Electronic Procurement Versus Traditional procurement processes, Study notes of Public finance

Download Electronic Procurement Versus Traditional procurement processes and more Study notes Public finance in PDF only on Docsity!

E-Procurement E-Procurement uses the internet or information and communication technologies (ICTs) for specific or all stages of the procurement processes for instance, in requisitioning, identification of suppliers, negotiation, ordering, contract formation, contract implementation monitoring, and after purchase review. E-Procurement is hence an all-inclusive process that simplifies the complex procurement processes across the organization to a more effective and cost efficient online process. What is Traditional Procurement? Traditional procurement involved manually managing the function, with heavy dependence on paperwork, getting on calls with people for updates, etc., so that goods and services reach one point to another in a stipulated time frame. Not only was the process time consuming, but it was also prone to disruptions from various factors due to lack of visibility. Disadvantages of Traditional Procurement-  In the traditional procurement process, the function was managed manually, depending heavily on Excel sheets, paperwork, as well as phone calls and in-person conversations.  In the traditional approach, the goal was to simply fulfill goods and services to obtain the right quantity at the right price at the right time.  In handling procurement as a process of short-term purchasing rather than an integral component of business operations, companies missed out on the value that a strategic approach can bring.  Manual procurement handicapped a company’s operations and potential for financial success, relying on time-consuming and tedious, repetitive tasks that failed to generate significant savings or profit. In an increasingly volatile and digitalized world, the traditional procurement system just doesn’t seem to have a place anymore.  Moving procurement operations to a unified, digital platform streamlines and speeds up all source-to-pay operations, creating opportunities to generate more value and savings in the procurement process. So, what are the benefits of moving the process of procurement to an e-procurement platform? Traditional Procurement vs E-procurement: Benefits of e-procurement Platform-

1. Improvement of Operational Efficiency In a manual approach, procurement operations were managed through paperwork, writing by hand, Excel sheets and phone calls. In moving operations to an e-procurement platform, the processes become automated and operations are sped up with much faster processing, allowing procurement practitioners to save time. The digital platform streamlines each functionality of the procurement process and helps it communicate with other functionalities. This feature creates more efficiency within the process enabling procurement professionals to do much more within lesser time.

2. Increase in Transparency and accountability In the traditional procurement system, it was very difficult to track mismanagement of funds and procurement malpractices. The implementation of e-procurement platforms, boosts overall visibility and transparency of procurement processes. This has greatly reduced unnecessary spending and companies can now realize significant value and spending.
3. Enabling Focus on Strategic Work E-procurement software has great ability to efficiently handle the tactical and transactional functions of procurement, allowing procurement professionals to focus on strategy .Procurement profession is not merely a trivial form of purchasing , procurement professionals would miss out on a deeper analysis of their company’s spend behaviors and patterns. By channeling their efforts into more strategic work, procurement professionals can greatly impact the overall value they can bring to their company.
4. Easier supplier management When procurement was handled manually, it was difficult to manage relationships with suppliers and track their performance. E-procurement software offers companies a comprehensive understanding of their purchasing transactions, as well as a better control of the execution of their contract with a supplier. With the use of technology, companies can more effectively monitor supplier performance to ensure that a supplier acts in compliance with contractual procedures.
5. More Savings and Value Effective procurement earns value to the enterprise through enhancement of strategic procurement approach. For Instance, in sourcing for suppliers, management of supplier relationship and contract negotiation. The traditional procurement practices treated procurement more like a short-term process of purchasing, therefore failing to bring significant savings and profit. Example of an e- procurement Process
   1. online requisition by company staff
   2. online specification of items to be procured(these two could probably be done through an integrated system adopted by the organization)
   3. online advertisement of tenders,e.g through a functioning company website to manage procurement process
   4. Online receipt of tenders applied for through the website or also through email (as it may be prescribed by the buying organization during the advertisement of the tender).
   5. Evaluation of tenders may be done through a physical sitting of the committee but this can also be done electronically through teleconferencing.
   6. The recommendation for the award of tenders can be passed to the head of the institution electronically who inputs his digital signature for approval.
   7. Notification for award to the successful bidder can be done through an email

8. Debriefing to the unsuccessful bidders can also be done electronically through a telephone call or an email.
9. Signing of the contract between the buying entity and the supplier can also be done electronically by use of digital signatures. Challenges encountered in adoption of e-procurement
10. Adoption of e-procurement is expensive and it takes time before its implementation. The e-procurement system itself is expensive to acquire and additionally, users of the system need proper training in order to start using the system effectively.
11. Resistance to digitalization leading to poor e-procurement adoption. In normal circumstances, human resources tend to resist change .It always requires a lot of trust to get all parties to embrace new technology systems.
12. Migration of data from the manual system to electronic system must be done with high efficiency despite the fact that it is tedious to input data from different departments/functions and sometimes retrospectively. Use in accurately fed data could mislead future operations.
13. In adequate legal framework for e-Procurement: The existing legal framework are not adequate in addressing serious challenges ranging from insecurity, lack of confidentiality, accessibility to the e-Procurement systems etc. These challenges should be addressed in order to ensure an efficient e-Procurement in Kenya. Enactment of laws like the Electronic Transactions Act shall be ideal in addressing some of these challenges. Risk associated with e-procurement
14. With much procurement moving from physical to virtual, the risks posed by cyber attackers is real. Bidding information stored in organizational databases could be accessed by hackers who then use the details to distort the procurement in favour of some bidders. Moreover, hackers could scuttle the whole procurement process leading to delayed purchases and stalled operations. To reduce the risk of cyber-attacks on procurement processes, organizations ought to invest in hacker-proof e-procurement systems. Hardware and software failures — The computer machines as well as the software used in procurement are prone to fail .With this the buying organization needs IT expert assistance or has purchase a new computer to continue with its processes. This may cause a major halt in a procurement process.
15. Viruses — These are codes that can spread from 1 computer to another, disrupting computer operations (e.g. sent through emails).They cause failure of the computers’ operating systems. Organizations mitigate this risk by installing antiviruses for protection of their computer systems.
16. Spam, scams, and phishing —Refers to unsolicited contact that fool people into giving personal details or buying fake goods. Individuals in a procuring entity may fall victims to such causing financial loss and loss of information integrity to the scammers. To mitigate this risk, the management may ensure inclusion of external communication

guidelines in its corporate procurement policy soas to ensure that only a few authorized persons are allowed to engage in external communication for the organization.

4. Human error —Since e-procurement is done by human using a system, it is not possible to separate the procurement process from human errors e.g incorrect data processing, or careless data disposal. This may be mitigated through incorporating several approval requirements in the system so as to arrest the errors early enough.
5. Natural disasters —floods, storms, and bush fires may interrupt service within the business or to external suppliers (e.g. electricity).Causes of nature are difficult to control but the buying organization may safeguard itself by ensuring data back up on other external gadgets e.g maintaining data back up in an external host, also by acquiring generators for electricity backup. 6. Lack of confidentiality and insecurity: An e-procurement system is by nature an integrated system, meaning that the system’s functionalities cut across the various departments in the buying organization. This compromises data security and information confidentiality since the data is accessible to a bigger number of individuals. The negative effects are felt if this information is leaked to unauthorized and malicious persons.