MUNICIPAL PROCUREMENT DILEMMA
LOCAL VENDORS VS. NON LOCAL VENDORS
By CHARLES M. KNOX, C.P.M. and THOMAS W. DELANTY, C.P.M.
The source of suppliers for materials or services can
have an important impact on the procurement process.
Obviously, the number of viable sources of supply can
have a direct impact on a number of elements affecting
the procurement process including price, delivery time,
quality, and availability of other services, including
repair and maintenance.
In the case of a commodity where there is a large
base of potential suppliers, the municipality will have a
much greater opportunity to influence the price and
other elements of the procurement process. One major
decision to be made in the case of a large base of
suppliers is to determine the best purchase technique to
use in initiating the purchase. Sometimes the purchase
technique will be determined by pre-established guidelines or statutes — such as the $10,000 level at which
sealed bidding is required by statute in some states. At
other times, the best purchase technique will be at the
discretion of the municipal staff and influenced by
factors such as the item being purchased, complexity of
the need, time available and need for follow-up services.
One issue in source selection that can influence the
municipality's procurement is the decision regarding to
what extent it is desirable to use local vendors. This
decision should be approached deliberatly since any
policy in this regard will impact the economic and
political environment in which the municipality must
operate. Any policy on the use of local vendors should
have as its goal the best interests of the municipality as a
whole. There are potential advantages as well as problems of political and ethical correctness in deciding to
buy locally. Great care must be exercised to see that no
favoritism is shown to a particular vendor to the disadvantage of other local vendors. Care must also be taken
to insure that all vendors are treated equally. If prices
are basically the same from two suppliers for the same
items, then the business should be distributed as equally
as possible.
As an aid to considering the degree to which purchases should be made locally, we have provided
below a brief summary of the pros and cons of using
local vendors as a source of supply. We have also provided several suggestions for keeping local vendors
competitive. We hasten to add that, price and other
factors being equal, there should be no hesitation to use
local vendors as a primary source of supply.
PROS AND CONS OF USING LOCAL VENDORS
PROS:
The advantages of using local vendors as sources of
supply are evident. Often local business owners are the
people that support the community, by paying taxes and
voting on referendums. Local purchases can also provide built in economies in the form of availability, cost
of ordering, delivery time and services. A local vendor
may supply service to the municipality that a vendor
out of the area may not be able or willing to provide.
It would be beneficial for all municipal departments
to be sensitive to these considerations while evaluating
what is best for the municipality.
Local Support: In order to sustain a healthy local
economy, it is critical to have an ongoing source of tax
based revenue. Local businesses are a potent source of
funding for municipalities in two ways. First, there is
the sometimes considerable property tax that is paid in
support of the local community. Secondly, to the degree that employees are from the local community they
provide tax support both by payment of property tax as
well as through expenditures made with other local
businesses. Therefore, to the degree municipalities can
do business with local vendors they are helping to sustain the level of services that can be provided by the
local government.
Miscellaneous Purchases: Local vendors are perhaps best able to supply small miscellaneous supplies at
the most economical cost. Even if a local vendor does
not benefit from discounts available to larger suppliers
or distributors, they may be able to offset such a disadvantage by the savings available in terms of greater
inventory turnover and reduced delivery costs. These
items might be nails, bolts, a hammer or shovel. The
municipality may want to consider annual contracts for
small items after obtaining quotes from local vendors.
Cost of Ordering: The cost of ordering from local
vendors can be considerably less than those associated
with non-local sources. One basis for this lower cost is
the fact that the local vendor may have a less formal
ordering procedure than that involved in dealing with
non-local sources. For example, a local vendor may be
willing to work with a line of credit authorized by the
municipality. Another frequent method of ordering
from local sources is through the establishment of a
blanket or open order procedure for the purchase of
miscellaneous requirements of small dollar items.
Another vehicle for reducing ordering cost is suggested
below under suggestions for keeping local vendors
competitive.
Availability: There are distinct advantages in purchasing locally when the vendor is located just a few
minutes away from the job site. An additional advantage is that a local vendor may be more willing to make
special stocking arrangements in order to satisfy the
municipalities material needs.
Delivery Time: Cost of freight and time to obtain
the requirement are reduced and these costs can add up
to appreciable amounts of money throughout the year.
Due to the proximity of a local vendor, it is also possible
for the municipality to arrange to pick up needed materials in cases of emergency.
Extra Services: Local vendors may be more likely to
January 1994 / Illinois Municipal Review / Page 15
supply repair service or replacement of items at little or
no cost. The local vendor may also deliver at no charge
and within a few hours. Better payment terms may also
be available from local vendors. Most local retailers will
be happy to discuss special discounts and terms with
municipal officials.
CONS:
The disadvantages of using local sources of supply
are somewhat more subtle.
Potential for Unethical Practices: Municipal employees and department heads need to be aware of the
possibility of discounts or kick backs to employees that
purchase from local vendors on a regular basis. Small
purchase programs, if uncontrolled, can lead to unethical practices. No municipal employee should be allowed to accept gratuities or preference on personal
purchases from local vendors for placing business with
them. It is easy to start a seemingly harmless practice
that will come back to haunt the individuals responsible
for the purchases and the municipal administration.
Potential for Higher Costs: Some instances of local
purchasing may lead to higher unit costs. Local vendors
may not be able to give the best price, to provide the
quickest delivery on non-stock items, or to offer the
repair service necessary on particular items.
KEEPING LOCAL VENDORS COMPETITIVE
Competitive Pricing: Competitive pricing might be
obtained by seeking a discount off the list price for all
items purchased from a single vendor. Possibly, a sliding scale might be arranged with 10% off on the first
$5,000 and 12-15% off on purchases thereafter. These
prices would be available to all municipal departments.
Small Order Procedure: The use of a small order
program, such as a Field Purchase Order, can reduce
the administrative cost of order from local vendors
since such a program eliminates the additional handling
required in the preparation of a standard Purchase
Order form.
When coupled with a control numbering system, the
use of a Field Purchase Order will maintain the municipality's ability to track and monitor such purchase in
order to insure compliance with ethical standards and
municipal policies.
CONCLUSION
When we consider that our local vendors are our
community and taxpayers, it is always desirable to do as
much business with them as possible, bearing in mind
that they must be able to offer an economic advantage
over non-local vendors. Procurement practices must be
ethical and no partiality may be shown to one local
vendor over another, other terms of the purchase being
equal.
Mr. Knox and Mr. Delanty are both Certified Purchasing Managers (C.P.M.) and Principals in Professional Purchasing Consultants, Inc., 100 Hickory Drive, R.R. I, Box 195, Villa Grove, IL. 61956. The
firm specializes in procurement consulting services to municipalities
and other governmental units. Both Mr. Knox and Mr. Delanty are
members of the Illinois Association of Public Procurement Officials
and Senior Buyers at the University of Illinois in Urbana.
Page 16 / Illinois Municipal Review / January 1994
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