LESLIE FIGARO
As recent as 2012, a major e-auction event was conducted at a state enterprise for the procurement of pipe and fittings valued at US$47million.
At the end of the event—which took one hour and 30 minutes—a savings of 30 per cent (US$15million) was realised. This is equivalent to $100million.
This article is intended to provide an understanding of e-auction and share the power of the process.
What is e-auction?
E-auction is a procurement tool using Web-based software that allows suppliers to bid online for the supply of goods or services. Sometimes it’s called “reverse auction” because bids are reduced and not increase as in a traditional auction. It forms part of the procurement process.
This tool consolidates the whole process of negotiating with individual suppliers through a single on-line (Internet) event. It therefore provides a forum whereby suppliers are bidding in real time, to provide a specified product, against each other. This process can generate significant savings and improve the efficiency of the procurement process.
It ensures and maintains the key procurement operating principles:
1. Transparency: information regarding the procurement process would be in the public domain.
2. Accountability: in current best practice, officials of procuring agencies are clearly identifiable along with their responsibilities.
3. Value for money: procurement of goods and services means the achieving of the best combination of price and quality based on a specific need in the shortest possible time.
The Procurement 360 Degree Cycle
The diagram shows the procurement 360 degree cycle detailing the steps from 1, where the procure needs are identified, to the end at step 14 where the performance of the suppliers on the contract can be evaluated. The e-auction activity occurs in steps 5 and 6, where tenders are invited and bids are received. Once completed, the traditional process of evaluating the bids continue (step 7).
E-procurement is simply using Web-based applications to operate the transactional aspects of the requisitioning, authorising, ordering, receiving, contracting and payment processes for the required services or products. E-auction is a subset of this process.
The e-auction element is usually the first to be introduced, as the significant savings peaks the organisations interest and the other elements of e-procurement can be progressively introduced. This, too, provides savings and efficiency.
Identification of spend
Many organisations are not aware of how their money is spent, with which suppliers and on what categories of spend (eg chemicals, materials, services).
A general spend analysis rule of thumb is: organisations spend 80 per cent of their money on 10 per cent of their suppliers /contractors and 10 per cent of their money on 80 per cent of their suppliers/contractors.
Invariably, most of the procurement administrators spend most of their time on resolving issues from the 80 per cent of suppliers/contractors where only 10 per cent of the organisation’s money is spent. The opportunity for major savings resides in the management of the major 10 per cent of your organisation suppliers/contractors.
The process identifies areas where the greatest savings potential exist and results in real market prices being obtained, thereby yielding significant savings which is approximately 10 to 25 per cent.
Reducing corruption
In order to get the best benefit of the e-auction process, clear and proper specifications must be done ideally through a cross-functional team for the best results. This tool replaces individual negotiations which usually transpire over long periods of time, by having all supplies bid at the same time on the same clear specification clearly communicated prior to the e-auction.
A competitive market must also exist. This ensures greater transparency. The process is managed by a service provider whereby all communication and bid data is logged and available for scrutiny and audit. The availability of this information could reduce corrupt activity. The reputation of the service provider can be fatally jeopardised if there is any semblance of collusion between the buyer, the supplier and the service provider.
Financial and legal
In order to maintain the creditably of the process, the funds must be available and secured in order to pay the supplier/contractor, who has been awarded the contract on a timely basis, consistent with the terms of the agreement.
In modern organisations, procurement is considered strategic not transactional. This means that the legal framework, board tenders rules must be reviewed to accommodate e-auction as a multi-bidding process and the engaging of a service provider.
The relevant officers in the organisation must be trained to assess where major spend is occurring to identify the potential areas for savings. For e-auction to be a success, I strongly recommend a champion, a senior officer, who has the lead and the authority to make decisions.
E-auction in T&T
E-auction was introduced using a pilot project approach in 2006 for the purchase of pipe and fittings. Since then, approximately 100 events have taken place by various state agencies and e-auction has been a part of the procurement landscape in T&T since then.
The Ministry of Finance commissioned an E-Auction Task Force in 2008, mandated to spread the use of e-auction among state enterprises.
Twelve agencies got involved and over 300 suppliers/contractors were trained.
Under the E-Auction Task Force, a few bulk purchase events were completed, clearing identifying the benefits and savings. For example, all of the state agencies use paper. A simple analysis revealed they all pay different rates for the same size of paper specification. We invited them to join a bulk purchase for paper where savings obtained were significant.
If we want transparency, accountability and value for money introduced into our procurement processes along with significant saving, e-auction towards e-procurement is the way.
Below are some of the items procured using e-auction providing savings of over $390 million.
Pipes and fittings
Chemicals (liquid aluminum sulfate)
Data loggers
Flow meters
Hard note book
Dump truck, backhoes & forklifts
Supply & install of meters/accessories
Construction of offices & workshops
Computers & printers
Bottle mounted chlorinators
Wire wall fencing & gate
High voltage switches
Refurbishment works
Electrical cable
Generators
Equipment rental service
Gas fuse tanks
Paper
Steel products
IT hardware
Footwear
Maintenance & security services
Pumps & fittings
Sewers
Leslie Figaro is a procurement and e-auction specialist.
