Sustainability and procurement
E- resources; e-procurement
E-tendering
E-tendering enables the traditional process not only to be made more effi-cient but to add significant value. It can provide a transparent and paperless process, allowing offers to be more easily compared according to specific criteria. More importantly, by using the internet, tendering opportunities become available to a global market.
Eprocurement is the use of electronic tools and systems to increase effi -ciency and reduce costs during each stage of the procurement process. Of all the resources referred to in Figure 4.3, e-procurement is the one that inter-sects the most with other typologies, often in a complex way. Since autumn 2002 there have been signifi cant developments in e-procurement; legislative changes have encouraged greater use throughout the EU; new techniques such as electronic reverse auctions have been introduced, not (it has to be said) without controversy. In addition, the UK government has launched a drive for greater public sector effi ciency following the HM Treasury’s publication of the Gershon Effi ciency Review: Releasing Resources to the Frontline in July 2004, and e-procurement is seen to be at the heart of this initiative.
The stated prime objective of electronic tendering systems is to provide central government, as well as the private sector, with a system and service that replaces the traditional paper-tendering exercise with a web-enabled system that delivers additional functionality and increased benefits to all parties involved with the tendering exercise. The perceived benefits of elec-tronic procurement are as follows:
• Efficient and effective electronic interfaces among suppliers and civil central governments, departments and agencies, leading to cost reduc-tions and time saving on both sides.
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• Quick and accurate prequalification and evaluation, which enables automatic rejection of tenders that fail to meet stipulated ‘must-have criteria’.
• A reduced paper trail in tendering exercises, saving costs on both sides and improving audit.
• Increased compliance with EU Procurement Directives, and best prac-tice procurement with the introduction of a less fragmented procure-ment process.
• A clear audit trail, demonstrating integrity.
• The provision of quality assurance information (e.g. the number of ten-ders issued, response rates and times).
• The opportunity to gain advantage from any future changes to the EU Procurement Directives.
• Quick and accurate evaluation of tenders.
• The opportunity to respond to any questions or points of clarification during the tendering period.
• Reduction in the receipt, recording and distribution of tender submissions.
• Twenty-four-hour access.
Figure 4.6 illustrates the possible applications of e-procurement to projects that are covered by the EU Public Procurement Directives.
Benefits of electronic tendering and procurement of goods and services are said to be wider choice of suppliers leading to lower cost, better quality, improved delivery, and reduced cost of procurement (e.g. tendering specifica-tions are downloaded by suppliers rather than sent by snail mail). Electronic negotiation and contracting and possibly collaborative work in specification
Creating Tender
Figure 4.6 Possible applications of e-procurement
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can further enhance time and cost saving and convenience. For suppliers the benefits are more tendering opportunities, possibly on a global scale, lower cost of submitting a tender, and possibly tendering in parts which may be better suited to smaller enterprises or collaborative tendering. Lower costs can be achieved through increased efficiency, and in some sectors the time may not be too far distant when the majority of procurement is done this way. However, a survey carried out by e-Business Watch in 2002 over 6,000 organisations found that nearly 60 per cent of those surveyed perceived that face-to-face interaction was a barrier to e-procurement while online security continued to be a major concern.
In autumn 2005 the RICS produced a guidance note on e-tendering in response to the growth in the preparation of tender documents in electronic format. Figure 4.7 sets out their recommended approach to the e-procure-ment process, while Figure 4.8 maps the way by which contract docue-procure-menta- documenta-tion may be organised for the e-tendering process.
It is worrying that there is still little evidence of the use of electronic
Select appropriate method
Agree/set document standards
Ensure legality
Return and evaluation process Preliminary enquiry Prepare tender checklist
Check security Check the technology Select appropriate medium
Initiate process
Figure 4.7 The RICS’s recommended approach to the e-procurement process
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tendering. It may well be that we are going through a period of paper-based tendering with the documents being issued on CD as well, leading to under-reporting. Extranet-based tendering is the logical next step in the market, using such examples as the RCIS e-tendering service. Future surveys should pick up an increase in usage in e-procurement (RICS Contracts in Use in 2007, 2010).
An additional question on the use of electronic tendering was also asked for the second time. Perhaps surprisingly, the number of instances recorded fell markedly. Only six occurrences were recorded (on projects up to £10 million), representing just 0.4 per cent of the total sample, compared to fifty-four projects (or 2.3 per cent of the sample) in 2004. Under-recording may partly explain the apparent lack of use, though the 2004 sample suffered from a similar deficiency.
Good communication is vital to the procurement and construction pro-cess, and electronic communication is revolutionising the means of commu-nication available. However, previous research by the RICS Construction
Master Index 1.0 Enquiry letter
2.0 Employer’ srequirements 3.0 Drawings
4.0 Supplementary information
1.0 Enquiry letter 2.0 Employer’s requirements
Figure 4.8 Organisation of contract information for e-procurement Source: RICS.
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Faculty has shown that the take-up of electronic communication as part of the procurement process in the UK construction industry has been, at best, patchy. The Construction Faculty’s report, Measurement Based Procure-ment of Buildings, showed that while all bills of quantities were prepared in digital form, fewer than 30 per cent were made available to the contractor as an electronic document and fewer than 10 per cent of priced bills were submitted electronically. Furthermore, only 3 per cent of consultants and 4 per cent of contractors had had any experience of e-commerce systems.
As far as construction is concerned, another study carried out by Eadie et al. published in 2010 continued to show that the update of e-procurement is still at very low levels in the construction industry. The study indicated that fewer than 25 per cent of construction organisations use e-procurement in the UK which is substantially below other sectors. Can it be that despite the perceived advantages of e-procurement the industry is so conservative and unwilling to change and embrace new approaches and techniques?
The research went on to try to defi ne the drivers and barriers to the intro-duction of e-procurement in construction and understand why this is the case. One reason often cited is the uniqueness of the construction indus-try compared with manufacturing; perhaps there is some element of truth in this, but it cannot completely account for the different levels of uptake.
A review of current practice in 2010 identifi ed that the perceived drivers and barriers to the use of e-procurement may be categorised as shown in Table 4.1.
Of 483 surveying organisations only eighty-three were using e-procure-ment, although this figure covers a wide disparity between the public and
Table 4.1 E-procurement drivers E-procurement drivers Category
Cost Cost savings in administration and transactions.
Increased profit margins.
Strategic cost savings.
Time Shortened procurement times.
Shortened communication times.
Shortened times through greater transparency.
Reduction in evaluation times.
Shortened contract completion time.
Quality Increased quality through benchmarking.
Increased quality through the supply chain.
Increased efficiency.
Increased quality through improved communications.
Increased accuracy.
General Gain competitive advantage.
Convenience of archiving completed work.
Develops technical skills and expertise of procurement staff.
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private sectors, with some 74 per cent of organisation within the public sec-tor engaging with e-procurement, while in the private secsec-tor fewer than 25 per cent of organisations were using e-procurement. The rank order of driv-ers and barridriv-ers varies between the public and private sector, although ‘Cost savings in administration and transactions’ and ‘Security in the process’
were ranked number one by both sectors (Table 4.2). Overcoming the most important barriers and incorporating the most important drivers within e-procurement systems will achieve a higher level of maturity.
E-auctions
An online auction is an internet-based activity which is used to negotiate prices for buying or selling direct materials, capital or services (Figure 4.9).
Online auctions that are used to sell: these products are called forward (or seller) auctions and closely resemble the activity on websites such as Ebay;
Table 4.2 E-procurement barriers E-procurement Category barriers
Cultural Lack of management support/leadership.
Resistance to change.
Lack of widely accepted e-procurement software solution.
Magnitude of change.
Lack of national IT policy relating to e-procurement issues.
Bureaucratic dysfunctionalities.
Lack of technical expertise.
Staff turnover.
Infrastructure Access to internet.
Insufficient assessment of systems prior to installation.
Security Security in the process.
Confidentially of information – unauthorised access.
Data transmission reassembly – incorrect reassembly of
transmitted data.
Incomplete documents supplied.
Legal Lack of pertinent case law.
Different national approaches to e-procurement.
Proof of intent – electronic signatures.
Clarity of sender and tenderer information.
Enforceability of electronic contracts.
Assessment costs Information technology investment costs.
Compatibility Internal and external interoperability of e-procurement software.
Investment in compatible systems.
Reluctance to ‘buy-into’ one off systems.
General Perception of no business benefits realised.
Lack of awareness of best practice solutions.
Lack of forum to exchange ideas.
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the highest bidder wins. Some companies are starting to use reverse auc-tions where purchasers seek market pricing, inviting suppliers to compete for business on an online event. Auctions may either be private/closed where there are typically few bidders who have no knowledge of each other’s bids, or open where a greater number of participants are invited. In this case participants have prior knowledge of either their rank or the bidding itself.
When used, the technique can replace the conventional methods of calling for sealed paper tenders or face-to-face negotiations.
Online auctions are said to offer an electronic implementation of the bid-ding mechanism used by traditional auctions and systems may incorporate integration of the bidding process together with contracting and payment.
The sources of income for the auction provider are from selling the technol-ogy platform, transaction fees and advertising. Benefits for suppliers and buyers are increased efficiency and time saving, no need for physical trans-port until the deal has been established, as well as global sourcing.
There have been some strong objections to e-auctions and in particular reverse e-auctions from many sections of the construction industry. In the public sector the OGC has received representations from trade associations and other bodies. Sections of the industry have seen e-auctions as a return to lowest price purchasing, threatening already low margins. The industry also perceives e-auctions as challenging the principles of many government-led initiatives (see best practice portals) such as an integrated supply chain approach to construction procurement based upon optimum whole-life value. Among quantity surveyors the perceptions of era are very negative, with 90 per cent believing that they reduce quality and adversely affect part-nering relationships.
Forward (seller) auctions
Reverse (buyer) auctions
Private Closed
Open Reverse
Figure 4.9 An online auction
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Reverse e-auctions
The reverse e-auction event is conducted online with prequalifi ed suppliers being invited to compete on predetermined and published award criteria. A reverse e-auction may be on any combination of criteria, normally converted to a ‘price equivalent’. Bidders are able to introduce new or improved val-ues to their bids in a visible and competitive environment. The procedure and duration of the event will be defi ned prior to the commencement of the reverse e-auction. There will be a starting value that suppliers will bid against until the competition closes.
Three characteristics that need to be present to have a successful reverse auction are as follows:
• the purchase must be clearly defi ned;
• the market must be well contested;
• the existing supply base must be well known.
These three factors are interdependent and together form the basis for an auction that delivers fi nal prices as close as possible to the true current mar-ket price. For both the buyer and the supplier a clearly defi ned scope of work is essential; without this it becomes very diffi cult accurately to bid for the work. Contestation (that is, three or more suppliers within the market willing to bid for the work) is another prerequisite. Without this there isn’t any incentive for suppliers to reconsider their proposals. Finally the client’s knowledge of the supply base ensures that the most suitable suppliers par-ticipate in the events. In order to move away from a system where cost is the only selection criteria it is possible to organise bidders to submit, before the commencement of the reverse auction, their proposals on other matters, such as safety or technical ability. These proposals can then be evaluated beforehand and the resulting scores built into the auction tool. Therefore, when a supplier enters their price, the application already has the informa-tion needed to complete the evaluainforma-tion process. This process is known as a transformation reverse auction (TRA) and is believed to more accurately refl ect the prevailing market dynamics.
E-projects
• Project extranets
• Supply chain management.
E-commerce may be said to be the ultimate supply chain communication tool, as it permits real-time communication among members. e-commerce may include the use of some or all of the following technologies:
• The internet – the international network. The main advantages of the internet for the quantity surveyor include availability, low cost and easy
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access, whereas the main disadvantages, particularly for business users, centre around lack of control, reliability and security, aspects that are now being addressed and will be discussed later in this chapter. For the surveyor, internet applications include procurement, marketing, e-mail
Identify Purchase Need
Create Tender
Format, print & collate tender
Receive, store responses
*For public sector tenders above certain thresholds
Figure 4.10 E-tendering versus traditional tendering
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and data transfer. A signifi cant number of hard-pressed UK quantity surveying practices unable to source staff in the UK, transfer project drawings in CAD format via the internet to practices worldwide for the measurement and preparation of bills of quantities. The completed bills plus drawings are then e-mailed back to the UK, permitting virtual twenty-four-hour working.
• An intranet – an internal network that publishes information available to staff within a single company, not the world. Compared with the inter-net, intranet sites are much faster to access and offer great savings in set-up, training, management and administration. An intranet is a very cost-effective way of centralising information sources and company data such as phone lists, project numbers, drawing registers, quality proce-dures as well as allowing the use of internal e-mail. Intranets use the same technologies as the internet but are not open to public access.
• An extranet – a wide area intranet that spans an organisation’s boundar-ies, electronically linking geographically distributed customers, suppliers and partners in a controlled manner. It is a closed electronic commerce community, extending a company’s intranet to outside the corporation.
It enables the organisation to take advantage of existing methods of electronic transaction, such as electronic data exchange (EDI), a system to facilitate the transmission of large volumes of highly structured data.
Project extranets have been described as the fi rst wave of the e-com-merce revolution for the UK construction industry and applications that use extranets include project management, for example, the construc-tion of Hong Kong’s new airport. For some, electronic data interchange promised the ability to exchange data effi ciently between trading part-ners, as had been the case in the motor industry and food retailers for a number of years. The major disadvantages of EDI are the high cost, as operators have to trade through value-added networks (VANs) as well as standard problems; that is to say that not all EDI systems are com-patible. More importantly, the point-to-point contact of EDI provides no community of market transparency. These problems are increasingly being addressed by the reduced costs of internet applications that are able to deliver fl exibility, reduced training and low set-up costs. An example of the limitations of EDI is the experience of H&R Johnson Tiles, the largest manufacture of tiles in the UK. This company has car-ried out electronic trading for years with its larger customers using EDI;
however, the company has found it impossible to extend EDI to smaller customers without the critical mass of transactions to drive the neces-sary investment; a separate website had to be launched using an extranet to cater for its top-twenty smaller customers. This is not to say that batch-mode EDI transactions will not survive and prosper, as the system is extremely effi cient and has been predicted to have an established place in the large-scale exchange of data.
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Extranets/EDI are perhaps the most diffused type of e-commerce and should be better defi ned as e-business rather than as e-commerce.
Collaboration platforms
These provide a set of tools and information environment for collaboration between organisations. This can focus on specific functions, such as col-laborative design and engineering or provide project support with a virtual team of consultants. Business opportunities are in managing the platform and selling the specialist tools.
Porter’s value chain
The value chain (see Figure 4.11) has been defined as a model that describes a sequence of value-adding activities of a single organisation, connecting an organisation’s supply side with its demand side, and includes support-ing activities. Information technology is applicable at all points of the value chain.
Primary activities include:
• inbound logistics, just in time activities;
• operations, process control;
• outbound logistics, online link to customers;
• marketing and sales, laptops for direct sales;
• service, electronic dispatch of technical supports.
Support activities include:
• firm infrastructure, e-mail;
• human resource management, online personnel base;
Human resource management Firm infrastructure
Technology development
Procurement
M A R G I N In bound
logistics Operations Outbound logistics
Marketing
& Sales Services
Figure 4.11 The value chain
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• technological development, CAD/CAM;
• procurement, online access to suppliers’ inventory.
Value chain integration can use internet technology to improve communica-tion and collaboracommunica-tion between all parties within a supply chain.
Value chain service provider
These organisations specialise in a particular and specific function of the value chain; for example, electronic payment or logistics. A fee or percent-age-based scheme is the basis for revenue generation.
Value chain integrators
These focus on integrating multiple steps in the value chain, with the potential to exploit the information flow between these steps as further added value.
These focus on integrating multiple steps in the value chain, with the potential to exploit the information flow between these steps as further added value.