Proposal on e Procurement

CHAPTER-1:

CHAPTER-1: INTRODUCT

INTRODUCTION

ION

1.1

1.1 Introduction

Introduction

A number of public sector agencies worldwide have identified Electronic Procurement A number of public sector agencies worldwide have identified Electronic Procurement (e-Procurement) as a priority e-Government agenda and have implemented or are in the process Procurement) as a priority e-Government agenda and have implemented or are in the process of implementing buy-side Procurement systems. However, the scholarly evaluation of of implementing buy-side Procurement systems. However, the scholarly evaluation of e-Procurement initiatives, especially in relation to the use of Critical Success Factors (CSFs) Procurement initiatives, especially in relation to the use of Critical Success Factors (CSFs) in e-Procurement is very limited (Birks, Bond & Radford, 2001; DOF, 2001; CGEC, 2002; in e-Procurement is very limited (Birks, Bond & Radford, 2001; DOF, 2001; CGEC, 2002; ECOM, 2002).An increasing number of government authorities are adopting e-procurement ECOM, 2002).An increasing number of government authorities are adopting e-procurement solutions to reap the benefits that companies in the private sector have already achieved (N. solutions to reap the benefits that companies in the private sector have already achieved (N. A. Panayiotou, S.P. Gayialis, and I.P. Tatsiopoulos).

A. Panayiotou, S.P. Gayialis, and I.P. Tatsiopoulos).

E-procurement is set to transform the purchasing process within and between buyer and E-procurement is set to transform the purchasing process within and between buyer and supplier organizations by replacing paper-based purchasing with automated systems. A supplier organizations by replacing paper-based purchasing with automated systems. A critical factor driving the adoption of e-procurement is the fact that procurement savings critical factor driving the adoption of e-procurement is the fact that procurement savings flow directly to the bottom line. As well as providing process-cost reductions and lower  flow directly to the bottom line. As well as providing process-cost reductions and lower  administration costs, effective e-procurement can result in reduced inventories, lower cycle administration costs, effective e-procurement can result in reduced inventories, lower cycle time and improved competitiveness, all of which contribute to increase revenue and time and improved competitiveness, all of which contribute to increase revenue and  profitability.

 profitability.

The main overall objectives of the research are to gain an exploratory understanding of The main overall objectives of the research are to gain an exploratory understanding of e-Procurement issues in the public sector; to develop a conceptual framework that aids in Procurement issues in the public sector; to develop a conceptual framework that aids in identification of critical success factors for adopting and implementing e-Procurement in the identification of critical success factors for adopting and implementing e-Procurement in the  public sector; and to

 public sector; and to stimulate debate about the stimulate debate about the e-Procurement critical success e-Procurement critical success factor and thefactor and the associated measures for success based on the performance.

associated measures for success based on the performance.

There is much to be done in Nepal for good governance. As a developing country, a major  There is much to be done in Nepal for good governance. As a developing country, a major   portion of 

 portion of 

 Nepal’s annual bu

 Nepal’s annua

l budget is

dget is

used in the procurement of works, goods, and services.used in the procurement of works, goods, and services. Hence, it becomes important to give more emphasis on these activities in order to Hence, it becomes important to give more emphasis on these activities in order to accomplish them in a transparent and efficient manner. It is well known to all that the project accomplish them in a transparent and efficient manner. It is well known to all that the project

executing departments suffer especially in procurement processes. Physical threats to  bidders, cartel formation, suppressed competition, pressures on department officials, inordinate delays in tender finalization, human interface, manipulations, tampering, inadequate transparency, adverse press coverage on tender fracas are the most common incidences that happens during the procurement processes. A recent incident during the tendering process happened in the Trichandra College throws a very sad example of getting our young citizens involved in the illegal and unsocial activities. This shows how deeply rooted corruption is in the procurement process in the country. (Shaha SatyaNarayan The Himalayan Times, Thursday, August 6, 2009)

1.2 Background

Simply stated, e-Procurement is the electronic B2B (or B2C or B2G) sale and purchase of  goods and services. The medium used might be the Internet or any other media like EDI (Electronic Data Interchange) and Enterprise Integrations (formerly known as EAI).Confusion exists in defining the term e-Procurement (Vaidya, Yu, Soar & Turner,

2003). While the terms ―e

-

Procurement‖ and ―e

-

Purchasing‖ have been used synonymously

in many jurisdictions in an attempt to prove their involvement in the e-Commerce revolution

(MacManus, 2002), the term ―purchasing‖ has a

narrower scope. e-Procurement refers to the use of Internet-based (integrated) information and communication technologies (ICTs) to carry out individual or all stages of the procurement process including search, sourcing, negotiation, ordering, receipt, and post-purchase review (Croom & Brandon-Jones, 2004). While there are various forms of e-Procurement that concentrate on one or many stages of  the procurement process such as e-Tendering, e-Marketplace, e-Auction/Reverse Auction, and e-Catalogue/Purchasing, e-Procurement can be viewed more broadly as an end-to-end solution that integrates and streamlines many procurement processes throughout the

organization. Although the term ―end

-to-end e-

Procurement‖ is popular, industry and

academic analysts indicate that this ideal model is rarely achieved (DOIR, 2001) and

e-E-procurement is the process of purchasing goods and services electronically (K. Mitchell, W. D. Presutti)

, and can be defined as ―the use of integrated (commonly

web-based) communication systems for the conduct of part or all of the purchasing process; a process that may incorporate stages from the initial need identification by users, through search, sourcing, negotiation, ordering, receipt and post-

 purchase review‖

(S. Croom and A. Brandon-Jones).

1.2.1 Public Procurement Reform Initiatives in Nepal

•

Reforms in public procurement initiated based on recommendation made by WB's Country Procurement Assessment Reports (CPAR), 2002.

•

Public Procurement Act (PPA) and Public Procurement Regulation (PPR) enacted in 2007.

•

The scope of the public procurement law:

 Covers all procurement handled by public entities excluding security  procurement.

 Establishes a fully decentralized system for procurement decision making.

 Standardizes procurement practices (use of common procedures and standard  bidding documents and forms).

 Provides for an administrative review mechanism for complaint that allows bidder 

to challenge procuring entity’s decision before filing for judicial review (Review

Committee).

 Allows framework contracts.

•

PPMO established in 2007 as a central Public Procurement Authority to act as functional and normative body as per the provision made in the PPA.

•

PPMO is under Office of Prime Minister and Council of Ministers.

•

PPMO's mandates are:

 Formulation of procurement policy and regulations

 Issue SBDs, technical guidelines and required manual;

 Provide advice and opinion to PEs on any matter set forth in the law or  guidelines;

 Develop and operate e-GP single portal;

 Organize regular training programs;

 Prepare annual report on procurement proceedings and submit to the Government (Prime Minister).

•

PPA includes provision for the use/adoption of e-procurement.

•

Amendment of PPR in 22 July 2011 to strengthen PPMO leadership for the establishment of e-GP.

•

PPMO mandated to establish, operate and manage single portal e-GP system.

•

All Public entities have to carry out procurement proceedings by using single portal e-GP system as per PPMO Directives

•

World Bank and ADB providing support for institutional de velopment to PPMO.

•

Currently, PPMO is implementing a project to develop e-GP system with the support of  WB and ADB (from 2010/11).

1.2.2 A Conceptual Framework:

Figure1: A Conceptual Framework for the e-procurement implementation and its performance  measur ement based on Cr it ical Success Factor (CF S) in t he publi c sector 

1.2.3 Public Sector Procurement Requirements:

Public procurement is an important function of government (Thai, 2001). It has to satisfy requirements for goods, works, systems, and services in a timely manner. Furthermore, it has to meet the basic principles of good governance: transparency, accountability, and integrity (Wittig, 2003; Callender & Schapper, 2003). Another main principle of governments is to achieve value for money in procurement (DOF, 2001). However, public procurement has  been a neglected area of academic education and research, although governmental entities,  policy

 – 

makers, and public procurement professionals have paid a great deal of attention to  procurement improvements and reforms (Thai, 2001).

A core difference is the relationship between the buyer and the supplier in each entity. In the  public sector, the buyer attempts to include as many sellers as possible in order to broaden

competition and maximize opportunities for value for money whereas, in the private sector,  buyers may seek to use a small number of suppliers based on trusted relationships in order to

minimize operating risks (OCIO, 2000). Governments are also obliged to disclose  purchasing and contracting information to the public, including details about the outcome of 

government contracting decisions. While government procurement policies and legislation have been established to limit discrimination in government procurement, it is unclear how successful they have been (Rasheed, 2004).

1.2.4 Scenario of e-Procurement in Government of Nepal:

The promotion and development of the ICT sector can play a vital role in accelerating the development process of the country. Currently in Nepal, there are 11 ISPs and more than 100,000 Internet users. Remote and rural areas lack adequate ICT facilities, thus ICT  business is mostly centered in urban areas. In complement to government initiatives, most of 

the large businesses and hotels have their own website and conduct businesses online. The Government of Nepal and the private sector are making continuous efforts for the development and adoption of modern information technology. The Ministry of Science and Technology of Nepal was established in 1996 with the responsibility of creating a conductive environment for the adequate development of science and technology and making necessary arrangements for its effective application in national development

activities. The Ministry prepared the Information and Technology Policy 2000 with the vision of placing Nepal on the global map of information technology within the next five years. A new Science and Technology Policy was set out in 2005. For the implementation of  the vision, the High Level Commission for Information Technology (HLCIT) is entrusted with the responsibility of promoting the IT sector by providing support to the Government in formulation, implementation, monitoring and evaluation of IT policy and strategies. As a result, the Electronic Transaction Ordinance 2004, Electronic Transaction (Certification) Regulation 2005 and Information Technology (Tribunal) Regulation 2005 have been enacted. The Procurement Act is in the process of finalization. With financial assistance from the World Bank, an e-procurement system will be introduced after enactment of the Procurement Act.

1.2.5 Present Scenario:

Online delivery of government services has never been higher on the political agenda than it is today. Government is talking about significant benefits that can be realized by moving traditionally paper-based and face-to-face services to the Internet. Government also understands these services must be people oriental, cost effective, easy to use and value added to citizens, business and to themselves. The Nepalese Internet got off to a later start than most developing nations, with initial UUCP connectivity in 1994, the licensing of ISPs in 1997, VSAT licenses in 1999, Mobile services in 1999 and GSM WLL in 2003. The  process of procurement begins as soon as each unit whether Ministries or Departments or 

lowest level office receive budget under different heads for the financial year. Based on the demand for goods or services and the requirement for bidding, the procurement personnel call for prequalification of suppliers. The proposals received in stipulated period are evaluated by the concerned authority and list of qualified suppliers are decided and announced.

CHAPTER-2: LITERATURE REVIEW

2.1 Literature Review

A literature review

is defined as ―the documentation of a comprehensive review of the

 published and unpublished work from secondary sources of data in the areas of specific

interest to the research‖ (Sekharan, 1992, p. 37). This section of the paper examined the

literature for a number of e-Procurement initiatives in order to investigate whether a general set of Critical Success Factors for e-Procurement existed. This literature has been used for   preliminary investigation into the Critical Success Factor approach and for finding barriers

and implementation outcomes of e-Procurement initiatives for the purpose of this study. While academic articles stimulate and provide theoretical understanding, the focus of this study has been to use the practitioner materials (mainly government reports) in order to

capture the practitioners’ perceptions of e

-Procurement practices. What were needed were multiple sources of data that could provide multiple insights into e-Procurement Critical Success Factors.

The literature review is categorized into three sections focusing on perceived benefits,

 perceived challenges, and procurement’s

impact on the buying behavior.

2.1.1 Perceived Benefits with e-Procurement

Literature in the field of supply management and e-procurement discuss several benefits of  e-procurement [3]. Previous literature (e.g., [13], [1]) has identified major advantages with e-procurement, such as; reduction of supply costs, reduction of cost per tender, lead time savings, simpler ordering, reduced paperwork, decreased redundancy, less bureaucracy, standardization of processes and documentation, online reporting, clearer and more transparent processes, ensured compliance with procurement laws and regulations, minimization of errors, and easier access to information. Previous research also indicates that e-procurement may lead to increased quality and more adequate purchasing [14]. In addition, e-procurement has been found to facilitate decentralization of procurement and, thereby, enable purchasing professionals to focus more efforts on strategically important

issues [1]. In summary, through implementation of e-procurement governments can handle much of the administrative work automatically, thus making the procurement process more efficient than any present paper-based system, with a corresponding benefit from large cost savings [2], [7], [1].

2.1.2 Perceived Challenges with e-Procurement

Despite the various benefits offered by the use of e-procurement, organizations will meet a number of challenges when implementing such systems. The vast size and bureaucratic nature of governmental organizations can complicate the implementation of e-government  projects [8].Previous literature have identified and grouped perceived challenges with e- procurement into five categories; i.e., challenges associated with strategic initiative, internal integration, external integration, technological integration, and security issues [9]. As to strategic initiative, one challenge is to realize that the Internet is not the strategy but rather  the tool for developing e-procurement [15]. Need of processes and procedures, adequate  planning, time issues, and management support have also been identified as strategic challenges in e-procurement implementation [9]. Challenges related to internal integration that has been brought up in previous literature are the need for commitment from senior  management and organization-wide communication of this commitment [16], budgeting and costs, change management, as well as need of training and resources [9]. With respect to external integration, issues related to change management were found to be most challenging [9]. As for technological integration, data quality, system-to-system integration, and ICT/technical issues have been identified as major challenges for many organizations when implementing e-procurement [9].

2.1.3 Implementation of e-Procurement and its Impact on Buying Behavior

To transform a procurement department into an e-procurement environment requires changes in buying behavior. It is a mistake to believe that the establishment of an e- procurement system can be comparable with the purchase of a new computer system. To

 procurement can impact organizations buying behavior (i.e., their buying process, selection criteria and the buying center). The buying process often is described as a sequential process with separate stages, steps, or phases of buying activities that take place from the time that a need arises to the actual purchase and subsequent evaluation. Mitchell [2] states that that e- procurement will change procurement processes; however, there is a lack of research focusing on how e-procurement will impact the buying process in the public sector. Previous research focusing on B2B has shown that e-procurement can shorten, automate, streamline, and structure the buying process [2], [17], [18], [19]. Also, the selection criteria may change in an e-procurement setting; however, no study has been found that focused on this with respect to public procurement. In B2B, new criteria, such as electronic catalogue management, electronic order management, electronic financial settlements

and suppliers’ e

-skills, have been gaining importance [19]. In addition, the number of suppliers that can be evaluated has increased, and potential suppliers can be found all over the world [20]. No study has been found focused specifically on public e-

 procurement’s

impact on the buying center, i.e., the members of the organization that influence the buying decision. However, Mitchell [2] states that the introduction of e-procurement will influence the roles and skills required in the purchasing organization and will alter relationships with vendors and suppliers. It therefore is important to manage the impact of these changes on both personnel and customers.

In a B2B setting, one study suggests that the buying center may decrease in size, include fewer hierarchical levels, and contain fewer functional areas when e-procurement is applied [17]. Another study suggests that e-procurement leads to a centralized purchasing function and those employees will be more empowered to manage their own purchasing while

adhering to the organization’s rules [21].Findings from one study within the public sector 

[10] suggest that personnel across different departments

 — 

such as finance, procurement, administration, IT, and e-government

 — 

should be involved in public e-procurement. This, in turn, might lead to conflicts such as regional policies of local purchases versus cost savings from having access to larger national markets [10].

CHAPTER-3: IDEA BEHIND

Idea Behind:

Transparency, which is one of the main objectives of good governance, is achieved through e- procurement system as it enables automatic e-mail to bidders on tender publication, bid documents available on net in public domain, corrigendum in public domain, no interface with departments up to tender opening. Physical threats to bidders, cartel formation, suppressed competition, pressures on department officials, inordinate delays in tender finalization, human interface, manipulations, tampering, inadequate transparency, adverse press coverage on tender  fracas are the most common incidences that happens during the procurement processes.

We have to understand the importance of the technology in fostering good governance. In order  to overcome all these unfortunate incidences more percentage of budgets is needed to be invested. Thus E-Procurement system should be considered as one of the major components of  good governance.

Considering these facts some the organizations like Department of Roads, Special Economic Zone Project, Chilime Hydropower Company Limited , Nepal Electric Authority , Department of  Urban Development & Building Construction, Department of Local Infrastructure Development and Agricultural Roads , Melamchi Water Supply Project , President Office of Nepal,  Nepal Army, Bagmati Office,  Nepal Telecom, Alternative Energy Promotion Center (AEPC) have already tried to implement it.

This Thesis is undertaken to highlights those technical and critical consideration to analyze the Values, Prospects, Challenges and Critical success factors for the implementation of the e- procurement specially for the public sector of Nepal for the Motive of Good Governance.

CHAPTER-4: OBJECTIVES AND SCOPE OF THESIS

4.1 Objectives:

Business-to-business (B2B) e-commerce

 — 

the area that encompasses electronic buying and selling transactions between organizations and in which e-procurement is a central function

 — 

has  become central to doing business effectively. If well implemented, it can help your organization

achieve enormous cost savings and productivity improvements. The Major Objectives to carry out this research are:

 To provide cost-effective solutions to increase transparency and accountability of the

 procurement process of Nepalese Public Sectors.

 To conduct feasibility study on solutions given the present ICT capabilities within Public

Sectors.

 To determine feasibility of providing tangible outputs to the application of ICT in the

Public procurement process.

 To restructure the way in which an organization purchases goods.

 To find out the critical factors influencing the successful implementation of

E-Procurement in Nepalese public sectors.

 To find out the Values, prospects and challenges of the E-procurement implementation in

4.2 Scope:

The E-Procurement process has been launched by many public sectors of Nepal .Department of  Road is the main implementer among them. Following Government as well as semi-Government organization of Nepal has been implemented e-Bidding system for their bidding process and

emerging to use e-procurement system in near future.

1)Department of Roads, Nepal

2) Special Economic Zone Project, Nepal 3) Chilime Hydropower Company Limited 4) Nepal Electric Authority

5) Department of Urban Development & Building Construction

6) Department of Local Infrastructure Development and Agricultural Roads 7) Melamchi Water Supply Project

8) President Office of Nepal 9) Nepal Army

10) Bagmati Office 11) Nepal Telecom

12) Alternative Energy Promotion Center (AEPC)

This thesis would certainly prove to be the milestone in understanding e-procurement process in the public sector organizations of Nepal. Thorough understanding would certainly guide to update the existing traditional procurement method used by the public sector organizations of   Nepal. So this thesis would have profound scope regarding the cost effective procurement  process in the public sector.

However the finding is targeted for the each aspects of the procurement in Nepalese public as well as private sector, it can cover mainly the e-procurement process of considering the NCB

CHAPTER-5: METHODOLOGY

5.1 Methodology:

A method is a tool, a way to solve a problem and research new knowledge (Holme and Solvang, 1997).In this chapter, the procedure of the research will be presented. We will describe what methods we have used and how we created the thesis. For doing this, we have to follow a series of steps, while at the same time using validity and reliability criteria to assure that the study fulfills certain standards (Foster, 1998).These steps are showed below in figure2.

F ig2: Schemeti c presentati on of the methodol ogy: sour ce Adapted fr om F oster, 1998, P.81 

5.1.1 Research Purpose:

We use both the descriptive as well as exploratory research purpose in our thesis. This study is descriptive since it is our intention to describe the area research and try to explain the data collected in order to find out the differences and similarities with frame reference of tradition approach of procurement and the new approach(i.e. E-Procurement).We begin to explain by evaluating answers to the research question, that makes our study exploratory.

5.1.2 Research Approach:

The Qualitative approach was found to be more suitable for the purpose of this thesis, as the  purpose is to gain better understanding of how e-procurement is used in B2B setting. For doing

Validity and Reliability

Research Purpose Research Approach Research Strategy Data Collection Sample Selection Data Analysis

so, we need close contact with the subjects, instead of generalization. Finally as the intention with this thesis is to describe, and find as complete and detailed information possible, the qualitative approach is the most suitable method.

5.1.3 Research Strategy

We have selected multiple case studies as our research strategy. We have to discover similarities and differences between the cases related to traditional procurement approach with the new  procurement approach (i.e. E-Procurement) .Case study is the most appropriate strategy as the thesis aims for deeper and detailed study, but at the same time having an opportunity for  comparison between different cases.

5.1.4 Data Collection

For the data collection purpose we can use several techniques like documentation, archival records, interview, direct observations, participant-observation and physical artifacts based on the scenario required during the research process.

5.1.5 Sample Selection

For the sample selection for our thesis, we will use multiple-case sampling, because multiple cases could add confidence to findings. We can take multiple cases sampling for easy comparison among the several public sector organizations of Nepal in perspectives of   procurement implementation strategy.

5.1.6 Data Analysis

The research followed three steps: data reduction, data display, and conclusion drawing and verification for data analysis. First we reduced the data so that only the important and relevant data were discussed in empirical data .As we conducted multi-case study all of the reduced data was displayed, so that inter-case comparison can be done in data analysis. And finally we drew

CHAPTER-6: EXPECTED OUTCOME

Expected Outcome:

The expected output after the successful completion of study shall be as outlined as below.

 Finding the limitation electronic procurement in the country and suggesting the remedy

for effective operation.

 Report detailing recommendation for Policies formulation and amendment in the

existing laws, accounting procedures and practices etc.

 Recommending enactment of other rules and regulations.

 Suggesting the need for bringing awareness training to Civil Servants and Supply Chain

Personnel.

 Preparing the country for e-governance as well as e-commerce.

 Present pilot project concept paper to be discussed and prepare a viable project plan to be

CHAPTER-7: ACTIVITY SCHEDULE

Activity Schedule:

The different major activities along with the approximated time is shown in the following bar  diagram.

1. Analysis: Preparation, Literature review : 60 days

2. Design :Conception : 30 days

3. Construction: Survey, Data Collection : 60days

4. Implementation and Feedback: (Execution/Conclusion/Documentation) :30 days

This diagram shows the time taken by several phases of work. It does not show the flow of process.

60 60 30 30 0 10 20 30 40 50 60 70 Analysis Construction Design Execution No. of days    A  c    t    i  v    i    t    i  e  s

Analysis Construction Design Execution

Time 60 60 30 30

Activity Schedule

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