Benefits of E-Procurement - Essay Example

Table of Contents Table of Contents 2 Introduction 2 2 Characteristics of the Public Sector 3 3 E-Procurement 6 3 Defining E-Procurement 6 2.2 Benefits of E-Procurement 7 2.2.1 Reducing Transaction Costs 7 2.2.2 Global Transactions 8 2.2.3 Optimal Matching 9 3 Motivations and Challenges 9 4 Conclusion 11 References 13 Abstract The research argues the imperatives of public sector organisations adopting e-procurement technologies. While, as indicated by the literature on public sector organisations, there are substantial challenges to doing so, largely emanating from the very structure and management models which predominate in the public sector, the motivations for doing so are enormous. These motivations are reduced transaction costs, increased efficiency, optimal matching between requirements and offerings and minimisation of the potential for corrupt procurement practices, ultimately contributing to increased organisational efficiency and performance excellence. 1 Introduction Private sector organisations have embraced information and communication technologies, including e-procurement. The motivation for doing so has largely been increased efficiency, contributing to the enhancement of business excellence, and cost effectiveness. Public sector organisations have, in comparison, lagged behind and, in general, have been slow in adopting ICT. Management scholars have blamed the said tardiness on the organisational structure of public sector forms but have, nevertheless, argued the incontrovertible imperatives of the public sector's embracing the said technologies (Dent, Chandler and Barry, 2004). Concurring with the stated, this research will argue in favour of the public sector's adoption of e-procurement as a strategy for enhancing organisational efficiency and for embracing cost-effectiveness. 2 Characteristics of the Public Sector Management scholars have determined that public sector organisations are largely modelled after the traditional bureaucratic organisational structure, as influenced by Weber (Cane and Thurston, 2000; Dent, Chandler and Barry, 2004). The implication is that all of the four components of organisational structure-labour division, departmentalisation, span of control and scope of decision-making-are shaped by bureaucratic-traditionalist managerial theory. This, according to numerous management scholars, has only served to offset the capacity for flexible response to changing external conditions and has, in the long run, resulted in the formulation of mechanistic and atrophying organisations (Cane and Thurston, 2000; Flynn, 2002; Dent, Chandler and Barry, 2004). As explained by Flynn (2002) among others, labour division within the public sector organisation is invariably highly specialised. Task specialisations are clearly articulated and each employee has a specific set of job functions, clearly set out in his/her job description, which he/she must operate by (Bourn and Bourn, 1995; Flynn, 2002). While the advantages of specialisation and clearly articulated job descriptions are practically too numerous to articulate, the disadvantages are enormous. Certainly specialisation implies that employees are often matched to jobs according to their skill-sets and explicit job descriptions mean that employees always have a clear understanding of the tasks they are required to perform and know the boundaries of their professional responsibilities (Bourn and Bourn, 1995; Flynn, 2002; Mctavish, 2004). Excessive specialisation, however, as is often the case with private sector organisations means that employees cannot function beyond the parameters of their jobs and are devoid of the proactive, problem-solving skills which are deemed integral to contemporary organisational success (Bourn and Bourn, 1995; Flynn, 2002; Mctavish, 2004). Quite simply, employees are confined to the limits of the skills that they brought with them upon joining the organisation, and on which basis they were hired, and their job descriptions. As early as the 1960's, management scholars engaged in the critique of public sector management, maintain that the functional departmentalisation trend typical of public sector organisations only serves to compound the nature of the obstacles towards efficient and effective organisational functioning (Kearney and Berman, 1999; Flynn, 2002). The grouping of employees according to their professional skill-sets and their job descriptions has its advantages. The most obvious of these, naturally, is departmental efficiency. The disadvantages, however, are the invariable tendency for the evolution of narrow departmental visions and the formation of communication and operational disconnects between the various departments (Kearney and Berman, 1999; Flynn, 2002). Within the context of an organisational structure which hardly facilitates extra-departmental communication, cooperation and organisational cohesiveness, organisational goals are often sacrificed for departmental ones (Kearney and Berman, 1999; Flynn, 2002). The resultant disconnect prevents department heads and employees from embracing a vision other than the immediate departmental one. As may be deduced from the above, the traditional organisational structure typical of public sector entities is geared towards extreme centralisation of control and authority. Decision-making ends towards the autocratic, with the command chain flowing downwards. Employees are virtually excluded from the decision-making process and final decisions are confined to top management. The public sector organisation is, thus, additionally distinguished from the private sector by its vertical hierarchical structure (Mctavish, 2004; Dent, Chandler and Barry, 2004). The traditional bureaucratic, centralised and highly formalised character of public sector organisations is problematic because it gives rise to mechanistic organisations which are highly vulnerable to atrophy, compounded with the probability of their being rendered irrelevant by the market/sector in which they operate. Bourgeois (1984) agrees and adds that the tendency of public sector organisations to devolve into mechanistic ones, largely consequent to extreme specialisation and centralisation, constitutes one of the more telling signs of organisational atrophy. Mechanistic structures, implying task repetition, inflexibility and centralised control, render an organisation incapable of responding to external environmental changes or emergent demands. The organisation functions according to a predetermined set of business strategies and tasks which employees execute in abidance with a rigid blueprint (Bourgeois, 1984; Dent, Chandler and Barry, 2004; Mctavish, 2004). The mechanistic process by which such organisations function, may mean that business processes and tasks are executed with a high degree of efficiency but, as Kearney and Berman (1999) emphasise, not with effectiveness. They are not effective because they do not address the reality of the surrounding external environment, do not influence it and are not influenced by it. As deduced from the foregoing, the public sector must move forward and adopt a more dynamic structure so to facilitate effective and efficient operations in an increasingly competitive and volatile environment. E-procurement can contribute to the stated but its successful adoption hinges upon the public sector's acceptance of its potentials and promises, on the one hand, and on the deployment of sustained organisational efforts to eliminate the obstacles to adoption and operationalisation, on the other. This last is very important when considering that the characteristics reviewed in the above all pose as potential obstacles to successful implementation. Having outlined the characteristics of public sector organisation, it is necessary to now review the implications of e-procurement and its potential benefits. 3 E-Procurement This section will define e-procurement, following which its benefits will be clearly articulated. 3.1 Defining E-Procurement One of the most comprehensive definitions of e-procurement is the one proposed by Financial Executive (2001): "At its most basic, e-procurement simply means buying products and services over the Internet. In this sense, most companies are already using e-procurement. However, the term is coming more and more to mean automating the whole purchasing process and making order and requisition information available along the entire length of the value chain via the Internet. Such automation allows two-way communication of real-time financial and purchasing information without the need for electronic data exchange (EDI), middleware or value-added networks. Management at both the buying and selling end can see what's happening at any given moment and identify trends and problems." As amply evidenced through the preceding definition, e-procurement is a subset of e-commerce and insofar as business firms are concerned, a critically important strategy, not for the facilitation of the procurement process per se, but for the automation of the process and the location of suppliers who offer competitive prices for quality products/services. E-procurement, in other words, is a means for obtaining the best quality at the best price when needed. In this way, it is an economic way for the attainment of performance excellence. 2.2 Benefits of E-Procurement Embedded in the foregoing definition is the rationale for the embrace of e-procurement by public sector organisations. It reduces transaction costs, minimizes/eliminates the potential for corrupt procurement practices and by facilitating global transactions, allows for the optimal matching of requirements to offerings. 2.2.1 Reducing Transaction Costs E-procurement significantly contributes to the reduction of transaction costs. According to Welty and Becerra-Femandez (2001) financial studies indicate that organisation which have implemented IT-based solutions, including e-procurement, for the automation of parts of the business process, have experienced a decrease in transaction costs, ranging from 10-20%. Reduction in transaction costs is due to the fact that automation immediately implies the conservation of human resources, thereby, the reduction of the overall costs of completing a particular business task. In direct relation to procurement, automation eliminates both the cost and time needed to select a vendor, negotiate with him/her and process the order. Added to that, automation further means that the potential for human error, and the associate cost of the stated, is eliminated from the equation and that the required goods/services are automatically purchased upon the identification of a need through automated resource and inventory tracking (Welty and Becerra-Femandez, 2001). 2.2.2 Global Transactions In addition to reducing transaction costs, a typical motivation for the adoption of e-procurement has also been the globalisation of transactions. By widening and significantly expanding the supplier market, e-procurement has shifted power from suppliers to buyers and, indeed, has imposed upon suppliers the imperatives of offering high quality goods and services at highly competitive prices (Schiller, 2005). E-procurement effectively translates into wider choice for buyers and the intensification of competition among suppliers. In practical terms, this means that procurers are no longer confined to their local markets and can just as easily access the international marketplace for the satisfaction of their needs, on their own terms. They can satisfy their needs on their own terms because the expansion of the supplier market from the domestic to the global means that competition amongst suppliers has substantially intensified and, hence, to attract buyers, they have to offer highly competitive prices, payment scheduling and post-sales services, without any of the stated impinging upon quality (Schiller, 2005). Within the digital economy, therefore, and despite the advantages that the stated holds for suppliers, power has shifted from suppliers to buyers. On the basis of the above stated, it can safely be affirmed that one of the primary motivations for the adoption of e-procurement by the public sector is the globalisation of transactions. Within the context of the aforementioned and in addition to the advantages and benefits listed in the preceding, it also should be noted that the globalisation of transactions contributes to the reduction of transaction costs. 2.2.3 Optimal Matching A third powerful impetus for the adoption of e-procurement by the public sector is that the said purchasing strategy enables the optimal matching of requirements to offerings (Korper and Ellis, 2006). Buyers, in this case public sector organisations, are able to match their product, quality and price requirements, among others, to suppliers' offerings. This means that buyers do not have to compromise their requirements but can select the supplier whose goods and terms most optimally match their needs and demands (Korper and Ellis, 2006). Hence, through e-procurement, the public sector ensures that money spend is money well-spent. Added to the above stated and consequent to the fact that matching is the criteria for the selection of suppliers and is, to a large degree, an automated process, the opportunities for corrupt procurement practices are substantially reduced. Public sector organisation leaders and managers can no longer award contracts to friends and relatives but can only award them to those suppliers with whom an optimal match has been identified (Korper and Ellis, 2006). It is important to note here that optimal matching, therefore, contributes to the reduction of transaction costs by reducing the possibility of corruption and by ensuring that money spend is well spent. 3 Motivations and Challenges The motivations for the adoption of e-procurement by the public sector are both powerful and significant. E-procurement quite effectively reduces transaction costs, preserves organisational resources for other task and processes and, importantly, renders the procurement process much more efficient. Added to the foregoing, it addresses and resolves an important concern and problem regarding procurement by the public sector. That is, corruption. The automation of the processes and the selection of procurers based upon optimal matching of requirements to offerings negates the potential for corruption because automated selection means that single public sector decision makers cannot award contracts to friends and relatives. All of the stated combine to underscore the imperatives of the public sector's adopting e-procurement technologies, just as has a significant percentage of the public sector. As may have been inferred from the preceding discussion on the characteristics of public sector organisations, however, the challenges to successfully implementing the stated are enormous. Challenges, intrinsically related to the characteristics of public sector organisations, may be identified as the tendency towards organisational inertia and an inherently bureaucratic decision-making process (Reese, 2003). As regards the first, inertia implies irresponsiveness to change and a prerequisite to the successful adoption of e-procurement is dynamism, as in proactive response to emerging changes. It is possible to infer, from a wide range of scholarly sources, that the movement from the first to the second state, as required for the successful adoption of e-procurement, would entail a degree of organisational restructuring. Such restructuring should target top-down hierarchies, bureaucratic modes of decision-making and virtual absence of team work and inter-departmental collaboration and cooperation (Cane and Thurston, 2000; Flynn, 2002; Dent, Chandler and Barry, 2004). The reason for the stated lies in that top-down control and bureaucratic decision-making function as obstacles to both timely decision-making and problem solving(Cane and Thurston, 2000; Flynn, 2002; Dent, Chandler and Barry, 2004). The relevancy of both of the stated to the both the adoption and successful implementation of e-procurement is self-evident. Delayed decision making implies postponement of adoption and top-down control undermines the organisation-wide collaboration and cooperation necessary for the successful implementation and operationalisation of e-procurement (Reese, 2003). Hence, the challenge to successful adoption and implementation lie in the characteristics of public sector organisations. Even while conceding to the above stated, two observations have to be emphasised. The first is that the motivations for and the benefits of adopting e-procurement necessitate adoption and implementation, both for economic and performance reasons. The second is, and as attested to by organisational development and management scholars, is that there is no reason for public sector organisations not to adopt private sector management models and structures and, indeed, every reason for them to do so (Cane and Thurston, 2000; Flynn, 2002; Dent, Chandler and Barry, 2004). The implication here is that public sector organisations can, through the adoption of private sector organisational characteristics, successfully embrace e-procurement technologies. 4 Conclusion In conclusion to the foregoing discussion, two points should be emphasised. The first of these is that the public sector is lagging behind the private one in terms of performance and resource management, largely because it is stubbornly adhering to outmoded management models and archaic organisational hierarchical structures. This underscores the need for organisational restructuring, just as it explains the nature of the challenges which may confront public sector organisations in their bid to adopt e-procurement technologies. The second point is that public sector organisations should adopt e-procurement, both for the enhancement of the efficiency of the procurement process and for the reduction of transaction costs while, at the same time, increasing business performance levels. In closing, therefore, the benefits of adopting e-procurement far outweigh the cost of addressing the associated challenges. References Bourgeois, L.J. (1984). Strategic management and determinism.' The Academy of Management Review, 9(4), 586-596. Bourn, J. and Bourn, J. (1995). Public Sector Management. Dartmouth: Dartmouth Publishing Group. Cane, P., and Thurston, A. (2000) A Strategic Resource for Public Sector Management. London: Stylus Publishing LLC. Dent, M., Chandler J. and Barry, J. (2004) Questioning the New Public Management. London: Ashgate Pub. Financial Executive (2001) Advice on E-Procurement. Financial Executive, 17(3), 9. Flynn, N. (2002) Public Sector Management. London: Financial Times Management. Kearney, R.C. and Berman, E.M. (1999) Public Sector Performance: Management, Motivation and Measurement. Conn: Westview Press. Korper, S. and Ellis, J. (2006) The E-Commerce Book: Building the E-Empire San Diego, CA: Academic Press. Mctavish, D. (2004) Business and Public Management in the UK. London: Ashgate Pub. Reese, A.K. (2003) e-Pluribus Unum: Uncle Sam Wants 'e'. . .Or Does He http://www.isourceonline.com/article.asparticle_id=2684 Schiller, D. (2005) Digital Capitalism: Networking the Global Market System. Cambridge, MA: MIT Press. Welty, B. and Becerra-Fernandez; I. (2001) Managing Trust and Commitment in Collaborative Supply Chain Relationships. Communications of the ACM, 44(6). Read More