Status of Electronic Procurement in India and its ...

4 downloads 30835 Views 152KB Size Report
Dec 10, 2008 - MNNIT, Allahabad, India, email: [email protected]. ABSTRACT ... relationships, and providing best practices, frameworks and models ... intended to facilitate B2B electronic ..... Industrial Marketing Management, Vol. 32, No.
Proceedings of SCMIS 2008, 8-10 December 2008, Tiruchirappalli, India

ELECTRONIC PROCUREMENT AND ITS IMPLEMENTATION IN INDIAN INDUSTRIES Manish Gupta1 and Rakesh Narain2 1. Lecturer, Mechanical Engineering Department, Motilal Nehru National Institute of Technology, Allahabad, India, email: [email protected] 2. Professor, Mechanical Engineering Department, MNNIT, Allahabad, India, email: [email protected] ABSTRACT Electronic Procurement (EP) is frequently defined as the sourcing of goods or services via. Electronic means, usually through the internet. E-Procurement has been widely described as using electronic means (the internet, web, e-mail) to buy products and services over the internet. It involves electronic ordering, bidding and rendering via portals, extranets, private platforms, marketplaces, and/or EDI. It can also involve the use of purchasing cards, reverse auctions, and/or integrated automatic procurement systems to facilitate, the corporate buying process. This paper presents an overview of the issues involved in EProcurement and the current status of its implementation in different organizations/ departments. The paper concludes by summarizing the key issues, which require immediate attention for research for greater acceptability of E-Procurement. Keywords: E-Procurement, e-Payment, e-commerce, Supply chain management inventories more effectively, reduce purchasing 1. INTRODUCTION agent overhead, and improve manufacturing cycles. E-Procurement (electronic procurement) is the business-to-business or business-to-consumer Internet-driven electronic marketplaces (IEMPs) purchase and sale of supplies and services should enable firms to trade and collaborate more through the Internet as well as other information efficiently and so promise to generate substantial and networking systems, such as Electronic Data savings and revenues for all participants and Interchange and Enterprise Resource Planning. society as a whole (Larsen et al. 2003). EKameshwaran (Kameshwaran et al. 2007) Procurement is expected to be integrated with the conceptualised EP as “an internet-based business trend toward computerized supply chain process for obtaining materials and services, and management. E-Procurement can be managing their inflow into the organization”. summarized as doing procurement activities Typically, E-Procurement web sites allow electronically over the Internet with vendors/ qualified and registered users to look for buyers suppliers (www.eprocurement.gov.in). These or sellers of goods and services. Depending on include: the approach, buyers or sellers may specify costs or invite bids. Transactions can be initiated and z Online indents & demand aggregation completed. Ongoing purchases may qualify z Online Expression of Interest customers for volume discounts or special offers. z Online Bid submission E-procurement software may make it possible to z System supported evaluation. automate some buying and selling. Companies z Online status publishing. participating expect to be able to control parts

Proceedings of SCMIS 2008, 8-10 December 2008, Tiruchirappalli, India z Online release of purchase order/ Letter of award. z Order fulfillment and post procurement processes.

2. LITERATURE REVIEW Precursors of E-Procurement can be seen as early as the 1980s, with the evolution of Material Requirements Planning (MRP) systems into Manufacturing Resource Planning (MRP II), Enterprise Resource Planning (ERP) systems have evolved continuously to respond to emerging requirements and advances in technology (Wang et al. 2005). Moreover, Electronic Data Interchange (EDI) can also be regarded as a form of electronic procurement. Electronic procurement systems experienced a diffusion in the late 1990s (Puschmann and Alt, 2005) due to the proliferation and advances of information technology and the internet, the tremendous potential savings achievable via this tool, and possibly also because of the fear associated with the Y2K issue. While companies were making experiences with this new technology, research articles aimed to capture what was happening, suggesting and testing

relationships, and providing best practices, frameworks and models. Although numerous papers have been published on this topic, a comprehensive literature review has been provided by Schoenherr and Tummala, 2007. They have considered only the most recent advances of E-Procurement, and given a relationship of E-Procurement with e-commerce and their interface with ERP systems is shown in Figure 1. E-commerce generally refers to an inter-organizational information system that is intended to facilitate B2B electronic communication, information exchange, and transaction support through a web of either public access or private value-added networks (Min and Galle, 2003). It can take a variety of forms such as EDI, direct link-ups with suppliers, Internet, Intranet, Extranet, electronic catalog ordering, and e-mail (Gunasekaran and Ngai, 2004).While E-Procurement is the mirror image of e-commerce, they have many different aspects. For example, e-commerce often faces a large number of individual consumers, whereas E-Procurement usually involves dealings with companies (Johnson and Whang, 2002). The explosion of e-commerce over the past 5 years has been nothing short of phenomenal, both in terms of the speed and the scope of change (Boyer and Olson, 2002).

Fig 1: Rough Conceptualization of the E-Procurement Context

Proceedings of SCMIS 2008, 8-10 December 2008, Tiruchirappalli, India De Boer et al. (2002) have described various components of E-Procurement which are as follows: • Web-based ERP – the processes of creating and approving purchasing requisitions, placing purchase orders and receiving the goods or services ordered via a software system based on internet technology. • e-MRO- deals with indirect items (MRO), web-based ERP deals with product-related items. • e-sourcing- the process of identifying new suppliers for a specific category of purchasing requirements using internet technology. • e-tendering- the process of sending requests for information and prices to suppliers and receiving the responses using internet technology. • e-reverse auctioningenables a purchaser to buy goods and services needed from a number of known or unknown suppliers. • e-informing- the process of gathering and distributing purchasing information both from and to internal and external parties using internet technology. An Enterprise Resource Planning (ERP) system is a highly integrated enterprise information system that manages all aspects of the business operations of an enterprise including production planning, purchasing, engineering design, manufacturing, marketing, Distribution, accounting and customer service (Wang et al. 2005). Recently, a range of technologies has emerged that can enhance the capability of ERP, e.g. e-commerce, E-Procurement, customer relationship management (CRM), supply chain management (SCM), and so on (James and Wolf, 2000). The term ‘Supply chain management’ has been used to denote the integration of logistics and physical distribution activities by wholesalers and retaliers and manfacturers’ efforts to effectively integrate purchasing and supply with

other functions in the firm (Wisner and Tan, 2000). Supply chain management has been literally reinvented by the new networked technologies and the practices they facilitate, i.e., E-Procurement, e-logistis, collaborative commerce, real-time demand forecasting, inventory management, true just-in-time (JIT) production, customer interface, and web-based package tracking (Lancioni et al. 2003). A truly integrated supply chain requires a massive commitment by all members of the chain (Tan, 2002). All the procurement problems cannot be solved by internet. Specially, the extended flow of information through the Internet has to be analyzed carefully to generate useful recommendations on how to implement EProcurement successfully (Essig and Arnold, 2001). There are basically three procurement strategies based on their expected costs: strategic partnership, which is based on a long-term realtionship with a single supplier; online search, which is a short-term strategy; and a combined strategy, which is some combination of the first two strategies (Peleg et al. 2002). Although the implementation of E-Procurement initiatives is not all that new, there is current interest in understanding issues involved in its implementation, especially in a web-enabled environment (Angeles and Nath, 2007). The E-Procurement value chain consists of Indent Management, eTendering, eAuctioning, Vendor Management, Catalogue Management, and Contract Management. Indent Management is the workflow involved in the preparation of tenders. This part of the value chain is optional, with individual procuring departments defining their indenting process. In works procurement, administrative approval and technical sanction are obtained in electronic format. In goods procurement, indent generation activity is done online. E-procurement is done with a software application that includes features for supplier management and complex auctions. Elements of e-procurement include Request For Information, Request For Proposal, Request for Quotation, RFx (the previous three together), and eRFx (software for managing RFx projects).

Proceedings of SCMIS 2008, 8-10 December 2008, Tiruchirappalli, India 3. ADVANTAGES AND DISADVANTAGES OF E-PROCUREMENT Advantages include getting the right product, from the right supplier, at the right time, for the right price and the right quantity. In reality eprocurement has the advantage of taking supply chain management to the next level, providing real time information to the vendor as to the status of a customer's needs. For example, a vendor may have an agreement with a customer to automatically ship materials when the customer's stock level reaches a low point, thus bypassing the need for the customer to ask for it. Advantages of E-Procurement can be summarized as: •

• • • • • • • •

• • • • • •

Smart governance with the help of increased transparency, Real time information on procurement and better monitoring and control. Paperless Automatic Work flows Cost Reduction Demand Aggregation Lead time reduction Cost reduction Transparent Streamlined Procurement Processes by reduced procurement cycle time, automated workflows, status update and elimination of non-value adding steps Single stop shop Remote bidding Secure To deliver a reliable and effective technology system To utilizing existing and proven technology solutions To leverage core competencies and experience of partners and key suppliers.

A major disadvantage of E-Procurement could be that the vendor has the power to take advantage of the customer by knowing more information about the customer than they would have if the customer was in a normal supply chain

management structure.Increasing global cooperation, vetical disintegration and a focus on core activities have led to the notion that firms are links in a networked supply chain. This strategic viewpoint has created the challenges of coordinationg effectively the entire supply chain, from upstream to downstream activities (Chen and Paulraj, 2004). 4. WHY E-PROCUREMENT? The various challenges faced by the organizations are: First and foremost, the industries have to define the new business processes unambiguously. Next, in an organization there are several disparate systems that had to be knit together- a complex functional and technical proposition. Lastly, the buy-in of customers had to be sought to ensure that the solution met the business objectives. The suggested solutions to the above challenges can be: to close all windows on procurement control and gain compliance through easy-touse tools like Ariba Buyer, to streamline and speed up the procurement process, to reduce the number of vendors and leverage the spending of the corporation renegotiate best pricing agreements. In other words it is a balanced deployment of technology, re-engineering and sourcing. All three elements need to function in tandem to make the solution work. Situation before e-procurement can be summarized as: z Discrimination in issue of tender schedules to suppliers z Cartel formation suppresses competition z Keeping financial bids close to the maximum permissible z Physical threats to bidders z Tender boxes at multiple locations z Manual movement of tender files from districts to the offices of the Heads of Department z Delays in finalization of tenders z Possibility of tampering or loss of records z Human interface at every stage z Lack of Transparency

Proceedings of SCMIS 2008, 8-10 December 2008, Tiruchirappalli, India 5. PRESENT STATUS OF EP IN INDIA In India the estimated business for EP is about Rs. 450,000 crore per year (Abbasi, 2006). This makes it necessary to have greater transparence, accuracy & faster information flow among the partners. Optimal supply chain collaboration requires streamlined, collaborative business processes and a supporting technology infrastructure that enables synchronization of information across the extended enterprise. As they strive for competitive advantage, today’s organizations are increasingly reliant on deeper, more complex interactions with their business partners. While EP can deliver significant ‘buyside’ cost savings to business, a number of innovative companies , and market places, are now looking at other appropriate areas of their business to drive forward their business performance throughout the value chain- both supply and demand. Automating the purchase of goods and services through implementing an EP system, organizations can make significant reductions on purchasing expenditures. Several government departments/ states have resorted to the use of E-Procurement, though these are at different levels of implementations (Ramanathan, 2006). They are discussed as below: z The government of Andhra Pradesh has pioneered the implementation of a Statewide e-GP system. z NIC & DGS&D have launched e-GP initiatives. z The Governments of Karnataka, Rajasthan, Uttar Padesh and Chhattisgarh have embarked on implementing Statewide e-GP systems. z Only the e-Tendering aspects of eProcurement mainly implemented, though there is increased interest in the other components of e-GP. z There is wide-spread awareness on e-GP. z Many other Public Sectors, Private Sectors and Private Companies like: BHEL , IT & Commerce Department, NISG, Ordinance Factory, Oracle, Sify, Railways, Price-Water Coopers etc. have

either implemented or in the process of implementing E-Procurement in India 6. INITIATIVES FOR PROMOTING EP BY GOVERNMENT OF INDIA Indian government along with the DG(S&D) and the World Bank have formed the following Mission Objective (Pandey, 2006): • • • •

Mandatory publication of tenders on website is already in force. Mandatory e-procurement w.e.f. January 1, 2007, based on Ministry-specific thresholds. Assessment of e-GP readiness is going on. A likely scenario is that e-procurement becomes mandatory for all items covered by Rate Contracts. The DDOs should be able to place supply order on DGS&D’s website.

Purchase of goods through electronic mode of interface with tenderers and IT enabled management of the entire procurement process (notice inviting tenders, supply of tender documents, receipt of bids, evaluation of bids, award of contract, and execution of contract through systematic enforcement of its various clauses and tracking of claims, counter-claims and payments) is gradually gaining popularity. The National Informatics Centre is engaged in pilot projects to design a secure IT solution addressing concerns like encryption / decryption of bids, digital signatures, secure payment gateways, date/time stamp for activities, access control etc. The Ministries/Departments have already been directed to publicize all their tenders on their websites as the first step towards full-fledged e-procurement. The application sector of the Mission Objectives were also discussed in the presentation: •

Defence (a) Food & Beverages (b) Common engineering stores (c) Common user vehicles (d) Special equipment and high value systems

Proceedings of SCMIS 2008, 8-10 December 2008, Tiruchirappalli, India • • • • • •

Railway stores (a) Common user items (b) Special stores Special equipment – Hospitals, scientific departments Office equipment Hospital supplies of medicines and consumables, hospital equipment Stationery and other consumables; Preprinted and security printing Vehicles

7. KEY ISSUES FOR FUTURE CONSIDERATION IN IMPLEMENTATION OF EP As it is clear from the above discussion that EProcurement, embraces many aspects of the business including selecting of the suitable suppliers, ordering, payments, accurate & timely exchange of data etc. lot of issues need to be sorted out and put in place for the success of EProcurement. • • • •

Build a system of Incentive to vendors to participate in E-Procurement. How to attract quality suppliers to drive down prices? Need to create linkages to Vendor Database. Automate veracity of vendor documents.

• • • •

• • •

Reduce subjectivity in technical evaluation. Create a rich database on vendor performance. Develop a system of e-Payments for suppliers. Create a critical balance between collaboration and security in the information gathered from all sources (Smith et al. 2007). Regulatory risks in a system of centralized regulatory framework but decentralized actual procurement. The transition process should be userfriendly for staff. The real challenge for managers is to develop suitable performance measures and metrics to make right decisions that would contribute to an improved organizational competitiveness (Gunasekaran and Kobu, 2007).

8. CONCLUSIONS The implementation of E-Procurement in India is still in its nascent stage, even though some of the large organizations have already started using it. However with the support and motivation of Government of India, E-Procurement finds a bright future in the country and the scope of further research in this field is immense.

REFERENCES: • Abbasi S., Director – Department of Information Technology Government of India, a presentation on ‘Realization of the e-GP Vision: Role of e-Bharat’ given by in the National Seminar on “National e-Procurement Strategy: Challenges in Implementation” held at New Delhi, November 28-29, 2006. •

Angeles R. and Nath R., Business-to-business e-procurement: success factors and challenges to implementation, Supply Chain Management : An International Journal, Vol 12, No. 2, 2007 pp. 104-115.



Boer D., Harink J. and Heijboer G., A conceptual model for assessing the impact of electronic procurement, European Journal of Purchasing and Supply Management, Vol. 8, No. 1, 2002, pp.25–33.

Proceedings of SCMIS 2008, 8-10 December 2008, Tiruchirappalli, India •

Boyer K. K. and Olson J. R., Drives of Internet Purchasing Success, Production & Operations Management, Vol.11 , No. 4, 2002, pp. 480-497.



Chen J. and Paulraj A., Understanding supply chain management: critical research and a theoretical framework, International Journal of Production Research, Vol. 42, No. 1, 2004, pp. 131-163.



De Boer L., Harink J. and Heijboer G., A conceptual model for assessing the impact of electronic procurement, European Journal of Purchasing and Supply Management, Vol. 8, No. 1, 2002, pp.25–33.



Essig M. and Arnold U., Electronic Procurement in SCM: An information Economics-Based Analysis of Electronic Markets, The Journal of Supply Chain Management, 2001, pp.43-49.



Gunasekaran A. and Kobu B., Performance measures and metrics in logistics and supply chain management: a review of recent literature (1995-2004) for research and application, International Journal of Production Research, Vol. 45, No. 12, 2007, pp.2819-2840.



Gunasekeran A. and Ngai E.W. T., Information systems in supply chain integration and management, European Journal of Operation Research, 159, 2004, pp.269-295.



James D. and Wolf M. L., A second wind for ERP, McKinsey Quart., 2000, Vol. 2, pp.100-107.



Johnson M. E. and Whang S., Introduction to the special issue on E-Business and Supply Chain Management, Production & Operations Management, Vol. 11, No. 4, 2002, pp.411-423.



Kameshwaran, S., Narahari, Y., Rosa, C.H., Kulkarni, D.M. and Tew, J.D., Multiattribute electronic procurement using goal programming, European Journal of Operational Research, Vol. 179, No. 2, 2007, pp.518–536.



Lancioni R., Schau H. J. and Smith M. F., Internet impacts on supply chain management, Industrial Marketing Management, Vol. 32, No. 3, 2003, pp.173–175.



Larsen T. S., Kotzab H. and Grieger M., Electronic marketplaces and supply chain relationships, Industrial Marketing Management, Vol. 32, No. 3, 2003, pp.199–210.



Min H. and Galle W. P., E-purchasing: profiles of adopters and nonadopters, Industrial Marketing Management, Vol. 32, No. 3, 2003, pp.227-233.



National Seminar on “National e-Procurement Strategy: Challenges in Implementation” http://www.dgsnd.gov.in/E-GP%20seminar%202006.htm.



Pandey S. C., OSD (Policy and Coordination), D/o Expenditure, M/o Finance, a presentation on ‘eGP Vision’ given in the National Seminar on “National e-Procurement Strategy: Challenges in Implementation” held at New Delhi, November 28-29, 2006 and Co-sponsored by The DG(S&D) and the World Bank.

Proceedings of SCMIS 2008, 8-10 December 2008, Tiruchirappalli, India •

Peleg B., Lee H. L. and Hausman W. H., Short-Term E-Procurement strategies versus Long-term Contracts, Production & Operations Management, Vol.11 , No. 4, 2002, pp.458-479.



Presentation on ‘e-GP Vision’ given by Dr S C Pandey, OSD (Policy and Coordination), D/o Expenditure, M/o Finance in the National Seminar on “National e-Procurement Strategy: Challenges in Implementation” held at New Delhi, November 28-29, 2006 and Co-sponsored by The DG(S&D) and the World Bank.



Puschmann T. and Alt R., Successful use of e-procurement in supply chains, Supply Chain Management: An International Journal, Vol 10, No. 2, 2005, pp.122-133.



Ramanathan SM., E-Procurement Specialist, NISG, a presentation on ‘Experiences of Indian States on e-GP Platforms’ given by in the National Seminar on “National e-Procurement Strategy: Challenges in Implementation” held at New Delhi, November 28-29, 2006 (www.nisg.org).



Schoenherr T. and Tummala V. M. R., Electronic procurement: a structured literature review and directions for future research, International Journal of Procurement Management, Vol.1, Nos. 1 / 2, 2007, pp.08-37.



Smith G. E., Watson K. J., Baker W. H. and Pokorski J. A. II, A critical balance: collaboration and security in the IT-Enabled supply chain, International Journal of Production Research, Vol. 45, No. 11, 2007, pp.2595-2613.



Tan K. C., Supply Chain Management: Practices, Concerns, and Performance Issues, The Journal of Supply Chain Management, 2002, pp.42-53.



Wang C., Xu L., Liu X. and Qin X., ERP research, development and implementation in China: an overview, International Journal of Production Research, Vol. 43, No. 18, 2005, pp.3915-3932.



Wisner J. D. and Tan K. C., SCM and its impact on Purchasing, The Journal of Supply Chain Management, 2000, pp.33-42.