In a world where supply chain vulnerabilities are becoming increasingly common, the importance of value for money in procurement cannot be overstated. This blog provides information to public procurement professionals on how to measure value for money. In particular the blog discusses the use of the 3Es and 5 rights of procurement as a guide to ensure they are getting the best value for government and the people of Fiji while also mitigating risk.
Using the three Es to measure value for money
The 3Es of procurement are economy, efficiency, and effectiveness and is largely viewed as a measure for value for money. Economy refers to obtaining quality goods and services at the lowest possible cost, while efficiency relates to achieving the best possible results with the available resources. Finally, effectiveness is all about ensuring that the goods and services acquired meet the needs of the organization.
By focusing on obtaining quality goods and services at the lowest possible cost, achieving the best possible results with the available resources, and ensuring that the goods and services acquired meet the needs of the organization, procurement professionals (and evaluation teams) can ensure that they are getting the best possible value for government and the people of Fiji.
Using the 5 rights of procurement to measure effectiveness
Effectiveness of procurement can be measured using the 5 rights of procurement. There are the Right goods and services, at the Right time, in the Right quantity, at the Right quality, and from the Right supplier - are essential in ensuring that the organization's needs are met, and that suppliers are selected based on their ability to deliver the goods and services required.
The importance of value for money in procurement goes beyond simply getting the best possible deal. By ensuring that the organization is not overpaying for goods and services, procurement professionals can free up resources that can be used to focus on other important procurement, diversify suppliers, and implement risk mitigation strategies.
Value for Money must be achieved in all processes of procurement
Value for money must be a driver for decision making from the procurement planning stage to the contract management stage. One cannot achieve value for money at tender evaluation stage and disregard the contract management stage. By working closely with suppliers after the award of a contract, we must ensure that they are meeting the needs and expectations of the government and the public. Procurement professionals must build stronger ethical relationships with suppliers that can be leveraged in times of crisis. This can include negotiating better prices, receiving priority access to limited supplies, and working together to address issues and challenges that arise.
Lack of focus on value for money results in negative consequences.
When value for money is not a focus in all stages of procurement, it can lead to several negative consequences. We will discuss some of the things that can happen when value for money is not a focus in procurement
- Wasted Resources
When procurement decisions are made without considering value for money, there is a high chance that resources will be wasted. This can occur in several ways, such as purchasing goods or services that are of poor quality or not fit for purpose. This can lead to increased costs as more resources will be required to either replace or repair the purchased items. Additionally, procurement of unnecessary items can result in the waste of resources that could have been better utilized elsewhere.
- Lower Quality of Goods and Services
When value for money is not a focus all stages of procurement, the quality of the purchased goods and services is likely to be lower. This is because price becomes the main factor considered in procurement decisions rather than quality. This can lead to the purchase of goods and services that are of poor quality, not fit for purpose, or do not meet the required standards. This can ultimately result in increased costs due to the need for repairs or replacements, as well as potential damage to the organization's reputation and public outcry of poor goods and services by government.
- Lack of Innovation
Procurement decisions made without considering value for money can also result in a lack of innovation. This is because suppliers may not be incentivized to invest in research and development to create new and innovative products and services. Instead, suppliers may focus on providing low-cost items that meet the basic requirements, resulting in a lack of progress and innovation within the organization.
- Supplier Relationship Issues
When value for money is not a focus in procurement, it can lead to issues with supplier relationships. This is because suppliers may feel undervalued and unappreciated, resulting in a lack of motivation to provide the best possible service. Additionally, suppliers may not prioritize the organization's needs and requirements, leading to missed deadlines and quality issues. Which then leads to lower quality.
- Legal and Ethical Issues
Procurement decisions made without considering value for money can also result in legal and ethical issues. This can occur if the organization works with suppliers that do not meet legal and ethical requirements, such as those involved in child labor or environmental violations. Such issues can have severe consequences, including legal action and damage to the organization's reputation.
Ultimately, the importance of value for money in procurement cannot be overstated in an era of supply chain vulnerabilities. By focusing on the 3Es and 5 rights of procurement to measure effectives, public procurement professionals can ensure that they are getting the best possible value while also mitigating risk and building stronger relationships with suppliers and meeting the needs of the people of Fiji.
Prepared by Anish Bahadur