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October 1, 2012
Procurement Perspectives | Stephen Bauld
Investment pays when it improves efficiency
In a previous article I touched on full-life costing.
Life-cycle replacement cost, risk of supplier failure, and general maintenance requirements should also be reviewed. When looking at training or re-training costs, as a general rule, far too little consideration is given to these areas in the purchase decisions. Indeed, it is not unusual (in both private and public sector) to find that they are not factored at all into procurement decisions.
The problem is particularly acute in the purchase of computers and related office equipment. Studies have repeatedly shown that staff provided with computers frequently lacks the training to use them to attain the level of efficiency that they had before they were procured. The reason is that there is no money budgeted to provide the training that users require.
It pays to invest in technology only where it improves efficiency of operation or the quality of service provided by a municipality to residents. Unless training and related costs are adequately factored into procurement decisions, there is a risk that investment will lead to little more than the expenditure amounts on what are destined to become office toys.
Another factor to look at is the need to diversify sources of supply. A municipality, or company that becomes totally dependent on one source of supply effectively confers monopoly power on that suppler. Operating divisions (especially in the IT and office service area) frequently tout the benefits of sole sourcing (e.g. standardizing office equipment means that repair staff need to learn how to repair only one type of equipment). In addition, standardization can often mean that specific users within the organization who genuinely do have unique needs, are under-served (or not served at all) by the standard product. Too often in procurement decisions, the hidden cost of such standardization get too little consideration, although in practice they can frequently eclipse and expected saving through standardization. We need to look at compatibility with existing equipment, including such things as battery systems and battery chargers.
As a government buyer, it is a good idea to spread and minimize the risk to the municipality. For instance, the scope of warranty coverage is one method of spreading risk. A higher priced product that offers a longer term warranty may turn out to be cheaper in the long run, because the cost of repair and maintenance will be spread among all customers.
Timely and reliable sources of supply must be taken into consideration. Materials management seeks not only to obtain the right type of materials at the right price, but also to see that they are delivered at the right time and price. A delay in supply to a construction site, or an unpredictable source of supply, may easily have hidden cost implications, and will almost always have a detrimental impact upon the quality of service that a municipality can provide to its residents. In the private sector, considerable emphasis is placed upon the development of strategic alliances between suppliers and their customers. A good deal of this emphasis relates to the need for timely and reliable supply of goods and services.
Consideration must be given to discontinue reliance on obsolete technology and methods. The price of a given commodity will invariably drop as it becomes progressively more obsolete. Staying with technology that is on its way out can have obvious long-term price and performance implications.
As a contractor, the need to provide state of the art service to the residents of the municipality is increasing. In our age of continuous and rapid technological advancement, there is an obvious temptation to stay at the front of the pack. Unfortunately, there are a number of adverse implications in doing so. There are obvious benefits in avoiding the use of unproved technology and methodologies.
Stephen Bauld, Canada’s leading expert on government procurement, is a member of the Daily Commercial News editorial advisory board. He can be reached at firstname.lastname@example.org.
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