Public vs. Private Procurement: What’s the difference?
Procurement is an area that remains essential to supply chain strategy in just about every business with a need to purchase goods and/or services.
With this being said, procurement — in it’s definition and function — differs greatly between the public and private sectors.
Within this post, I plan to build an understanding of the main differences between public and private procurement. Avoiding generalizations and conclusions of broad strokes will be nearly impossible. So here’s your disclaimer: I might/probably will generalize. Sorry.
Now that the logistical nonsense is out of the way, let’s dig right into it!
This is procurement that is completed within the context of not-for-profit organizations (NFP’s). Also known as the public sector, the procurement that occurs in this context is typically government affiliated, which can be central, state, or local.
This is procurement that is completed within the context of for-profit organizations (FP’s). Private procurement happens within privately owned companies; also known as the private sector (Surbhi 2015).
Budgets are one of the more clear-cut differences between the public and private sectors.
Considering public procurement is typically driven by government entities, there is limitations to the flexibility in their spend and methods of funding. It is more typical for public sector’s limitations to arise in the sense of earmarked money. Meaning, public procurement budgets are more likely to be delegated preemptively and tougher to alter their course of distribution.
As for the private sector, there is much more room for flexibility and agility within budgeting. “Private organisations can easily transfer money from one department to another if business conditions change” (portfolioprocurement.com 2017).
This makes it easier to procure goods and services based upon price and competitiveness. Considering there is an underlying focus on procuring to better top-line value, in private procurement, there is a need for room to wiggle. Otherwise, it would be a real pain in the behind to keep up with competitors.
As mentioned before, public and private procurement occurs under very different circumstances, regardless if they’re both named procurement.
Private procurement is typically in FP (for-profit) organizations, while public procurement functions to support NFP’s (not-for-profit).
The divide of the sectors — alone — is enough to begin drawing conclusions about the motivation for procurement.
Private procurement has a centralized focus on driving revenue. This typically results in less sustainable methods of procurement; considering there is less need for a focus on social responsibility.
Within the public sector however, there is expectations that procurement will “address several issues beyond simple value for money or basic supply” (Smith 2017). Public procurement typically has a larger focus on adding social value to a supply chain.
Private companies procure in an effort to increase shareholder returns. There is a larger pressure on procurement professionals in the private sector to procure with a financially driven mindset; increasing margins, driving profitability and enhancing competitiveness.
A large reasoning behind differing motivations comes from differing levels of required transparency.
Public sector procurement is required to be conducted in more transparent contexts. This comes in the form of regulations and legislation requiring public entities to report back to the government (and the people) with how money is being spent.
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Private sector procurement can cover up their spend in many instances, and has a lesser presence of regulatory reporting. With this being said, private procurement has become an area for building more sustainable and responsible brand associations. Whether responsible business practices are being mandated and followed-up on, however, is harder to gauge in the private sector (ufsca.edu).
Regulations are one of the biggest boundaries for agility within public procurement.
“In virtually every country, public procurement is defined and constrained in some sense by legislation. That may be at local, regional, national or international level, or some combination of those. In the UK, we are bound by the UK regulations, which are taken from the EU directives” (Smith 2017).
Constraints, caused from regulations, create less room for creative procurement methods. Spend is mandated by governments for the government.
While regulations are certainly one of the most apparent differences between public and private procurement, it doesn’t mean that the private sector is the Wild West.
There remain regulations in the private sector, such as laws for monitoring equality and bribery.
Private entities don’t answer to the scrutiny of government bodies, but rather march to the beat of board members, owners and shareholders. This makes for a procurement strategy focused on the contentment of private persons rather than government bodies.
Reflection on Private vs. Public
I hope that this post has provided you with some insight into key differences of private and public procurement.
Maybe this will help you choose the right career path, or write your own blog post. One way or the other, it’s been a pleasure providing procurement information.
Until next week.
This publication is brought to you by author Sam Jenks, but also on part by Kodiak Rating — A Supplier Relationship Management SaaS functioning out of Stockholm, Sweden. Kodiak Community intends to challenge traditional business practices with innovative thinking and creation.