Public Purchasing: Meeting Tomorrow's Challenges Today
Carla S. Lallatin, C.P.M., CPPO
Carla S. Lallatin, C.P.M., CPPO, President, Lallatin & Associates, Rego Park, NY 11374-1212, 718/271-7323.
Cameron Birnie, Administrator, Transportation, Purchasing & Print Services Division, Oregon Department of Administrative Services, Salem, OR 97310-1531, 503/378-4643.
80th Annual International Conference Proceedings - 1995 - Anaheim, California
Budget and staff cuts are a way of life for many public purchasing organizations. At the same time, they must achieve more and better results in less time than ever. This paper explores initiatives developed by several public purchasers to meet the challenges of today and prepare for those of tomorrow. It highlights examples of improved service delivery, through customer service, team sourcing, reengineering, supplier partnerships and technology application.
The primary objectives of this paper are to:
- Identify specific tools and innovations that public purchasers are using to enhance the value of the purchasing function;
- Provide sufficient details on initiatives and programs to permit an understanding of their goals, activities and benefits; and
- Share perceptions of the future of public purchasing.
Statutory and regulatory requirements define both the tenor and environment of Public Purchasing programs. These requirements, developed under the auspices of safeguarding the public to create a process-driven and often bureaucratic maze for conducting business. The many twists and turns within the maze keep public officials and vendors from going too far astray and doing something that would not be in the public interest. At the same time, intense public scrutiny of contracting has encouraged public agency staff to stay within the safe and proven boundaries of traditional prescribed processes.
Many of the statutory and regulatory requirements were developed in a world vastly different from today's. Today's world requires figuring out how to survive in a rapidly changing world as needs outpace resources. It demands leadership, effective organizational structures, strategic use of technology, flexibility and the ability to get things done quickly and well.
Vice President Gore's National Performance Review (NPR) focused public attention on the federal government's proposal to "reinvent" itself to become more responsive, effective and efficient, and less bureaucratic. Describing specific steps to improve the conduct and management of the federal government acquisition process, it has been a catalyst for many agencies to adopt innovative approaches to improve operations and for enactment of the Federal Acquisition Streamlining Act (FASA) of 1994. Even before the NPR and FASA, state and local governments were implementing programs resulting in better practices although they had not received the attention enjoyed by the NPR.
The state and local government initiatives highlighted in this paper represent significant steps in bringing public purchasing into the twenty-first century. In figuring out ways of moving procurement from process to results, public purchasers are enhancing the core principles of competition, equal access, process openness, checks and balances. By emphasizing desired outcomes, they are developing new and better ways to add value and quality to the Purchasing function.
CUSTOMER SERVICE AND TEAM SOURCING.
The catalyst for focusing the City of Newport News, Virginia's Purchasing Department on the needs and requirements of its customers came from the Director of Purchasing, Mr. Johnnie B. Gates, C.P.M. He joined the City staff in 1993 with an agenda of improving customer service as a way to add value to the purchasing function. He had convinced the selection committee of the viability of his ideas and the City Manager agreed.
During the first three months of his tenure, Mr. Gates concentrated on converting every member of the purchasing staff into supporters for his customer service plan. He knew he first had to sell the buyers before he could co-opt the user departments. Through training, brainstorming, attitude adjustment exercises and work reassignments, the purchasing department became a cohesive unit seeking to satisfy its customers and provide valuable services.
One of the goals in establishing the customer service approach was to continuously revisit the Purchasing Department's purpose, that is, buying the right product, at the right time, etc. This led to a major objective of concentrating on saving the departments' money on acquisitions to offset short-falls, unfunded mandates and new expectations. To accomplish this, each buyer logs (on-line) the actual savings or cost avoidance for each shopped transaction. Savings is defined as the difference in the award amount and either the last price paid or the estimate. When savings cannot be documented, then the difference between the award price and the next bidder is seen as avoided cost. The Purchasing Department says that while this is not perfect, it does help demonstrate the value added by the purchasing process. It expects to be able to show savings and cost avoidance several times the total amount of the departments' budgets. Buyers share this information with users to help demonstrate their value. Departments see the difference and are impressed.
Prior to its new focus, the Purchasing Department was not bad; it just was not as good as it could be. The biggest drawback was determining who was responsible for what. Frequently, there were hand offs of different parts of the process. User departments complained that they never knew who did what and that there was no continuity either in the process or in relationships with purchasing. Changing buyer assignments from product/commodity codes to a departmental focus has increased accountability. Buyers are now responsible for specific departments with the effect of building ownership for the departments' successes and the service a department receives. Rather than overseeing and criticizing the activities of user departments, buyers are now participants. Buyers are empowered to try new approaches to old problems. They can do anything as long as it is legal and ethical, except say "no." Buyers are not empowered to say "no."
The Director of Purchasing and assigned buyer(s) met with every user department. They explained the new organizational structure and the goal of improving customer service and turn around times. They discussed the buyer's responsibility for successful departmental purchasing and that the user department should view the buyer as a member of its team. They requested and received the opportunity to provide good customer service.
The Purchasing Department has improved training for both the departments and the buyers. Both attend regularly scheduled general seminars on such topics as the State Procurement Act, anti-trust, ethics, etc. Often, vendors also participate in these seminars. Each buyer is responsible for training his/her assigned departments on interacting with purchasing and the City's purchasing system. Due to the training given to the departments, customers see purchasing staff as professionals who know what they are doing. This is reinforced when the buyer listens to what the department needs, asks good questions and then outlines the best approach. As a result, some RFP's have become EFB's and visa versa. Departments seem to appreciate this type of guidance and now look to the Purchasing Department for advice.
The Purchasing Department has an automated management system that enables it to generate reports to manage performance and monitor turn around times. Management review of workload and regular staff meetings keep all buyers aware of others' projects. When more than one buyer is working on a bid for the same item, lead buyers are assigned to "city-wide" bids. Newer buyers pair with experienced persons in work teams so that there is consistent learning on the job as well as in training seminars. The person in charge of UBE/WBE programs participates in all teams to assist buyers in reaching this segment of the bidding community.
The City of Newport News reports that the biggest benefit from Purchasing's customer service focus has been clear ownership of every project and vastly improved communications and relationships with users. At the beginning of its efforts, the Purchasing Department vowed to improve turnaround time on processing requisitions into purchase orders (including the bidding phase). It reduced turnaround of work from an average of over 20 days to approximately five. The Purchasing Department stays attuned to its customer needs through performance audits, comparisons with other cities and regular surveys measuring customer satisfaction. In the most recent measurement, two of the 40 departments reported that they had seen no change, one said it disliked the new structure and all other departments reported that the changes were positive and resulting in measurable differences. For example, one buyer traveled with the Fire Chief to review a pumper being built. The manufacturer commented that his experience was that once the purchase order was signed, the buyer was no longer concerned. He indicated that this buyer was different. The buyer inspected, climbed, measured and caught several problems, eliminating trouble later in the process. He also brought pressure on the vendor to perform as promised. The Fire Chief was extremely thankful for this assistance.
From the beginning of this culture change, management has agreed to and supported the goals. There is continuous and complete communication with buyers and free exchange of information and ideas between management and staff. Management monitors the satisfaction levels of the departments and the achievement of goals. Newport News says that all of these ingredients are required to succeed. Further, it states that now that the team concept is working, the Purchasing Department often is invited early into projects and sometimes attends other departments' staff meetings. This helps the Purchasing Department be more proactive and valuable to the City of Newport News. Instead of pushing its way in, it is there by invitation.
Fairfax County, Virginia officials recognized that changing business environments and technology required them to look at how future operations would be different from current ones. This required a business strategy to define current business and processes, identify future business and ascertain changes needed to get there. The Deputy County executives identified eight long term (1+ year) projects and three short term (2 month duration) projects as business process redesign candidates. According to Purchasing Director Larry N. Wellman, CPPO, purchasing was selected as one of the short term projects. In the fall of 1991, the Procurement Process Redesign Team (REDteam) was formed.
REDteam members consisted of seven mid-level managers representing the Purchasing & Supply Management Agency (2), Office of the County Executive (1), Department of General Services (1), Office of Management and Budget (2) and Office of Finance (1). The goal of the REDteam was to identify any procurement/material management process(es) in the County that with minor modifications could deliver significant (60%) savings in either the length of time and/or funding while retaining the same or improved quality of service to the organization. The key measures were time savings, funding savings and time frame. Targets for time and funding savings were 60% and the time frame for implementation was 60 days. The team was given the challenges of:
- Achieving the goal
- Challenging today's rules or organization
- Using the vision statement as a guide
- Applying energy, creativity, leverage and judgment
The problem solving methodology or plan of action was to collect data through documentation, interviews and observations; define the problem through data analysis; and identify alternatives. From the alternatives, the REDteam would evaluate the pros and cons of each using the decision criteria of 60 days for implementation and 60% each of time and cost savings. It would then recommend and implement solutions, and conduct a post-evaluation of results.
As part of its data collection, the REDteam interviewed 15 county agencies asking each the following questions:
- What are the weaknesses of the procurement process?
- What are the strengths?
- What hindrances or barriers, if removed, would reduce time and cost tied to processing procurement requests?
- What processes are confusing or time consuming?
- What suggestions do you have for improving the system?
Three underlying themes emerged from the interview process: a need for functional training for agencies, a need to improve communications between agencies and procurement staff, and a need to empower agency directors and hold them accountable. Considering these themes, the REDteam proposed 35 recommendations to the study's steering committee (County Executive and senior managers). The recommendations included:
- Raising the dollar threshold for different type of procurement methods, e.g., the formal bid and telephone quotation limits
- Providing procurement training for purchasing staff and agencies
- Raising buyers/supervisors purchase order signature levels
- Increasing delegated authority to agencies for small purchase orders
A year after the recommendations were implemented, the REDteam initiated a post-evaluation study. The objectives were to re-examine the 35 recommendations, interview the original 15 agencies and identify new opportunities for improvement. The study showed a satisfied customer base. Agencies reported a definite saving in processing times and improvements in the quality of service provided by Purchasing. Raising the dollar threshold for telephone quotations and formal bids and increasing agencies' delegated authority has given the Purchasing & Supply Management Agency more time to concentrate on the high dollar, complex acquisitions and improve customer service. The number of purchase requisitions waiting to be processed dropped from an average of 1,200 to 270. Purchase order processing time went from 6 to 2.5 days despite a reduction in procurement staff during this period.
Purchasing attributes agency feedback as a major key to success. The original recommendations created no new problems. Agencies expressed interest in the process as an opportunity to develop changes. As part of its continuous improvement process, Purchasing is exploring using Electronic Data Interchange and fax-on-demand so vendors can retrieve information and submit bids 24 hours a day without staff assistance.
Fairfax County purchasers stress that total support and commitment from the top level executive is required for success. They also believe user involvement and feedback to and from users are integral to developing and implementing solutions. Mr. Wellman says that significant improvement is made possible by an open mind to suggestions and recommendations. The initial wide focus on issues by REDteam members enhanced the scope of opportunity resulting in the elimination of barriers and a project that showed quantifiable results.
An unusual number of protests and an inordinate amount of time in litigation caused the State of Alabama's Purchasing Director, N. Kent Rose, to explore vendor partnering. Beginning in 1990, he brought in Xerox's "leadership through quality" program, a TQM methodology. Purchasing redefined its mission as customer service with a focus on clients and communication. It saw its clients as anyone it could not do business without and included users, vendors and taxpayers.
The State of Alabama has a centralized purchasing office, serving 125 state agencies; purchasing approximately 79,000 different products and services, through over 20,000 vendors. Prior to redesigning its process, the Purchasing Department spent 90% of its time resolving conflicts through litigation and the court system. This was both time-consuming and expensive. Changing the way it viewed vendors from "enemies" to partners enabled Purchasing to build relationships with vendors and decrease litigation. Since implementing its vendor partnering program, the Purchasing Department has eliminated litigation entirely.
The elimination of litigation was but one goal of the vendor partnering program. Others were to increase service, reduce costs and increase internal efficiency. All have been accomplished. One of the biggest hurdles for the State of Alabama in instituting its program was to gain credibility with its vendors. It did so by establishing an open door policy, holding prebid conferences and giving seminars for vendors. The Purchasing Department stated that vendors deserved to be heard and adopted the role of assisting vendors in resolving conflict. It established clear guidelines on what could and could not be done within the legal and ethical framework of purchasing. Its experience has been that when vendors disagree, they are communicating how to resolve a problem. Vendors now have due process, fairness and honesty from the Purchasing Department through administrative processes, not just through the court system.
The increased communication between the Purchasing Department and vendors has enabled Purchasing to improve the way it conducts business. It says it has learned a great deal by listening to its vendors and actively solicits vendor input into its processes, current techniques and on ways to improve. This has resulted in better specifications, higher quality, more competition, longer term contracts and less conflict. Conversely, Purchasing sends regular performance reviews to its vendors. Mr. Rose says that the ability to work together makes it fun for both buyers and vendors.
Buyers in the State of Alabama have been empowered to resolve conflicts. They must go to a supervisor only when they believe they need help and must have suggested solutions in mind for their supervisors. Buyers know they have management support at every step of the process. No longer tied to their desks, buyers regularly visit both users and vendors to increase their knowledge and appreciation of their clients' needs.
The State of Alabama has seen significant improvements in the way it does business. It still has the same players but has changed the mindset. To achieve such changes, Purchasing says that both a willingness to change and the ability to communicate change are crucial. It stresses that an early step in the process must be establishing credibility and building relationships with vendors.
TECHNOLOGY - PROCUREMENT CARDS.
In response to a recommendation in the State Comptroller's Texas Performance Review, the General Services Commission began exploring credit card purchasing. According to Purchaser Charles Bode, CPPB, this resulted in a competitive bid that was awarded to MasterCard and began September 1, 1993. The contract is for two years with a one year renewal option.
Agencies can sign up for credit cards that have tight controls. For instance, the procurement cards can be coded to limit employee spending to an amount per day, or per transaction, or to a monthly total per agency. They also can be coded to restrict purchases at certain establishments. The contract contains five tiers of limits established by the General Services Commission. These range from a low of $250 per transaction with a monthly limit of $5,000 to a high of $5,000 per transaction with a monthly limit of $10,000. An agency wanting procurement cards chooses the limits that meet its needs, establishes its internal controls and requests General Services Commission approval to be added to the contract. Once an agency begins using credit cards, it receives detailed monthly reports on its expenditures, while the General Services Commission receives summary transaction reports.
Agencies generally use the cards for small purchases only, but can use them to pay for orders against state contracts. The decision to use procurement cards was based on the need to facilitate small purchases, eliminate or reduce the use of petty cash and reduce the amount of paperwork involved on small and petty cash purchases. The General Services Commission reports success on all three fronts: small purchases are now immediate, petty cash expenditures have virtually been eliminated, and paperwork has been reduced by as much as 50%. It says that agencies can now buy what they need, reimbursements have been reduced and that functioning for field offices is much easier.
The efficiency of the procurement card system is exceptional. The savings in labor, paper, mailing costs and computer time are in the millions of dollars. Mr. Bode says that purchases under $1,000 account for only 5% of total expenditures, but generate 80% of the paperwork. These purchases are eligible for credit card usage. The General Services Commission and Comptroller conservatively compute the cost to process a purchase order at $36. If the State of Texas made all of its purchases under $1,000 by credit card, it projects it would save $20 million in paper processing costs alone.
Getting a contract up and running has not been without problems. Initially, agencies had to enter separate vendor identification and expenditure codes for every item from the monthly invoice. Agencies quickly complained that they were losing any efficiencies they had gained on the front end of the process. The General Services Commission worked with the Comptroller to change these requirements so now agencies enter only the contractor's vendor identification and categorize all purchases under credit card purchases. This simplifies payment which is done through electronic funds transfer. If additional detail is needed on specific expenditures, it can be gleaned from MasterCard's detailed reports to the agencies. Despite some bumps along the way, the State of Texas reports success with its procurement card program and encourages others to review its application to their needs. However, it cautions others to look thoroughly at both the purchasing and payment sides of the issue before sending out bids.
TECHNOLOGY - BULLETIN BOARDS & BEYOND - VENDOR INFORMATION PROGRAM.
In response to voiced concerns from underserved state agency customers and vendors, the State of Oregon government, in the late 1980s, commissioned a task force to examine how the Department of General Services Purchasing Division might become more responsive to agency and vendor needs.
State agency directors cited information access roadblocks, insufficient Purchasing Division communications, outdated price agreement information, and less than competitive prices as being their bigger concerns. Vendors brought up unfair bid distribution, unreasonably harsh controls, and slow and untimely bid processes as being the larger pitfalls. A third group, the Purchasing Division buyers, proclaimed frustrations of their own. They saw themselves as being adrift in a sea of paperwork facing increasing workloads while being subjected to continued budgetary trimming, and being greatly under appreciated.
The task force did come up with recommendations that addressed agency and vendor concerns. However, while the Purchasing Division did incrementally boost its responsiveness, it was not until 1991 that a highly successful and nationally heralded business process engineering process took place.
By shifting the responsibility to the vendors to access state government procurement opportunities, and by facilitating this shift through creating an electronic bulletin board, named the State of Oregon Vendor Information Program (VIP), the Purchasing Division was able to:
- Greatly reduce paper and postage costs;
- Assure the fairer distribution of bid information; and
- Increase vendor participation and competitiveness in order to reduce bid costs.
For example, in 1992 the increased competitiveness created through the Vendor Information Program lowered bid prices by an average of 8% and saved state agencies over $12 million.
The State of Oregon Vendor Information Program facilitates public access to contracting information. Vendors, state agencies, public agencies, and any other interested parties can access State of Oregon commodity and service bidding opportunities and recent bid awards via modem and personal computer. They can download and print whatever information is of interest to them.
So successful was the State of Oregon Purchasing Division about-face that it generated recognition from several sources. In perhaps the most notable accolade, the Ford Foundation, in conjunction with the Harvard University/JFK School of Government, selected it as one of the ten most innovative state or local government programs for 1993.
The state and local government initiatives highlighted in this paper illustrate the steps toward leadership, effective organizational structures and strategic use of technology taken by some public purchasers to add value and quality to the purchasing function. All emphasize flexibility and the ability to manage change, a crucial component for surviving in the business environments of today and tomorrow.
Public purchasers always have cared about their customers. But, the time delays and poor quality resulting from traditional processes led the customer to believe that purchasing did not care. Many purchasers have seen this as a call to action. They have realigned purchasing's goals with the jurisdiction's goals and critically examined their processes. Any process that does not add value is subject to review, change and, perhaps, elimination. The costs of processing are calculated and added to the cost of goods and services to determine the worth of a particular task or set of tasks. Purchasing has not stopped with process. It also is finding ways to build relationships with both users and vendors to the benefit of all.
Innovative public purchasers stress that purchasing cannot be bound by tradition. They say that if purchasing is not done better, faster, easier and cheaper by the purchasing department, then the future of the department is indeed dim. They see management's focus on results and output, not on process and control, and are revitalizing purchasing accordingly. All stress that changes in technology -- electronic data interchange, e-mail, the Internet, etc. -- will have a tremendous effect on purchasing. They believe this effect will be good and help to open up communications with both users and vendors. Some say that the American Bar Association's Model Procurement Code for State and Local Governments is too restrictive and out of date, that many of its provisions no longer make sense due to advances in technology.
NAPM's Center for Advanced Purchasing Studies (CAPS) conducted two benchmarking studies in 1994 on public purchasing: one on state and county governments and the other on city governments. Both studies highlight increased use of technology in such areas as bidder registration, solicitation notices and distribution, award notice, invoicing and payment. They examine the change in the number of vendors and the effect on the contracting process of minority and woman-owned business programs and the Americans with Disabilities Act (ADA). The studies provide an overview of public purchasing's structure, scope of responsibility, mandatory requirements, cycle times and innovative methods and techniques.
Today's public purchasers face more challenges than ever before. At the same time, they have greater opportunity for adding value and quality to their jurisdiction's public service. An open mind, a willingness to change, flexibility and the ability to manage change are keys to success. By keeping abreast of emerging technologies and the initiatives of others, public purchasing will open up many possibilities. Continuing education and learning will become bywords. Through flexibility and management skills, public purchasing will apply, its experience and knowledge to reinvent itself as many times as the future demands and continue to serve the public interest.
Cameron Birnie, Administrator
Transportation, Purchasing & Print Services Division
Oregon Department of Administrative Services
1225 Ferry Street, S.E.
Salem, Oregon 97310
Carla S. Lallatin, C.P.M., CPPO, President
Lallatin & Associates
61-15 97th Street, Suite 7A
Rego Park, New York 11374-1212
Charles Bode, CPPB, Purchaser
Texas General Services Commission
P. 0. Box 13047
Austin, Texas 78711-3047
N. Kent Rose, Director
Division of Purchasing
Department of Finance
Alabama State House
11 South Union Street, Room 200
Montgomery, Alabama 36130
Michael Coburn, Sr., CPPO, C.P.M.
Assistant Director of Purchasing
City of Newport News
2400 Washington Avenue
Newport News, Virginia 23607
Larry N. Wellman. CPPO, Director
Purchasing & Supply Management Agency
1200 Government Center Parkway, Suite 427
Fairfax, Virginia 22035-0013