One thing almost all industries share today is pressure to cut costs in an economic environment where demand is stagnant. Many companies have responded by substituting capital for labor and outsourcing jobs offshore. But collaborative purchasing has also emerged as an effective cost-saving strategy, and not only for the private sector.
Over the past two decades, procurement and supply chain management have risen to the top of the management agenda for private-sector managers seeking to rationalize their cost structures. Among the advantages the private sector has over government are much more flexible procurement regulations. Aggregating purchases is relatively simple in the private sector and presents such an obvious savings that few operating managers resent its imposition.
By contrast, government procurement regulations reflect the American cultural bias that it is better to spend $100 on gold-plated oversight procedures than to risk letting a single dollar slip away to a supplier who may not truly deserve it. This commitment to a squeaky-clean procurement environment tends to relegate public agencies to the end of the line when it comes to implementing new tools and technology.
The inevitable result is that operating costs are higher and service is poorer than it could be. Also, government procurement is often a powerful tool for advancing political interests like supporting the local economy, often at the cost of capturing major savings.
Experienced managers know that flexibility is necessary in negotiating and administering contracts with suppliers if the results are to pay meaningful dividends. This can often mean a heavy emphasis on interpersonal relationships and the use of negotiated contracts rather than arms-length competitive bidding.
Traditional critics of the public sector like to call this “honest graft,” which just plain smells bad to much of the American public regardless of its real-world benefits. They fail to realize that what really counts are results, not civics class myths about what constitutes “good government.”
Sure, chicanery has a long tradition in the rough-and-tumble world of American capitalism and appears to be unavoidable. After all, you don’t survive long in business by acting like a Sunday school teacher.
No area of government is more interested in reducing costs than the transportation sector, where demand for new assets is high, federal funding has stagnated and revenue from sources like the fuel tax has been eaten by inflation. As a result, states’ Departments of Transportation (DOTs) have had to scale back on capital replacement and focus a larger portion of their funding on preserving existing assets.
Many state DOTs need to be grabbed by the lapels and given a good shake by a new generation of leaders who understand that working in an era of constrained resources requires them to create customer value without relying on the federal government.
Fortunately, a number of DOTs realize that joining their counterparts to do collaborative procurement represents an opportunity to reduce costs without jeopardizing service delivery. Under collaborative procurement, several entities combine their purchasing efforts to secure a selected group of products and services with commonly accepted specifications. The goal is to leverage the aggregated purchasing power to save money and obtain favorable terms and conditions from suppliers. The initial focus is on demonstrating success in a few discrete spending categories that illustrate the practice’s larger potential.
Collaborative procurement certainly faces potential impediments, such as antiquated state laws and regulations. The time has come to rethink existing rules that constrain a tool that can result in better quality at a lower cost. If allowed to be judged on its merits, collaborative procurement will become the new status quo in the public sector.
originally published: August 24, 2013
