Strategic Guide to e-Procurement
Executive Summary
Procurement Framework Context
This Strategic Guide to e-Procurement outlines approaches to the automation of procurement processes typically undertaken by Australian Government agencies. The Guide also provides tools and case studies to inform agencies how e–procurement can assist them to increase efficiency, and improve their productivity and accountability.
E-procurement is essentially a number of inter–related methods for improving the procurement process through the use of electronic systems and processes. Under the devolved responsibilities of the Australian Government Procurement Policy Framework agencies must ensure the implementation of these methods is compliant with the Commonwealth Procurement Guidelines (CPGs), and all relevant financial, policy and legislative provisions.
Procurement Policy Framework
Governs duties related to the procurement of property or services
(CPGs, Finance Circulars, Procurement Guidance)
Chief Executive Instructions
Internal Procedures/Operational Guidance
e-Procurement
Detailed methods for procuring certain goods or services
Year 2000 e-Procurement Implementation Strategy
In 2000, the Commonwealth Government developed and implemented an e–procurement strategy. The strategy provided agencies with a framework to build and enhance their capabilities to trade electronically, and encouraged suppliers to consider their own directions for e–commerce. The strategy set two goals for Commonwealth agencies:
- to pay all suppliers to Government electronically by the end of 2000; and
- to be able to trade electronically with all ‘simple procurement’ suppliers who wish to do so, using open standards, by the end of 2001.
The strategy was successfully implemented with over 90% of transactions across agencies now being paid electronically, and widespread use being made of simple e–procurement tools such as online catalogues and electronic invoicing.
Further Opportunities for e-Procurement
Since the implementation of the 2000 Commonwealth e-Procurement – Implementation Strategy, technology and business conditions have changed. Agencies are now looking at further opportunities to gain operational efficiencies through e–procurement.
Many agencies are already undertaking a variety of e–procurement activities as part of their day–to–day operations. Some examples are:
- booking and purchasing travel online
- buying stationery on electronic catalogues or utilising a Vendor Managed Inventory (VMI)
- paying suppliers by Electronic Funds Transfer (EFT)
- utilising invoice–less payments through Recipient Created Tax Invoices (RCTI)
- online authorisation and electronic submission of purchase orders to suppliers
- publishing Requests for Tender (RFTs) and Requests for Quotes (RFQs) through AusTender.
A common misconception with e–procurement has been that it was often thought to be only electronic catalogues or e–marketplaces. The automation of any part of the procurement to payment process with electronic tools can be defined as e–procurement.
Figure 1 below shows a broader concept of e-procurement and highlights some of the e–procurement tools now available in the planning, procurement and payment areas.
Adding Value with e-Procurement
Before implementing any e–procurement initiative, it is important to identify how e–procurement tools will add value to your business processes. Establish early which e–procurement projects will deliver the most value to your agency and dedicate appropriate time and resources to them. Conducting an analysis of your agency’s purchasing profile can help to provide an understanding of which business processes should be addressed, and which e–procurement tools should be used.
Different e–procurement tools have different benefits and implementation costs. It is necessary to weigh up the potential benefit of automation as well as the potential for improved governance, against the costs of implementing and maintaining e–procurement initiatives. By using a simple two–by–two matrix of Spend by Category and Frequency of Activity (including Planning, Procurement or Payment activity), agencies will be able to identify which tools are best suited to their purchasing profile.
Figure 2 below shows four different quadrants corresponding to different spend
profiles. Each quadrant represents a different business situation and potential e–procurement opportunity.
Governance Focus
When a category controls a significant amount of spend but has less frequent activity, the focus of the procurement process should be on improved governance and control.
E-procurement tools can assist here by:
- maintaining audit trails and activity logs
- using tools such as Electronic POs, Sourcing tools and EFT to mitigate risk and maintain governance.
Dedicated or customised systems are less likely to be viable from an automation viewpoint due to the lower volume of activity.
Dedicated or Customised Solutions
In this quadrant where the amount of spend in a category is high, and there is a high amount of activity (planning, procurement, payment) taking place, it is important to leverage or invest in systems capability.
This is the quadrant where it makes sense to implement fully enabled electronic solutions such as:
- direct connection between buyer and supplier
- high volumes of electronic purchase orders (POs)
- invoice–less payment using Recipient Created Tax Invoices (RCTIs) and
- specialised e–sourcing tools.
These solutions require a significant investment in time and resources to setup and maintain, but this should be offset by the benefits they can bring.
Rationalise and Reduce
In this quadrant, purchases are typically small in both spend and frequency. Due to the limited volume and value of spend, e–procurement activities may be better focused elsewhere as the cost and effort of implementing a dedicated or customised solution may only result in limited benefit to your agency.
Provide Enablers
In this quadrant where the spend on a category is low and would not normally support a dedicated solution, but the frequency of activity is high, it is still worthwhile investigating whether a dedicated or customised solution would reduce the amount of time and effort associated with the activity.
Tools like electronic RFX, POs, catalogues and P-cards are solutions that could be applied to streamline the process.
Benefits from e-Procurement
By recognising that e–procurement is not a “one size fits all” solution, and taking a measured implementation approach that focuses on tangible business benefits, agencies have been better able to focus their activities on those areas where the highest return on investment could be delivered.
Agencies that have implemented e–procurement projects have realised benefits such as:
- accelerated time to market for sourcing and procurement activities
- improved governance and probity through maintaining an electronic record of activity
- reduction in resources associated with administration of procurement processes.
Their success has been assisted through:
- establishing metrics to measure the potential benefits and tangible outcomes
- developing a robust business case and tracking the progress against that business case
- appointing a single point of accountability to assume responsibility for the project
- managing stakeholders in order to obtain and maintain buy–in to the project
- providing clear communication to employees, stakeholders and suppliers
- understanding suppliers’ concerns and ensuring their continued support.
In summary, e–procurement success can be achieved by combining an understanding of the purchasing profile of your agency with an appreciation for the different e–procurement tools available, and implementing the appropriate tool to suit the business case and/or any identified business problem.
Contact for information on this page: ICT Procurement