“e.procurement and information” – a review of strategic, managerial, operational and technical aspects in the public sector

1. e.opportunities

In the 1990s, public sector e.procurement had the following strategic objectives –

1. to achieve lower costs for bought-in goods and services – via aggregated public sector demand i.e. concentration and control of expenditure to achieve low prices. This would prevent "rogue buying" and would demonstrate effective control by the purchasing function. The aim was also to employ the latest e.business tools such as e.auctions, and thereby promote greater competition, resulting in lower costs of goods and services to the public sector. Many governments had these objectives including Singapore, Denmark, the USA and the UN.
2. to reduce the costs of public administration – lower unit costs of placing an order and clearing payments to suppliers. There would be fewer clerks in purchasing and accounting, and there would be quicker, less bureaucratic buying. The aim was generally to reduce public sector costs. This was true of, for example, Germany and US local government.
3. to increase the competitiveness of the economy and to promote economic growth – "get on the Internet or die!" was one slogan. To make a country the best place in the world to conduct e.business (as in the UK which appointed an e.envoy to emulate the USA - this role is now circumscribed to achieve "joined-up" e.services between government departments and with the citizen). To improve the performance of industry through the application of e.business was a common belief in many countries beginning with the USA. Also, to prevent anti-competitive behaviour (as in the EU with the e.Europe 2005 Agenda). Another objective has been the promotion of small or local businesses as the engine rooms of growth and/or local prosperity (as in Australian and US States )
4. to support “joined-up” government, whereby both business and the citizen would benefit from the integration of services. (This was the case in, for example, the UK, Australia, Belgium, Denmark, and in Germany with Bund/Online 2005). E.procurement was seen as a necessary part of this (as in the US Integrated Acquisition environment). In particular, the concept of "The Single Window" was promulgated - citizens and businesses would identify themselves once to "the government", their identity would be verified, and subsequently this would be accepted by all government departments for all (or most) purposes without any re-entry of data already held electronically in a specified data base.
5. to improve information about and for government - what did the government spend its money on, for whom and with whom? Thereby, could money be better spent? This was true of the National Health Service, and later the Office of Government Commerce in the UK, the National Public Works and Services Organisation in Canada, and of the US Federal Government.

2. e.realities

In the 21st century, the emphasis has focused more on 1 and 2 than on 3, 4, and 5. although examples of all continue to appear in various countries. Few people believe now that e.procurement (or e.everything) will uniquely transform public service. The reasons for the changed attitudes to the potential of e. include:

1. a. the pricking of the dot.com "bubble" and the subsequent losses, and disillusion, among both investors and business managers and directors. It was soon realised (not for the first time in history) that technology alone changes things more slowly, less predictably, and more expensively than its promoters would like us to believe. The Internet will take a long time to link everyone, and not everyone will be ready, willing and able to use its great capabilities. Large investments will be needed to ensure adequate network capacities and speeds, and the competition for available public funds will be great.
2. b. this enhanced the innate conservatism of some senior civil servants who preferred not to take risks and never really took to computing. Furthermore, many government departments actually prefer to operate as "silos", and do not take kindly to being "joined-up" to the rest of government. These tendencies were reinforced by the failure of many high profile public IT projects. For example, in the UK it has been stated that it is unlikely that the required major public sector expenditure savings will come via IT investments.
3. c. the realisation that effective procurement demanded major prior improvements to business processes, and major restructuring of data. These actions were then thought by many in the public sector as being too difficult and too complex. There was and is a shortage of business improvement skills in the public sector, and, in any case, there did not appear to be any "glittering prizes" for success.
4. d. politicians realised there were going to be few votes in "e" in the near term. So the focus on "e" was downgraded greatly. It was felt by politicians to be easier/better to set managerial targets for improved procurement or service, pay salaries which were "competitive" with the private sector, and await corresponding improvements in performance.
5. e. the general slowing in economic growth meant that there was an emphasis on cost-reduction rather than on new investments.
6. f. the slowly dawning understanding that procurement/buying is a subset (although very important) of value chain management. Therefore the Price achieved through better buying, including the assistance from e.procurement, is but one component of the Through Life Cost, and is part of the overall value chain equation comprising, Performance, Service, Quality, Inventory Management, Waste, Capital Expenditure and Capacity Utilisation, and Total Cost.

3. e.progress

Nevertheless, additional electronic systems continue to appear and ongoing growth in e.business volumes continue to take place, to support improved procurement and collaboration between public sector customers and their suppliers. These include:

1. Shared Working Environments, which allow designers and engineers across the world and across companies to collaborate via R&D. With more outsourcing, more international collaboration and many more small businesses among sub contractors, electronic communications become essential to support not only the exchange of messages but also of complex designs, virtual reality representations, etc. This is particularly so in Defence and Aerospace in North America and Europe.
2. e.markets have continued to develop in certain areas which have benefited the public sector e.g. e.auctions for buying certain commodity items such as office supplies, fuels and energy (such as the German Consortium for Electricity), and also for selling surplus items, such as machinery and office space. It is also evident to all that e.buying and selling in financial markets have assumed unprecedented importance. Governments not only need to be able to sell and buy their own currencies and debt, but also to be able to monitor and control the activities of others, e.g. hedge funds and criminals. However, many e.market offerings have disappeared without trace. For example, in the world-wide logistics arena an end-to-end service involving people being available and capable of solving customer problems is often seen as transcending the benefits of electronic spot market offers for transport.
3. Electronic Data Interchange (EDI) has continued to grow because it allows structured data to be passed quickly and securely between defined participants at a reasonable cost. When the Internet appeared, it was said to be going to be much cheaper than EDI. Nevertheless, volumes of EDI transactions continue to grow in many industries (e.g. for the ordering of catering supplies by health and education authorities), using standards such as EANCOM, TRADACOMS (UK) and ANSI (USA). With EDI, everyone does not need to be online to everyone else all the time. Most suppliers plan order picking and distribution in advance by shift and do not respond immediately to each order as it is received over the Internet. While some businesses are happy to encourage any order from anywhere, many prefer batched orders of clean data from known customers on pre-agreed schedules. Security is now a major issue (see below), and EDI offers this in a structured, cost effective way.
4. There are many more and better structured web sites telling potential suppliers of public sector needs for products and services (e.g. in the USA, the EU, and in Ireland for construction projects). Tendering and contracting on-line tools have also been improved.
5. e.catalogues have continued to improve. Some years ago, many governments and government departments felt that they should develop their own e.catalogues for many types of items. This rarely proved as successful as making use of the e.catalogues of “best-of-breed” suppliers, who lived or died by the success of both their competitive prices and levels of service and also their quality of marketing and selling online.
6. Improved means of electronic payment to aid accuracy and security as well as speed of payment. For example, Chip and PIN systems are spreading rapidly. Internationally, the SWIFT systems and standards support global payments.
7. Government Purchasing Cards have been introduced in order to improve control over small purchases, to reduce administrative costs, and to speed payments to suppliers. These have appeared in many countries, from Australia to the UK.

4. e.pre-requisites

The following issues remain for procurement, for e.procurement, and indeed for both the public and private sectors of all economies, and especially in the areas of data and information –

1. Setting clear, feasible quantified objectives. It is not enough to say that a country should be “the best place in the world from which to conduct e. (or indeed any) business.” What are the real, feasible improvements which are required, especially to levels of service at realistic, affordable total costs?
2. Re-defining more simple, standard and cost-effective business processes across each key value chain in order to achieve speed and certainty of performance at a low total cost, e.g for delivering healthcare, achieving effective defence, providing family benefits and social payments. The process architecture MUST be redesigned before e.procurement or any e. is applied. Procurement has to be strongly allied with modern value chain management. Better buying should mean that the totality of performance, contract price and through life cost, and timeliness is enhanced.
3. Furthermore, the data architecture MUST be designed to support the process architecture BEFORE e. is applied. That is –

i. The key Identities – customers, suppliers, individuals, agents, authorities : items and services : assets : methods/treatments. For example in Health, the following need to be identified in order to achieve not only low cost and certain supply of goods and services to the hospital, clinic and bed, but also the correct dosage of the right drug to the particular patient - Patient, Diagnosis, Treatment, Medical Staff, Locations, Drugs and other Items, Supplier and Manufacturer.
ii. The main Auto Identities – which Identities are going to be automatically recognised via ID cards (including Government Purchasing Cards), or by laser scanning or by RFID tags? This work aims to improve both efficiency and security (e.g. US port security measures).
iii. The key Master Data files – containing descriptions and principal characteristics of each Identity. This semi-static data is accessed via the unique Identity number (e.g. GS1/EAN ), so that the quality of data can be improved (including via the electronic synchronisation of master data files, such as product and price files, in advance of trading between customers and suppliers), and so that all data need not be carried with the item but can be cross-referenced electronically. Master Data files for Items include not only Product Descriptions and Key Characteristics, but also Prices and Costs, and Technical Specifications.
iv. The key Dynamic Data files – containing data about transactions, events and outcomes for each Identity and other main factors. This data can then be compared with plans, budgets, expectations etc in order to measures volumes, trends and performance. There is huge scope for improved procurement and other information. However, new process and data architecture skills will need to be applied to realise this potential.
v. Messages, structured using global data definitions (e.g. UN CEFACT Core Components), which would support the effective management of each value chain, including all procurement and e.procurement.

(For a more complete exposition of the above, see "D.I.A.M.O.N.D. - a general theory of value chain management data", by Tom McGuffog, published by UK Partners for electronic business, 2004)

4. Too often in the public sector, objectives are not well structured nor quantified, targets are badly set, organisational structures are changed without first redefining processes, and worse, IT systems and networks are introduced before either process or data architectures are redesigned. Furthermore, central IT systems can find it difficult to achieve local buy-in (e.g. UK police and health systems). The degree of attitudinal and cultural change required to achieve success must not be under-estimated.
5. Too often the public sector takes a government-centric view of the world – who is willing to bid for our aggregate demand through our exacting procedures? This approach is typical of many Defence procurement systems. Instead of this approach, the public sector should be capable of using value chain management and procurement skills and systems to establish what is best practice in each market and who are the exemplars of that. The public sector then needs to be able to adjust its procedures to manage buying and selling well via the best suppliers, e.g. using suppliers’ e.catalogues and suppliers’ invoices to trigger payments, audited via sample inspections.
6. Also, governments may lay down technical standards for their e.business which they are not well endowed to define nor apply. It is important to avoid being locked into expensive proprietary standards; but standards should be market driven by and for both the public and private sectors. Standards and systems also need to be tried and tested before being mandated.
7. One of the greatest issues is security. It is clear that many threats remain to electronic systems, with more being devised daily by hackers and by criminals. The Internet is more prone to security failures than "closed" systems such as EDI. Substantial threats remain to individual data, financial data, and to commercial data. The problems are solvable, but must not be ignored or downplayed.

The potential for better procurement and better performance remains huge in the public sector. The judicious application of electronic facilities will further increase this potential, but only when allied to clearer objectives, improved processes, better defined data, enhanced skill sets, and also progressive cultural change.