Contract System in State Procurement: Logistic Management Perspectives

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MAGAZINE №6 (77) December 2016


CATEGORY  Sourcing


The law on the contract system, which regulates the purchase of state and municipal sphere, admits the possibility of laying a centralized authority to determine the supplier to the specialized public authorities. Representing the interests of a group of subordinate organizations located in some geographical areas or operating in certain sectors of the economy, such "single customer" can perform a number of functions to be implemented at the moment consumers of material resources independently. For example, the collection of applications and consolidation, preparation and conduct of suppliers determination procedures, contracting, supply control, and so forth.

The volume of purchases by considered separately customers is disproportionately less than the consolidated need of companies from a certain sector of the economy, formed on the same resources. As a result, customers lose the opportunity to obtain wholesale discounts when placing large orders direct from the manufacturer. The lack of centralized control leads to the necessity of keeping the customers to own expense warehouses, paying for the additional handling and increasing the cost of warehouse processing in case of the disaggregation of batches.

The calculations were performed in comparable rates in the form of a feasibility study of the project, involving the formation of a centralized organ of management of material flows in the public sphere. To determine the period of return on investment, calculated simple payback period (payback period – PP).

The calculations given in the article show that the usage of logistic principles in the management of public and municipal procurement can achieve significant savings of budget funds that are allocated in a fairly limited quantities, given the current state of the economy. In addition, investments in fixed assets, which have to do with building infrastructure "single customers" pay off in a relatively short period of time.


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