In January 2003, the Karnataka State Police Housing Corporation (KSHPC) was looking for a new service provider to host its website and provide connectivity solutions. The corporation decided to take the electronic route to locate a service provider. To its surprise, it discovered companies like Bharat Sanchar Nigam Ltd, Videsh Sanchar Nigam Ltd, Sify, the Bharti group, Reliance and Net4India vying for its business.
Though BSNL got the contract, KSHPC was the real winner. “We had budgeted to pay about Rs 35 lakh per annum for the service. But through the online auction, we found that BSNL’s bid was a low Rs 7.8 lakh per annum. E-sourcing helped us save a huge amount of money,” says R Srikumar, KSHPC chairman and managing director.
Needles to say, KSHPC is now a total convert to e-sourcing and champions its cause. The organisation expects to place orders worth Rs 100 crore through online auctions next year.
The story is repeated in neighbouring Andhra Pradesh where four state government departments have been directed to use the online reverse auction process or e-procurement to make purchases in the next three months.
These include the Andhra Pradesh State Road Transport Corporation (APSRTC), the AP Technology Services (APTS), the AP Health & Medical Housing Infrastructure Development Corporation and the Commissionerate of Tenders (COT).
The AP government expects online procurement to be extended to other departments once the initial projects are completed.
Elsewhere in south India, the Pondicherry government, in association with Auction India of the TVS group, has conducted a few online reverse auctions for government tenders. Though procurement details are not available, from all accounts these went off well.
In west India, Commerce One India, an e-procurement solution provider, has entered into a partnership with the Gujarat State Fuel Management Corporation (GSFMC) to consolidate the fuel requirements of state-owned as well as private enterprises.
Essentially, Commerce One will help the state-owned company to procure fuel online.
All these are, of course, illustrative of a new phenomenon – slowly but steadily, both the government and the public sector undertakings in India are waking up to the benefits of e-procurement or e-sourcing.
Though the concept has made inroads into the private sector, state-owned corporations and state governments are just about beginning to clamber on the e-procurement bandwagon.
As R Chandrashekar, joint secretary in the ministry of information technology, points out: “E-procurement in the government is still at an exploratory stage.”
However, companies that offer e-sourcing solutions are optimistic about business prospects.
Says Pradeep Bahirwani, head of global sales at Wipro 01 Markets, an e-solutions company: “The trend of state governments using the internet as a medium for procurement practices is very encouraging and is on the rise.”
Adds FreeMarkets country manager (India) Amit Bhatia: “E-sourcing may not have reached any significant level in the Indian government or in public sector undertakings (PSUs) yet, but a beginning has been made.”
Clearly, the Andhra Pradesh government has taken the lead in tapping the potential of e-procurement in a big way. It is currently in the midst of finalising a 50:50 joint venture with Commerce One to automate the procurement process of the state’s 150 departments.
The joint venture company will not just target the Rs 10,000 crore procurement business in the state alone but will offer e-procurement solutions to other state governments as well.
It is not difficult to see why e-solutions companies, Indian or foreign, are keen to tap the government for e-sourcing.
According to estimates provided by FreeMarkets, India’s top few PSUs (Oil and Natural Gas Corporation, Indian Oil Corporation, Bharat Heavy Electricals, Bharat Petroleum Corporation, to name a few) spend nearly $ 25 billion on buying products or services.
“If this purchase is made online, these organisations can save up to 15 per cent, at a conservative estimate,” points out Bhatia.
So the $ 4 billion saving made on e-procurement translates into a whopping Rs 20,000 crore. “And that’s just the PSUs. We haven’t even looked at state or central government expenditure. The government saving figures via e-sourcing will be mind-boggling,” he adds.
An estimated 200 companies (mostly private ones) in India are said to have used e-sourcing in the last few years. According to e-solutions companies estimates, India’s e-sourcing volumes in 2002 were between $ 1 billion and $ 5 billion.
“It is not the current volumes but the fact that e-sourcing in India is expected to grow by 50 per cent per annum that makes the story exciting,” remarks Bhatia.
In addition to a host of private companies such as Glaxo Smithkline, Heinz, Carrier Aircon, Indo Rama Synthetics, FreeMarkets is now tapping the government for business and plans to set up a separate team for the purpose. It has already worked on some e-sourcing projects for BPCL and BHEL.
However, e-sourcing experts say that the benefits of online reverse auction extend beyond cost savings. It ensures transparency which is critical in the procurement process.
Bhatia believes that e-sourcing helps government contracting officers maintain a fair and level playing field for suppliers as they are provided with identical information prior to the online auction.
Even during the event each bidder receives identical and simultaneous market feedback regarding leading bids and their respective positions.
Agrees a senior AP government official: “E-procurement helps avoid cartel formation, besides reducing inventory costs. It also creates a level playing field for suppliers and buyers as it bypasses middlemen and so scandals are avoided as well.”
A whitepaper on e-sourcing in the ASEAN region prepared by the US-ASEAN Business Council and the International Association of e-government Profesionals (IAeGP) stresses the point further.
It quotes a Gartner analyst who observes: “In the Asian procurement environment, supplier selection has historically been deeply-rooted in the quality of personal relationships and questionable dealings rather than objective criteria. In contrast, e-sourcing enables purchasing organisations to create acquisition processes that can be more replicable, transparent, measurable and efficient.”
The whitepaper offers interesting insights on how e-sourcing can help governments save money. It studied the impact of e-procurement on five countries – Indonesia, Malaysia, Philippines, Singapore and Thailand.
Data on key economic indicators (sector wise expenditure by the central government) for the analysis were collated from the Asian Development Bank.
Research and historical data showed that the expected savings on goods and services, when competitive bidding is used, is 16 per cent. The average saving could be as high as 35 per cent in certain sectors (general public services).
The analysis showed that the total savings across all five countries could range from US $ 2.3 billion to US $ 8.2 billion. Using 16 per cent as the benchmark, total expenditure across sectors could be reduced by US $ 3.7 billion which translated to an average of US $ 749 million per country.
Such savings to governments could have far reaching consequences on the fiscal balance and gross domestic product.As a matter of policy, reductions in expenditure through strategies such as competitive bidding events could be used to reduce deficits or increase surpluses.
Alternatively, governments using competitive bidding could use the savings incurred to boost consumption in their countries. Economists generally agree that more efficient government processes produce multiplier effects that can increase a country’s GDP.
Harish Krishnan, the director at the Confederation of Indian Industry (CII) who handles information technology, firmly believes that e-procurement is a huge opportunity for the government and for public sector companies. “We have serious plans to popularise e-sourcing,” he says.
For starters, CII is already working on a draft document for the Central Vigilance Commission that will deal with the issue of allowing PSUs to use online reverse auctions for making their purchases.
Though the CVC has already spoken in favour of e-sourcing, PSU officials still prefer to get individual permission to implement e-procurement at their organisations.
At a recent seminar in Delhi, the CVC, P Shankar, reportedly said: “E-procurement is a tool which can contribute towards efficient and profitable management; it should be looked at as a way of achieving complete transparency coupled with business profitability in the public sector.”
Krishnan adds that the CII plans to pick some high impact sectors and try and help them get rid of bottelenecks in implementing e-procurement in their organisations.
The fact that PSUs are equally interested in e-procurement can be gauged from the success of a recently hosted seminar in Delhi. Organised by Wipro, the seminar attracted more than 150 top procurement officials and PSU chiefs from across the country.
Representatives from some of the biggest PSUs attended the event. “PSUs and government organisations can derive immense value by embracing e-procurement,” Bahirwani points out. CII is planning another conference on the subject later this year.
Clearly, the inclination to adopt e-sourcing is strong. However, most government officials find themsleves hand-cuffed as there are no clear guidelines on the issue.
Yet some progressive state governments are finally waking up to the potential that the internet affords in terms of savings, efficiencies, and, most importantly, in weeding out corruption related to the procurement of goods and services.
J.Satyanarayana, principal secretary, information technology and communication, in the Andhra Pradesh government has said on record that the tenders floated by the government would be made through e-procurement henceforth.
Work such as receiving online bids, evaluation, awarding the order, monitoring the contracts and placing orders would be done directly on the internet.
But for the small trickle of e-sourcing in the government to become a flood, the government must be determined to drive wastage from the system. “E-sourcing needs to be pushed at all levels in the government to make it a viable option to traditional procurement methods,” says Bhatia.
Bhatia should be happy. At least KSHPC’s R Srikumar is hell bent on relying on e-sourcing for all its purchase requirements.
“We have taken a decision in principle to use e-procurement. We estimate that we have saved between Rs 8 crore and Rs 10 crore in the last one year by using e-procurement solutions and our tendering process was totally transparent.”
Quelle: Business Standard
