Public Procurement Performance Indicators In Latin

American And The Caribbean: Am Empirical Study

Javier Davila Perez and Khi V. Thai*

INTRODUCTION

Every year IDB borrowing countries generate

20,000 30,000 contract opportunities for
businesses and consultants from IDB-financed
projects in Latin America and The Caribbean. The IDB
policies and country procurement systems are a
useful tool for both executing agencies as well as
bidders/participants since they contain instructions
and provisions corresponding to the specific type of
procurement processes. The objective of these SBDs
is to ensure compliance with the principles of
economy, transparency and efficiency in the
execution of IDB-financed projects. There are two
types of standard documents for all countries:
Standard Bidding Documents for Goods and Works;
and Request for Proposals for Consulting Services
(firms). When the procurement plan requires an
International Competitive Bidding (ICB) for goods,
works or consulting services their use is mandatory.
Some countries require the use of their own standard
bidding documents, agreed to by the IDB. Currently
they are Colombia, Honduras, Jamaica and Mxico.
(www.iadb.org/en/
projects/projectprocurement,8148.html).
The Inter-American Development Banks Financial
Management and Procurement Services Office
(VPC/FMP) strategy focuses on the continuous
improvement of fiduciary services related to
procurement and innovation in order to meet
countries needs in a changing environment. To this
end, the office has carried out a series of technical
studies with the objective of better understanding

the public procurement performance in LAC

Countries. Continuing its lead as a relevant
development partner to the Region and contribute to
increasing operational efficiency and effectiveness in
achieving optimal results on Bank financed
operations, the Bank is conducting a comparative
analysis
on
performance
between
public
procurement systems and processes in LAC countries
and procurement under the Banks policies (GN-2349
y GN-2350) in Bank-financed projects.
In 2015, the Inter-American Development Bank
(AIDB) funded a study, Comparative Analysis of
Performance between Public Procurement Systems/
Processes in Select Lac Countries and Procurement
Under the IADBs Public Procurement Policies. The
scope of this study is very broad, covering all
possible indicators in all stages of public
procurement systems in 12 countries, with a
questionnaire covering 432 select indicators in a
total of 64 questions. The purpose of the study is (i)
to conduct a comparative analysis on performance
between public procurement systems and processes
in LAC countries and procurement under the Banks
policies and standards; and (ii) to analyze similarities
and differences between the governance structure of
public procurement in LAC countries and the IDB to
identify those elements that have a relevant
contribution in strengthening public procurement
systems. This paper focuses on a special aspect of
the study: public procurement infrastructure of these
LAC countries.
LITERATURE REVIEW

While the public procurement function of

government has become more and more complex, it
is still somewhat neglected area of academic
research and education. In early 21st Century, coping
with problems in government contracting, from

inefficiency,
mismanagement
to
corruption,
governments in many countries tried to improve
public procurement systems, including reforms in
public procurement laws and regulations, and
organizational
structures;
issuing
procurement
guidelines, and improving public procurement
professionals. The most significant step in public
procurement is Issuance of Methodology for
Assessing Procurement Systems (MAPS) by the
Organisation
for
Economic
Cooperation
and
Development (OECD) in 2004. Interestingly enough,
the U. S. General Accountability Office issued in 2005
Framework for Assessing the Acquisition Function at
Federal Agencies (GAO, 2005). These two
frameworks propose key pillars (OECD-DAC), or
cornerstones (GAO):
OECD-DACs Four Pillars
(2004)
Legislative and regulatory
framework
Institutional framework and
management capacity
Procurement operations
and market practices
Integrity and transparency
of the public procurement
system

GAOs
Four
Cornerstones (2005)
Policies and
processes
Organizational
alignment and
leadership
Human capital
Knowledge and
information
management

Although these pillars or cornerstones are not

identical, all pillars or cornerstones recommended
many similar indicators for procurement system
assessment.
Many
studies
on
procurement
indicators, and benchmarks were conducted since
then. The most recent studies include the World
Banks Benchmarking Public Procurement (2015,
2016), US Agency for International Aids Key

Performance Indicators Strengthen Procurement in

Latin America (January 2013).
In addition to institutional research as briefly
mentioned above, since the early 2000s numerous
studies were conducted by researchers. Also the
International
Research
study
on
Public
Procurement, first carried out in 2003 by several
scholars around the world, and the International
Public Procurement Conference, first initiated in
2004, gave a great contribution to public
procurement research, as it was able to compare
international differences and similarities on tools and
models for managing procurement in the public
sector, also exploring in role in supporting economies
and local enterprises (Harland et al., 2003; Knight et
al., 2012). We can find many research contributions
touching different pillars of the public procurement
systems, such as:
-

How to design a sound procurement strategy

and set relevant goals (e.g., Caldwell & Howard,
2014; Erridge, 2007; Buxton & Radnor, 2012;
Murray et al., 2012);
How to organize resources and manage the
activities of the procurement process (e.g.,
Fearon & Busch, 2006; Scothanaus & Telgen,
2007; Kamann, 2007; Arlbjrn & Freytag, 2012);
and
How to use general and specific procurement
tools to support the execution of activities such
as e-procurement (e.g., Malta & Gilbert, 2006),
collaborative procurement (e.g., Walker et al.,
2013), and public-private partnership (e.g., Essig
& Bartran, 2005).
Despite this growing trend, public procurement
still reveals high research fragmentation, most likely
due to 1) an extensive and multi-faceted domain,

which led authors to concentrate their efforts on

specific
aspects
(e.g.,
centralization
vs
decentralization decisions, transparency, role of
technology, sustainable public procurement), and 2)
the relatively low status of the procurement
department in the public sector (Murray, 2009; Pitzer
& McCue, 2007).
Core Principles of Public Procurement
Public procurement as a major function of
government
is
continuing
to
evolve
both
conceptually and organizationally. That evolution
accelerated since the late 1990s as governments at
all levels came under increasing pressures to do
more with less. Indeed, all governmental entities of
rich and poor countries are struggling in the face of
unrelenting
budget
constraints;
government
downsizing;
public
demand
for
increased
transparency in public procurement; and greater
concerns about efficiency, fairness and equity.
Additionally, public procurement professionals have
faced a constantly changing environment typified by
rapidly emerging technologies, increasing product
choice,
environmental
concerns,
and
the
complexities of international and regional trading
agreements. Further, policy makers have increasingly
used public procurement as an internal lever for
domestic economic growth and job creation (Murray,
2009; Thai, 2001) as well as a means to achieve
strategic objectives, such as economic development,
social inclusion, and sustainability (McCrudden, 2007;
Thai, 2001, 2007).
In this environment, public procurement has
become much more complex than ever before, and
public procurement officials must deal with a broad
range of issues. They have been walking on a tight
rope in:

Balancing the dynamic tension between (a)

competing socioeconomic objectives, and (b)
national
economic
interests
and
global
competition as required by regional and
international trade agreements;

Satisfying the requirements of fairness, equity and

transparency;

Maintaining an overarching focus on maximizing

competition; and

Utilizing new technology to enhance procurement

efficiency, including e-procurement and purchase
cards (Thai, 2007).
In summation, a sound public procurement system
is to satisfy procurement needs in terms of cost,
quality, and timeliness of the delivered product or
service
and
value
for
money,
integrity,
accountability; (ii) minimize administrative operating
costs; (iii) conduct business with integrity,
transparency, fairness, and openness; and (iv) fulfill
public policy objectives or program results (World
Bank, 2013, IADB, 2011, 2012; OECD, 2004; GAO,
2005; FAR, 2016).
This study will focus on intermediate objectives of
public procurement systems including efficiency,
efficacy, economy, transparency, competition, fair,
equal and equitable treatment of suppliers (and end
users).
In many instances, these intermediate
objectives are inter-related and enhance each other.
For example, transparency, defined as timely,
easily understood access to information, assists in
ensuring that any deviations from fair and equal
treatment are detected very early, and makes such
deviations less likely to occur. It protects the integrity
of the process and the interest of the organization,
stakeholders, and the public. A practical business
benefit of transparency is increased competition and

better value for goods, services, and construction. A

transparent and informative public procurement
process encourages this confidence through the free
and open exchange of information, enhanced
knowledge, improved efficiency, and reduction of the
potential for corruption and waste (CIPS and NIGP,
2012). Examples of indicators include process
publications, publication of results on the main
stages, and publication of contracts, etc.
The issue of efficiency weighs heavily on public
officials. The literature is clear that efficiency is a
major policy driver in most jurisdictions, and is well
entrenched in public procurement policies and
practices. As one of the major influences of the New
Public Management, the notion of efficiency has
become almost a mantra, while being very difficult to
define for practitioners in ways that provide
substantive indicators of performance. Examples of
efficiency indicators include procurement execution
times
by
contracting
modality
(international
competitive bidding, national competitive bidding,
direct purchasing, shopping, others); administrative
costs and associated transaction costs.
Efficacy means the ability to produce desired or
intended results in every stages of public
procurement process without any problems such as
failed tenders, cancelled tenders, or protests.
Economy in public finance theory means implies
two aspects: Administrative efficiency and economic
efficiency.
Administrative
efficiency
in
public
procurement means low administrative costs
including transactions cost. Economic efficiency
means the social and economic impact of public
procurement expenditures on the country economy
and society.
In this study, the focus is on
administrative efficiency of procurement systems.

Competition should be full and open to permit all

responsible sources to compete. It likely results in
reduced overall costs for the procurement. Number
of bidders; proportion of awarded contracts by
contracting modality, and number of bids per process
are some examples of indicators.
A sound procurement system should treat
suppliers (and end users) fair and equitably: In
other words, bidders are selected on the basis of
meeting appropriate and fair and transparent criteria
and decisions.
In this research we have asked respondents a
number of questions designed to find indicators
showing how each public procurement system meet
the defined intermediate procurement objectives and
heads of national public procurement agencies views
of efficiency, economy, transparency, competition,
fair, equal, equitable treatment of suppliers (and end
users).
RESEARCH METHODOLOGY
This research uses a qualitative, interpretive
approach to obtain information about select performance
indicators in public procurement and perceptions of heads
of national public procurement agencies in 11 Caribbean
and Latin American countries.
The intent is to (1)
conduct a comparative analysis on performance indicators
between public procurement systems and processes in
LAC countries and procurement under the Banks policies
(GN-2349 y GN-2350) in Bank-financed projects, and to
analyse similarities and differences between the
governance structure of public procurement in LAC
countries and the IDB to identify those elements that
have a relevant contribution in strengthening public
procurement systems.
The justification of using a qualitative approach is
because this research is interpretivism -- to get
information about select performance indicators, which

became a phenomenon in public procurement in the last

10 years or so. This research approach is in line with
Creswells (2009, p.7) statement that in qualitative
research, the researcher focuses on a phenomenon
(procurement performance indicators) in a context or
setting of participants. As the study covers broadly the
entire public procurement system in select countries, we
decided to survey heads of national public procurement
agency of 12 selected Caribbean and Latin American
countries as a target survey population. As this study is
conducted by the Inter-American Development Bank, we
decided to have an unusually long questionnaire with a
total of 64 questions encompassing a minimum of 432
individual responses (See Appendix A) that covers as
many areas of procurement systems as possible without
being concerned with a possible low response rate. As
the study focuses on comparative of procurement
performance indicators in public procurement process,
Except the first 7 questions (which ask for general
information
about public procurement such as
procurement size, laws, ethics and central procurement
agencies, the remaining questions cover each stage of
the public procurement process as follows:
-

Pre-contracting stage: Questions 8-32;

Contracting stage: Questions 32-45; and

Post contracting stage: Questions 46-64 (Actually,

these questions also cover issues covering the entire
public
procurement
process,
including
eprocurement, and procurement methods.

Instead of sending the questionnaire to many public

procurement practitioners in each country, we decided to
send it to heads of national public procurement agencies
of select countries. In such as high leadership and
management position, they have an overall knowledge of
their public procurement systems and thus, they would
be able to provide knowledgeable perceptions about their
public procurement systems. Moreover, they are in a
position that they are able to provide inquired data.

Indeed, in the study, participants were asked

-

to provide factual information (indicators) in each

stage of the public procurement process as well as a
few select recommended indicators in the OECD-DAC
methodology framework for assessing public
procurement systems, and also

to provide their perceptions about select indicators

and best public procurement practices (the
adherence to procurement principles).

Thus, the ontological position in this research is

interpretivism. This study seeks to find common
performance procurement indicators in responding
countries, and present respondents perception about
select indicator. Cooper and Schindler (2011, p. 160)
justify the choice of a qualitative approach in such
research because qualitative research includes an
array of interpretive techniques which seek to
describe, decode, translate, and otherwise come to
terms with the meaning, not the frequency, of certain
more or less naturally occurring phenomena in the
social world. As many researchers such as Cooper and
Schindler (2011) and Snape and Spencer ( 2003),
qualitative
approach
rarely
tests
findings
and
respondents perceptions, this study will not and cannot
confirm which practices and indicators are best ones
without testing. But, the study will try to analyze (and
compare) similarities and differences between the
governance structure of public procurement in LAC
countries and the IDB, particularly with respect of
adherence to b a s i c procurement principles. This
broad research posture or stance is important because
the
perceptions
of
research
participants (high
government officials who are involved in all stages of the
public procurement process, from contract award
decision, to contract administration and evaluation).
To ensure the reliability and validity of the research,
the researcher is applying the proposition that a
qualitative study should demonstrate trustworthiness
and authenticity (Guba & Lincoln, 1994; Lincoln & Guba,
1985, cited in Bryman & Bell 2011). There are three

components of trustworthiness which are credibility,

dependability, and confirmability. In this research,
credibility is obtained by using several different sources
of data (Flick, 2014). Dependability in the research is
ensured by keeping all the records on the research
process in an accessible manner and obtaining peer
review for the research. Confirmability is ensured by
keeping subjectivity or personal values from driving
the research process. Meanwhile, the fi ndings in this
study are expected to be authentic because
participants as heads of national procurement agencies
would be able to express their true perceptions without
being concerned with external pressures.
Sample
Twenty-six countries in the LAC region are grouped in
five sub-regions: Andean, Caribbean, Haiti (only one
country, which is Haiti), central American, and southern
cone sub-regions as follows:
CAN (Andean Region)
CCB
Caribbean Region
CDH (Haiti)
CID (Central American
Region)
CSC (Southern Cone Region)

Bolivia, Peru, Colombia, Venezuela and Ecuador

Jamaica, Trinidad y Tobago, Bahamas, Barbados,
Guyana and Suriname
Haiti
Belize, Costa Rica, Panama, Guatemala, Honduras,
Mexico, Dominican Republic, El Salvador and
Nicaragua
Argentina, Brasil, Chile, Paraguay and Uruguay

We selected 12 countries from each sub-region, except

CDH (Haiti). We received 11 responses from Chile,
Columbia, Costa Rica, Dominican Republic, Ecuador,
Guyana, Honduras, Mexico, Panama, Peru, and Uruguay.
Survey Administration
The questionnaire is in two languages: English and
Spanish. In mid-January 2016, the researchers e-mailed
the questionnaire directly to heads of central public
procurement agencies of these select countries. Because
this study is funded by IADB, all IADB procurement

experts in those countries were asked to help get the

questionnaire completed by contacting those who
receiving the survey. By the end of March, we received 11
responses or a 91.7% response rate. This is an
extraordinary high response rate considering the length of
the questionnaire.
FINDINGS
As stated, this paper focuses on infrastructure of
public procurement systems in the studies countries, we
select four areas: size of public procurement, legal
framework,
procurement
administration,
and
eprocurement platform.
Size of Public Procurement

Median

Mean

Chile

Colombia

Panama

Dom Rep

Ecuador

Honduras

Guyana

Costa Rica

Uruguay

Peru

Mexico

In terms of economic efficiency, government

procurement spending has great impacts on
economic growth and stability.1 Its impact factor
varies depending on the type of procurement.

Procurement
Share of
Total Budget
8.0
1.5
20.54 18.55
(%)
14.74 21.42 4 11.84 18.55 9 20.44 10.22 28.40 53.19 37.51
Number of
Procurement
Employees
5,369 NR 33
40
15
28 387 209 100 107 120 641 113

Percent of Government Procurement Expenditure in Total Budget & Workers Employed in Procurement
450
400
350
300
250
200
150
100
50
0

Procurement Share of Total Budget (%)

Number of Workers

Legal Framework

Although the study focuses on public procurement

process, it is important to have a sound legal
framework of public procurement systems in the
studied
countries
to
assure
procurement
transparency, fairness, and competition. All 11
responding countries have procurement laws, and 8
of
11 (72.73%) responding countries have
procurement regulations, and 8 of 11 (72.73%)
responding countries have a procurement manual. In
5 of 11 responding countries, departments or
ministries have their own specific procurement
regulations. In many countries including US), defense

departments/ministries have their own specific

regulations, which allow some flexibilities in their
specific procured items. A majority of countries do
not have specific procurement regulations, and a low
indicator (45.45%) does not imply that the
procurement system in those countries are not as
good as other countries for some reasons, such as
these countries do procure specific items that need
specific regulations. So, excluding 1.c in Table 1,
seven of responding countries have procurement
laws, regulations and manuals as recommended by
IABD. Columbia and Costa Rica have only
procurement
laws,
Mexico
does
not
have
procurement regulations and Chile does not have a
procurement manual. There is a good reason to have
procurement regulations because normally, procurement
laws provide general procurement provisions and allow
agencies to develop regulations to deal with procurement
practices in more detail. For efficiency and efficacy, as

recommended by IADB, procurement practitioners

need a procurement manual for their quick
references without reviewing existing laws and
regulations, and almost responding countries have a
procurement manual.

In general, all responding countries do have a

legal framework to satisfy IADBs intermediate
objectives of procurement process, including
transparency, fairness, efficiency, etc. Having a legal
framework reduces transaction cost because formal
rules complement and increase the effectiveness of
informal rules (under which procurement agencies
would operate if there is no manual). In other words,
transactions of the agencies would not be hampered
by fees, delays, or in the extreme situation bribes.
Having rules laid out in manuals also lead to the use
of more accurate and proven transaction models that
allow feedback that not only increase efficiency but
improvement of the existing operation. There could

be more information sharing as using standard

operating procedures from the manual makes it less
costly to collect information and more willingness to
share information. But there is a tradeoff between
legal/regulatory rigidity and administrative flexibility.
In the United States of America, the Federal
Acquisition Regulations used to be about 3,000-page
thick. Now, despite its effort in simplifying
regulations, it is still 1,897-page long.
It is also noted that the effectiveness of a sound
procurement framework varies depending on their
external environment as discussed in detail in the
next section of this paper.

TABLE 1. Presence of Government Public

Procurement Law
Ye
s
Presence of government public
procurement law and year of adoption
Uniformity in set of public procurement
law/regulations for the entire
government
Ownership of a public procurement
manual by government
Ministries/departments in government
with their own specific procurement
regulations in addition to the national
public procurement law/regulations

Procurement Code of Ethics

No

Indicato
rs
scoring

11

100%

72.73%

72.73%

45.45%

As public procurement officials are dealing with

vendors, for a sound public procurement system,
both parties have to do business with integrity. Thus,
it is important for each party to have a code of ethics
that sets expected business behaviors and risks of
lack of integrity in contracting.
Code of Ethics for Public Procurement Officials
A sound procurement legal framework is a very
important foundation for a sound procurement
system. But, the success or failure of a sound legal
framework is not sufficient because it depends on
how laws and regulations are implemented.
Procurement officials have a very important role in
making sure that public procurement is managed
efficiently and effectively. A widespread perception
about public procurement is that this function of
government is prone to corruption. Therefore, it is
important to have a procurement code of ethics. As
shown in Figure 2, all 11 responding countries have
clear code of ethics statements. But there are
different levels of clarity: six of responding 10
countries have clearly stated code of ethics. The Peru
respondent did not respond to this part of the
questionnaire.
FIGURE 2
Clear Statements in the Code of Ethics

12
10
8
6
4
2
0

Clear Statements

Unclear Statements

Government Contractors Code of Ethics

As we all know, making profits the major objective
of business, and thus, there existed numerous
business malpractices such as collusions, price fixing,
bribing government officers, etc. Not all contractors
doing business with government do have a code of
ethics. About 80% of government contractors in
three of 9 responding countries have a code of
ethics. About 25% government contractors in
Dominican Republic have a code of ethics.
FIGURE 3
Code of Ethics Indicators for Doing Business
with the Government

Chile
Colombia
Panama
Dom Rep
Ecuador
Honduras
Guyana
Costa Rica
Uruguay
Peru
Mexico
0%

10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Present

Absent

It is noted that the effectiveness of a sound

procurement framework and a sound code of ethics
varies depending on their cultural environment.
Indeed, structures, including schemas, rules,
norms, and routines, become established as
authoritative guidelines for social behaviour (Alleyne,
Hudaib & Pike, 2013). Scott (2004) thus proposed
three institutional pillars; regulatory, normative and
cultural cognitive. The regulatory pillar emphasizes
the use of rules, laws and sanctions as enforcement
mechanism, with expedience as basis for compliance
(Eyaa & Oluka, 2011). But as stated by Ntayi et al.
(2013), ethical climate is linked to unethical
behavior, reducing the effectiveness of codes of ethics.
For example, a very powerful tool in enforcing unethical
behavior of government officials is whistleblowing. How
many societies in the world tolerate whistleblowers, be it

employees within the agency, or vendors? There are costs

or risks of whistleblowing (even in the United States, a
country with the longest history of democracy) including
retaliations such as layoffs or demotion, difficulty in
finding employment, future contract opportunities, etc.
(see Armstrong, 2002; Dorasamy, 2013; Dozier, & Miceli,
1985; Deshpande, 1996; Firas, & Brian, 2001; MesmerMagnus, & Viswesvaran, 2005;
Here, it is worth noting that the performance of public
contracts is usually affected by the institutional features
of procurement, as well as by corruption opportunities,
which are widespread in procurement activities (Estache
& Trujillo, 2009). Estache, A., & Trujillo, L. (2009).
Corruption and Infrastructure Services: An Overview.
Utilities Policy, 17(2), 153-155.
The risk of corruption can occur on the various phases
of
the
public
procurement
cycle
(Transparency
International, 2006a) generating different problems. The
existing literature on this topic reports a negative
relationship between infrastructures provision and
corruption mainly looking at the procedures for the
contractor selection and at the specification of the
contract (Benitez et al., 2010). Bandiera et al. (2009)
detect corruption in public procurement procedures and
propose a distinction between active waste - which
provides utility for the public decision-maker, such as
corruption - and passive waste which does not generate
such a utility. Guccio et al. (2012a) report that
environmental corruption, as measured by Golden and
Picci (2005) index, is associated to higher adaptation
costs. Finally, Finocchiaro Castro et al. (2014) investigate
the relationship between the efficiency in the execution of
public works contracts and the level of corrupted
environment at the provincial level in Italy, finding that
greater corrupted environment is significantly associated
with lower efficiency in the execution of the public
contract.

Procurement Organizational Structure

Under the influence of the new public management
movement, there was a push for decentralization in
municipalities in Germany in the 1980s and 1990s
(Einmahl, Amann and Essig, 2016). According to Einmahl,
Amann and Essig (2016), several high level corruption
scandals in municipal procurement in the 1990s and
2000s, and the creation of a European single market 1 in
which goods and services can flow freely led to
(re)centralization of procurement in a substantial number
of municipalities, especially in those where corruption in
procurement had been uncovered (Einmahl, Amann &
Essig, 2016, p. 8).
Einmahl, Amann and Essig (2016) propose an
organization maturity framework for public procurement.
The first maturity level is characterized by a watchdog
role assigned to the central units whose main task is to
ensure a legally correct award procedure as prescribed by
public procurement law. The second maturity level is
reached when the central procurement agency is to
analyze the market and bundle similar needs. The central
procurement agency reaches the third maturity level,
when it assumes the role of a tactical partner, a proactive
role in defining needs, setting standards and defining
goals. The fourth maturity level is reached when the
central procurement agency has the competence and
resources to analyze all procurement activities, identify
similar needs and decide on bundling, establish a
controlling system, and draft internal regulations on
procurement.

Under the above maturity framework, As shown

in Figure 7, seven of 10 (or 70%) responding
countries have an independent national public
procurement agency. All ministries/departments in
the
national
governments
have
their
own
procurement offices. This organizational structure is
common in all countries, even with influential

national procurement agencies such as Consip in

Italy, and General Services Administration in USA.
When functioning properly, centralized purchasing
yields benefits including:
Duplication of effort and haphazard purchasing
practices are minimized by central coordination
of all purchases.
Volume discounts can be achieved through the
consolidation of requirements.
Transportation charges can be reduced through
the consolidation of shipments.
Purchasing specialists with professional training
and expertise are more efficient than less skilled
individuals for whom purchasing is a secondary
responsibility.
Suppliers are able to offer better prices and
better services because their sales, shipping and
invoicing expenses are reduced.
More efficient inventory control is possible
because of agency-wide knowledge of stock
levels, material usage, lead times and prices.
Operational managers are free to focus on their
core responsibilities.
Consolidation of orders leads to lower overall
transaction costs.
Having a single department head responsible for
purchasing clarifies accountability and facilitates
management control.
On the other hand, the potential disadvantages or
associated costs of centralized purchasing stem from
any sub-optimal relationships that may develop
between purchasing and the clients it serves.
Disadvantages might include:

Lack of sensitivity to the unique priorities and

operational
realities
of
different
client
departments;
Purchasing is not fully engaged in the

operational planning process;

Clients may bypass blanket agreements
negotiated by purchasing because specific
commodities are not included, thereby foregoing
any advantage of consolidated buys.
Overall increased processing time of requisitions;
and
Unclear project management responsibilities.
CONCLUSIONS

NOTES
1. This created the need for professionalization through
specialization and thus centralization. From a businessmanagement perspective, a higher degree of
specialization and centralization is able to reduce
public procurement process costs for government
authorities who faced 8.8 billion Euros in Germany in
2007 (Rambll, 2008; Einmahl, Amann & Essig, 2016).
REFERENCES