Public Sector Purchasing
Purchasing is an important lever for public-sector performance improvement. Because the spending base is quite large—purchased goods and services account for one-third of total public spending, or about five to eight percent of gross domestic product in most countries—improvements can have a substantial impact on budgets, freeing up resources for other priorities. And the potential for improvement is large. In fact, in the more than one hundred purchasing projects that we have supported in both the private and public sectors over the past seven years, we have seen that improved purchasing yields an average of fifteen percent savings, with projects in the public sector delivering the highest savings—an average of twenty-eight percent.
Applying Lean Production to the Public Sector
When creating the organizational platform for productivity effort, typically the best approach is to begin by establishing a small team of high performers to lead a centrally coordinated effort. As the processes become grooved in key categories, the team can replicate successful methods from early initiatives in additional spending categories, training employees in those new areas and thus gradually building up the necessary capabilities throughout the organization. Leaders should also establish career paths for employees and require them to create personalized development plans aligned with the organization’s priority activities and performance metrics. Public institutions can further build skills in the purchasing organization by establishing formal training programs in areas specific to procurement such as contract negotiation and category expertise, as well as programs to develop organizational skills, such as coaching and mentoring.
Strengthen the Purchasing Organization
Many institutions start big and broad by defining an entirely new organization structure, along with new reporting lines and procedures. In our experience, it is best to take the opposite tack by beginning with changes in a few discrete spending categories and using the success of these changes as a foundation for making similar improvements in other areas. By first demonstrating the potential for change, the leaders of public institutions will be more likely to gain the support of stakeholders and employees alike. The first wave of change should include a modest number of categories—typically three or four—where the ability to deliver value is most easily demonstrated. Relatively simple categories like IT hardware, furniture, fixtures and equipment (FF&E) are usually good candidates. After demonstrating early successes, management can identify a set of ambitious savings targets for other spending categories and for the program overall. Throughout the effort, visible commitment among senior management is critical to maintaining momentum.
We support owners planning mega projects by developing business cases aligned with their long-term strategic objectives, by ensuring rapid and effective decision making through our proprietary tools, and by performing key analyses to monitor the progress, economics, and risk associated with projects. more