The differences between public sector and private sector procurement

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Public sector and private sector companies are very different in their nature and each have contrasting objectives and goals. While private companies largely operate to produce a profit, public companies primarily exist for the public good.

This means that procurement departments in the two spheres and the day to day tasks of their staff often vary in nature. Although public and private companies have some procurement similarities, their differences are what stand out the most.

Funding differences

A large number of these contrasts stem from differing methods of funding. Private organisations can easily transfer money from one department to another if business conditions change. Government budgets don’t allow for flexibility and many public sector budgets will have money earmarked for certain things. Even if prices increase or another supplier reduces prices, it can be an extremely long process to change a budget.

Public sector procurement managers also have little control over the procurement cycle as they have to wait for the government to distribute their funds. If a government department decides to reduce funding to a certain area of the public sector then things can change overnight and a procurement team can be put under immense pressure.

Targets

Public and private companies work to different targets and both have vastly disparate end games. The majority of private companies will look to increase returns for company owners and shareholders whilst public organisations work to spend public money wisely by cutting down on costs.

This means that some private companies are financially driven and are expected to constantly reassess their methods in an attempt to increase margins. In contrast, only procedures that reduce expenditure are embraced in public sector procurement. Budgets are so tight that there is not much room for innovation which sometimes means that the public sector gets left steps behind the private sector.

Relationships

The targets public and private sectors are required to meet also affect the way they interact with both their suppliers and others working in the procurement industry.

In private companies, procurement activities are kept confidential; most companies would be very adverse to competitors getting hold of information that could save them money. The opposite happens in the public sector; procurement teams in similar industries commonly share information such as suppliers with reliable services.

Relationships with suppliers can also be adversely affected by the eventualities of the public sector. If the distribution of funds is delayed, (which can happen thanks to centralised control from the government), procurement activities may have to be delayed.

If suppliers see payments delayed for goods that have already been supplied, this could lead to relationship breakdowns. In a private sector business, this is much less likely to happen.

Management

The different types of management styles in the two sectors affect the way the supply chain is run. The procedure heavy and bureaucratic style renowned in public sector management makes procurement run less efficiently than within the private sector.

In the private sector, the procurement manager would answer to the CEO and a board of directors who have the final say on the choices they make. In the public sector, a legislative body made up of hundreds of people would be responsible for overseeing procurement.

Both of these have pros and cons; in the private sector there is not a large amount of transparency and in the public sector no rules can be stretched or amended in certain situations as they are law.

Which one is for you?

There are many benefits for procurement professionals working in both sectors. If you are looking for a challenging and worthwhile role in a large industry, the public sector could be for you. If you are interested in innovation and want to be on the forefront of the procurement industry, the private sector is probably more your style.

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