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International Bulletin of Business Administration ISSN: 1451-243X Issue 3 (2008) © EuroJournals, Inc. 2008 http://www.eurojournals.com

Reengineering the Procurement Process in a Public Sector Organization: A Case Study

Arshad Zaheer

Foundation University, FUIMCS, FF Complex, New Lalazar, Rawalpindi Cantt

Optics Laboratories, P. O. Box 1021, Islamabad, Pakistan

E-mail: arshad_zz@yahoo.com Tel: +92-3335135751

Khalid Mushtaq

Centre of Advanced Studies in Engineering

University of Engineering and Technology, Taxila, Pakistan

E-mail: arshad_zz@yahoo.com

Hafiz Muhammad Ishaq

Business Administration Department, Federal Urdu University, Islamabad, Pakistan

E-mail: ishaq74nk@yahoo.com Tel: +92-9506525

Abstract

This paper analyzes and reengineers the procurement process of a state owned enterprise in Pakistan. The research team used case study methodology to examine the existing procurement system of M/S XYZ, and collected data through observation and interviews. The respondents of this study comprise all the employees including managers and executives who participate in the procurement process, directly or indirectly. The authors used Microsoft Visio to examine the process flow and to model the existing and reengineered procurement process. The study reveals the inordinate delays, unnecessary approvals and financial mismanagement in the procurement process. The bureaucratic steps cause time and cost inefficiencies during the procurement of local and foreign supplies. The authors conducted expert interviews and applied BPR principles to reengineer the existing procurement process of M/S XYZ. The proposed reengineered model attempts to reduce money cost by 81%, time cost by 74% and human resource involved by 69% using BPR techniques. The net effect endeavors to improve efficiency and effectiveness, and enabling the organization to earn itself the envious status of a vibrant, dynamic and progressive concern. This study provides good grounds for furthering the efficacy of BPR strategy and recommends the installation of customized software to improve the efficiency of employees and processes.

Keywords: BPR, Reengineering, Procurement System, Public Sector Organization

1. Introduction

The 21 st century is progressing with all its developments; every enlightened organization is striving for latest productive techniques. Business Process Reengineering is no more an alien concept in modern world and is best understood as a never-ending process of improvement in performance. Most of the

organizations, public as well as private, still stick to old ways of doing things. Traditional bureaucratic procedures are in place which hinders the performance and productivity level in the enterprises. Business processes are not customer oriented. These are costly and time consuming resulting inefficiency and ineffectiveness. There is a desperate need to thoroughly analyze and reengineer the old-fashioned and obsolete business processes to improve performance. This study focuses on analyzing and reengineering the procurement process of a state owned enterprise. The purpose of the study is two fold. First it attempts to identify the bottlenecks in procurement procedures in public sector organization. Second, it endeavors to redesign and reengineer the procurement process in the organization so as to realize a system wherein speed, transparency, quality and economy become the hallmark of all provisioning actions to acquire supplies from local and foreign vendors that are requisitioned by the production shops.

  • 2. Literature Review

Hamper and Champy (1993) defines the business process reengineering as “The fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service, and speed”. Business process reengineering involves the thorough analysis of the current business processes and redesign to improve performance (Davenport and Short, 1990; Teng et al., 1994). The importance of BPR is crucial for public sector organizations (Parys and Thijs, 2003). It is difficult to deploy BPR efforts in public organizations (Parys and Thijs, 2003; Robert, 1994; Thong, Yap, and Seah, 2000). The government organizations are usually attached to many other departments and ministries. The change in one unit requires change in other interlinked organizations. It is therefore necessary to handle all these problems to successfully implement the BPR strategy in the public sector organizations (Parys and Thijs, 2003). Tenner and Detoro (1992) defines process as a single or combination of tasks that add value to inputs to convert them into outputs by the application of human interactions, methodologies and techniques. The authors confines the key points and describes stages to improve business processes using step by step procedure to achieve real performance goals. Individuals at any level in manufacturing, service or the public sector can benefit from this approach which enhances the chances of success in improving organization wide performance. It is designed for leaders at any level who are committed to drastically improving their organization’s performance through redesigning its processes. The business processes consist of different activities which define the pattern of work in the organizations (Sethi and King, 2003). The efficient processes serve to satisfy the customers by converting input resources to desired output (Fields, 2007; Hammer and Champy, 1993; Harrison and Pratt, 1993; Snee, 1993). Evans (1993) signifies the importance of analyzing the existing business processes in organizations to identify bottlenecks in systems. The author translates this phase as ‘As Is’ step of BPR. The other important phase is ‘To Be’ which describes the desired performance achievement level of business process. BPR attempts to fill the gap between these two organizational situations. Business process analysis attempts to achieve operational efficiency by reducing time and cost factors (Cook, 1996; Davenport, 1993; Day, 1994; Roy, 2005; Wang and Ahmed, 2003; Muthu, Whitman and Cheraghi, 1999). Fitzgerald and Murphy (1996) suggest four crucial phases for successfully implementing the BPR strategy in the organizations. First, the core business processes to be redesigned should be selected. Second, the process team should be established to reengineer the core business processes. Third, the current business processes may be analyzed and examined to find out bottlenecks in the systems. This phase also determines the satisfaction level of stakeholders with process outcomes. The last phase encompasses the strategy to reengineer the process to improve performance.

McAdam and Donaghy (1999) highlight the importance of BPR in public sector and examine the views of public sector employees about the critical success factors for the successful implementation of the strategy in the public sector. In order to analyze the business processes, it is necessary to examine the step by step flow of different activities. Process map generates a sequential schematic diagram of process to reveal the flow of work by using standard symbols (Tenner and DeToro, 2000; Harrington, Esseling, and Nimwegen, 1997; Cook, 1996). Functional process maps show the responsibility of different departments in the organization for a business process. Time line flowcharts signify the cycle time along the process by using a time scale for process map. Top-down charts show major elements of process in the top and specify details there under. Workflow maps show the physical movement of entities involved in the business process. Block diagrams represent the major activities of business processes in the boxes (Tenner and DeToro, 2000). Hamper and Champy (1993) emphasizes on critical performance measures which should be achieved during the reengineering process. Cost and speed of process are two important aspects which determine the efficiency of processes.

3. Method and Analysis

This study uses the case study methodology to analyze the existing procurement system of M/S XYZ which is a reputed public sector organization. The research team collected data through observation and interviews. The respondents of study comprise all the employees including managers and executives who participate in the procurement process, directly or indirectly. The authors conducted in- depth interviews with selected participants to examine the process, and used Microsoft Visio to model the existing and reengineered procurement process.

3.1. ‘As Is’ Procurement Process

This study aims to draw the flowchart to describe the procurement process in M/S XYZ which is located at about 30 Kilometers from headquarter (HQ). The Main Procurement Department (MPD) is a separate division which is responsible for the procurement of stores required by various subsidiaries of the main business all over Pakistan. M/S XYZ is a technical organization involved in the manufacturing of scientific and technical equipments. The employees of M/S XYZ raise indents for the procurement of local and foreign stores which is to be approved by MPD in concurrence with finance division and concerned authorities in the HQ. Historically all the work is manual, full of traditional bureaucratic steps and procedures. The procurement process of M/S XYZ starts with the submission of indent form for procurement of supplies from local or foreign suppliers on limited quotation basis. i.e. 3 quotations are must. Before the formal call of quotations, the indenter already takes exercise of collecting rates for the required material from its own sources. Table 1 reports the involvement of human resource at different hierarchal level and location during the general procurement process of M/S XYZ.

Table 1:

Human Resource involved in the process

M/S XYZ Main HQ

Main Procurement Department

 

(Building 2)

(Building 1) Executive Finance

Attendant-4

Executive MPD

P.A to Executive

P.A

Sr. Finance Officer-1

Manager MPD

Assistant-III

Assistant-II

Sr. Finance Officer-2

Attendant-III

Assistant-IV

Technical Vice President PA to Technical Vice President President PA toPresident

 

M/S XYZ (30 km from above)

Executive M/S XYZ

PA to Executive M/S XYZ

Indenter

Purchase Manager

Assistant-1

Attendent-1

Finance Officer

Attendant-II

Dispatcher

Table 2 presents process identification worksheet with trigger events and process name

Table 2:

Process Identification Worksheet

Area of Business being Reviewed: Procurement of Supplies

Trigger Events

Process Name

Indenter has need for specified material/supplies.

Process Initiation

 

Indent submission

Indenter submits request/indent form to the purchase manager Purchase manager process the indent form by taking approvals from higher authority for

Indent Processing

the said purchase.

Purchase manager invites quotations from the prospective suppliers.

Inquiry floating

   

Purchase manager receives quotations and prepares QCS. Purchase manager recommends the lowest supplier or other supplier with full justification

QCS Preparation Supplier recommendation

after consultation with indenter and get it recommended from Executive M/S XYZ. Purchase manager submits the case to Main Procurement Department which after

purchase proposal

consultation with HQ finally approves the purchase proposal in favor of recommended

evaluation/approval

supplier. After approval, MPD places the order to supplier for the said purchase after negotiating certain terms and conditions.

Order placement

   

MPD arrange for payment Supplier arranges the stores, pack it properly and ship to M/S XYZ. Shipping documents are faxed to the MPD.

Payment process Stores Delivery Process

 

Stores inspection

Indenter checks/inspects the supplies as per specs ordered. Stores is handed over to the indenter after inspection.

Process completion

Figure 1: Reports the flowchart and model of existing procurement process of M/S XYZ.

Figure 1: Reports the flowchart and model of existing procurement process of M/S XYZ.
The process map of existing procurement system revealed that the process of procuring supplies from local

The process map of existing procurement system revealed that the process of procuring supplies from local and foreign vendors/suppliers within the organization is seized with serious problems and complaints lodged by users. In that, inordinate delay in indents’ processing as it goes through different channels of scrutiny and approvals, poor quality, financial mismanagement, and over- expenditures are frequently observed. Historically all the work is manual, full of traditional bureaucratic steps and procedures. Process description statements, block diagrams and flowcharts, illustrating the procurement procedures at M/S XYZ, reveal areas where BPR techniques can be very

effectively applied. A total of 95 different actions have been identified during the analysis of the XYZ procurement process. Time and cost inefficiencies are the main problems in the purchasing process as assessed by the respondents.

3.2. ‘To Be’ Procurement Process

The authors implied BPR principles and incorporated expert opinions to reengineer the existing procurement process of M/S XYZ. Figure 2 reports the reengineered procurement process of M/S XYZ.

Figure 2: Reengineered Procurement System of M/SXYZ

effectively applied. A total of 95 di fferent actions have been identifi ed during the analysis
4. Conclusion The proposed reengineered model attempts to reduce money cost by 81%, time cost by

4. Conclusion

The proposed reengineered model attempts to reduce money cost by 81%, time cost by 74% and human resource involved by 69% using BPR techniques. The net effect endeavors to improve efficiency and effectiveness, and enabling the organization to earn itself the envious status of a vibrant, dynamic and progressive concern. This study provides good grounds for furthering the efficacy of BPR strategy and recommends the installation of customized software to improve the efficiency of employees and processes.

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