Instituting E-Procurement in the Public Sector.

• Author: Mitchell, Kenneth

Transforming a procurement department into an e-procurement environment requires a sound business case and a team of skilled professionals, but organizations that pull it off can reap enormous benefits. This article describes four critical factors for developing a successful e-procurement system.

Despite the media's obsession with Web-based retail sales, Internet technologies may, in fact, prove more valuable as catalysts for improving supply-chain management activities, particularly procurement and purchasing processes. By its very nature, the open architecture of the Internet provides an inexpensive mechanism for direct connectivity among trading partners of all sizes and levels of sophistication. Procurement processes, especially those for the acquisition and management of non-production goods and services, have been an overlooked opportunity for cost management, process improvements, and automation in most organizations. [1]

Electronic procurement is quickly emerging as the model procurement method in both the private and public sectors. Simply defined, e-procurement is the process of electronically purchasing the goods and services needed for an organization's operation. It offers a real-time platform for conducting business while providing a significant opportunity to cut costs, increase organizational effectiveness, and improve customer service.

Traditional Procurement

Traditional procurement is a paper-based process that often is characterized by fragmented purchasing, off-contract buying, and lack of control over expenditures. Even in its simplest form, a manual procurement system requires that public-sector employees coordinate vast amounts of paperwork, including purchase orders, supplier acknowledgements, shipping and receiving documents, invoicing and accounts payable vouchers, supplier payments, and account reconciliation reports. Yet despite this extensive paperwork, most procurement departments lack the transaction data required to effectively negotiate with suppliers.

The reality is that procurement managers spend most of their time chasing paperwork rather than managing their supplier base or negotiating better prices. The National Association of Purchasing Management estimates that for a single purchase transaction of $500, the manual processing cost is an astonishing $120-$150 per transaction. In addition, these manual processes tend to be slow and prone to error. Because the purchasing process is cumbersome and lengthy, employees often will fill warehouses, supply cabinets, and rolling stock (trucks) with supplies to make certain they will have what they need when they need it. This is a very costly practice when you consider the personnel required to stock the shelves and pick it off when ordered, the interest income lost from capital tied up in inventory, the cost of real estate (generally taken off the tax rolls), obsolescence, and shrinkage.

E-Procurement

An emerging alternative to traditional procurement is electronic procurement (e-procurement), which facilitates, integrates, and streamlines the entire supply chain process (from consumer to supplier and back again) in a seamless, real-time, and iterative manner. E-procurement reduces costs and cycle times, improves the efficiency of procurement processes, and easily tracks spending trends. Using e-procurement also eliminates paperwork and allows procurement professionals to focus on more strategic aspects of procurement. It is a new approach to managing the supply of operating resources that requires resource consumers to modify their buying behavior. It changes institutional procurement processes and the roles and skills required of procurement organizations. It also enables managers to manage with information rather than physical processes. For example, to ensure that a government worker does not buy more office supplies than necessary, the manager can review utilization...