revenue funds (mainly special taxing districts), 80-100

percent for capital project funds, and approximately 70 percent for enterprise funds. Trust and agency

funds are typically “pass through” accounts, such as pension funds.

The total costs for all purchases, including hidden payroll costs, waste and misuse, processing

costs, and inventories, could bring the actual value to almost 50 percent of the total budget.

Generalizing this to the entire population of state and local governments in the U.S., this value could

range from $1.598 trillion (50 percent of all expenditures) to $2.396 trillion (75 percent). Carrying

this argument a little further, if a local government, for instance, were to reduce transaction costs

associated with the purchasing process by five (5) percent, this could net a 2.75 percent tax

reduction. Although not an overly dramatic cost reduction, in some cases the savings from more

sophisticated purchasing practices could net much larger savings. During difficult financial times,

where governments are looking for ways to reduce expenditures, the procurement process may be

one area ripe for cost savings.

Given the dollar value and potential cost savings associated with the procurement process, a

more appropriate question is, “How could any area of expenditure be so large yet so forgotten? Part

of the answer may lie in the fact that it was buried by lack of interest and other priorities confronting

managers, and has therefore stayed out of sight. This view may have been supported since

centralized procurement became the mode of operation in government more than fifty years ago. Part

of the problems could be attributable to the fact that public sector procurement is constrained by


numerous laws, policies, and procedures that many simply avoid changing the system because of the

time and energy needed to change these constraints. And particularly, those charged with the

responsibility of facilitating this activity may have hindered the professionalization of the field.

Major Reform Efforts Impacting State and Local Governments in the U.S.

State Governments

The battle between those who believe in the speed and efficiency of decentralization and those

who carry the banner of added-value, purchasing power and risk avoidance through centralized

procurement is long and storied. There is a host of examples of the victories by the constituency of

each army that are revisited with each wave of the cycle.

There is a delicate balance that should be achieved. The balance would have to exist between

the risk associated with too much decentralization by a large group of authorized procurers, the value

that can be added by combining volume, the speed of point-based decision making, and taking

advantage of the specialized knowledge of procurement professionals. In the best case, the

procurement function would negotiate broad contracts and put in place other tools to allow end-users

to obtain what they need without exposing the organization to increased risk.

Public procurement faces additional scrutiny beyond what a private entity would though,

because we must answer to the source of the funds�the tax-paying public (or, as in the case of Oregon

State University and others like it, the Federal government or other sponsoring agencies). In response

to that increased scrutiny, most public agencies are overly cautious and risk-adverse. This position

causes public entities (more often than not) to place more policies or procedures to avoid risk, or the

perception of misappropriation, than are reasonably necessary.

However, it is typically the administration of those entities that must answer to the criticism of


the public, rather than the end-user. Therefore, the end-user is usually not as appreciative of the steps

being taken than those who are trying to avoid being put under the microscope. This disparity of

perspective causes some of the tension as well.

The cycles of pushes for centralization vs. decentralization may well be tracked to the level

of scrutiny or interest being shown by the public being served by the agency. In times of prosperity

when the public is, for the most part, happy with government, levels of scrutiny will be lower and

the agencies will look closer at the benefits of decentralization. In times when public scrutiny is

high, either because of poor economic conditions or a specific flash-issue or misappropriation,

agencies will probably push for greater control and centralization.

State Agencies continue to clamor for independence from their centralized purchasing

function. In most cases this clamoring is through the efforts of the particular agency lobbying to

their legislators. This lobbying uses the specific examples of perceived failures on the part of the

central purchasing function to justify the de-centralization. In Oregon we have seen this happen

with the Oregon Health Sciences University, the Department of Transportation and others. This

activity continues into the current legislative session with the Oregon University System following

suit in attempts to gain greater independence.

To battle against this, central purchasing functions of States continue to adjust their mission

statements and their offerings to demonstrate to their administrators and the legislature that they

are truly the models of efficiency that they claim. They have also changed their offerings to be not

only the “processors” of the procurement, but to be a consultant function and a training function to

the agencies they support up to the dollar level they have already delegated.

Another form of centralization that has been seen is additional layers of oversight being

incorporated in support of any that may have been delegated by the central purchasing function.


An example is legislation passed four (4) years ago in Oregon which requires that all contracts over

a relatively small dollar level ($100,000) be reviewed and approved by the State’s Department of

Justice prior to being entered into by any agency regardless of their delegation level or exemption

status.

The recent budgetary challenges that States are facing has generally consumed the

legislatures but has also given both sides of the centralization/decentralization argument

ammunition in their arguments. Agencies seeking the decentralization speak of being able to be

more creative and flexible through decentralization. The central purchasing functions again state

that the current environment is best served by centralization of purchasing power, expertise and

efficiencies.

Value-for-money and bench-marking at the State level:

At a State and State agency level we continue to see pushes toward more value-for-money while

being faced with budgetary cuts which disallow the time and effort necessary for effective cost analysis

and bench-marking.

The end-users we are serving constantly throw back at us the adage “I don’t want to be forced

into taking the ‘low bid’.” Fortunately as we have faced this statement many times, we have also

become more and more accustomed to issuing procurement documents that take into account factors

other than just the dollar price. Our ability to continue to offer creative procurement expertise is a

function of training and experience.

Value-seeking has become available not only in the formal procurement processes, but also in

a general sense in any procurement which we choose to incorporate it. State’s are becoming more

flexible in their language and regulations regarding allowing for factors other than just price. The

extent to which flexibility in accepting other than the low bid is largely determined by the local politics


which govern passage of such required empowering legislation.

The ability to continue to continue to be creative and flexible requires continuous training of

the staff responsible for implementing it. Unfortunately, with current budgetary constraints, training

tends to be seen by upper management as one of those “dispensable” line items. Another unfortunate

victim of tight budgets is often the effective cost analysis and bench-marking that can validate the efforts

we expend.

Effective cost-analysis allows us to not only to determine how effectively we have procured a

particular item, but also allow us to be more successful in negotiations (when and as negotiations are

allowed). Because it coincides with negotiation, cost-analysis is an important part of the value-seeking

procurements including formal Requests for Proposals which almost always incorporate negotiation as

integral to effectively utilizing that procurement process. Cost-analysis and bench-marking can be time

consuming, however, and also occur at the conclusion of a procurement process. The effect of budget

cuts is that we all have more and more projects waiting for our attention and once the bid closes, we

are pressured to get onto the next challenge. More often than not, the true cost analysis is all but

forgotten and we bench-mark through informal e-mail communications to peers through local

informational cooperatives or perhaps regional or nation-wide listservs or professional associations

such as NIGP or NASPO. The result is that the loss can be compounding in not only failing in cost-

analysis or benchmarking, but may also invalidate a value-seeking procurement process.

The overall effective reform that is being seen is a tendency toward more value-seeking

procurements while the budgetary constraints and cuts often invalidate those processes by not allowing

for effective cost-analysis and benchmarking.

Professionalism and education in the State:

As State’s central purchasing functions have fought against increasing decentralization, the


agencies which have been successful in decentralizing from the States often “steal away” the human

resources of the central purchasing function. This revolving door of State central purchasing

professionals allows the States to then increase the expertise and professionalism of their staff through

recruitments.

The advent of more widely found professional associations (NIGP, ISM, NCMA, etc.) and

their associated, relatively inexpensive, training and certification programs, has also been affecting a

general increase in the knowledge, professionalism and certification of the procurement professional.

The increasing requirements by recruiters combined with the increasing professionalism of those in

the profession, has made certifications more common. It has long been stated that the professionalism

of purchasing as a career was increasing. In recent years, among State agencies, we are finally seeing

the instances where our procurement professionals have degrees, advanced degrees and professional

certifications.

In addition, procurement professionals are clamoring for continuing education and training

from their employers. Granted, this is a battle with shrinking budgets, but the State and its agencies are

taking steps to provide more in-house training based upon the collective expertise of the agencies.

With the budgetary constraints that currently exist, agencies are now very frugally comparing

the quality of the programs offered by educational and professional associations as well as the value of

memberships to such organizations. With the variety of choices available, it allows for competition

between the associations and once again focuses on the value-seeking that is occurring more often.

Still, more than ever in the past, the reform we are seeing now at the State level is an interest in

increased professionalism, greater education and efforts toward professional certifications.

Technology in the State:

What we see at the State level related to the “e-commerce” part of technology currently is an


attempt to make it a three-pronged tool while doing so with minimal budgets. E-commerce can: 1)

Increase openness, opportunity and connection with our constituents; 2) Increase efficiencies through

reductions in costs of bid/RFP package distribution; and 3) Expand the opportunities to do business

with the State to vendors near and far.

Two to three years ago, during the dot.com escalation, State agencies were bombarded by firms

who wanted to sell us their “wares.” Very few States actually set sail with these vendors and wisely so.

With the crash of the dot.com’s just months later, we saw the vast majority of the promises being made

fall apart. The result is that most State agencies are still very reluctant to try and invest in the e-

commerce tool for fear of signing on with a company that may not be around tomorrow.

In the absence of a clear and safe direction, much has been spent on internal solutions, studies

and consultants. The safest way to protect the investment is to do it yourself and we see that

happening in a lot of cases. Web-sites are very easy to build if you are just wanting to post your bids

on-line and provide some minimal information and interactivity. Because of the current budget

crunch, that is all that many are being able to do.

There are a few States and agencies out there who have signed on to major e-commerce

providers offering a range of solutions from bid development and distribution, to portals and virtual

shopping centers, to electronic bid submissions, lockboxes and reverse auctions, to full integration with

their enterprise financial systems. It appears to be the latter who are able to find some niche of

success, particularly those vendors who can demonstrate a relationship with the ERP provider – even

more preferably to go directly to the ERP provider for the solution.

Technology remains an interest by most all States and agencies, the challenge is to ensure that

the investment will pay off not only in a solution that will come to fruition, but in a cost that is

outweighed by the benefits and savings garnered.


Local Governments

Within the political context, local government procurement reform is looking at four broad

areas where its change in processes and techniques may have the greatest impact. Those areas are:

1. Structural changes (centralization versus decentralization of the process, and hence

the accountability)

2. Obtaining best value and validating that best value

3. The professionalism and education of the procurement professional

4. Redefining the procurement process, to become less transaction driven, and more

focused on the value obtained

Local governments are attempting to accomplish these changes in an environment of shrinking

budgets and increased attention to the local organization by both the constituents and the media.

Local governments are required to perform under a scrutiny not normally seen within the

private sector, which requires the agency to implement processes and procedures that are

cumbersome and force a lack of efficiency. Oftentimes the total cost of conducting a competitive

procurement may exceed what it might in an organization not bound by the requirements of this

amount of red tape. Nevertheless, without these processes and procedures in place, the perception of

fraud and corruption is much greater.

Centralization versus decentralization at the local government level

Before the question "when is centralized purchasing justified," one must define

"centralization." What does it mean for purchasing to be "centralized?" In basic terms, centralized

purchasing simply describes the type of organization in which there is some form of centralized

control over the purchasing function. Some districts may be unwilling or unable to afford or justify


the creation of a centralized purchasing position (or department). Some districts may operate without

standardized purchasing policies. Other districts may delegate, to the greatest extent possible,

purchasing authority to the school site level. At some point, districts without a centralized purchasing

authority, therefore, are considered to operate using, for lack of a better term, the "decentralized"

purchasing model. Decentralized districts typically depend upon site (or department) personnel to

make purchasing decisions, which are later ratified as a Board "consent" item.

Benefits of Centralized Purchasing. It turns out to be easier to define the benefits of

centralized purchasing than a definition of centralization itself. The Council of State Governments

lists some of the benefits of centralization, not the least of which is cost savings:

“An effective central purchasing program reduces the cost of government. It inspires public

confidence in government. It directly improves the quality and timeliness of services

rendered by program departments and agencies. It is government’s meaningful link to the

business community; it promotes honesty and integrity throughout governmental operations."

(CSG, p. 10).

As far as pursuing a more refined definition of centralization itself, the Council indicates that

centralization is a continuum ranging from centralized policy formation to centralized purchasing

functions:

"Ultimately, centralization becomes a matter of degree. There are some duties that should be

centralized. One of these, without question, is the formulation of policy, rules, and

regulations. Others, to the extent practicable, are:

� Developing or adopting product standards and specifications.

� Preparing formats and contractual terms and conditions under which bids or offers


are solicited.

� Determining awards of large volume purchases and major contracts.

� Prescribing standard forms to be used and standard procedures to be followed

� Operating a central purchasing data system.

� Mediating protests and disputes between using agencies, bidders, and

contractors.

� Imposing penalties for non-performance of contracts.

� Developing a standard commodity coding system.

� Designing a uniform inventory program.

(CSG, P. 20-21)

Key Purchasing Responsibilities, as defined by the National Institute of Governmental

Purchasing include:

� Assisting user departments to select the most appropriate purchasing methods, and to

develop and write purchase specifications, statements of work, bid evaluation

formulas, and proposal evaluation methodologies.

� Compiling and maintaining lists of potential suppliers.

� Participating in decisions whether to make or buy services – that is, whether to

provide a service in-house or contract it out.

� Securing quotes, bids, and proposals and working with the user departments to

evaluate the offers received.

� Awarding contracts on behalf of the user departments.


� Maintaining continuity of supply through coordinated planning, and scheduling, term

contracts, and inventory.

� Seeking to assure the quality of needed goods and services through

standardization, inspection, and contract administration.

� Advising management and user departments on such matters as market

conditions, product improvements and new products, and opportunities for building

(proper) goodwill in the business community.

Note that items on both of the above lists are technical and specialized in function. The

necessary level of competency in a technical field makes it difficult to completely delegate the

purchasing function to site personnel. While it would be tidy to have a concrete and unchanging

definition of centralization, it is impossible in the world of school purchasing. Some of the

advantages of centralized purchasing can: "...streamline and standardize the purchasing process,

especially for major items such as offices supplies that all agencies use." (Lemov, p. 97). Centralized

purchasing also allows a district to benefit from economies of scale. In contrast to decentralized

purchasing, where every school (or teacher) acts as an agent for the district, a centralized purchasing

department channels all transactions though a single responsible agency. The purchasing department

then may be able to combine requests and solicit prices on larger quantities of a given item. This

equates to lower prices. Further, commonly used items may be warehoused in order to facilitate

quantity purchases and to be available when needed. Even on a single-item basis, a purchasing

department can often save money by soliciting bids or quotes from several qualified vendors.

Specialization of duties allows purchasing employees to develop expertise in negotiating with

vendors, purchasing law, locating sources of supply, and so on. In addition, districts that utilize


centralized purchasing provide a single focal point for vendor contacts. This frees site personnel

from the purchasing function, and allows for less disruption of regular operations. The Institute of

Supply Management offers the following advantages of centralization:

“high level of buying expertise, lower operating costs through central coordination of

purchasing activities, avoiding duplication of effort, better prices, and providing more time

for line managers to manage (rather than engage in procurement activities). (NAPM, p. 95-

96).

In summary, centralized purchasing has many advantages such as specialization of function,

economies of scale, consistent application of board policy, and adherence to State law and local

policy. To echo the Council of State Governments, "centralization, ultimately, is a matter of degree."

(reference). This is to say that nearly every school district possesses, to some degree, some elements

of both centralization and decentralization.

Any organization must have an efficient structure to achieve its goals. This is true, whether

the goal is to maximize profit, or to deliver services to a city’s taxpayers. Traditionally, because

local governments are under the scrutiny and attention of the media and its taxpayers, a framework

has been established creating a centralized procurement function to control the expenses of the

service departments whose mission is to deliver to the constituency. The elected officials reprioritize

Many times these services and the service departments must be reactionary instead of proactive in

solving problems and developing solutions. Consequently, there is an almost coming to lager heads

between the service delivery departments and the procurement function. Procurement has been seen

as the roadblock to effective service delivery in this centralized structure.

Future Organizational Structure


In the future, there will be movement toward greater decentralization of purchasing decision-

making authority. This will result from two forces working together. First, cost-reduction pressure

will cause some organizations to reduce staffing levels in central administrative departments,

including purchasing. Recent anecdotal evidence from industry suggests that several larger firms are

reducing corporate procurement staffing levels to support corporate downsizing efforts. As this

continues, it will clearly have the effect of diminishing the central purchasing group's authority.

Second, again in industry, there is a trend towards transferring decision-making authority to locations

closer to design and manufacturing centers - the analog of a university's academic centers. This can

also have the effect of diminishing the authority or importance of large, monolithic, corporate

purchasing groups.

The need for university-operated stores operations will decrease. Again, technology

innovations, improved just-in-time techniques, and the expanded use of electronic data interchange

will enable institutions to rely on their supplier partners to maintain and deliver needed stocks of

supplies. Many industries are making dramatic improvements in their delivery capabilities. For

example, Federal Express recently introduced same day delivery classes of shipments. In a recent

test conducted in Florida, Cadillac customers were able to purchase a custom Cadillac and have it

delivered within 72 hours. Previously delivery could have taken up to six weeks. These trends are

expected to continue and, except where a particular institution has extreme distribution problems due

to location or accessibility, the need for on-site stocks of off-the-shelf items will decrease.

The purchasing function will continue to evolve in the other ways. Orders will be placed

directly to suppliers by end users. Direct links between users and suppliers will be accelerated by use

of the Internet, where suppliers are now routinely placing catalog and pricing information. This


capability, when coupled with the rapidly emerging use of procurement cards, will enable end users

to enter the distribution chain directly without going through a central purchasing system.

Value for money improvements and Total Cost of Ownership

Traditionally government procurement has focused on the lowest cost to purchase or the “low

bid”. How many times of procurement professionals heard the phrase, or something similar, when a

project or contractor fails “that’s what happens when you buy low bid”? Although many times these

failures are more the fault of poor bid specifications, and scopes of work, the perception exists that

the issue is buying low bid, and everything would be fine if the procurement office would just let us

buy from whom we think is best. However, if an organization were to allow this to occur, the

dilemma of fraud versus red tape would again be the subject of much scrutiny.

Documenting the Savings

Any measurement requires a commonly accepted unit of measure, a yardstick. Lacking this

standard, all the analyst has is an individual descriptive statistic or piece of data. Many of the

yardsticks that industry employs are compilations of data or comparative statistics. They do not say if

the statistics are good or bad, they are comparisons. For example, the volume of purchase orders is

compared on a yearly basis to try to measure activity or productivity. These statistics can be juggled

any way the analyst likes. An example is the city-purchasing agent who is proud of the fact that

although last year five people in the department generated 10,000 purchase orders, this year, the

same five people generated 12,000 orders. The conclusion drawn by the purchasing agent is that

productivity has risen by 20 percent. If he decides to buy paper clips a box at a time, 100,000

purchase orders may be needed. That would be a 1000-percent rise in productivity. The moral is

simple: Benchmarks for measuring are needed, but they must make sense.


This is the reason for the difficulty of purchasing agents in selling the idea of cost savings or

cost reduction. They have failed to come up with benchmarks that management is willing to accept

as credible and reasonable. It has just been within the last decade that companies have begun to look

at the material side of the product as a source of cost reduction to be obtained by gaining insight into

their suppliers' cost structures. This effort has been limited to large companies, and some of their

successes have been phenomenal. Yet the vast majority of purchasing agents in this country still

grumbles about their suppliers and still has very little knowledge of why they are paying the prices

they pay. They have failed to sufficiently educate themselves on the potential for savings and the

legitimacy of those savings. If they have not educated themselves, how can they convince top

management of the validity of their savings?

There does not seem to be any appreciation of the competitive advantage offered by material-

cost reduction. If a supplier charges all customers the same price for an item, then no one has any

competitive edge. If the buyer's company gets the same item for 10 percent less, then it enjoys the

flexibility that 10 percent of material cost offers in the total price structure.

Sources of Benchmarks and Yardsticks

Often a buyer depends on the supplier to provide the benchmarks in the form of price

quotations. A quote can be anything the supplier wants it to be. The analyst must look beyond the

quote into the structure of the supplier. In some cases, this is done for the analyst. A recent project

taken on by the Center for Advanced Purchasing Studies (CAPS) at Tempe, Arizona, is

benchmarking by industries. CAPS can provide broad-based data that the analyst may find useful.

Included in the CAPS data by industries is the percentage of the sales dollar going to purchased

materials and the size of the average source-base in the industry? There are numerous other


benchmarks, but these are typical of the information collected through survey data by the center.

However, what about the individual company? After all, that is the entity being considered.

For the government agency, the journey into supplier price analysis begins in its own records.

The first step is looking at the historical pattern of the purchasing operation. This begins with an

analysis of the accounts payable files. Normally a company keeps these data in a cumulative format.

The purpose of the examination is to determine where the company is spending the money. Who are

the top ten suppliers? What percentage of the suppliers is getting the bulk of the material dollars?

Thus, step one is the identification of the suppliers. This may be as simple as a printout of the

cumulative purchase order records. The degree of sophistication on this report runs the range from

the simple listing to sophisticated stratification by product or commodity codes, buyer codes, and

where-used codes. The more sophisticated the stratification, the more useful the report for analysis

purposes. Step 2 may involve purging the list. If the list contains all suppliers, it must be segregated

into categories. The simplest division would be between products and services. One list would

contain product vendors, and the other would show service vendors such as utilities, service

contractors, and the like. Service contracts are of course different from material contracts. Once the

initial segregation has taken place, step three is simple. The product list is arrayed from high to low,

with the cumulative appearing on the list also. Now the procurement official has a list of product

suppliers and their relative importance measured by dollars paid to each. The next step is to

determine what is known about each supplier. Typical questions that might be asked about the top

ten suppliers are these:

1. Is the supplier a manufacturer or a distributor?

2. Is this the principal business of the manufacturer?


3. Is the manufacturer a publicly held company?

4. Is the supplier a subsidiary of a larger company?

5. How large is the supplier, as measured by sales volume?

6. Can any type of advantage be exerted on the supplier because of volume?

7. What documentation exists on the supplier in company files?

Use of this three-step approach insures the flexibility the purchasing department needs in dealings

with the supplier. Savings can be generated from any of these areas. The saving obtained from

beating back a price increase is real if it is in line with the supplier's normal price structure. Simply

avoiding bottom-line price increases and pinpointing the real increase elements can be the basis for a

company not having to raise its prices. It has long been known that price increases are normally

passed on until there is no one left to resell the product. The consumer is at the end of the chain. Yet

if price increases were limited only to those costs that really rose and were contested, inflation could

be partially controlled, since productivity would become the offsetting variable. Failure to question

price increases simply institutionalizes the practice and encourages the supplier to ask for more and

more by tradition rather than real need. One has only to look at many industries to see the pattern.

This is especially true where the channel of distribution contains many elements.

An Overview of Price and Value

The essence of benchmarking is to determine if the procurement official is obtaining best

value. An integral part of value is price; therefore, one must understand the interrelationship

between the two.

Of all of the famous Ps of marketing--Price, Promotion, Place, Product-the pricing decision is

most important and most complex. Price is the tangible exchange of value between the buyer and the


seller. A form of wealth, money, is usually the medium of exchange. When this event takes place, the

buyer has removed all the alternatives save one. A decision has been made. This is not uncommon,

for it happens in the smallest transaction. The child selecting from the array of offerings at the candy

store probably pursues the selection process with more diligence than many adults do. As the price

rises, the concern over value becomes more important. The concern is over total value received, not

price alone. This means the perception of value received from the transaction must be greater than

the value given up by the buyer. Value is an abstraction, and its perception lies within the individual.

It can be defined as

Value = Quality/Price

Since the equation contains two variables, both must be considered in the buying decision. If price

rises, the quality must rise to keep the equation in balance. The American Society of Quality Control,

in its definition of quality, has identified eight components of quality. They include:

1. Performance

2. Features

3. Reliability

4. Serviceability

5. Durability

6. Conformance to specifications

7. Aesthetics

8. Perceived quality

Conversely, perceptions of quality can raise implicit value to the point where price is almost

ignored as a decision variable. If one adds to this perception the rationalizations possible in the


buying decision, price itself may become a status symbol.

As an example, consider the person buying a lawn mower. A basic human powered

mower will cost $90.00, have few moving parts, and be very easily maintained. The reel-type

mower is simple to operate and should give years of maintenance-free service.

These mowers are difficult to find. A complex, gasoline-powered rotary mower costing

easily five to ten times as much as the reel mower has replaced them. The power mower uses

gasoline and oil, is complex, and requires periodic maintenance far beyond the capability of the

average owner. Its annual operating costs may even equal the purchase price of the reel mower.

Why then does the rational buyer purchase the more expensive unit, as opposed to the cheaper

one? The rationalizations are endless. The power unit is faster. It picks up the grass. My neighbor

has one. The yard is too big. Distill these excuses down and one fact emerges. The buyer sees

greater value in the more expensive, noisier, complex, pollution-creating mower than in its

simple, quieter, less costly counterpart. Value perception plays a significant part in the pricing

decision. Any seller failing to recognize the role of perceived value is missing a large dimension

of the buying decision. Appeals to status, vanity, and the desire for conspicuous consumption are

powerful influences on the product decision and the rationale for purchasing. Therefore, in

addition to use value, there is esteem value. A segment of the pricing strategy must focus on the

esteem dimension of the decision.

For example, consumers have effectively limited or discouraged large price increases on

some major appliances by brand shifting. This market is very price sensitive. Part of the sensitivity

can be attributed to the wide range of appliances carried by many dealers. Side-by-side comparisons

are easily made. A more subtle reason is the low status of the appliance. No one parks a refrigerator


in the driveway.

On the industrial side, a significant dimension of the seller's strategy is market leadership. A

firm that establishes itself in the market as the perceived value leader earns handsome dividends.

Confidence in its product line will generate sales, as buyers base their purchases on perception of the

quality provided by the leader. When purchasing a part or component, it is common for many buyers

to specify an item by description as well as brand name. A number of consumer products hold the

enviable position of being synonymous with an entire product line. These include Kleenex, Scotch

tape, Xerox, and Coke.

Engineers also exhibit this trait. They specify items by brand name because they believe its

manufacturer's claim of quality and reliability. Whether or not the claim is valid, the use to which the

item is put may not warrant the extravagance of paying a higher price. Often, however, there is less

"implied risk" for a buyer purchasing the "top of the line." If a buyer insists on a certain brand of

computer equipment--even though it is inferior to a less expensive brand--he takes little risk because

the well-known brand is the industry standard. The buyer admits that the other brand is superior to

the market leader, but he also suggests that he is not going to place his job on the line for some

unfamiliar brand. Better to be safe than sacked is his philosophy. No one at higher levels will fault

him for the decision if the perceived quality level of the leader is high and the prices are not far apart.

The value of the leader is present in the mind of the buyer. To avoid risk, buyers will therefore go

with market leaders. When the perception of quality is sufficiently high to offset price differences,

that perception, not the actual quality, becomes the deciding factor.

Professionalism and Education

Professionalism refers to the continued development of, in this case, public administrators.


Thus, with regard to training, professional public decision makers should be keenly aware and

interested in improving the process. In addition, for professional administrators to be effective, they

must make decisions that accomplish goals in a rational manner. Following the "rational" decision

guidelines suggested can make them more effective with other decision makers in a political world.

At the local level, governors and mayors have also recommended reorganizations before or

immediately after taking office. The reorganization efforts of local governments have been promoted

as remedies for specific efficiency problems such as the lack of professionalism, fraud, abuse, and

corruption. The reorganization efforts of John Lindsay, mayor of New York in the early 1970s, were

centered on decentralization of service delivery to make the bureaucracy more accountable. In 1982,

Governor Keane promised to overhaul the New Jersey state bureaucracy. His administration's

reorganization enterprises (Governor's Management Improvement Program) were designed to reduce

high costs, waste, and inefficiency

At the local level, governors and mayors have also recommended reorganizations before or

immediately after taking office. The reorganization efforts of local governments have been promoted

as remedies for specific efficiency problems such as the lack of professionalism, fraud, abuse, and

corruption. The reorganization efforts of John Lindsay, mayor of New York in the early 1970s, were

centered on decentralization of service delivery to make the bureaucracy more accountable. In 1982,

Governor Keane promised to overhaul the New Jersey state bureaucracy. His administration's

reorganization enterprises (Governor's Management Improvement Program) were designed to reduce

high costs, waste, and inefficiency.

Speed in procurement is rooted in professionalism; faster procurement comes from better

procurement. OGC leads this drive for higher standards. I believe that this is a further opportunity to


engender sustained improvement by attending to the fundamentals of professional procurement.”

Two main areas of concern seeking reductions, wherever possible, in the:

1. Costs to both the public and private sector in the procurement process and

2. Procurement time-scales.

It is likely to examine the use of consultants by customers, the cost of bidding and the departmental

procedures involved in such processes as advertising, pre-qualification, tender assessments,

negotiation, accounting and paperwork. It will also examine departmental decision-making processes

involved in the achievement of value for money

Redefining Procurement Processes

The field of purchasing has been changed forever by the development and commercialization

of Internet based technologies. The question is, are your ready for these changes?

Experts in strategic management have argued that an organization’s non-core operations

should be out-sourced. 1 Properly applying these internet base technologies will enable the

purchasing function to move toward a strategic posture by finally freeing it from its clerical role and

allowing employees more time to focus on more value-added activates. E-purchasing and

technology is the buying piece of the equation that will enable purchasing to move into a more value-

added orientation. The traditional industry view of the purchasing function centers on

administrative, transaction-based processes. This viewpoint drives organizations to focus on the

efficiency of the purchasing process (expense) and misses the real opportunities in effectiveness

(cost/price).

1 Michael E. Proter, Competitive Advantage, New York, The Free Press, 1985


Developing technology will influence purchasing organizations dramatically. Once the capability for

electronic requisitioning exists in any organization, there is no longer a reason to have the purchasing

function located centrally. Traditionally, the purchasing function at universities was located as close

as possible to the center of the campus to facilitate personal interaction between buyers and their

customers, and for moving paper requisitions to individual commodity buyers and purchase order

copies back to requesters. Routing electronic requisitions by commodity code to appropriate buyers,

regardless of their physical location, obviates the need for a central location. In the future, some

purchasing staff will be co-located with its customers. This change will result in a more customer-

focused program. The electronic distribution of work may progress beyond the customer location.

For example, the ability to communicate electronically will facilitate people working at

home. It will also enable users to access purchasing services from other organizations or even buyers

Comparing the Traditional and New Business Models Traditional business model New business model Based on traditional technologies and personal contacts

Based on electronically based communication and relationships

High investment in assets Lower investment in assets High transaction costs in information acquisition, cross-organizational communication, purchase orders, crossing national boundaries

Low transaction costs in information acquisition, cross-organizational communication, purchase orders, crossing national boundaries

High inventories in the supply chain Low inventories, and rapid information flow replaces need for high inventory levels

Supply base managed but large Focused and flexible supply base Numerous levels of management Few levels of management Inter-organizational information flow restricted

Free flow of inter-organizational information

Lowest cost for supplies purchased Best value for dollars expended, total cost of ownership


located in other cities. Not only may it become unnecessary to have a buyer located on a particular

campus or site, the buyer could actually be part of another organization without detriment. The day

is foreseen when commodity experts functioning as virtual buyers may provide specific procurement

services to many organizations for a fee under some public inter-agency agreement or private

contract.

Purchasing Systems

In the future, the availability of purchasing systems to support increased professional

productivity and departmental effectiveness will be critical to their success. Research indicates that

business units rank the availability of effective computer-based purchasing systems as a key critical

factor for the successful execution of future purchasing strategies. Consistent with this research,

systems growth should occur primarily in two areas. First, firms will emphasize systems that

primarily introduce efficiency into the purchasing process. These include electronic data interchange

with suppliers, bar coding, and automated data input. Each of these applications removes time and

manual effort from the purchasing cycle while providing greater material control. They also require

technology that is readily available and need relatively fewer human resources for implementation.

Second, firms will emphasize applications that increase the personal productivity and effectiveness

of buying personnel and units. These include networking among purchasing sites, developing

comprehensive buyer workstations, and developing decision support/expert systems (global

databases). The development of these applications requires a high level of external MIS support and

resources.

Unfortunately, decision support/expert systems, while promising potential effectiveness and

productivity breakthroughs, are largely untested or underdeveloped within purchasing. Thus, the


availability of resources and MIS support for systems development will be a highly rated future

concern for purchasing management.

Virtual reality technology will make it possible for users to test or experiment with products

prior to placing an order. The day may soon come when, for example, through virtual reality, we can

sit in the office we are designing, get the furnishings exactly as we like them in a precise

configuration and color, and then simply, with a touch of a button, send an order directly to the

manufacturer for the selected configuration.


References

Supplier Price Analysis: A Guide for Purchasing, Accounting, and Financial Analysts. Contributors:

Richard G. Newman, 1992.

The Future of Purchasing, by Ray T. Jensen, C.P.M. Richard L. Mooney, C.P.M. John F. Riley,

C.P.M. Debra Seaman Langdon, C.P.M. Brian K. Yeoman originally published in the Professional

Purchaser (Fall/Winter 1996), the professional journal of the National Association of Educational

Buyers

e-purchasing Plus, Changing the Way Corporations Buy, Larry C. Giunipero, Chris Sawchuk,

2000

American Bar Association (ABA). Model Procurement Code for State and Local

Governments. Washington, D. C.: American Bar Association, December 1987.

Gordon, Stephen, B. Local Government Finance Concepts and Cases, ed. Petersen, John,

E. and Strachota, Dennis, R. Chicago: Government Finance Officers Association, 1991.

GFOA, Local Government Finance, Concepts and Practices, Ed. By John E. Petersen and

Dennis R. Strachota, Government Finance Officers Association, Chicago, Il\L. C. 1991.

Heinritz, Stuart, F., and Farrell, Paul, V. Purchasing: Principles and Applications. Prentice


Hall: Englewood Cliffs, New Jersey, 1981.

Lee, Lamar, Jr. And Dobler, Donald W. Purchasing and Materials Management: Text and

Cases. McGraw-Hill, New York, 1977.

Lemov, Penelope. "Purchasing Officials Push New Technologies to Get More for their

Money." Governing, August, 1988.

International Encyclopedia of Public Policy and Administration. Contributors: Jay M. Shafritz -

author.1998.

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