Many decisions taken by departments have a procurement implication that can impact on the overall cost of carrying out the decision. Here cost includes the total cost of the good or service and not simply the price that is paid.
In the private sector, procurement is viewed as a strategic function working to improve the organisation's profitability. Procurement is seen as helping to streamline processes, reduce raw material prices and costs, and identifying better sources of supply. In essence, helping to reduce the ‘bottom line’. Indeed, in many organisations the importance of procurement is recognised by having their head of procurement placed at an Executive Board level.
In the public sector, the concept of a 'bottom line' is less well defined - there are no shareholders' dividends to be paid out or publicly declared profit (or loss) announcements. There is however a need to maximise the output, in terms of teaching and research, within the available funds. These funds come, substantially, from public funding in the form of grants, student fees etc. We are the sector's shareholders as tax payers, students and/or staff. This, therefore, places an inherent requirement that the funds provided are managed in a manner that is accountable and demonstrates both probity and value for money.
At higher levels of expenditure, this need for openness, transparency and non-discriminatory action is required by legislation. The European Procurement legislation, implemented in the UK, means that all requirements for supplies/services above certain monetary thresholds are advertised and tendered in accordance with published rules.
Within an institution, its expenditure is made up of two distinct elements - pay (salaries and wages) and non-pay (all other expenditure). Procurement is concerned with the management of a significant proportion of the non-pay expenditure and ensuring that the best possible value for money is obtained when committing this expenditure. Non-pay spend includes the day-to-day running costs of the institution as well as its capital expenditure. This expenditure can be further divided into that which is used to obtain goods and services from suppliers and other expenditure such as payments made to other educational establishments or to HM Revenue and Customs. The procurement function is concerned with obtaining the required goods and services from appropriate suppliers to enable the institution to meet its strategic objectives in an economic, efficient and effective manner.
Research has shown that within an institution, its non-pay expenditure is usually between 30 - 40% of its total expenditure.