Bad procurement policies cost dearly, says economist

 

Greater efficiencies in public sector procurement and outsourcing could generate savings of some €1.2 billion for the economy, according to a study by Trinity College economist Mr Contantin Gurdgiev.

In the private sector Mr Gurdgiev found that bad procurement policies were causing estimated annual losses of some €4.8 billion because businesses were paying too much for the goods and services bought.

In Cost Management and Procurement: Forgotten Assets, Mr Gurdgiev looked for the causes of poor procurement and outsourcing practices.

"With labour costs rising at twice the rate of productivity growth during the past four to five years, Irish companies appear to accumulate excess productive capacity and tolerate production and management inefficiencies," he said on the private sector. On the public sector, he said "complacency in the public sector fuelled by rising tax revenues has resulted in gross mismanagement of funds and operational inefficiencies.

Some €17 billion is spent each year on public and private procurement in the Irish economy, based on Central Statistics Office,

Department of Finance and Organisation for Economic Co-operation and Development figures, Mr Gurdgiev found. The public sector accounted for almost €5 million of this spending with the private sector making up the €12 billion balance, he said.

The survey looked at 107 medium to large firms operating in the Irish market. Mr Gurdgiev stressed "the extent to which the neglect of procurement management characterises current business practices in the private economy, with a similar situation in the public sector", he commented.

Ireland is the only nation within the EU which offers virtually no professional training in purchasing and procurement, he said. The significant degree of under-utilisation of cost and operational management know-how in Irish industries offered opportunities to strengthen companies and public sector competitiveness, he added.

With Irish industry and public services operating below OECD standards in purchasing and procurement, the adoption of the best cost/quality management practices could be expected to produce greater benefits for Ireland relative to the rest of the EU, he said.

Mr Gavan McGirr, chief executive of Purchasing Solutions which commissioned the survey, said it provided "a significant message that if we become more efficient as an economy we will keep competition at bay".

The message was not that the public sector was not working but that it was not accessing the correct management tools to perform procurement tasks most efficiently, he said.