Government-to-Business E-Commerce
If there is, however, any one area where the U.S. federal government has begun to take advantage of the power of the Internet for other than general information services, it is in the arena of e-procurement. And for anyone who has ever been involved in the complex and time-consuming process used by governments for tendering and purchasing, improvements on this front will come as a welcome relief. In fact, the Gartner Group predicts that government-to-business e-commerce spending will expand dramatically in the next few years, from its current $1.5 billion to more than $6 billion by 2005.[3]
Much of the credit for this sudden, if limited, appreciation by government of the advantages of online procurement can be attributed to private firms that have been quick to realize the potential for providing online trading portals and exchange services for the myriad number of firms involved in government purchasing. Although still very limited in their functionality, these private/public alliances are the first step toward developing a broader set of government-based e-procurement services.
One good example is PartnershipAmerica.com, a portal site developed and launched by Ingram Micro, Inc. that puts private firms in touch with federal, state, and local government high-technology buyers. VerticalNet recently purchased GovCon.com, a portal that provides suppliers with a number of services, including Bidradar.com>, which acts as a search engine and email delivery system for awards and procurement opportunities issued by the federal government. Bidradar.com also allows potential suppliers to register and qualify online, and provides access to sample bids, contracts, and other government forms.
Similarly, Fedmarket.com, designed and administered by Wood River Technologies, provides an e-procurement online portal site that today focuses mostly on information technology and construction purchasing for state and federal government contracts, and includes vendor and buyer directories and ties to government procurement law databases, registration information, a library of forms, and links to federal assistance centers. The site also provides access to several databases that help the potential bidder to search Web pages for opportunities and competitive tenders being issued by the government.
Although most of these efforts still remain at an informational level only, hints of what is surely to come can be seen with ventures such as the agreement between Bank of America and NIC Commerce to form a company that will provide state and local governments with an electronic purchasing and payment service for their private sector suppliers. This is the first step toward providing transactional services online, including search engines and databases of preferred suppliers, online ordering, and reconciliation and payment services.
The federal government itself has sponsored several important initiatives recently that support the underlying structural changes that will be necessary in order to make online procurement effective. Traditionally, one of the biggest problems facing suppliers hoping to bid on government contracts has been simply learning of opportunities well enough in advance to be able to prepare a well-developed response. The Office of Federal Procurement Policy has now put forward plans to provide a single, governmentwide portal accessible on the Internet, which would provide all relevant information on contract announcements and awards.[4] Similarly, the Government Contracting Group now provides—for a subscription fee of $1,000—a real-time online service that displays new RFPs, procurement announcements, and bid notices.[5]
There are also a number of e-procurement programs being initiated at the state level. One promising venture is in Massachusetts, where the state has begun a broad e-procurement program that involves its 154 departments as well as some 350 Massachusetts towns and cities. Using software from Intelisys, a recent pilot program cut transaction costs by as much as 72%, while reducing the delivery cycle from weeks to days.[6]
Admittedly, none of this compares particularly well with the flurry of e-procurement activity that is occurring in the private sector, but it does give a glimpse of future activities. Possibly more important, the magnitude of government procurement has meant that e-procurement software vendors such as Ariba and Commerce One are now offering services that include government contracting and RFP listings to assist suppliers wishing to sell to the government electronically.
The EU too has struggled with efforts in the e-procurement arena. Burdened with restrictive procurement procedures, layers of processes and approvals, and a much greater number of government-sponsored tenders (public procurement accounts for 11.5% of the EU’s GDP), they have additional issues concerning cross-border trade, price differences between countries, and hidden and protected contracting that give them a unique incentive to move toward Internet-based procurement.
In fact, as with Minitel, France’s precurser to the Internet, the EU first began tentative moves toward a form of electronic procurement as far back as 1994, when they established a public procurement initiative, the Système d’Information pour les Marchès Publics (Simap), that was based on CD-ROMs and a dial-up database and provided information concerning public tenders, RFPs, purchasing authorities, and bid requirements. In time, they migrated that program to the Internet, introducing search engines for finding vendors, opportunities, contracts, and guidance.
There is little doubt that the Simap system—particularly with a growing number of Internet-based enhancements—is cost effective. While moving the program online has cost an estimated EUR 10 million, cancellation of the massive paper version that has been distributed in the past will account for savings of EUR 70 million each year. Part of the purpose of the program is to reduce the long waiting periods involved in public tendering. The paper-based system meant that purchasing agencies were required to wait for at least 52 days between advertising and awarding a contract. They now estimate that the process could be reduced to between 10 and 15 days by using an online system.
As is still too often the case within the EU, the real issue is participation and compliance, with the majority of public sector contracts still being awarded (in violation of EU rules) without a public posting. Today, despite the growing functionality offered through the Internet system, less than one-third of public sector contracts are actually publicized at all.[7]
The one key area of savings that the EU governments have (and that the U.S. does not, except for Medicare and Medicaid programs, have) that provides an enormous incentive to cut costs and improve service is healthcare. As part of national systems, procurement in the healthcare services is notoriously inefficient. There are more than 11,000 hospitals across the EU, accounting for the equivalent of some $66 billion in supplies each year. Very few of those hospitals have the extra funding or the IT skills to invest in any sort of online e-procurement system.
As in the U.S., early solutions have sprung up from the private sector. Smartmission, already trading in eight European countries, is an Internet e-market for medical supplies—MRO, food, drugs, utilities, and many other items necessary for the running of a hospital—that claims to be able to cut typical purchasing transaction costs for a hospital by 60% to 80%. A second exchange, GloMediX, already available in four European countries, focuses just on medical supplies, but contends they will be able to cut the cost of a typical purchase from EUR 145 to EUR 5. These types of online exchanges provide the same advantages for hospitals as they do for small buyers—collectively, they can place larger orders and negotiate for better discounts.[8]
The government in China, too, has moved into the e-procurement arena, with the announcement of China Trade World.com, a trade portal that will help foreign businesses to import goods to more than 180,000 Chinese manufacturing and production sites.
In order to appreciate the direction in which government e-procurement is moving, however, it is helpful to look at Singapore—the self-proclaimed “knowledge island”—where they have already made great progress toward a government-wide Internet-based e-procurement system. Their broader e-government plan is to provide a single point of contact—a portal known as GeBIZ—that gives all citizens and businesses direct, 24-hour access to a comprehensive and integrated government network. Well ahead of most nations in terms of implementation, the GeBIZ portal will be part of a much more comprehensive system of government information and payment services, through which it will soon be possible to conduct all government-related business—payment of parking fines, utilities, and taxes, for example—online.
Part of that e-government offering is a fast-developing set of e-procurement services that combines many of the elements of both public and private purchasing at a level only now being contemplated by many trend-leading private firms in the rest of the world. The GeBIZ portal will provide not only an informational forum for government-sponsored tenders and RFPs, but also a broad variety of procurement-related services, including allowing suppliers to post their product catalogs online, online auctions, and online invoicing and order tracking. Most importantly, there are plans to provide for direct integration between the payment and financial systems of government agencies and back-office ERP software (PeopleSoft, SAP, Oracle, etc.) of private firms. Although online purchase transactions are currently limited to a maximum of $17,000, once security issues are overcome, it is likely that up to 80% of all government procurement will be conducted through the GeBIZ portal.[9]
Although it is unlikely that either U.S. or EU governments will ever contemplate the level of enforced consensus between government ministries and private organizations that is part of the culture of Singapore, it is fascinating to see how quickly the unique combination of government funding and cultural cohesion have combined to drive e-procurement forward so effectively.