Log on for electronic savings
Water companies have been slow to adopt e-business practices. But, says Dean Stiles, e-auctions and e-tendering have great potential.
There has been a huge take-up in the UK of electronic tenders and auctions over the past ten years driven by the internet. But in the water industry the short-term focus is on procurement with little use in terms of changing the supply chain management culture.
After the boom period of the late 1990s when electronic marketplaces and e-business were deemed by many commentators as necessities that no organisation could afford to ignore, confidence slumped in the concept, following many well-publicised internet failures. The rate of adoption of e-business in water utilities has been slow, as in many other sectors, but is increasing.
Water companies are moving cautiously wanting to see clear progress on existing electronic procurement systems before moving to explore other logistics activities. Most firms want to see a complete solution in the area of e-procurement before moving into any other areas, which explains their reluctance to consider most of the supply chain elements in an e-business environment.
There are many benefits
that can flow from the introduction of e-tendering, ranging from simplifying the process, reducing tendering costs, avoiding the need for double or triple entry of the same information, to ultimately enabling a fairer assessment between tenders.
In particular, the desire to drive down costs has been seen as the primary strategic purpose behind e-tendering. Advocates of the adoption use factors such as the aggregation of buying power, elimination of waste and the simplification of the process to justify this belief.
This reduction in waste, particularly the production of multiple copies of paper based information, can also lead to a less environmentally demanding and more sustainable tender process.
In a UK survey for a research project, 61% of private and public sector organisations used electronic sourcing tools. The study, carried out by Bristol Business School earlier this year into the adoption of electronic sourcing tools and techniques within the UK procurement community, involved 95 organisations – 33% private sector companies, mainly large multinationals, and 67% public sector organisations.
The research found that the overwhelming majority, 93%, of those using electronic sourcing tools said they were using electronic tenders and 65% were using electronic-auctions.
This is possibly higher than currently experienced in the water industry although some companies, such as United Utilities, have been experimenting with e-business for more than ten years. It is still mainly paper-based, but expects electronic systems to operate soon.
Severn Trent will tender 20% of its capital projects in AMP5 – in AMP4 only a handful of projects was tendered. Northumbrian Water also expects more use of electronic tendering, but uses auctions only for commodity type items in areas that have a high number of suppliers and standard specifications.
Electronic tenders provide the ability for suppliers to submit their responses, using an internet browser, to a series of questions online with the potential to select pre-defined answers from a drop-down list. These answers are then part or fully automatically scored for the buying organisation by the software using a predetermined weighting and scoring regime. Buyers may also manually score selected parts of the tender responses.
Electronic auctions, often called “buyers” or “reverse” auctions are where suppliers can submit bids, using an internet browser, for goods and/or services specified by the buyer. The buyer may be able to see their bidding status in terms of rank and/or price and can respond with lower bids until the auction closes.
The use of the internet as a means of e-tendering should not be confused with online auctions, which are just one example of how this technology might be used. It is quite feasible to use the internet under more traditional tender arrangements.
Online auctions are typically used for commodity-based purchases, and procuring items where there is a clear definition of specification that avoids any ambiguity (such as manufactured goods with a clearly defined specification). Most construction projects, including related professional services fail to meet
these requirements at the time of auction.
The Bristol Business School report’s authors, Professor Mohammed Saad, Dr Peter James and Professor Andrew Douglas, say: “Sixty-one per cent using e-sourcing tools shows that e-sourcing tools have achieved a reasonable penetration level within the organizations surveyed.”
Their study revealed that 92% of respondents have been using e-auctions for over a year while almost half the respondents had over three years’ experience. Almost all the companies use electronic systems for e-auctions but only a quarter for e-tenders.
“Here is clear evidence that for at least 50% of the e-tender user organisations the majority of their buyers are actively using e-sourcing tools.
“This suggests that it not only has a reasonable penetration amongst organisations but also amongst the buyers of participating organisations. This drops to less than 20% in respect of e-auctions which suggests they have a more specialist role,” the study said.
Like water companies, most companies in the research cite achieving lower costs as the main benefit from opting for electronic systems purchase. “E-sourcing tools seem to have reached a stage where they are accepted as an aid to the procurement process in more than half of public and private sector organisations,” the report says.
The research found a clear dividing line between those that have used such tools and those who have not. Buyers with experience have confidence in the potential benefits and do not see risks in terms of security, difficulties in requiring the requisite skill sets or in the concerns of external stakeholders.
Non-users have yet to be sufficiently convinced and still weigh short-term costs more heavily than long-term benefits, say the report’s authors.
In the water industry, resistance to e-commerce is strongest among contractors with little experience of such systems.
However, the report notes that while there is still be a way to go to achieve wider adoption, and a deeper adoption within the current user community, e-tenders and auctions passed the “are they here to stay?” question a while back.
“There does seem a significant integration challenge to be addressed by the suppliers of the enabling software to support this wider adoption. It does however show there is a desire and capability to innovate within the majority of medium to large procurement organisations, which provides encouragement for the health of the profession going forward,” the report finds.
Further growth of electronic marketplaces beyond e-tendering and e-auctions within the water industry depends on the adoption of more advanced supply chain management practices. The longer term potential will depend on a change of culture, with supply chain management and some of its component elements coming to the fore.
The current focus in the water sector on procurement and management of inputs may be necessary to give the industries a stable cost base, but moving to the next stage of cost reduction may well require a re-examination of some, or all, of the elements of supply chain management.
The future of e-business initiatives such as e-marketplaces will help drive the adoption of more advanced supply chain management practices.