Description
The PPT describing on types of procurements process, Electronic Purchasing platform, On-line Bidding Process , industries, advantages, integrated value-chain alongwith a case and implementation process.
E-business: e-procurement
INTRODUCTION DO MORE THAN EXECUTING TRANSACTIONS
REDUCE COSTS AND OPTIMIZE PROCESSES
Navigating through e-procurement
COVERS WHOLE INDUSTRIES LEADS TO INTEGRATED VALUE CHAIN
CASE STUDIES
INTRODUCTION
Procurement
? Complete process of obtaining goods and services from preparation and processing of requisition through to receipt and approval of the invoice for repayment. ? Two types based on consumption purposes: 1. Direct : production related procurement 2. Indirect : non-production related procurement
Electronic Purchasing platform
? It is B2B or B2C purchase and sale of supplies of goods and services. ? Multilateral transactions system addressing the needs of the procurement or ‘buyer’/ buy side of a business. ? Allow interactions between several markets participants ? Support multiple procurement related process for buyers, including transactions between customers and suppliers. ? And that’s why purchasing platforms are distinct ? Done through internet or other networking systems like EDI and ERP
Procurement Process
Requirement planning
Sourcing strategy
Supplier identification & selection
Negotiation -Price -Terms
Oder placement & execution
Fulfillment – track and Trace
Review Purchases & effectiveness
Inquiries & complaints
EDI
Bilateral
Purchasing platform
Multi-lateral
Significant components of Platform Purchasing
? ? ? ? ? ? ? ? ? ? Purchasing guidelines and authorities comprehensive, Internet-based product and supplier catalogue Supplier prioritization listing Online availability checking Information recourses for supplier negotiations Request for quote engines/wizards Catalogue ordering Oder handling Supply monitoring Contract management, purchasing control
Suppliers
Listing/ supplier prioritization Online Availability Check
Bid (Submission, Auction) Catalogue Order
Purchasing guidelines & Authorization
Buyers
Order Handling
Negotiation relevant information
Buyers Buyers
Contract management
Controlling
Buyers
Delivery/Payment
Advantages of e-purchasing platform
1. Greater price transparency 2. Process automation 3. Lower cost and higher quality
The On-line Bidding Process
Product identification
Buyer identifies products that have high saving potential and suitable for electronic procurement.
Requirement definition
The buyer give complete detail of the product require in detail. The on-line bidding should only take place once the brief has been fully developed.
Supplier selection
Pre-qualified bidders are invited by the client to submit a ‘technical’ proposal containing everything (except the price) and to participate in the auction on a specific date and at a specific time. Specifications and instructions on how to participate in the auction will be provided in advance of the event.
AUCTION
Auction
? The on-line bidding exercise will usually be conducted on behalf of the client by an IT service provider. It is usually specified that bidders can only bid downwards and the minimum decrement is usually specified. ? The client may sometimes display an opening bid price; this will be an indicative guide to bidders. From this point onwards, all bids will progress downwards during the duration of the e-Auction. The client may set the e-Auction parameters so as not to allow bidders to start their bidding higher than the opening bid price.
Each bidder will be able to submit as many new bids as they wish up to the closing time of the e-Auction ,the ranks are revised accordingly.
Result analysis
After analyzing the bids contract is awarded to the most appropriate bidder against the criteria which is already fixed by the client for the particular contract or for product.
Bidding process in a nut-shell
Product identification
• Identification of the product with high cost saving potential and suitability for e-procurement.
Requirement definition
• Detailed product specification • Analysis of product and process related costs. • Price expectations. • Definition of supplier profile • Identification and selection • Listing of suppliers • Specification of lots • Training of employee • Execution of auction
Highly company specific
Supplier selection
Auction
Standard
Result analysis
• Evaluation of suppliers bid.
Specific
LOWER COSTS AND OPTIMIZE PROCESSES
? Reduced process costs – Especially for indirect goods which have inefficient purchase order processing driven by:
? ? ? ? Large no of routine tasks Manual co-ordination processes Lack of information Errors and delays in follow up
? E- procurement of indirect goods
MRO’s have lower value, acquired when needed and order placing by large number of employees. Process costs higher than purchase costs. Desktop purchasing systems from Ariba, Commerce One for dispersed users within centrally controlled levels of authority. Pre arranged contracts with internet based stores like Office Depot and Grainger’s findmro.com
? Reduced product costs – Lowest cost sources of supply determined. • Access to smaller or overseas suppliers • Company purchasing systems open up to new suppliers without loss of efficiency • Purchasing cycles speed up by using dynamic pricing models • Disparate local requirements aggregated • Negotiated cost reductions implemented faster • Greater compliance with company’s purchasing policy
? Lower inventory costs
• • • Inefficient procurement leads to increased inventory Achieved through effective information transfer Reduced by 25-30% - The Aberdeen Group
? Increased speed and effectiveness
• • Lower inventory holding, faster procurement cycles result in competitive advantage Savings achieved vary per industry, maximum in electronics and computer industries.
E-procurement covering the Industry
? Use of EDI and XML to carry out transactions over the internet. ? Industries extensively using e-procurement
Automobile Industry
Consumer Goods industry
Computer Industry
ADVANTAGES
? Companies that operate different systems can extract information and import it into their operating system Incompatible systems interact with each other Development of o platform to establish industrial standards, share costs Potentially beneficial for all in chain including consumers. ?
CHALLENGES
Improper accumulation of market power ? Lack of supplier readiness ? Systems integration issues ? Unable to justify costs i.e. High implementation costs. ? Difficulties with catalogue integration ? Difficulty aligning organizational culture with e-procurement ? Getting users to commit to it. Ex. Efdex- European Food sector
? ? ?
Electronic Data Interchange (EDI)
? Based on defined syntax and semantics. ? Carried out via private networks operated by value added service providers (EDI VANs) -GE Information systems ? Disadvantages? ? ? High costs associated with maintaining network connections. Lack of interactivity rendering marketplace applications impossible Lack of flexibility/extensibility
Extensible Markup Language (XML)
? ? ? ? Used to define categories and terms recognized by computers. Designed to carry data(XML), not to display data(HTML). There is only a syntax(structure) but no semantics(meanings). XML repositories developed to define and implement sector specific standard XML dictionaries. Ex. RosettaNet- IT, Electronic Components and Semiconductor Manufacturing companies
Leads to integrated valuechain
? Long-term goal of e-procurement is to integrate the earlier and later stages of the value chain ? Integration of pre-production processes is not new
? Critical tipping point – purchasing activity becomes tightly linked ? Information then moves dynamically along the entire network of relevant partners
provides unique competitive advantage to the organization
Enterprises typically spend around 60 percent of their A on covering their procurement and revenue$5 million reduction in procurementsupply costs increases profits by a chain corresponding amount. However, a costs.
company with a 10 percent profit margin needs to increase sales by $50 million in order to attain similar profit improvements.
Any reduction in procurement/SCM costs translates into a dollar-for-dollar increase in profits.
Critical to success: need to provide additional value and benefit to all the players
If the potential participants only see the arguments of transparency and volume for further price reductions
CASE STUDY: e-procurement.gov.in
Traditional system of Procurement
Inordinate delays in processing of Tenders
• Heavy paper work • Multi level scrutiny
Physical threats to bidders
Cartel formation by contractors to suppress competition
Human interface at every stage Inadequate transparency
Discretionary treatment in entire tender process.
Need for better procurement system
? Effect on reputation of Government Departments ? Crippling impact on completion of project and delivery of services to citizens ? Adherence to guidelines of the government and sometimes of external agencies like World Bank
Objective of e-procurement by AP
? reduce the time and cost of doing business for both vendors and government ? realize better value for money spent through increased competition and the prevention of cartel formation ? standardize the procurement processes across government departments/agencies ? increase buying power through demand aggregation; provide a single-stop shop for all procurements ? allow equal opportunity to all vendors ? bring transparency and ultimately reduce corruption
New approach
? GoAP identified these shortcomings. ? The GoAP procures goods, services, works and turnkey contracts worth $ 2.0 billion every year. ? The management of this pot of money was rigged with problems identified priory. ? GoAP facing delays and loss of money through the manual tendering process.
Implementation challenge
Arrival of a sustainable business model
•Whether it will be •Government owned and operated •Government owned and privately operated •PPP
Interdepartmental coordination
•Arrival at a state wide procurement model encompassing various departments.
Change Management
•Getting the stakeholders to use the new model
Security and Authentication
•Ensure secure transaction
Arrival of a sustainable business model
PPP model was chosen
• Government has Domain Experience • Private Partner has Technology and requisite Skills • Expenditure borne upfront by the Private partner • Revenue generated by way of transaction fee paid by the user department
PwC consulted the Government in choosing the partner and preparing the RFP document. A consortium, lead by M/s C1 India Pvt. Ltd. was selected as the private partner based on the competitive bidding
Interdepartmental Coordination & Change Management
Security and Authentication
Two-factor authentication Digital signatures in compliance to the IT Act 2000 Bid encryption at the data base Online antivirus scanning 128 bit SSL encryption
Audit trail of each activity
Privilege-based user access Facility for digital notarization and time stamping Firewall for screening system access
Access control system
Intrusion detection system (network and host) Periodical third party security audit of system Disaster Recovery Site
Activity level of the platform
Year No of Departments/ Agencies 8 Departments 7Departments 9 PSUs 17 Municipalities 8 Departments 13 PSUs 51 Municipalities 5 Universities Value of Transactions completed (millions) 447 3522 No of Transactions processed 564 3746 Percentage of Total Procurement Activity 20% 80%
2003-04 2004-05
2005-06
3740
7931
90%
Benefits and Costs
Reduction in Tender Cycle Time
• Previously 90-135 days • Now it is 35 days further reduced from 42 days
Reduction in opportunities in corrupt practices Cost Savings
• Yielded a reduction of 16% in the quotations in comparison to the previous years when the procurement was manual. • Supplier participation has increased from an average of 3 per tender in conventional mode to 4.5 in eProcurement mode • Average reduction of 20% in cost for the procurement transactions done
Cost of implementing the system
Technicalities
? 3 tier Architecture
? Presentation tier ? Business logic layer ? XML data layer
? Database tier
Phases of Implementation
Phase 1: Pilot a. 4 selected departments b. Duration 9 months c. Use of portal mandatory for transaction above 10 million, reduced to 1 million at the end of this phase Phase 2 : Roll Out a. Period of three years to cover all governments departments b. As on march 2007 : 29,400 tenders, aggregating to 45138 crores of rupees through this portal
Phase 3 : operation and on going maintenance Value Added Services
doc_436363254.pptx
The PPT describing on types of procurements process, Electronic Purchasing platform, On-line Bidding Process , industries, advantages, integrated value-chain alongwith a case and implementation process.
E-business: e-procurement
INTRODUCTION DO MORE THAN EXECUTING TRANSACTIONS
REDUCE COSTS AND OPTIMIZE PROCESSES
Navigating through e-procurement
COVERS WHOLE INDUSTRIES LEADS TO INTEGRATED VALUE CHAIN
CASE STUDIES
INTRODUCTION
Procurement
? Complete process of obtaining goods and services from preparation and processing of requisition through to receipt and approval of the invoice for repayment. ? Two types based on consumption purposes: 1. Direct : production related procurement 2. Indirect : non-production related procurement
Electronic Purchasing platform
? It is B2B or B2C purchase and sale of supplies of goods and services. ? Multilateral transactions system addressing the needs of the procurement or ‘buyer’/ buy side of a business. ? Allow interactions between several markets participants ? Support multiple procurement related process for buyers, including transactions between customers and suppliers. ? And that’s why purchasing platforms are distinct ? Done through internet or other networking systems like EDI and ERP
Procurement Process
Requirement planning
Sourcing strategy
Supplier identification & selection
Negotiation -Price -Terms
Oder placement & execution
Fulfillment – track and Trace
Review Purchases & effectiveness
Inquiries & complaints
EDI
Bilateral
Purchasing platform
Multi-lateral
Significant components of Platform Purchasing
? ? ? ? ? ? ? ? ? ? Purchasing guidelines and authorities comprehensive, Internet-based product and supplier catalogue Supplier prioritization listing Online availability checking Information recourses for supplier negotiations Request for quote engines/wizards Catalogue ordering Oder handling Supply monitoring Contract management, purchasing control
Suppliers
Listing/ supplier prioritization Online Availability Check
Bid (Submission, Auction) Catalogue Order
Purchasing guidelines & Authorization
Buyers
Order Handling
Negotiation relevant information
Buyers Buyers
Contract management
Controlling
Buyers
Delivery/Payment
Advantages of e-purchasing platform
1. Greater price transparency 2. Process automation 3. Lower cost and higher quality
The On-line Bidding Process
Product identification
Buyer identifies products that have high saving potential and suitable for electronic procurement.
Requirement definition
The buyer give complete detail of the product require in detail. The on-line bidding should only take place once the brief has been fully developed.
Supplier selection
Pre-qualified bidders are invited by the client to submit a ‘technical’ proposal containing everything (except the price) and to participate in the auction on a specific date and at a specific time. Specifications and instructions on how to participate in the auction will be provided in advance of the event.
AUCTION
Auction
? The on-line bidding exercise will usually be conducted on behalf of the client by an IT service provider. It is usually specified that bidders can only bid downwards and the minimum decrement is usually specified. ? The client may sometimes display an opening bid price; this will be an indicative guide to bidders. From this point onwards, all bids will progress downwards during the duration of the e-Auction. The client may set the e-Auction parameters so as not to allow bidders to start their bidding higher than the opening bid price.
Each bidder will be able to submit as many new bids as they wish up to the closing time of the e-Auction ,the ranks are revised accordingly.
Result analysis
After analyzing the bids contract is awarded to the most appropriate bidder against the criteria which is already fixed by the client for the particular contract or for product.
Bidding process in a nut-shell
Product identification
• Identification of the product with high cost saving potential and suitability for e-procurement.
Requirement definition
• Detailed product specification • Analysis of product and process related costs. • Price expectations. • Definition of supplier profile • Identification and selection • Listing of suppliers • Specification of lots • Training of employee • Execution of auction
Highly company specific
Supplier selection
Auction
Standard
Result analysis
• Evaluation of suppliers bid.
Specific
LOWER COSTS AND OPTIMIZE PROCESSES
? Reduced process costs – Especially for indirect goods which have inefficient purchase order processing driven by:
? ? ? ? Large no of routine tasks Manual co-ordination processes Lack of information Errors and delays in follow up
? E- procurement of indirect goods
MRO’s have lower value, acquired when needed and order placing by large number of employees. Process costs higher than purchase costs. Desktop purchasing systems from Ariba, Commerce One for dispersed users within centrally controlled levels of authority. Pre arranged contracts with internet based stores like Office Depot and Grainger’s findmro.com
? Reduced product costs – Lowest cost sources of supply determined. • Access to smaller or overseas suppliers • Company purchasing systems open up to new suppliers without loss of efficiency • Purchasing cycles speed up by using dynamic pricing models • Disparate local requirements aggregated • Negotiated cost reductions implemented faster • Greater compliance with company’s purchasing policy
? Lower inventory costs
• • • Inefficient procurement leads to increased inventory Achieved through effective information transfer Reduced by 25-30% - The Aberdeen Group
? Increased speed and effectiveness
• • Lower inventory holding, faster procurement cycles result in competitive advantage Savings achieved vary per industry, maximum in electronics and computer industries.
E-procurement covering the Industry
? Use of EDI and XML to carry out transactions over the internet. ? Industries extensively using e-procurement
Automobile Industry
Consumer Goods industry
Computer Industry
ADVANTAGES
? Companies that operate different systems can extract information and import it into their operating system Incompatible systems interact with each other Development of o platform to establish industrial standards, share costs Potentially beneficial for all in chain including consumers. ?
CHALLENGES
Improper accumulation of market power ? Lack of supplier readiness ? Systems integration issues ? Unable to justify costs i.e. High implementation costs. ? Difficulties with catalogue integration ? Difficulty aligning organizational culture with e-procurement ? Getting users to commit to it. Ex. Efdex- European Food sector
? ? ?
Electronic Data Interchange (EDI)
? Based on defined syntax and semantics. ? Carried out via private networks operated by value added service providers (EDI VANs) -GE Information systems ? Disadvantages? ? ? High costs associated with maintaining network connections. Lack of interactivity rendering marketplace applications impossible Lack of flexibility/extensibility
Extensible Markup Language (XML)
? ? ? ? Used to define categories and terms recognized by computers. Designed to carry data(XML), not to display data(HTML). There is only a syntax(structure) but no semantics(meanings). XML repositories developed to define and implement sector specific standard XML dictionaries. Ex. RosettaNet- IT, Electronic Components and Semiconductor Manufacturing companies
Leads to integrated valuechain
? Long-term goal of e-procurement is to integrate the earlier and later stages of the value chain ? Integration of pre-production processes is not new
? Critical tipping point – purchasing activity becomes tightly linked ? Information then moves dynamically along the entire network of relevant partners
provides unique competitive advantage to the organization
Enterprises typically spend around 60 percent of their A on covering their procurement and revenue$5 million reduction in procurementsupply costs increases profits by a chain corresponding amount. However, a costs.
company with a 10 percent profit margin needs to increase sales by $50 million in order to attain similar profit improvements.
Any reduction in procurement/SCM costs translates into a dollar-for-dollar increase in profits.
Critical to success: need to provide additional value and benefit to all the players
If the potential participants only see the arguments of transparency and volume for further price reductions
CASE STUDY: e-procurement.gov.in
Traditional system of Procurement
Inordinate delays in processing of Tenders
• Heavy paper work • Multi level scrutiny
Physical threats to bidders
Cartel formation by contractors to suppress competition
Human interface at every stage Inadequate transparency
Discretionary treatment in entire tender process.
Need for better procurement system
? Effect on reputation of Government Departments ? Crippling impact on completion of project and delivery of services to citizens ? Adherence to guidelines of the government and sometimes of external agencies like World Bank
Objective of e-procurement by AP
? reduce the time and cost of doing business for both vendors and government ? realize better value for money spent through increased competition and the prevention of cartel formation ? standardize the procurement processes across government departments/agencies ? increase buying power through demand aggregation; provide a single-stop shop for all procurements ? allow equal opportunity to all vendors ? bring transparency and ultimately reduce corruption
New approach
? GoAP identified these shortcomings. ? The GoAP procures goods, services, works and turnkey contracts worth $ 2.0 billion every year. ? The management of this pot of money was rigged with problems identified priory. ? GoAP facing delays and loss of money through the manual tendering process.
Implementation challenge
Arrival of a sustainable business model
•Whether it will be •Government owned and operated •Government owned and privately operated •PPP
Interdepartmental coordination
•Arrival at a state wide procurement model encompassing various departments.
Change Management
•Getting the stakeholders to use the new model
Security and Authentication
•Ensure secure transaction
Arrival of a sustainable business model
PPP model was chosen
• Government has Domain Experience • Private Partner has Technology and requisite Skills • Expenditure borne upfront by the Private partner • Revenue generated by way of transaction fee paid by the user department
PwC consulted the Government in choosing the partner and preparing the RFP document. A consortium, lead by M/s C1 India Pvt. Ltd. was selected as the private partner based on the competitive bidding
Interdepartmental Coordination & Change Management
Security and Authentication
Two-factor authentication Digital signatures in compliance to the IT Act 2000 Bid encryption at the data base Online antivirus scanning 128 bit SSL encryption
Audit trail of each activity
Privilege-based user access Facility for digital notarization and time stamping Firewall for screening system access
Access control system
Intrusion detection system (network and host) Periodical third party security audit of system Disaster Recovery Site
Activity level of the platform
Year No of Departments/ Agencies 8 Departments 7Departments 9 PSUs 17 Municipalities 8 Departments 13 PSUs 51 Municipalities 5 Universities Value of Transactions completed (millions) 447 3522 No of Transactions processed 564 3746 Percentage of Total Procurement Activity 20% 80%
2003-04 2004-05
2005-06
3740
7931
90%
Benefits and Costs
Reduction in Tender Cycle Time
• Previously 90-135 days • Now it is 35 days further reduced from 42 days
Reduction in opportunities in corrupt practices Cost Savings
• Yielded a reduction of 16% in the quotations in comparison to the previous years when the procurement was manual. • Supplier participation has increased from an average of 3 per tender in conventional mode to 4.5 in eProcurement mode • Average reduction of 20% in cost for the procurement transactions done
Cost of implementing the system
Technicalities
? 3 tier Architecture
? Presentation tier ? Business logic layer ? XML data layer
? Database tier
Phases of Implementation
Phase 1: Pilot a. 4 selected departments b. Duration 9 months c. Use of portal mandatory for transaction above 10 million, reduced to 1 million at the end of this phase Phase 2 : Roll Out a. Period of three years to cover all governments departments b. As on march 2007 : 29,400 tenders, aggregating to 45138 crores of rupees through this portal
Phase 3 : operation and on going maintenance Value Added Services
doc_436363254.pptx