Showing papers on "Procurement published in 1994"

Economic Incentives and the Defense Procurement Process

Abstract: This paper describes some of the insights that the economic theory of incentives can contribute to defense procurement policy analysis. It describes the underlying incentive problems that shape the defense procurement problem, the nature of current institutions and how they affect actors' behavior, and possible directions for improving the procurement process suggested by viewing it as a solution to a complex set of incentive problems. Incentive problems between government and defense firms and incentive problems within government are both considered.

Competitive Tendering and Contracting in the Public Sector: A Survey

Abstract: This paper is a survey of the role and impact of competitive tendering and contracting (CTC) policies in the public sector. The paper examines the theoretical rationale for introducing competition in the provision of public services and the methodology by which contracting decisions are reached. It investigates the extent of implementation and nature of outcomes in several countries. A broad sweep of the empirical findings suggests that CTC generates substantial cost savings. Lack of adequate data makes an assessment of the effect on quality more troublesome, and further research is needed

A Procurement Decision Support System in Business Volume Discount Environments

Abstract: Emergence of a new discount pricing schedule called Business Volume Discount becomes a major obstacle for procurement managers in finding the best purchasing strategy. In the context of business volume discount, a supplier offers discounts on total dollar amount of sales volume, not on the quantity or variety of the products purchased from the supplier. This paper describes a Procurement Decision Support System PDSS that has been successfully implemented to improve the purchasing activities of regional Bell telephone companies. In most purchasing operations, a flexible procurement plan is considered a necessity because of the uncertainties associated with product demand and procurement budget. PDSS provides this flexibility by combining two different purchasing strategies-purchasing on an annual commitment basis, and on an as-ordered basis. Although the development of the system is motivated by a particular application procurement of transmission plug-in in one of the regional telephone companies, the system is being used for a variety of procurement decisions involving business volume discount in the telecommunications industry. The results of the implementation indicate that cost savings of up to 15% are achieved. PDSS use is not limited to the companies in the telecommunications industry. The PDSS model is applicable to any organization having a centralized procurement operation with business volume discount.

Effective Cross-Functional Sourcing Teams: Critical Success Factors

Abstract: INTRODUCTION Within the United States, the organizational model featuring narrow, functional middle managers operating within a rigid, vertical, and functional alignment is rapidly becoming obsolete.[1] Firms can now benefit from an organizational structure that features suppliers, customers, and managers from different specialties crossing functional barriers and moving horizontally throughout the organization. If firms are to respond to changing competitive business conditions, they must change the way they think about organizations and their structures. Cross-functional and cross-boundary communication, coordination, and alignment have become critical components of this new way of thinking. Within the procurement process, cross-functional sourcing teams have become a major part of the new organizational structure. Cross-functional sourcing teams, as discussed here, consist of personnel from at least three functions brought together to achieve a purchasing or material's related assignment. This includes assignments where the team must consider purchasing goals or decisions involving supply base management. When managed properly, the cross-functional sourcing team approach can provide flexibility, multifunctional knowledge, and control and coordination mechanisms for fast responses to new competitive demands--responses that traditional structures or approaches usually cannot achieve.[2] A recent study revealed that almost 70 percent of the firms surveyed planned to stress the use of cross-functional teams to support sourcing decisions through 1997.[3] Furthermore, finns expect the use of cross-functional teams to have one of the highest positive impacts over the next several years of any planned sourcing strategy, procurement management approach, or process. There is little question that U.S. firms are moving toward increased cross-functional (i.e., horizontal) integration and that teams are the primary vehicle to achieve this integration. Within procurement, cross-functional teams are increasingly looked on as an important way to enhance sourcing processes and effectiveness. While the cross-functional team concept is simple in theory, practical implementation is often difficult. Most firms must overcome decades of established business practices and formal functional reporting structures. True cross-functional integration requires a corporate culture of participative teamwork throughout all levels and across defined functional boundaries.[4] The need to develop teamwork and cooperation is a major challenge when developing a cross-functional organization. This article addresses the need for an increased understanding of the factors affecting the success of an important organizational work team--the cross-functional sourcing team. Because negative outcomes from team interaction are as possible as positive outcomes, organizations must have an understanding of the factors contributing to cross-functional sourcing team effectiveness. This article discusses the factors and other key findings, as identified during a major research project, that relate directly to cross-functional sourcing team effectiveness. CROSS-FUNCTIONAL SOURCING TEAM EFFECTIVENESS RESEARCH PROJECT Researchers at Michigan State University conducted a study during 1992-1993 that evaluated a number of factors potentially affecting cross-functional sourcing team performance. The study, titled the Cross-Functional Sourcing Team Effectiveness Research Project, collected data from 107 cross-functional sourcing teams at 18 U.S.-based corporations, with more than 700 individuals participating.[5] The motivation for this study was a recognition that the use of cross-functional sourcing teams, in itself, is no guarantee of improved purchasing or organizational effectiveness. A critical need existed to replace anecdotal accounts of team effectiveness with research-based answers. The primary goal of this project was to expand the knowledge and understanding of cross-functional sourcing team interaction and effectiveness. …

Design and build: a survey of construction contractors’ views

Abstract: Design and build (D & B) has become a popular mode of procuring construction work. A total of 52 construction firms responsible for 25% of UK construction output for 1991 were surveyed using a structured questionnaire to investigate their current views on this procurement route. The Novation D & B is widely used although not favoured by contractors. The contractors would like consultants to continue to provide them with concept design and specification and would rather support the develop and construct technique. ‘Design and manage’ and ‘design, manage and construct’ are not attractive to clients and resented by contractors. The usage of D & B on private sector projects is ≈21% of work-load from this sector compared to 12% from public sector.

Procurement strategies for information systems

Abstract: A general framework of different procurement strategies is introduced to help managers review their project portfolio to find more effective ways of using both internal and market resources in information systems development. Major decision criteria--the specificity of system design and the uncertainty involved in requirements specification--are adopted from transaction cost economics to determine what procurement strategies should be used in different situations. According to our Procurement Principle, systems that are company-specific and involve high uncertainty have to be internally developed because they require both the specific knowledge and intensive interaction between developers and users. More standard requirements indicate the use of outside consultants or software contractors who have experience and knowledge about a similar type of systems. For routine systems common in many organizations, acquisition and tailoring of a software package provides the most efficient procurement strategy. The Procurement Principle is also empirically tested with data from recent system development projects in major Finnish companies. Partial support was gained for the framework, but some interesting deviations were also detected, such as a tendency to rely on in-house development of even routine systems.

Profit Regulation of Defense Contractors and Prizes for Innovation

Abstract: This paper argues that regulatory institutions in defense procurement are (and necessarily must be) organized to create prizes for innovation in the form of positive economic profit on production contracts. This has a number of important policy implications. The values of the prizes on 12 major aerospace projects are estimated using stock market data and shown to be large.

Overhead Allocation and Incentives for Cost Minimization in Defense Procurement

Abstract: : Defense firms typically produce a large number of products and it is often difficult to keep track of the cost of producing each separate product. Much as the rest of American industry, defense firms have typically dealt with this difficulty by directly charging a small fraction of their costs. The remaining costs are grouped together in overhead pools and allocated across products usually in proportion to direct labor use. The purpose of this report is to explain a problem that this creates for the defense procurement process. The problem occurs because the responsiveness of price to accounting cost varies between products.

Building Procurement by Design and Build Approach

Abstract: As a method of procuring buildings, the design and build approach accounts for an increasing proportion of building construction output in the United Kingdom. This paper reports a survey of contrac...

The Cross‐Functional Imperative: The Case of Marketing and Purchasing

Abstract: Responses to ever-increasing competitiveness have taken various forms. Organizations have struggled incessantly with the challenges posed by global competitors and competitors that have dramatically enhanced the quality of products and services provided. One adaptive strategy possessing considerable promise is that of integrated, cross-functional teams that develop and implement solutions to multiple problems in dynamic organizations. This particular phenomenon has had a pronounced impact on the nature and tenor of decision making in the supply management function. In particular, procurement professionals have had to make serious adjustments to their perspective on purchasing management. These adjustments have not come easily, and in many cases have been fraught with some resistance. This hesitancy emanates from a lack of appreciation for the real benefits of interfunctional collaboration. This is particularly the case with purchasing and marketing. Cross-functional understandings between these two areas, both internally and externally, can heighten effectiveness and ensure sustained quality relationships. Both marketing and purchasing are grappling for innovative solutions to new and traditional problems. Each area is inundated with high expectations and greater demands, coupled with dwindling resources. Given this scenario, it is imperative that purchasers and marketers amicably coexist to achieve mutually important results. This sense of cooperation in the organization is an essential ingredient for long-term success, and it breeds a culture conducive to change and imaginative strategies.[1] Thus, teams have tremendous merit in terms of potential results. However, some employees fail to share the same positive vision about the prospects of teaming. One solution to counter some of the negatives associated with cross-functional teaming in decision making is to focus attention on the rationale, underscoring the differences and similarities between or among functional areas. Perspectives from other functional areas must be systematically taught if the real benefits are to be derived. This article is designed to pinpoint the challenges, rewards, and opportunities related to improving the inter-functional understanding between marketing and purchasing. In particular, the benefits of sharing training efforts are addressed, as well as the mechanics of making the interaction process fully operational. There are numerous parallels between the two functions. Both engage in countless business transactions outside the boundaries of the organization; both negotiate contracts; both affect the images of the organizations they represent; and both are confronted with similar ethical issues.[2] Most fundamentally, marketing and purchasing are mirror images of each other, and both have the ultimate aim of facilitating and expediting the exchange process.[3] Insightful cooperation between the two areas can lead to enhanced effectiveness. METHODOLOGY The data utilized in this analysis were produced from a convenience sample of 56 purchasing professionals attending a workshop at the Annual International Conference sponsored by the National Association of Purchasing Management (NAPM). Respondents worked in or managed purchasing departments in a variety of different types of firms of various sizes. The data collection instrument was designed to secure specific information in the following areas: frequency of interaction between marketing and purchasing; problems with the interaction process; marketing's perceptions of purchasing; areas where an improved marketing-purchasing interface could benefit purchasers; and the relative advantage of joint marketing and purchasing training efforts. Classification or demographic-type data were not collected in this exploratory study. FINDINGS Purchasing-Marketing Interaction The majority of the purchasing respondents indicated regular interaction with marketing and sales professionals within their organizations; the data are summarized in Table I. …

Unethical behaviour in procurement: A perspective on causes and solutions

Abstract: Enterprise management often encourages their marketing personnel to offer gifts to purchasers of clients but won't allow the purchasers of the company to accept gifts. This double standards create an atmosphere of dishonesty in the company.

From competitive tendering to strategic marketing: an inductive approach for theory-building

Abstract: Based on the analysis of the strategic marketing approaches implemented by four firms selling projects and systems under the rule of competitive tendering, this article advocates that their marketing approaches depart both from mere reactive behaviours and from rigid strategic planning guidelines to projects opportunities. The strategic approach used by these firms can be conceptualized in a ten-stage process divided into two major phases: a general approach independent of a given project opportunity, and a project-specific approach. The general approach can be seen as an anticipatory process both at the technical and cognitive levels leading to the definition, by the supplier firm, of an overall core offering and to the establishment of a portfolio of project opportunities. The project specific approach can be seen as an adaptation process in which the supplier adjusts his/her overall offering according to project specificities.

Deregulating the Public Service: Can Government be Improved?

Abstract: Deregulating the public service essentially means altering or abolishing personnel procurement regulations that deplete government workers' creativity, reduce their productivity, and make a career in public service unattractive to many talented, energetic, and public-spirited citizens. With the benefit of a historical perspective on the development of American public service from the days of the progressive to the present, the contributors to this book argue that deregulating the public service is a necessary, but insufficient, condition for many of the needed improvements in governmental administration. They recommend new and large-scale experiments in deregulating the public service at all levels of government.

Project specific partnering

Abstract: The scope of this paper covers the development of partnering since 1985. It starts with the early associations that were formed in the petrochemical and process industries between owners and contractors. This period was amply covered by a National Economic Development Office (NEDO) paper (NEDO 1991). Partnering at that stage was principally considered to be a relationship that lasted for a term and not a single contract. However, in the NEDO paper, there was brief mention of two projects being carried out by the US Army Corps of Engineers where the relationship was for individual contracts only. Since then the real growth of partnering in the USA has been on a project by project basis mainly within the public works sector, and this paper argues that this is the type of partnering arrangement that has the greatest potential. The application of partnering to the UK public works sector is affected by the EU public procurement regulations. As partnering on a project specific basis includes an element of price competition, the paper contends that there will be no difficulty in complying with the regulations. Using recent examples of partnering for specific projects in the USA, the paper concludes by making proposals for developing partnering arrangements in the UK public works sector. In the course of this, particular attention is drawn to the key elements of partnering associations in the USA that have contributed largely to their success.

Governmental Audit Procurement Practices and Seasoned Bond Prices

Abstract: We evaluate the hypothesis that client monitoring is priced in the seasoned governmental bond market above and beyond other independent measures of local administration quality and the Big 8/Non-Big 8 dichotomy. Our results are generally consistent with the hypothesis.

Global Procurement: Motivations and Strategy

Abstract: Global procurement is not a simple or easy solution to a company′s sourcing needs. With new markets and changing competitors challenging established business, global sourcing is now offering an opportunity for organizations to meet these challenges on a global basis. Discusses the varied interpretations and significance of global sourcing as an ingredient of success, emphasizing the link between world‐class production/quality, marketing and procurement. From these discussions and empirical evidence, provides a matrix of management choices to facilitate the selection of worldwide sourcing strategies most appropriate to corporate goals.

Compulsory competitive tendering for local government services: the experiences of local authorities in the north of england 1988‐1992

Abstract: This article examines the response of a sample of local authorities in the North of England to the introduction of Compulsory Competitive Tendering (Cm) following the 1988 Local Government Act. It analyses the Organizational implications of CCT and highlights how officers, councillors and trade union representatives viewed the changing nature of management within local authorities in the period following the award of the first service contracts. In particular, it examines the different reactions to the development of a more commercial approach to the management of services and ends by assessing the specific impact of CCT in the context of other important changes in local government.

WHOLESALER: A Decision Support System for Wholesale Procurement and Distribution

Abstract: Develops a decision‐making framework for the design and operation of a wholesaling system. Considers the new roles of wholesaling and proposes an optimization model to satisfy best the service requirements at the minimum cost. Using this model, a prototype decision‐support system is developed to build various scenarios and suitable models for these scenarios. A number of management reports are prepared to help managers negotiate prices or volumes, consolidate warehouses, select transport modes, and test the effectiveness of proposed service packages.

Establishing a Framework for Effective Materials Logistics Management

Abstract: The “Law of Industrial Dynamics” is a well‐known phenomenon which leads to significant swings in demand as orders are passed down along a supply chain. Large fluctuations in demand result for the manufacturer leading to policies which counteract the objectives of materials logistics management which are to reduce inventories while maintaining strategic stocks, improve product quality, minimize the total cost of operations and procurement, ensure service levels to customers and minimize variance in material flow. A number of strategies have been advocated and applied which may be summarized as integrating the supply chain and adopting lean manufacturing techniques. Such strategies encompass three main factors, classified as technological (which may include adopting electronic data interchange), organizational (such as moving towards focused plants) and attitudinal (such as the adoption of Partnership Sourcing as a strategy). This paper provides a framework in which systems dynamics modeling, analysis and simulation aids in the decision making process to establish how best to achieve the materials logistics management objectives. Firstly, during the modeling and analysis phase, the supply chain champion is provided with insight as to the effectiveness of the current supply chain design to damp down order fluctuations. Secondly, on the basis of continuous improvement, simulation then allows him to re‐engineer the supply chain by asking “what if?” questions and assessing the relative benefits of various strategies against the financial and attitudinal costs of implementation.

Curbing agency problems in the procurement process by protest oversight

Abstract: We study a model in which a potential bidder in a government procurement may challenge its exclusion from the procurement before a quasi-judicial board. In the case of a sole-source procurement, the excluded vendor does not know whether the decision was justified in terms of expected surplus or, alternatively, was due to an agency problem. We explain the occurrence of (i) equilibrium protests, (ii) deterrence of inefficient sole sourcing, (iii) overdeterrence (the choice of a competitive procurement when sole source would be appropriate), (iv) "buyoff" settlements (which preserve inappropriate sole-source procurement) and (v) "fedmail" settlements (which accompany appropriate sole-source procurements). Our normative analysis addresses recent legislative initiatives to reform the protest process.

Quality‐Measurement Matrix

Abstract: This paper reports on a portion of a study conducted by the Quality Performance Measurements Task Force of the Construction Industry Institute, Austin, Tex., on quality measurements for engineer-procure-construct (EPC) projects. A literature search and a survey of 34 large companies (owners and contractors) resulted in more than 600 specific quality-measurement examples. A quality-measurements database was developed that included 62 industry “best practices.” A model, called the quality-measurement matrix, was developed to catalog examples in the database by the project phases of preplanning, design, procurement, construction, start-up, operation, and final disposition as well as the total-quality-management elements: customer focus, leadership, delivery, and employee empowerment. For each example in the database, the matrix shows the location and type of measurement, along with a brief description of how the measurement is used. These best practices can be used by project teams in defining, or refining, their current measurement needs and developing quality measurements for their own EPC projects. An example of the use of the quality-measurement matrix is provided.

Integration of bicycles and transit

Abstract: This synthesis will be of interest to transit agency managers, bicyclists, and other personnel interested in the subject of integrating bicycles and transit operations, including the issues of safety, equipment procurement, scheduling, and interjurisdictional cooperation. Information on bicycle-on-bus, bicycle-on-rail, and bicycle-on-ferry programs is included. Intermodal transportation, spurred by the Intermodal Surface Transportation Efficiency Act of 1991 and other factors, has resulted in an increased number of transit agencies attempting to serve the bicycling community in addition to their traditional patrons. Transit agencies have worked with bicycle interest groups to provide accommodations, including parking facilities and on-vehicle storage, to enhance the compatibility of such dual-mode travel. While many agencies have only limited experience with bicycle-transit interaction, others have demonstrated effective methods for initiating and sustaining such efforts. This report of the Transportation Research Board describes the characteristics of various bicycle-transit programs, including operation, equipment, and other issues for bus, rail, and ferry applications. It includes experiences from various transit agencies in the U.S. that are successfully integrating bicycles into their operations, as well as information derived from the literature on the subject.