Smart Procurement in the Public Sector
Procurement is an important business enabling function in the public sector. A large portion of the budget is spent to procure goods and services required to execute the core mission. The legacy procurement systems and complex processes result in agencies spending a significant amount of time and effort on the purchase process itself.
To enable Smart Procurement, public sector organizations are looking at digitally transforming their procurement systems and processes. An established platform that is easy to use, with built-security and industry best practices can enable organizations to drive this transformation.
Many such procurement platforms exist in the marketplace. For example, Ariba, via its On-demand Cloud platform, provides a world-class baseline offering. However, procurement in the public sector presents some unique challenges. When implementing a digital procurement platform, public sector organizations should carefully address these challenges to ensure successful transformation.
Spending governance and controls: Public sector organizations have a complex governance structure with many parallel governance bodies, each focusing on a particular function or service area with its own resourcing and spending priorities. One agency may focus on finding low cost suppliers while the other may focus on getting the best quality products or services. Leveraging the full purchasing power of the government, yet ensuring efficient operation of individual agencies and departments becomes a tricky balancing act.
The conventional structure of compartmented procurements by individual departments and agencies results in inconsistent policies, inefficient policy enforcement, and overspending of government resources.
Public sector organizations should move towards centralized procurement for major and common procurements, complimented by specialized procurements done by individual organizations to enable nimble and agile business operations.
Commodity goods and services such as communications and computing equipment can be procured in large volume at the corporate level, while smaller or specialized purchases such as contingency labor or specialized equipment can be managed and authorized at the departmental level. The resulting complexity of financial transactions and reconciliations can be addressed through inter-department collaborations and system integrations.
Diversity in sourcing: To promote equality and fairness, and to enable a vibrant economy, procurement in public sector organizations must be open to all qualified vendors. A modern eProcurement process and application should not only support the needs of large corporations, but also tailor for small businesses that may lack the resources or technical sophistication that are available to large organizations. For example, digitalization of product catalogs must be flexible and easy to use, with support for multiple formats and diverse delivery channels. Digitalization of invoice and payment processing should also allow both integrated EDI transactions and direct user interactions.
Properly addressing diversity requires significant amount of manual labor throughout the sourcing and procurement cycle. Diversity requirements need to be included for RFX sourcing events, terms and conditions should be agreed during the contract negotiation, and compliance should be verified during the service delivery.
These manually-intensive processes can be streamlined and simplified with the support of modern procurement processes and an advanced application platform. Control mechanisms can be established and placed in various milestone points of the sourcing-to-pay sequence, and processes can be automated by allowing both passive reporting of the vendors and proactive compliance reporting based on actual vendor deliveries and performances.
Procurement transparency: Public sector organizations are funded by the people and are subject to routine and rigorous audits to ensure that budget is properly utilized to best benefit citizens. From sourcing to procurement, all business transactions such as RFX events and contract agreements must be carefully recorded, with names logged and history traced. Most of such information needs to be aggregated, reported, and made available to the public.
For many public sector organizations, procurement transparency is a constant goal, but not always a reality. As data is scattered across organizational units and procurement applications, information is either not fully disclosed as required, or is disclosed with errors and mistakes.
A centralized procurement system with standardized business processes and harmonized data model can make this task much easier to manage. This, in conjunction with a strong data security policy and access controls mechanism, can ensure relevant procurement data are disclosed to the public while properly maintaining data integrity and protection.
Regulatory compliance: Many policies, regulations, and directives have been established for public sector organizations to ensure that they operate with diligence and credibility. Such compliance requirements cover a large spectrum of subjects such as procurement policies, record keeping, information accessibility, privacy protection, data security and segregation, trade agreements, etc., and are often changed or updated. This needs to be properly addressed as part of any eProcurement transformation.
For many public sector organizations, responsibility for regulatory compliance is spread across organizational units, and is managed through manual and ad-hoc processes. While some of these responsibilities require independence and segregation of duties, most of these functions can be centralized and consolidated into a common governance structure to allow effective and timely controls and management.
From a system perspective, it is important to make regulatory compliance a key aspect of any platform evaluation, and keep strong partnerships with both product suppliers and system integrators during and after eProcurement application deployment, to ensure maximal and continued application compliance.
Managing procurement and spending is not an easy task, and Smart Procurement is especially challenging in the public sector due to the inherent controls and disciplines put in place to earn public trust. Public sector organizations must modernize their procurement systems and processes to procure the goods and services needed to drive their digital strategies. An established, cloud-based platform can certainly help digitize procurement. However, before choosing a platform, public sector organizations should carefully consider the unique challenges they face with respect to procurement – complex governance, need to ensure transparency, diversity sourcing and regulatory compliance.
Kunal is a Principal Marketing Manager with Infosys Public Services, a US-based subsidiary of global IT company Infosys (NYSE:INFY). Infosys Public Services offers business consulting and technology solutions to the US and Canadian public sector organizations. Kunal leads the marketing practice and is responsible for building the company's brand and driving growth. Kunal defines and executes marketing and brand building campaigns, and manages marketing operations including budgeting, procure-to-pay process, and financial reporting.