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What is E Procurement? Know all About EProcurement



E Procurement means, the process of procurement of Goods, Services and Works by using internet and specialised software. E Procurement in a sense is the combination of DMS (document Management System) and ERP (Enterprise Resource Planning). Over more than last two decades, eProcurement has evolved a lot and being adopted by many Purchasers, for the obvious advantages it brings; which are enumerated in later part of this article.

Why to Adopt EProcurement System and Develop Strategy for The Same?

Before we answer the question, we need to first understand what are the different type of products/services/works an organization purchases; and the associated cost of procurement, limitations etc. And then we will discuss about how the implementation of an E-Procurement system overcome these limitations and brings efficiency and other benefits.

Purchases can be broadly divided in to 2 categories:

Indirect Purchases:

These are the items/services which are used for the running or the business. These items/services are not part of the finished product or end services, which any organization provides. The indirect purchases can also be divided in to Two parts:

  • ORM (Operating Resource Management) Purchases: These are the items/services which are non-critical and are required for day to day operation of the business. Examples: Office Stationery, furniture items, office equipment, housekeeping services etc.

  • MRO (Maintenance, Repair and Operations) Purchases: These are the items/services which are critical to the running of the business. Items like AMC of important software/servers, spare parts of the machineries etc. The outage of a transformer (and hence the electrical supply to the plant) because of a bearing failure of a fan or small relay can’t be tolerated by any organization. Against the failure of a printer in account department.

The below table better compare MRO and ORM items on different parameters:

Parameter ORM Items MRO Items
Criticality Non-Critical Mission Critical
Nature Low High
Volume High Low
Purchase Freq High/Frequent Low/Infrequent
Inventory No inventory, generally Maintained
Procurement Easy Tough
Description Easily described and catalogued Complex, need detailed specs
Examples Furniture Items, Hose keeping services, Stationery items, travel services Etc Spare parts of machineries, AMC of important software, servers

Direct Purchases:

These are the items which are directly used in the manufacturing process and become the integral part of the finished product. Few examples are: commodities, assemblies, sub-assemblies etc.

These items are purchased through relatively a smaller number of, validated suppliers. The purchasers maintain long term relationship with the vendors. These items are classified under mission critical category and purchased in large quantities with close monitoring.

Steps in Manual Procurement:

Below are the typical stages of any procurement process, though it might slightly vary depending upon the internal process of the organization, land law, urgency of the requirement etc.

  • Specify the need/requirement
  • Check availability of the product/services, pricing etc
  • Creation of requisition
  • Approval of the requisition
  • Seeking offers from the suppliers
  • Evaluation of the offers
  • Select the most appropriate supplier
  • Placing of the purchase order
  • Approval of Purchase order
  • Sending the purchase order to the supplier and/or signing of the contract
  • Check the offer status/follow-up
  • Receive the material
  • Receive and review the invoice
  • Approve exemption/deviation, if any
  • Approve and process the payment
  • Dealing with returns etc

Limitations/Disadvantages of Manual Procurement

There are majorly 5 limitations in manual procurement:

  • Process Inefficiencies
  • Potential for Errors
  • Noncompliance with Procurement policies/regulations
  • Lack of leverage
  • Sub-Optimal Sourcing Efforts

What Are the Advantages/Benefits of e procurement system?

A well developed, safe and compliant E Procurement system may bring lots of benefits to all stake holders. Some of the advantages are given below:

  • Increased Efficiency and Reduction in Procurement Time
    A well-developed E Procurement system significantly reduces the processing and communication time, through a software, unlike a paper-based system. Other systems of the purchasing agency like: budget, general ledger, asset and inventory register and accounts payable can also be integrated with the E Procurement software, which ultimately enhance the overall efficiency of procurement function.

  • Reduced Risk
    The E Procurement software provides the opportunity to incorporate proper checks and balances, which can’t be bypassed or tempered with. An effective feedback and monitoring systems thus enables continuous improvement and hence reduces any kind of risk in the overall system. A well-defined automated e procurement process significantly reduces the chances of human errors and mistake.

  • Improve Transparency and Fairness
    Electronic platform enables quick, global publicity of procurement requirement; which is the first step in bringing transparency in Public procurement system. E procurement tenders list, unlike newspaper-based circulation, which limits the visibility and duration of availability of the tender notices. A robust and fool-proof e procurement system instil confidence among the supplier community. Proper audit trail and well developed and unbiased complaint handling system brings fairness, integrity and transparency in the system.

  • Deliver Value for Money
    A nationwide e procurement portal avoids duplicacy of efforts, reduces the cost of procurement and other admirative expenses; thus, providing overall value for money. Aggregation of demand by various agencies also increases the purchasing power of government entities which is another factor contributing in enhanced efficiency.

What Are the Different Components of E Procurement Software?

E Procurement is basically the internet OR online version of traditional paper based/manual procurement. Any E procurement software generally has below functions like ( types of e procurement / e procurement tools):

E Tendering:

E Tendering is the replacement of paper based tendering process where, all suppliers are informed about the purchase requirement through emails (sometimes the purchasers gives brief advertisement in the newspapers and make the bidders aware about the requirement). All prospective bidders need to submit their offer for e procurement tenders, along with required documents, after valid login to the e procurement software.

This method of procurement is generally used for low volume, high value items. This process is not a real time bidding and require the bidders to submit their offer before the set deadline.

Reverse Auction:

In this type of procurement, the purchasers publish their requirement and the bidders keep on reducing the prices (in real time) at which they can supply the product. The bid is awarded to the bidder who has quoted the lowest prices.

In this case all other formalities like pre-qualification, assessment of technical and financial capabilities, security/Earnest Money Deposit etc are completed before the actual reverse auction is started. This type of procurement is generally used in standard, low value/high volume and easily available (of the self) items.

Forward Auction:

This is nothing but a conventional auction, wherein the entity wants to sell the products. Items like used machineries, scrap etc are sold through this process. Like in conventional auctions the buyer who offer the highest price, gets the material.

A comprehensive E Procurement solution has various other modules like: Catalogue Management, Inventory Management, Invoice Processing, Purchase Order Management, Requisition Management, Sourcing Management and Supplier Management etc.

Which Factors are Responsible for Emergence of E Procurement System?

Majorly, below 3 factors have contributed significantly towards the emergence and adoption of E Procurement system around the world:

  • Globalization which resulted in to decentralization of production facilities and hence sophisticated buyer-supplier relationship.

  • Increase in public spend which necessitated transparency and efficiency in procurement function.

  • Removal of trade barrier and close co-operation among countries with signing of treaties like GPA etc.

What are The Challenges in Implementing E Procurement System?

  • Lack of vision and Strategy

  • Poor leadership

  • Improper/systematic planning

  • Inadequate experience

  • Trying to reinventing the wheel, instead of adopting a proven solution

  • Non-availability of experienced vendors

  • Poor Project management

  • Self-vested interests, avoiding going for E Procurement

  • Giving more thrust to technology rather to the process

  • Inability to changes the rules/acts and policies

Planning for e-Procurement Implementation

  1. THE RECOMMENDED STEPS
    The implementation of e-Procurement has four consecutive steps as outlined in the Roadmap developed by the MDB working group on e-Procurement. The Roadmap is a tool that will have to be adapted to fit the specific conditions, strengths and weaknesses, and prior level of development of e-Procurement in each individual case in order to be applied in all countries, regions, and municipalities. The recommended steps are as follows:

    • STEP 1: THE PLANNING/READINESS ASSESSMENT
      Before the country starts implementing the e-Procurement, it is important to determine the level of readiness to embrace the e-Procurement in a sustainable manner. The MDB working group has developed an e-GP Readiness Assessment (http://siteresources.worldbank.org/INFORMATIONANDCOMMUNICATIONANDTECHNOLOGIES/Resources/ReadinessAssessment.pdf), which is intended to assist a jurisdiction to conduct a high-level review of its procurement environment. Conducting a current assessment is usually one of the key initial steps for developing an implementation plan for e-Procurement. The objective of this stage is to achieve three basic start-up pre-requisites: what (the vision); Who (institutional framework and leadership); How (Action Plan).

      The Assessment addresses the strategic foundations (http://siteresources.worldbank.org/INFORMATIONANDCOMMUNICATIONANDTECHNOLOGIES/Resources/eGPRoadMap.pdf#page=16) of e-Procurement by examining the components that are the basis for planning the transition to e-Procurement, as shown in this table (http://siteresources.worldbank.org/INFORMATIONANDCOMMUNICATIONANDTECHNOLOGIES/Resources/ReadinessAssessment.pdf#page=6). They are institutional capacity, governance, business functionality and standards, third party involvement and application of technology. It is intended that the Assessment be voluntary and completed by people who are positive to procurement reform. 

    • STEP 2: E-TENDERING
      (High Value Low Volume contracts for goods, services and infrastructure sometimes known as e-Bidding) 

      The objective of this phase is to carry out tendering processes in a much shorter period, at a lower cost for both supplier and the government, with total transparency, and with a high impact on development. The specific activities should be around the following:

      2.1. Posting of tendering opportunities and contract-awarded information on a SINGLE internet site.

      2.2. Customized Information

      2.3. Open access to all bidding document via internet.

      2.4. Electronic Bid submission. 

    • STEP 3: E-COMPREHENSIVE CONTRACT MANAGEMENT
      The objective is to achieve transparency, economy and efficiency in the procurement processes. The specific activities should be around the following:

      3.1. Contact execution management (http://siteresources.worldbank.org/INFORMATIONANDCOMMUNICATIONANDTECHNOLOGIES/Resources/eGPRoadMap.pdf#page=50)

      3.2. Contract Capacity consolidation (http://siteresources.worldbank.org/INFORMATIONANDCOMMUNICATIONANDTECHNOLOGIES/Resources/eGPRoadMap.pdf#page=52)

    • STEP 4: E-PURCHASING 
      (HIGH VOLUME, LOW COST GOODS AND SERVICES UNDER SPECIFIED ARRANGEMENTS) 

      The objective is to create a transactional system in which all suppliers may offer their goods and services and all public entities may select online the best option among them, order the supply, receive it, incorporate it to the inventories and process the payment. The specific activities should be around the following (http://siteresources.worldbank.org/INFORMATIONANDCOMMUNICATIONANDTECHNOLOGIES/Resources/eGPRoadMap.pdf#page=58):

      4.1. Define purchasing policies regarding the scope and orientation of the program

      4.2. Supplier enablement through development of a set of market instruments

      4.3. Posting of eligible bids on the internet

      4.4. Organization of Public Sector Demand on the internet

      4.5. Electronic processing of transactions

      4.6. Personalized services, and supply-side incentives

  2. DEVELOPMENT OF GOVERNMENT E PROCUREMENT IMPLEMENTATION STRATEGY

    To perceive e-Procurement developments simply as technological issues is to misunderstand the consequences and relevance for policy, training, infrastructure, service governance, design, production and delivery, as well as technical literacy and awareness.  

    MDB working group has developed a number of important documents that are intended to provide awareness of the issues and present critical success factors that will generally be found in any successful e-Procurement strategy. These are “Strategic Overview: an Introduction for Executives” (http://siteresources.worldbank.org/INFORMATIONANDCOMMUNICATIONANDTECHNOLOGIES/Resources/StrategicOverview.pdf) and “Strategic Planning Guide”( http://siteresources.worldbank.org/INFORMATIONANDCOMMUNICATIONANDTECHNOLOGIES/Resources/StrategicPlanningGuide.pdf). These documents provide an executive style briefing on the main issues to consider when planning for e-Procurement implementation.

    To deliver the maximum impact, a govt e procurement implementation strategy will address the key elements common to many government reforms programs that involve multiple agencies including:

    • Political and executive leadership and authority

    • Management procedures, regulations and legislation,

    • Broad stakeholder involvement

    • Infrastructure

    • Technology

    More questions in respect to Strategic Plan for e-Procurement are answered in this presentation (http://siteresources.worldbank.org/INFORMATIONANDCOMMUNICATIONANDTECHNOLOGIES/Resources/e_Procurement_session_2_Part_2.pdf) shared with the trainees of the distance learning series of the WBI that took place in Spring 2010.  It explains the importance of setting the objective, bringing in the stakeholders and suggests the pillars of the Strategic Plan for e-Procurement Implementation that were applied to the case of Panama. 

    Key considerations for successful implementation are listed in this presentation (http://siteresources.worldbank.org/INFORMATIONANDCOMMUNICATIONANDTECHNOLOGIES/Resources/Chile-Compra-by-José-Miguel-de-la-Cuadra-Public-ProcurementPolicy2.pdf) by José Miguel de la Cuadra, Head of Public Procurement Division of ChileCompra, Ministry of Finance made in Washington on April 28, 2010.

  3. THE NEED TO PLAN FOR BUYER AND SUPPLIER ACTIVATION

    A successful strategy for e-Procurement implementation should include a plan to create the creation of a marketplace.  Many of the buyers and suppliers will have minimum, if any familiarity with the new e-Procurement technologies. Unless a significant number of them see benefits in changing to this method of doing business, there is a risk that the government investment in e-Procurement will fail to deliver its promise. 

    It is important for the governments to understand that in transition to e-Procurement, both the buyers and suppliers will need to learn new job skills as well as understand how these changes would impact their business.  The government needs to do whatever it takes to ensure this happens. This might mean qualifying suppliers in terms of what information they can provide electronically or, particularly in the case of small specialist suppliers, offering them training and even the technology to enable them to participate.

    The MDB working group on e-Procurement developed a special "Buyers and Suppliers Activation Guide" (http://siteresources.worldbank.org/INFORMATIONANDCOMMUNICATIONANDTECHNOLOGIES/Resources/BuyerSupplierActivation.pdf); for the governments embarking on e-Procurement implementation.  

How to Select A Right E Procurement Solution?

Selecting a perfect solution which meet the organization’s need; at most workable price is a challenge for any organization. There are various situations, pros and cons attached with any solution. In the below section we have tried to enlist various important criterions which needs to be considered with:

  • Cost:
    The European research on e-Government Cost Analysis (http://siteresources.worldbank.org/INFORMATIONANDCOMMUNICATIONANDTECHNOLOGIES/Resources/D.1.3Expenditure_Study_final_version.pdf) is a useful document for the policy maker. It outlines concepts, methodologies and context to plan, deliver and maintain an e-Government application.  The same costing methodology (http://siteresources.worldbank.org/INFORMATIONANDCOMMUNICATIONANDTECHNOLOGIES/Resources/D.1.3Expenditure_Study_final_version.pdf#page=12) could be applied to e-Procurement system.  Several established methods exist, the most common are:

    • Direct Costing: Direct and Indirect Variable Costs + Direct Fixed Costs

    • Full costing: Direct Variable Costs + Direct Fixed Costs + Pro-rate of Indirect Costs

    • Activity based costing (ABC): This is a leading-edge choice for EU public administrations (Greek Tax Agency), but the research shows that it is being adopted or recommended in countries such as the U.S. and Australia. 

    • Total Cost of Ownership (TCO): Sometimes referred to as “Total Cost of Operation,” is a more modern and prominent methodology, which is more specific to the field of ICT. It takes into consideration the cost of software and hardware acquisition, maintenance, personnel training and technical support.

    The research on e-Government costs can be used to estimate costs of an e-Procurement system.  The following are the major costs components of the costing exercise:

    Planning phase

    • Business planning costs

    • Marketing planning costs

    • System planning costs 

    Implementation phase

    • System acquisition costs

    • System development and implementation costs

    • Costs of organizational change

    Provision

    • Own personnel operational costs

    • Material operation costs

    • Other operational costs  

    Maintenance

    • Hardware maintenance/service costs

    • Software maintenance/service costs

    • Hardware/software upgrades costs

    • Hardware/software replacement costs

    Performance measurement and quality control

    • Own personnel costs for input and output data gathering activity

    • Won personnel for quality inspection/certification costs

    • Costs of surveys of internal user satisfaction and attitudes

    • Costs of surveys of external users satisfaction

    Research and development

    • Costs for research on and for initiatives in support of, service take up

    • Costs for research and development of interoperability

    • Costs for technological R&D to increase accessibility/usability of services

    • Costs for R&D on new contents/new services 

  • The same concepts may be applied to estimate the costs of the e-Procurement system.

  • Procurement Functionality:

    • Availability of Purchase item like: Direct Purchase, ORM and MRO purchases.

    • Procurement Process Features

    • Catalogue Functionality

    • E Marketplace Characteristics

  • Other Value-Added Services

  • Shipping

  • Multiple Language

  • Multiple Currencies

  • International Tax Standard Support

  • Web based reporting

  • Payment Facilities, Purchasing Cards etc.

  • Integration

    Every organization uses various types of software applications. One needs to evaluate the necessity and the possibility of new e procurement system being offered, to integrate with the existing applications/software.

  • Security

  • Scalability

  • Ease of Operation

  • Maintenance and ongoing Support

  • Vendor’s Credentials and Experience

  • SLA (Service Level Agreement)


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