Designing and Implementing E-procurement

CHAPTER ONE: Background Study

Overview

The project is designing and implementing e-procurement on business-to-business transactions, it first identifies current procurement process and explores how to implement procurement that involves mainstay drivers and problems of e-procurement system usage and investigate the effect on the performance of the Ministry in terms of e-government and transparency in the Federal Ministry of Science and technology. The solution essentially involves in creating all the requirement details/ specs, of a tender to be floated electronically, in parameterized form; so that subsequent evaluation & comparative chart preparation exercises could be automated to a large extent.

The term procurement can be referred to as the buying of tangible and intangible merchandise for organizations which can be executed through agency or company. Procurement is not an event. It is a process and signifies a continuing relationship between the government and its suppliers. Procurements are always taken as an important task in the government environment and always handled in a strictly secured and controlled manner (Dunleavy, 1994). According to Nwokak, et al. (2007) procurement is also one of the sectors that remains insulated against any process improvements. At the moment, it is been recognized world over, that Information and Communication Technology (ICT) can eliminate the existing bureaucratic problems and make the government’s performance more resourceful, easily reached and clear as crystal, besides being cost-effective.

The procurement process in the Ministry of science and technology (www.fmst.gov.ng)is a complex process that starts and ends in a cycle. Procurement cycle starts from Raising of the requirements for an item or a service and ends only after settlement of supplier payments as shown in the diagram below.

The Concept of E-Procurement

Electronic Procurement can describe as purchasing order that release a communication over the internet through authorized internet seller catalogue. E-procurement is the electronic purchase of goods and services for an organization; Turban et al. (2006) from an easy phrase, electronic purchase can be described as procedure to purchase tangible and intangible merchandise by the use of internet for a company or institution. For example, within Nigeria, the majority of companies in the petroleum Industries, United Parcel Service, Plc.(Ups) Federal Express Plc (Fedex), communication industries etc are some of the few organizations that practice e-procurement in material purchase (Nwokak et al, 2009). The reason is so, because the industries have advanced and developed their technology usage of e-procurement keeping up with the changes in the business environment as it pertains to information and technology. Furthermore, electronic procurement or merchant trade is the business-to-consumer (B2C) or company-to-company (C2C) acquisition as well as trade of tangible and intangible goods by electronic means and various information and network system, like the Enterprise Resource Planning (ERP) and Electronic Data Interchange (EDI) (Nwokak et al, 2009). Electronic procurement systems permit competent and valid user to search for buyer or seller of tangible as well as intangible merchandise. No matter which method, buyer or seller may as well state the outlay and request for bidding. Dealings can then be welcomed.

Other Concepts in E-procurement

Reverse Auction

• The traditional auction is a Forward Auction. It is a process through which a seller offers an item for auction, and prospective buyer competes with one another other for acquisition. By doing this, the price continue to move up upon the time nobody will be able to go up further.
• In the reverse auction, several dealers of a product vie for the trade of one single purchaser. In such a way the price moves downward.
• There are 3-4 flavours of reverse auction, called as: English Auction, Dutch auction, Sealed Bid Auction etc.

How it works

• There is no contact or conciliation with the bidders during the auction.
• The Buyer also watches the progress of bidding from his office. Identities if bidders are available to him.
• In reverse auction competition is high; bidders get tempted to bid lower and lower to clinch the deal, until they are unwilling to go any further.
• At the conclusion the lowest bidder emerges as winner of the auction.

Benefits

• To Buyers:
• Significant reduction in cost due to Dynamic Bidding process. Inefficiencies in the supply chain reduce.
• With real time competition, suppliers are on their toes
• It is an effective way of measuring and assessing price discovery and making the negotiation process an easy effort. Often used along with Tendering.
• To Vendors:
• Ensures Savings in marketing cost / distributor margins
• Facilitates flexibility in pricing decision.
• Transparency increases
• Allows vendors to assess their pricing power from close quarters of competition.

E-payment

Commonly available modes for effecting EMD/ Fee/ other payments electronically, from within a software Application, are: –

• Online payment through Credit cards/ Debit cards or
• Direct Account Debit (using Gateway for Internet Banking)
• Depending on the actual need and usage constraints, the appropriate mode could be chosen and integrated into the s/w application.
• Credit cards could conveniently be integrated for use if the payment amounts involved are not substantial.
• For all other cases where payment amounts could be heavy, payments through Direct Debits from concerned accounts, using Internet Banking is the only alternative.

Scope of E-procurement solution to the Ministry

• Purchasing of all kinds of goods and services, works etc.
• Types of Tenders – Open, Limited, Expression of Interest
• Hybrid Mode of Operation
• Electronic and Paper Based Bid Submission (Initial Stages of Implementation)
• Mode of Payments (Tender Fee, EMD)
• e-Payment, as well as
• Conventional Payment Modes (DD etc.)

The Importance of Procurement

The purchasing of merchandise, works, and services has a main effect on the efficient execution of an assignment. To a great degree the quality, cost, and judicious achievement of a task determined on the supervision and managing of purchase of materials needed. Use of articulated policy and practice, considered by unbiased, just, and transparent measures, is vital, not only to create reliable and steady market that will be capable to catch the fancy of competent contractor and supplier, but also to uphold the paradigm of accountability and the cost-efficient use of civic treasury.

The importance of procurement in delivering key aims and mission of the ministry, and as a result the procurement of merchandise, facility and services is of strategic significance to the Ministry:

• It has an undeviating force on the Ministry’s general overheads, and price of service prerequisite to public.
• Can have direct effect with delivery of its services by Ministry’s.
• Can have direct effect on the accomplishment of business, department and service mission.
• It provide the system to deliver key plan objective, together with sustainability, corporate work environment, egalitarianism and cost-effective improvement.
• It operate in multifaceted dog matic structure that should be followed.

Benefits of E-Procurement to Ministry of Science and Technology.

For years, improvement to purchase has been attempted, frequently by means of information technology. The concrete opportunity for development today lies in the use of e-procurement, the electronic process of obtaining goods and services for an organization Nwokak et al, (2009). They further to ascertain that by automation and reformation the thorough and arduous routine of obtain task, purchase professional will have the opportunity to pay more attention, on other tactical purchase, in order to achieve these set of objectives:

• Growing the efficiency of purchase agent (by giving enough period as well as decreasing the work stress)
• Reducing the procure price by merchandise homogeny reverse auctions, quantity price cut, and also through purchase consolidation.
• Getting better information stream and organization (for example supplier information and price).
• Reducing or elimination of the purchase through unqualified vendors, in that way eliminating nonconformist buying.
• Getting better the disbursement procedures and savings due to expedite disbursement (for seller)
• Ensure just in time delivery always
• Slash order-fulfilment and handling period through the use of computerization
• Reduce skill as well as instruction need of purchase agent.
• Reduce numeral figure of supplier
• Reformation of purchase procedure, creating it easy, better and speedy (may involve authorize)
• Requests to carry out purchase on their desktop, bypassing purchasing unit.
• Reformation of account statements and difference of opinion decision
• Reduce organizational handing out expenditure for each bid a s to a great extent of 90%
• Getting fresh supplier and vendor that will be able to provide goods and services quicker and more so,
• More cost effective due to better sourcing.
• Integrate budgetary measures in purchase procedure.
• Reduction or elimination of individual error in trade or transport procedure
• Monitor as well as regulate exchange activities.

The various benefits are listed below

Transactional Benefits

Electronic purchase enable purchaser to process transaction through internet. For instance, an internet-base transacts means through which things can be chosen mostly from an identified catalogues and submit for authorization.

The device can be connected in same direction of the backside part of ERP structure for access, imbursement of invoice, and arrangement of organization information. Electronic procedures (together with computerization of p-card purchase) lead to immense period saving as well as effectiveness owing to:

• universal, computerized process incorporate finest tradition as well as eliminate needless actions;
• electronic processing enable affiliation with supplier, which speed purchase phase period and facilitate contractor feat improvement; and
• better data correctness, which minimize order in accuracy as well as provide the necessary base for enhanced supervision from side to side control and scrutiny.

Compliance Benefits

A lot of instances in a company, conformity and unconventional expenditure is an important problem – not for the reason that workers intentionally procure outside of favoured arrangements, but to a certain extent through be short of knowledge. Electronic purchases address this from side to side apparatus such as catalogues and benchmark order procedures and authorized process.

Conformity will be achieved owing to:

• easy and speedy request-to-pay procedure together with a easy to use interface and pre-source catalogues modified to the needs of different client;
• easy and speedy tactical source procedure with benchmark purchase process and apparatus, without difficulty accessing information
• Electronic purchase structure, the only purchase method obtainable.

Management Information Benefit

This statement analyze the important of data’s cost centre, commodity codes, etc. is hard coded in opposition to the user significantly reduce code error and provide extremely exhaustive as well as effortlessly available data. This is very important information to make the rule of the monetary revenue of tactical source. A successful e-procurement performance will give high value, complete management information and will reverse the need for data warehousing or resource heavy data mining, by David Eakin (2002).

The capability to display to your supplier that you are using e-procurement as an apparatus to make sure final user do respect their union significance will augment ability to bargain along the prices through:

• Better improved capture and as a result, trustworthiness of expenditure information; and
• Better assurance that costs volume can be assured from better conformity with the structure, hence allow degree price breaks and discount to achieve.

These include the capacity to improve management of business cash flow as well as control the proficient imbursement of supplier because of the further rationalized procurement procedures giving additional suitable and precise information to the accounts payable department. Possible benefit includes limited staff a “hard” benefit only if improvement can bring about head count decrease) and brings down expenditure on postages as well as stationeries.

Throughout negotiations the procurement manager can further credibly guarantee the supplier a level of prompt payment, which was not possible prior to e-procurement. David Eakin (2002). However, the electronic invoice benefit is frequently unexamined and uncared for.

• Reduction in Procurement & Contracts cycle time
• Cost Reduction
• Efficient & streamlined Procurement Processes
• New Supplier Discovery
• Close Monitoring of Activities/ Vendor Performance
• Rich MIS and Analytics
• New Improved Image
• Standardized formats and Uniform tendering practices
• Increased visibility/ Less artificial barriers
• Increased business opportunities,
• Greater degree of transparency
• Cycle time reduction in participation and award of Contract
• Supplier Enablement and Ease of Participation

For high-value items, purchasing personal in the Ministry spends most of their work period on procurement activities. These functions involve developing relationship with considered supplier, negotiating prices as well as terms, qualifying supplier, and bringing out suppliers certification as well as evaluation. When buyer is occupied in the midst of information of lesser things (especially MROs), they have less period to adequately engage in the purchase of the high – value item. Other problems can happen in traditional purchase. These include delay in paying a lot for hasten order. Purchase inadequacy is nonconformist exchange, (impromptu procurements of merchandise needed hurriedly, unintentionally at non-pre-negotiated soaring price. The conventional purchase procedure, as discuss over, is therefore ineffective. In other to avoid a repeat of this event, the ministry needs to re-engineer the process of purchasing, by carrying out of new purchasing models in general, through the introduction of electronic purchase. From this stage, we shall gaze at what e-procurement means in B2B market.

The issues are summarized below:

• Lack of a general Public Procurement Policy. Nigeria lack up to date regulation on Public Procurement and enduring supervision and supervise purchase entity.
• Transparency in Procurement Act, The finance Control and Management Act, 1958, jointly with Financial policy which sets basic regulations for managing public expenses have gap, deficiency as well as defective execution of existing set of laws on procurement (for example, inadequate in the arrangement for controlling and supervision) which make opportunity for unethical behaviour.
• Lack of model bidding documents and contract documents -because of inflations, inadequate and regularly adjustment to threshold of the favourable limit of the Tenders’ Board, their approval were regularly gnarled consequential in abuse, top amongst include is split of contract.
• Complicated procedures for approvals, bidding and payments.
• There is a large number of tenders’ board that are alleged by the private sector as a source of delay as well as non intelligibility. Furthermore, those tenders’ board appear to encompass inadequate mandate amid power to choose contracted faction active through the permanent Secretary as well as Minister/ Commissioner.
• Inadequate skilled resources.
• There is no centralized system of registration of suppliers.
• Delays in making payments to suppliers who’s Procurement are sometimes executed through staffs that substantially lack the required experience.

E-government procurement is the collaborative purchase of tangible and intangible merchandise by the civic division using electronic methods at every stage ensuring transparency and efficiency. Ideally, it covers the full ‘life cycle of procurement’. The intention is to automate, possibly, the whole purchasing processes, along with tender offer submission as well as payment from supplier; in an automated computerized concurrent situation .E-procurement could resolve many of the constraints/ delays of traditional procurement. In David Eakin (2002).Summary, e-Procurement is the business-to-business buying and selling of supplies and services online. The e-procurement helps both the buyers and the suppliers to decrease the cycle time, needless paper work, waiting in long queues and at the same time maintain the simplicity in the entire process. David Eakin, (February, 2003).

Which are to:-

• Reduce cycle times of procurement
• Increase supplier access to ensure wider participation
• Reduce costs of procurement through competitive bidding and Reverse Auctioning
• Remove cartelisation by supplier groups (Reverse Auctioning)
• enhance transparency in the procurement procedure
• Almost complete elimination of paperwork, for speedy and efficient functioning

Inefficient function In the Ministry is because of:

• Lack of a general civic procurement policy
• Lack of consistency in enforcing procurement practice & procedures
• Low competence – labour-intensive process
• call for of intelligibility in procurement leading to fraud & pilferage of the treasury
• unethical practice by suppliers
• Cartel creation Influence selection by bribing unit personnel
• Advances in electronic procurement by the use of safe internet-enabled means have not being used in an extensive method

Approach to a Procurement Solution

Before looking for an e-Procurement solution, a relook on existing procurement procedures/ practices is essential: –

• ‘As Is’ Analysis, Re-engineering for optimized processes
• Optimization/ reduction in process-flow steps
• Uniformity/ standardization in formats/ practices/ procedures
• Organization wide use of ‘unified item-codification structure’
• Automation of Processes

Critical Determinants of a procurement Solution

• Good authentication – Role based access
• Security, Secrecy (of bids) – Signing, Encryption
• Ease of Use, Tender Templates, e-Payment integration etc.
• Integrated Document Management features, Good Analytics
• Good Audit trail/ traceability features – Access for Financial Audit, Legal and RTI needs
• Good Archival & Retrieval features/ policy – Safe and secure

Probing for seller so as to get and contrast supplier and product occasionally can be in reality awfully time-consuming and expensive. Most Ministries as a way out invite sellers to fulfill orders and create market place. Procurement is used to refer to the purchase of goods and services for an organization, (Martin et. al., 2001).

Federal Ministry of Science and Technology (FMST) are among of the important parastatals of the Federal Government. The major term of office is providing access to technology for the Majority of Nigerian Populace. The ministry is made up of 8 (eight) departments. The Department of Administration and Supply within the Ministry is responsible for:

• Planning, management and entirely documenting the procedure to purchase both tangible and intangible merchandise.
• use of active Continuing Service Agreement for products to attain program needs;
• management, soliciting and contract award procedures is done prudently and unprejudiced method that is fair and treat every potential vendor and bidder;
• ensures that contract for good, service as well as building is planned to offer the most excellent value to government;
• ensures that every ministry acquisition and disposal is unswerving with guidelines, appropriate legislature as well as trade agreement;
• Declare products excess as soon as their utilization to the ministry has finished.

The department is therefore responsible for procurement of goods and services in the Ministry.

The Nature and Scope of E-Procurement

According to Nwokak et al, (2009) different methods are employed to procure goods and services by companies depending on what and where they buy, the quantities needed, how much money is involved, and more.

They further mentioned some important procurements method to comprise the listed below:

• To buy from an internal buyer’s catalogue in which company-approved vendor’s catalogues, including agreed upon prices, are aggregated. This approach is used for the implementation of desktop purchasing, which allows the requisitions to order directly from vendors, bypassing the procurement department.
• Buy directly from manufacturers, wholesalers, or retailers from their catalogues and possibly by negotiation. Frequently, a contract implements such a purchase.
• Buy from the catalogue of an intermediary (e-distributor) that aggregates seller’s catalogues.
• Conduct biding or tendering (a reverse auction) in a system in which suppliers compete against each other. This method is used for large-ticket items or large quantities.
• To buy at private or public auction sites in which the organization participates as one of the buyers.
• Collaborate with suppliers to share information about sales and inventory, as to reduce inventory and stock -outs and enhance just-in-time delivery (Turban et al 2006).
• Join a group-purchasing system that aggregates participants demand, creating a large volume. Then, the group may negotiate prices or initiate a tendering process.

The Procurement Process

Procurement cycle starts from Raising of the requirements for an item or a service and ends only after settlement of supplier payments.

By Category of Goods & Services

• Goods
• Services
• Civil Contracts

By Nature of Procurement

• Tenders
• Rate Contract & Catalogue Buying
• Auctions, Reverse Auctions

By Size / Volume of procurement

• High Values, low volumes
• Low values, High Volumes

By Portfolio of services needed

• Requisition, Bid Process
• Evaluation, Award, PO
• Supply, Quality check, Inventory Management
• Payment, Accounting, Audit
• MIS, EIS

The traditional procurement process has been widely criticized as an ineffective procurement method because it often involves time and cost overrun (Dunleavy, 1994). Yet the method is still being widely used in Nigeria most especially for the procurement in Ministry of Science and technology.

Inefficiencies in Traditional Procurement Management

According to Nwokak et al (2009) precisely 80% of organizations’ purchase item, especially for Maintenances, Repairs as well as Operating items (MROs), constitutes 20- 25 percent of the total purchasing values. Furthermore, Nwokak; Ozuru&Ugoji (2009) affirmed that a portion of corporate buyers’ time is spent on non-value-added activities such data entry, correcting errors in paper work, expediting delivery or solving quality problems. For high-value items, purchasing personal spend a great deal of time and effort on procurement activities. These activities include qualifying suppliers, negotiating prices and terms, building rapport with strategic suppliers, as well as carrying out supplier evaluation and certification (Nwokak et al, 2009). If buyers are busy with details of the smaller items (usually MROs), they do not have enough time to properly deal with the purchase of the high -value items. Other inefficiencies also may occur in conventional procurement. These range from delays to paying too much for rush orders. Procurement inefficiency is maverick buying, (unplanned purchase of items needed quickly, often at non-pre-negotiated high prices. The traditional procurement process, as discussed above, often is therefore inefficient (Mills, 1996). In order to correct this situation, the ministry needs to reengineer their procurement systems, implementation of new purchasing models and in particular, introduce e-procurement. At this juncture, we will look at what e-procurement is in a B2B marketplace.

Issues in Ministry Procurement

• Lack of a common Public Procurement Policy: Nigeria lacks a modern law on Public Procurement and Permanent oversight and monitor purchasing entities.
• Lack of model bidding documents and contract documents -due to inflation and lack of regular adjustments on the thresholds of the approving limits of the Tender Boards, their authorization were constantly being eroded resulting in abuses, prominent among which is splitting of contracts.
• Complicated procedures for bidding, approvals and payments.
• That there was proliferation of tender boards which were perceived by the private sector as sources of delays and non transparency. In addition, these tender boards appeared to have limited mandates with powers to decide contracts de facto resting with the permanent Secretary and the Minister/ Commissioner.
• Lack of skilled resources.
• No centralized system of registration of suppliers.
• Delays in making payments to suppliers that Procurement is often carried out by staff who substantially lack relevant training.

Conclusion

Not until June 2008 was the procurement bill recently signed into law, previously there was no Federal or state law governing the practice of public procurement in Nigeria. With the advent of the new law, a number of challenges with regards to transparency, accountability and good governance in the area of contracts and procurement of supplies and services by government. In Nigeria it is pertinent to note that e-procurement is not prominently featured in law, this project sets out to make e-procurement prominently featured.

With the advent of digital technology and globalisation, Nigeria as a third world country needs to be aware of the challenges and opportunities with regards to the e-procurement process. Furthermore, this project seeks to classify the meaning as well as the benefits of the E-procurement process in Nigeria. This project will also highlight the challenges in transforming Nigeria into a transparent and corrupt-free business environment and also ways of overcoming the challenges of adopting e-procurement in Nigeria. (E-Public Procurement in Nigeria: Some Lessons from EU, 2009)

Investigation of Security Issues

Security

E-procurement platform transacts confidential procurement data and is exposed to several security threats. Agencies world over face threats to their online e-procurement and usually desist from sending sensitive information over the Internet for security reasons. The growing number of cyber crimes has added doubts regarding the reliability of the Internet. Security measures such as authentication and encryption are therefore employed while passing sensitive information between companies. Another major issue concerning e-procurement is the type of goods that are procured through the online medium. Companies usually prefer to source smaller, inexpensive goods such as office stationery (Miller, 2006). Larger complex orders that usually take weeks or months for negotiation are done in the traditional manner but this can be addressed by employing a combination of security features and security best practices which result in reduced threat of data loss, leakage or manipulation.

Security and secrecy of tender data is of paramount importance as the portal handles sensitive procurement transactions of departments and has foreseen the security concerns.

Security mechanisms provide a secure communication interface, mainly for the exchange of documents between procurement authorities and Economic Operators. Standards constituting adequate and acceptable security need to be provided for the implementation of services during each stage of the procurement process.

Importance of Security in e-procurement

Security is one of the major factors restricting the growth of e-procurement. Without proper security measures this could lead to the loss or corruption of sensitive information on e-procurement. Security breach could also lead to fraud and financial loss, also includes misappropriation of funds and revealing of sensitive information (The Economist, 1995). This project outlines various security issues faced by e-procurement in Nigeria and possible solutions that can be implemented to reduce such risk. (NATIONAL E-PROCUREMENT PROJECT SUPPLEMENTARY GUIDANCE NOTES, 2004)

The major objectives measured for the creation of a safe environment include the following:

• Verification: guarantees that the service is only available to users with a confirmed identity.
• Agreement: guarantees that authenticated users can only contact services or data matching their task and access rights.
• Confidentiality: guarantees that the data exchanged between the person requesting it and the provider cannot be intercepted or accessed by a third non-authorised party.
• honesty: guarantees that data exchanged among the person requesting it and the contributor has not been tampered with by a third non-authorised party.
• Non repudiation: guarantees that the sender of the message cannot reject, at a shortly point in time, that he/she sent it.

Accordingly, following stringent security measures are already implemented in the system to ensure that transactions on e-procurement portal happen in the most secured manner:

• Physical security of Data Centre. Entry to the Data centre is with Bio metric smart cards, round the clock CCTV monitoring and under strict personal supervision of Data Centre personnel.
• Web security through 128 bit Secured Socket Layer (SSL) Technology from client end to server for secured passage of data.
• Fire walls, intrusion detection system, online virus check, up to date antivirus system, online OS patches to prevent malicious attacks.
• Network monitoring system to monitor the service levels of the site.
• Sound back up methods for storing data.
• Comprehensive Audit Logs of all events that are taking place on the platform.
• Access controls, sharing of functions between system administrator and data base administrator
• Third party security audit of e-procurement system. M/s. PWC has conducted security audit in pilot phase (2003) and has expressed that security is unco
  
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