Procurement is the process of obtaining goods to meet an organisation’s internal and external needs.
Privately run organisations exist to make a profit. Public sector bodies are owned by the government at national, state or local level.
Although private and public organisations have similarities in their procurement practices, there are some key differences.
Legislation and regulations
The public sector is constrained by legislation and regulations, whether at local, national or international level, for example the EU Directive on e-invoicing.
The private sector has much more freedom from legislation, although there is still legislation present around issues such as equality and bribery.
In both public and private procurement achieving value for money is a key objective.
However the public sector are expected to address issues that go beyond this and into the realm of ‘social value’ – such as supporting minority firms.
Private companies are unlikely to focus on wider societal issues. Their procurement mindset is focused on driving revenues and increasing shareholder returns, and as a result their strategy can be short-term focused. Public bodies are required to carry out procedures that reduce expenditure over time.
Public bodies often share procurement information – such as supplier details – with each other, which is seldom in the private sector given the competition that exists within industries.
Interest from the Public
The public interest in public sector procurement activities, particularly in projects such as national roads and procurement for healthcare services, is on a much higher scale to public interest in private procurement practices. Private organisations can source suppliers at will, without a bidding process.
Public bodies face legislation that promotes transparency. They must publish any contract awards, and they are required to provide equal opportunities to each supplier that bids for a contract. This is not the case with the private sector, who do not need to publish any contracts, and they can withhold information they deem unnecessary. Private organisations’ procurement activities stay confidential.
There is less flexibility for public bodies in terms of budgeting. They rely on government funding, which gives them less control over the procurement cycle given they need to wait for funds to be dispersed, and any delays can negatively affect relationships with suppliers.
In the event of supplier price increases/reductions, private organisations have much more flexibility to react, while public bodies face a much longer process to change their budgets.
Public bodies are permitted to use preferred suppliers and often use pre-negotiated contracts, which helps them save time and money on research.
Private organisations have more resources to actively research potential suppliers, with the aim of saving money on each transaction.
For both private and public organisations, managing the procurement process well is critical for success.
Celtrino provide solutions for both public and private organisations to automate and manage the procurement process end-to-end, to ensure faster turnaround times.