Yarmouk University

Faculty of Business – Public Administration Department

Public Procurement and Supplies Management -PA360

Chapter 5
Public Procurement Policy and Purchasing

(2024-2025)

Dr. Tamara Al-Yakoub 1

 The slides
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Learning objectives
After studying this chapter, the student will be able to:
 Describe what a public procurement policy is.
 Describe what a public purchasing strategy is.
 Understand the difference between procurement policy and purchasing strategy.
 Understand and explain the procurement policy process.
 Describe the resources that are available in the implementation of procurement
policies.
 Explain what routine, leverage, bottleneck, and strategic purchasing strategies
are.
 Understand how purchasing strategies and sales strategies affect each other.
 Explain in which situations, different purchasing strategies can be used and
different strategic choices can be made.
5.1 Introduction
 Governments try continuously to govern developments in society.
The resolutions, choices, and actions of governments regarding the
governance of specific societal developments are laid down in
public policies which give meaning to the way governments try to
create public value.
 Where public procurement was first only about fulfilling a specific
demand and providing what users needed in the right quantity and
quality, at the right time, in the right place, and for the right
price, it is now often also about making sure that procurement
adds value to its environment.
5.1 Introduction
 Public organizations nowadays use public procurement for reaching a
multitude of societal goals, such as minimizing long-term unemployment,
improving working conditions throughout the international supply chain,
promoting small- and medium-sized enterprises (SMEs), social
entrepreneurs, start-ups, or local businesses, stimulating innovation, and
driving the market for sustainable supplies and services. This
development means that public procurement is no longer just a means to
an end, but also a policy tool that can be used to achieve desired
outcomes in society. How public procurement could or should be used as
a policy tool to reach the desired outcomes of which public policies are
laid down in procurement policies (generally) and purchasing strategies
(more specifically).
 A procurement policy contains the general resolutions, choices, and
actions of a public organization regarding their procurement and utilizing
its supply base. A purchasing strategy uses the guidelines provided by a
general procurement policy to develop a specific strategy or action plan
for a tender or a group of related tenders.
5.2 Procurement Policy

Figure 5.1 Policy process (Anderson, 2003)

5.2 Procurement Policy
 A procurement policy gives guidance to the way an organization procures
works, supplies, or services and creates optimal value for the entire
organization and in the case of public organizations: society.
 Public procurement policies, like any other public policy, can take
different forms, such as distributive policies describing the allocation of
responsibilities regarding certain matters, regulatory policies describing
rights and obligations that should be taken into consideration when
procuring, or stimulating policies providing information that can, for
example, make procuring sustainably easier for public procurers.
 The policy process of procurement policy is like that of any public
policy, which means that it is commonly considered to be a cyclic
process that starts with agenda-setting (driven by a particular societal
challenge), followed by policy development, policy decision-making,
policy implementation and policy evaluation, before it loops back to
agenda-setting.
5.2 Procurement Policy – Agenda-Setting
 Before a procurement policy can be developed, the problem that
the policy addresses must attract the necessary attention and end
up on the agenda of venues that can call for change and initiate
policy development, such as parliament, the media, or society.
 A policy problem is a discrepancy between a benchmark —
principle, norm, or goal— and the conception of the existing or
expected situation.
 It is important to note here that perspectives on a benchmark can
vary, and it is therefore often difficult to provide an objective
definition of a policy problem. The often-contested definitions of
policy problems are one of the reasons why implementation and
evaluation of public policies are often complex. Because how can
you determine if the goal of the procurement policy has been
reached if the problem is not agreed on?
5.2 Procurement Policy –
Procurement Policy Development and Decision-Making
 If the need for change and the policy problem have been put on
the agenda, a policy needs to be developed.
 The development of policies is often considered the result of a
rational process, where policy makers use evidence-based
information to determine what the best instrument is to reach the
desired policy goal.
 Policy development however does not happen in a vacuum, but
rather in an arena (or multiple arenas) where several stakeholders
try to influence policy development. As such, policy development
is also a political challenge where strategic behavior is displayed
 Moreover, procurement policies are developed within a specific
institutional context that affect the possibilities that can be
realized.
5.2 Procurement Policy –
Procurement Policy Development and Decision-Making
 In drafting a public (procurement) policy, a policy maker needs to
answer several questions.
1. ‘Can it work,’ refers to the expected effectiveness and efficiency of
the proposed policy in solving the policy problem (and thus reaching
its goal).
2. ‘Is it allowed’, refers to the legal frameworks that are in place.
3. ‘Is it applicable,’ refers to the applicability of the proposed policy.
Can the procurement policy be implemented in practice, or will it
cause problems or resistance from stakeholders.
4. ‘Is it appropriate’, relates to the legitimacy of government and trust
of citizens in governments to deal with policy problems . This question
requires policy makers to investigate the appropriateness of the
proposed policy for a public organization spending taxpayers’ money.
5.2 Procurement Policy –
2- Procurement Policy Development and Decision-Making
 Therefore, throughout the policy cycle there are numerous
decisions that must be made, ranging from deciding what to do
with the answers to the aforementioned questions (redesign,
cancel, or continue) to approving the policy and moving toward
formal implementation.
 These decision-making processes are often perceived as highly
political processes that contain bargaining and negotiating by
various stakeholders to ensure that the policy that best suits their
interests is formally approved. It is thus important to include
relevant stakeholders in the design and decision-making process,
making stakeholder identification and management a crucial
element in the development of procurement policies.
5.2 Procurement Policy –Procurement Policy Implementation

 Traditionally, policy implementation was considered a rational and

linear process that followed from a formal decision to implement
the designed policy and could be centrally steered. However,
current insights show that policy implementation is seldomly that
simple and straightforward, but complex and typically involves the
collaboration and cooperation of numerous stakeholders. Because
factors that affect the implementation of procurement policies
have been found to vary per context and procurement policy.
 The matrix helps assess how difficult or complex implementing a
particular procurement policy will be by looking at the expected
level of (1) policy conflict and (2) policy ambiguity (see Figure
5.2).
5.2 Procurement Policy –Procurement Policy Implementation

 Policy conflict occurs when multiple stakeholders view the policy

as directly relevant to their interests but have incongruent views
on it. The more incompatible the concerns and the higher the
stakes for stakeholders are, the more intense the conflict will
become.
 Policy ambiguity falls apart into two categories: ambiguity of
goals and ambiguity of means. If there is a high level of goal
ambiguity, this can cause misunderstanding and uncertainty among
stakeholders, which can directly cause policy implementation
failure. Ambiguity of means can occur when, for example, a
technology or a product is required for implementation of the
procurement policy that does not exist yet or when there is
uncertainty about which stakeholders should be involved and what
their role should be.
5.2 Procurement Policy –Procurement Policy Implementation
 This results in four types of policy implementation: (1) administrative
implementation, (2) political implementation, (3) experimental
implementation, and (4) symbolic implementation.
 (1) Administrative implementation has the ideal conditions for
implementation. There is no discussion about the goals of the policy or
uncertainty about its key concepts, it is clear which stakeholders need to
be involved, allowing them to work together smoothly and develop
standard operating procedures. Implementation will almost certainly be a
success and reach the desired policy goal, as long as there are sufficient
resources. However, in practice those resources are frequently
insufficient, making implementation still difficult. Research into public
procurement, for example, shows that insufficient budgets, a lack of
knowledge about sustainable procurement, lack of skills, but also
pillarization in the organization can negatively affect procurement policy
implementation. Having a clearly written and procurement policy is
another vital resource and thus key to successful implementation.
5.2 Procurement Policy –Procurement Policy Implementation

 This results in four types of policy implementation: (1)

administrative implementation, (2) political implementation, (3)
experimental implementation, and (4) symbolic implementation.
 In the case of (2) political implementation, stakeholders have a
clear idea of what the policy is about (low level of ambiguity), but
conflict arises between them, for example, regarding the costs for
executing the policy or who should be tasked with implementing
it. Stakeholders will have to resort to bargaining and negotiating
to reach an agreement and implement the policy.
5.2 Procurement Policy –Procurement Policy Implementation

 This results in four types of policy implementation: (1)

administrative implementation, (2) political implementation, (3)
experimental implementation, and (4) symbolic implementation.
 In the case of (3) experimental implementation of procurement
policies there is high ambiguity—what are we trying to implement
or how?—but little conflict between stakeholders. This is often the
case when the goal is clear, but it is unclear how it can be
achieved. It then depends on the commitment of key stakeholders
to the goal of the policy, the number of other demands on their
time and attention, the perceptions regarding the policy, available
resources, and possible economies of scale that can be achieved
how successful implementation will be. As all these factors vary
per public organization and tender, the implementation results
will therefore also vary per public organization and tender.
5.2 Procurement Policy –Procurement Policy Implementation

 This results in four types of policy implementation: (1)

administrative implementation, (2) political implementation, (3)
experimental implementation, and (4) symbolic implementation.
 In the case of (4) symbolic implementation, a high level of
conflict and ambiguity result in a policy that receives substantial
attention in its agenda-setting and development stage but is
ultimately implemented with little effect. The high degree of
ambiguity means that stakeholders find it hard to agree on what
the policy should aspire to and how to do that, and this combined
with incongruent views, interdependency, and opposing interests
between stakeholders results in a procurement policy that will
unlikely reach the desired outcomes. Implementation in the end is
therefore mostly determined by the strength of the local coalition
of key stakeholders, who control the available resources and their
willingness to address both conflict and ambiguity.
5.2 Procurement Policy –Procurement Policy Evaluation
 Evaluation is a mechanism for monitoring, systematizing, and
grading ongoing or just finished procurement policies, but also
procurement strategies and tenders, so that procurers and other
stakeholders in their future-oriented work will be able to act as
responsibly, creatively, equitably, and economically as possible.
 In the case of procurement policy evaluation, this means that the
merit, worth, and value of organization, content, administration,
output, and/or effects of ongoing or finished procurement policies
are carefully assessed. Evaluation is a value-laden and normative
process that can take various forms. In addition, to the basic
economic evaluation models that assess the effectiveness and
efficiency of the procurement policy in mere economics terms,
there are other broader evaluation models.
5.2 Procurement Policy
 As each model has its own particular advantages and
disadvantages, the combination of different evaluation models is
recommended. With the evaluation of the procurement policy, the
loop of the policy cycle is closed and can start a new cycle by
raising a need for change and a new policy problem to be put on
the agenda.
5.3 From Procurement Policy to Purchasing Strategy
 The effects of a well-implemented procurement policy can be
substantial and lead to a substantial increase in tenders that
stimulate the public policy-related values such as sustainability of
social return. The fact that significant results are quickly visible
could also indicate ‘supplier readiness’ of such values, as suppliers
might be increasingly preparing themselves for governments to use
sustainable and social procurement. Hence, developing a
procurement policy which aligns organizational policies and
market possibilities is essential to ensure that procurement
practices support organizational aims.
5.3 From Procurement Policy to Purchasing Strategy
 These procurement practices consist, among others, of all sorts of
tenders that are organized a public organization. For each tender,
or group of related tenders, a purchasing strategy or action plan is
required that translates, among other things, the broad direction
of a procurement policy to specific strategic choices. Strategy is a
nebulous concept with multiple definitions and little consensus
regarding its makeup. One reason for this difficulty is that the
term ‘strategy’ often refers to different levels, such as the
organization as a whole, a department, a category, and the
tender.
5.3 From Procurement Policy to Purchasing Strategy
 There are many possibilities for practically organizing the translation of
procurement policy to purchasing strategies.
 For instance, a public organization could have separate sustainable
procurement policies for works (like roads and viaducts) and for supplies
and services (such as copiers, engineering services, or software), but they
might also have opted to create sustainable procurement policies for
specific categories, or even subcategories, such as ICT, facilities,
construction, and maintenance.
 For each sub-category or category, a grand purchasing strategy could be
developed, based on one or more procurement policies. Tenders that fall
within the category ‘facilities’, for example, are possible tenders for
cleaning, catering, office supplies. Categories can differ per organization
depending on the tenders they usually conduct. It is also important to
note here that there can be multiple procurement policies that might
need to be combined in a single procurement strategy (e.g., a policy on
sustainability and a policy on involving SMEs).
5.3 From Procurement Policy to Purchasing Strategy
 In addition to the procurement policies that are translated into a
purchasing strategy, the long-term goals of an organization are
also described in the purchasing strategy and how they generally
affect (individual) tenders.
 For example, if the organization aims for integrated facility
management, then one large, clustered tender could be a suitable
strategy.
 Furthermore, a purchasing strategy should be based on a spend
and demand analysis of a specific purchasing category and a
thorough analysis of the market of this category. These analyses
describe what suppliers are operating on the market, what
important developments are, and how demand is developing.
5.3 From Procurement Policy to Purchasing Strategy
 Spend and Market Analyses
 Spend analyses have many purposes, including
 financial control and
 finding opportunities for new tenders.
 When using a spend analysis to develop a purchasing strategy, the spend
analysis should analyze, among other things, the possible contract value
and potential suppliers. In most situations, public organizations already
have contracts with one or more suppliers.
 For the strategy, it is relevant to know what the current contract value of
these contracts is, how it developed over the years, what the contract
compliance is, how many current suppliers there are, and how the
contract value is divided over the suppliers. When more than one
department is involved in a tender, it can also be useful to analyze
contract values per department. For all quantitative data, further
examination is required before a judgment can be passed.
5.3 From Procurement Policy to Purchasing Strategy
 Spend and Market Analyses
 The spend analysis shows nothing of the contents of the current
contracts or the purchases: it shows the volume of the purchases.
It is not useful to judge, or act based on a spend analysis alone.
 One can, for instance, collect additional qualitative and quantitative
data based on input from contract managers, input from end-users,
input from other buyers and experts, and supplier ratings.
 Market analyses can be done using, among other things, market
consultations, buyer consultations, and market reports. Many
countries also have public websites that can be easily used for
market analysis. Such websites show general developments in a
market, such as common procurement procedures or the number
of suppliers that participate in similar tenders.
5.4 Choosing a Purchasing Strategy
 When a buyer has gathered sufficient information about demand and
supply, the main strategic decisions for a tender can be made. Specific
strategic choices for a tender are, for instance, how many suppliers to
contract or what the contract length should be.
 The Kraljic portfolio model plots tenders in a two-by-two matrix based on
two dimensions and enables organizations to determine the most
appropriate purchasing strategy as depicted in Figure 5.5.
 Although it is a general purchasing model, these quadrants can also be
applied to public tenders and strategies.
 The matrix consists of four quadrants of strategies: Bottleneck, Routine,
Leverage, and Strategic. After a tender has been plotted into a quadrant,
a purchasing strategy can be determined. The choice for a purchasing
strategy also depends on whether the purchasing organization considers it
desirable that the tender is in the relevant quadrant or whether it wants
to move it to another quadrant.
5.4 Choosing a Purchasing Strategy
 Bottleneck Strategies
 The bottleneck quadrant is characterized by low public value and a high
vulnerability for the buyer. For this quadrant, securing supply, if necessary, at
an additional cost, is often the highest priority. Long-term contracts can be
used or contracts could be closed with two or more suppliers (e.g., locally
and globally) in order to secure supply. If this strategy is not possible or
desired, the tender could be ‘moved’ to the routine quadrant if it is possible
to standardize specifications.
 Another option could be to split the tender in two or more separate lots. This
can be a fruitful strategy when only part of the tender increases supply risk.
By separating this part, the total contracted value in the bottleneck quadrant
decreases. For example, a tender for standard and customized software could
be positioned in the bottleneck quadrant in case the customized software
creates high supply risk. If the tender is split in two lots, the standard
software lot would move to the routine quadrant.
 Another, more far-reaching, strategy is to find new suppliers (e.g., suppliers
who currently do not do business with public organizations) or to invest in the
interest of emerging (social) suppliers which reduces supply risks in the long
term.
5.4 Choosing a Purchasing Strategy
 Routine Strategies
 A routine tender does not have much value for a buyer. It involves
relatively little money and risk. If the tender is plotted in the
routine quadrant, it is appropriate to invest little time in this
tender. The time that is invested can mainly be used to reduce
administrative burdens. For instance, for office supplies, a buyer
can decide to pay the supplier a fixed amount per month for a
certain service level. This is an easier financial model than when
the buyer decides to use fixed prices for each item that can be
bought.
 To move the tender to the leverage quadrant, an organization can,
for example, bundle purchasing volumes by joining a purchasing
group. An alternative strategy is to combine a few possible smaller
tenders (e.g., tenders for catering, cleaning, and security) into
one large tender (e.g., one faciliatory tender).
5.4 Choosing a Purchasing Strategy
 Leverage Strategies
 Frequently used strategies for the leverage quadrant are the
application of broad competition, (e-)auctions, short-term
contracts, and joint procurement. The focus in these leverage
categories is mainly on getting the best price-quality-impact ratio
as possible.
 To move the tender to the routine quadrant, an organization can
split the tender in several smaller tenders. It is also possible to
increase the strategic importance of the tender, for instance, by
increasing social or sustainable innovation and investment
possibilities for the supplier.
5.4 Choosing a Purchasing Strategy
 Strategic Strategies
 In the strategic quadrant there are usually few tenders to be
found, but these do have substantial public value. Appropriate
strategies in this quadrant are, among other things, carefully
selecting a supplier and building a supply relationship. Strategic
tenders often use more functional specifications than technical
specifications, variants could be allowed, and quality is an
important part of the supplier selection model.
 For this quadrant, supply risks can be reduced, if desired, by
looking for or developing new suppliers. The value (and risk) of the
contract can be reduced by splitting the tender in multiple parts
or by using new procurement models.
 For instance, instead of conducting a large ICT tender for specific
customized software, a public organization could tender for open-
source solutions using multiple lots.
5.5 The Effects of Sales Strategy on Purchasing Strategy

 Although Kraljic’s model is popular in procurement, it does not

consider the possible strategies and reactions of suppliers to the
buyer’s strategies. Mismatches between buyer and supplier are
likely to occur if one does not consider how a supplier would
assess the situation.
 For example, when a public organization aims for a public-private
partnership with a strategic tender, potential suppliers must be
willing to work closely together as well. If there are no suppliers
willing to do this, the buyer has to change its strategy.
5.5 The Effects of Sales Strategy on Purchasing Strategy

 Carter’s customer portfolio model allows suppliers to determine which

sales strategy best suits their customers, or in this context the strategy of
how public buying organizations ‘sell’ their tender potential, as visualized
in Figure 5.6.
 The horizontal axis in the figure below shows the interest that the
supplier has in having the public organization as a customer. This can be
measured by the supplier based on profit margin, turnover, or impact that
can be created by having the public organization as a customer.
 The vertical axis shows how attractive the public organization is for the
supplier. The buying organization can increase its attractiveness by, for
example, involving the supplier early in the development of new
products, by making tenders easier accessible, or by helping the supplier
to improve its quality or impact. Customer attractiveness is especially
important in oligopolistic markets where suppliers have the luxury to be
selective regarding which customers should be supplied.
 5.5 The Effects of Sales Strategy on Purchasing Strategy
 Combining these two axes of Carter’s customer portfolio model leads to the
following four customer quadrants of sales strategies:
1. Core customer: the supplier will try its absolute best to retain this customer.
Joint product development, exceptional service, and high price-quality
ratios are key concepts.
2. Development customer: the supplier will be inclined to offer extra services,
to gain favor, or to withdraw if it no longer sees potential in this customer.
Presenting alternative ideas, delivering added value, and jointly developing
new services or products are key concepts here in order to expand a
supplier’s business.
3. Exploitable customer: the supplier will give this customer less attention
compared to core customers, although retaining the customer is important.
Expanding the commercial position, calculating customer-specific prices, and
being aware of the loss of the profitable customer are key concepts for the
supplier.
4. Nuisance customer: the supplier is inclined to give this customer little to no
attention .The key concepts here are expanding profit margins, realizing
efficiency of the sales process, and withdrawing if the relationship is not
profitable.
5.5 The Effects of Sales Strategy on Purchasing Strategy

 Kraljic’s purchasing portfolio model and Carter’s customer

portfolio model can also be combined, creating more specific
options for purchasing strategies. The combined model is
especially useful when conflicting purchasing and sales strategies
are expected. The model shown in Figure 5.7 shows a customized
combination of the purchasing portfolio model of Kraljic with the
customer portfolio model of Carter.
5.5 The Effects of Sales Strategy on Purchasing Strategy

 Suppose a buyer wants to determine an appropriate purchasing strategy

for a tender that falls into the leverage quadrant. A buyer must first
examine what the possible sales strategy of suppliers is for this tender. If
the suppliers’ sales strategy is a core customer strategy, then a possible
purchasing strategy for the buyer is to consolidate or intensify
cooperation. For the tendering process, this may mean that the buyer
pays attention to aspects such as cooperation potential and measures
aimed to increase impact. A tender procedure that fits this situation
could be a negotiated procedure or a competitive dialogue in case the
context is complex.
 One of the challenges of working with the combined model for a buyer is
that predicting sales strategies during the tender preparation phase may
be difficult and can differ per supplier. A practical solution to this is to
consider the most desired sales strategy of potential suppliers and to
design a supplier selection model and contract management model that
rewards such a sales strategy.
5.6 Specific Strategic Purchasing Decisions
 Based on the generic purchasing strategy for a tender (e.g., aim
for collaboration or aim for competition), a buyer needs to make
several more specific strategic purchasing decisions. An overview
with examples of specific strategic procurement decisions is
included in Table 5.1.
 Several of the decisions mentioned in the table are discussed
elsewhere in this book. In the rest of this section, a few strategic
decisions are explained that are not discussed in other parts of the
book. These include decisions related to the number of suppliers to
be contracted, whether to use lots, contract length, contract
attractiveness, and whether to use functional or technical
specifications.
5.6 Specific Strategic Purchasing Decisions
 Single Versus Multiple Sourcing and Tendering in Lots
 The strategic decision in relation to single or multiple sourcing is
how many suppliers the public organization wants to contract.
Contracting multiple suppliers offers the possibility to create
competition between providers during the contract period, which
is a typical example of a leverage strategy. In addition, there is
more (geographical) capacity when multiple suppliers are
contracted, which could be a bottleneck strategy, as it can create
a more secure supply. If multiple suppliers are contracted, it is
important to decide how the work will be distributed among
suppliers during the contract. For each project, a simple mini
competition could be organized, but it is also possible to allocate
projects randomly without competition (e.g., for small projects or
when price, quality, and impact conditions are completely fixed).
5.6 Specific Strategic Purchasing Decisions
 Single Versus Multiple Sourcing and Tendering in Lots
 Besides the decision regarding the number of suppliers to be
contracted, they must also decide if the tender will be divided
into different lots. For instance, a buyer could use one lot for
technical temporary labor and one lot for faciliatory temporary
labor. This can result in contracting one supplier who wins both
lots or two separate suppliers for each lot. It is also an option to
contract multiple suppliers for each lot.
 Dividing a tender into lots is, for example, useful for involving
SMEs or specialized suppliers. Each lot could be considered as a
separate tender, but an important advantage of tendering in lots,
as compared to separate tenders, is that a buyer can assign
specific conditions to awarding lots. For instance, if there are five
lots, it can be stated that at least two suppliers will be contracted
to prevent over-reliance on a single supplier or that suppliers are
only allowed to submit a bid for a maximum of three lots.
5.6 Specific Strategic Purchasing Decisions
 Single Versus Multiple Sourcing and Tendering in Lots
 Contracting one supplier or tendering without using multiple lots
offers the following advantages:
1. Clear, efficient process which reduces administrative burdens.
2. Easier to coordinate and control and better suited to intensive
collaboration.
3. Well suited to low-value contracts or high (mutual) investments
for the long term.
4. May offer quantity discounts and other economies of scale.
 5.6 Specific Strategic Purchasing Decisions
 Single Versus Multiple Sourcing and Tendering in Lots
 Contracting a relatively large number of suppliers or dividing a tender in lots
offers the following advantages:
1. Avoiding over-reliance on a single provider.
2. More flexible and spreads risks and opportunities for, for example, innovation.
3. Reduces supply delivery risks in case of supply chain disruptions.
4. Offers SMEs more opportunities to participate in a call for tenders.
5. Can lead to better allocations which means that parts of the contract are
carried out by the supplier who can do this best.
6. When applying multiple sourcing, it offers possibilities for dividing the work
through combinations of the following:
 A buyer or citizen chooses a supplier, for instance, when the contract is
healthcare related.
 Choose a supplier randomly or in turn.
 Select a supplier using a mini competition, a quick relatively simple sub-
tender.
5.6 Specific Strategic Purchasing Decisions
 Contract Length
 Buyers can opt for short or long contracts, but contracts without a
contract period limit are not allowed in public procurement. As public
buyers are spending public money, new or other suppliers should have the
opportunity to submit a bid on a somewhat regular basis.
 Long contracts have the advantage that the buyer and supplier can
collaborate more intensively, therefore this strategy often used for
strategic projects. This also reduces transaction costs as tendering is not
conducted as frequently. This is a strategy more suitable for routine
projects (see Section 5.4). When large investments need to be made for a
contract, it is also common to use longer contract terms. Contract length
can also be set at a similar length as the technical lifespan of a product.
A risk of long-term contracts is that the supplier is not incentivized to
keep performing. To reduce this risk, contract incentives need to be
implemented, such as contract extensions or mid-term reviews that can
also influence the pricing model.
5.6 Specific Strategic Purchasing Decisions
 Contract Length
 Short-term contracts can be more appropriate for one-off
purchases (e.g., a specific consultancy job). In markets with high
development rates, it can also be useful to have contracts with
shorter contract periods or more frequent contract extension
moments. This way, it is easier for buyers to switch to other
suppliers in case they start outperforming the current supplier.
However, this type of strategy brings more risks for the buyer if
the number of suppliers in a market is low.
5.6 Specific Strategic Purchasing Decisions
 Functional and Technical Specifications
 An important decision for any tender is the extent in which functional and
technical specifications are used in the requirements document.
 Technical specifications are detailed requirements and focus on the
properties of a work, supply, or service or on what is has. Examples are
measurements and environmentally friendly material characteristics. In
addition, technical requirements can be used for complex interfaces with
existing equipment or software. They can also be suitable if the buyer has
(hired) extensive knowledge about the project. The buyer could in this
case tender using technical specifications and a simple supplier selection
model, which could increase the tender attractiveness for small
suppliers.
 An important disadvantage of technical specifications is that this could
limit the possibilities suppliers have to differentiate on anything other
than price. Also note that if a buyer makes a mistake in a technical
requirement, the supplier could ask for compensation to solve this
mistake.
5.6 Specific Strategic Purchasing Decisions
 Functional and Technical Specifications
 Functional specifications are focused on what the work, supply, or
service must do or provide rather than what it is (e.g., asking for light in
the office, instead of a lamp).
 For functional specifications, compared to technical specification, it is
more important to explain the context and the objective of the buyer.
 Functional specifications leave room for innovation and suppliers can
distinguish themselves toward other suppliers, which is particularly useful
for leverage and strategic projects. However, functional specifications
can also leave room for interpretation. If the latter is the case, then
technical requirements can be used as supplements or replacements. It is
recommended to start with functional specifications and to add or
replace them with technical specifications when this is necessary.
 Finally, note that for services, a distinction is often made between input
and throughput requirements versus output and outcome requirements.
Input and throughput requirements are comparable to technical
requirements. Output and outcome requirements are comparable to
functional requirements.
5.6 Specific Strategic Purchasing Decisions
 Tender Attractiveness
 Tenders are often formal processes and tender documents are complex,
long, and use technical language. This does not have to be problematic in
markets with competitive suppliers familiar with public tenders. A formal
approach can reduce risks for buyers and suppliers, as well as reduce the
risk for legal disputes. However, when a buyer wants to capture the
interest of social entrepreneurs, SMEs, companies owned by socially or
economically disadvantaged persons, or start-up companies, a more
informal and accessible approach is often required. This can also be the
case when a buyer operates in the bottleneck quadrant and is in need for
suppliers. In such circumstances, it is also less likely that there are
substantial tender risks that need to be managed or legal disputes that
need to be prevented.
 If a buyer decides to use a less formal and technical approach, it is
recommended to use short tender documents, with a clear problem or
challenge statement. Instead of requiring formal bids, bidders could in
this case, for example, also be allowed to submit pitches. Also note that
‘unusual’ bidders are typically not found when using traditional
purchasing platforms to announce a tender, therefore advertising the
tender by other communication channels is also recommended when you
want to attract them.
5.7 Summary
 This chapter introduced the concepts of public procurement policy and public
purchasing strategy. Public procurement policies contain the general
resolutions and guidelines of a public organization for guiding and prescribing
procurement choices and utilizing its supply base. The chapter described the
procurement policy process as a cyclic process starting with agenda-setting
(driven by a particular societal challenge), followed by policy development,
policy decision-making, policy implementation, and policy evaluation, and
then loops back to agenda-setting. Each phase of the policy process is
described, including a discussion of important questions that have to be
answered in developing the policy, such as ‘Can it work?’, ‘Is it allowed?’, ‘Is
it applicable?’, and ‘Is it appropriate?’ and an explanation of how conflict and
ambiguity affect implementation of policies. Subsequently it is explained that
a purchasing strategy uses the guidelines and framework provided by a
procurement policy to develop a specific strategy or action plan for a specific
tender or a group of tenders. For developing a purchasing strategy, the Kraljic
portfolio model in combination with Carter’s customer portfolio model can be
used. When combined, the models help set a general direction for the
strategy, such as a focus on collaboration, competition, or innovation. The
chapter concludes with a description of specific strategic decisions,
regarding, for example, single or multiple sourcing, the length of the
contract, the type of specifications, and the attractiveness of the tender that
have significant impact on the supplier selection process and the type of
suppliers that are selected.
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