E-procurement: The X factor for small businesses to cut cost, improve processes, and expand

Updated: January 2, 2020 12:01:04 PM

Technology for MSMEs: For a business of any kind, if it wants to survive and stay competitive in the market, it is vital to reduce the costs of its materials and services by procuring from lowcost sources.

Even though SMEs contribute substantially to the nation’s economy, they face numerous challenges like competitive pressure and likewise.
  • By Sanjay Puri

Technology for MSMEs: E-procurement, which involves business to business, business to customer, business to government or government to business purchase and sale of products and services has led to the biggest setback in the traditional procurement channels. In the last decade, there has been a drastic change with many governance functions migrating to the internet. The tremendous growth of information and communication technologies has driven the shift of many public institutions to e-procurement just like the private sector, both for escalated efficiency and effectiveness. 

For a business of any kind, if it wants to survive and stay competitive in the market, it is vital to reduce the costs of its materials and services by procuring from lowcost sources. The most efficient and easily accessible method is procurement through open bidding via the internet. E-procurement, including internet, purchasing cards, electronic ordering, and integrated automatic procurement systems, has become a boon for businesses, industries and governments. 

MSMEs form a foundation of a nation’s economy and also, seeding ground for potential conglomerates of the future. E-procurement has been a key reason for MSME growth and its increased productivity and efficient functionality. It has been beneficial in many ways, namely, cost-saving, time-saving, and financial growth of MSMEs due to increased productivity. The ordering has become much simpler with reduced paperwork, decreased redundancy, less bureaucracy, middleman elimination and fraud-less transactions. 

Why E-procurement

Cost Saving: Online procurement of services, equipment and materials is cost saving as there are no middlemen involved. When you are making purchases directly from the government or the source party, the products are authentic and also, priced genuinely. This leads to the least chances of fraudulent activities and monetary loss. E-procurement has been beneficial in terms of savings from the cost of sales, administrative costs and staff allocated to logistical tasks.

Technology has replaced all the travel necessary to bid and paper processing. As all the information is now digitally processed, the costs assigned with man-hours requirement for organising the administrative work has reduced drastically.

Organisation and Process Improvements: The internal process of MSMEs and other industries as well, has shown key improvement since the procurement has migrated to the internet. The major improvements include easily accessible resources, reduced paperwork, minimisation of errors, standardisation of processes and documentation, transparency, easier ordering process, guaranteed compliance with procurement laws, least chances of redundancy and bureaucracy. Process restructure and improvement has given some major breakthroughs to the MSME sector.

Also read: Budget 2020: Small businesses ask Nirmala Sitharaman for more funds to export more

The major organisational benefits are decentralisation of procurement, time availability for purchasing specialists to explore and negotiate strategically important issues, a wide range of suppliers to choose from and better communication with suppliers. The SMEs now have a real-time reporting system enabling them to compare the spending with a budget in a faster and reliable way and have a quick solution to any problem. The organisational process has become safer with least chances of fraud due to transparent contract details like terms and conditions and time of orders. 

Over time, the SMEs have witnessed decentralisation of power concerning purchase decision which has resulted in increased efficiency of purchase department. The restructuring of the supplier base has enabled the purchasing department to maintain a record of supplier details.

Process Dematerialisation and Increased Geographical Reach: One of the main advantages that e-procurement has given to the SME sector is the elimination of paper processes. The companies, now, can involve in a larger number of tenders in a short span of time, which, otherwise was unthinkable.

The geographical amplitude enhancement of the e-procurement platform has enabled the selection of contractors who are geographically dispersed, which otherwise was never possible. The SMEs now have an expanded range of potential customers and business opportunities as the internet has done away with the need of the local geographical location. The SMEs can now enter the international market at the fraction of the cost and have an opportunity to compete with the international giants within the industry. 

Increase in Profit Margins: E-procurement has enabled the SMEs to take advantage of third party trading platforms at limited or no investment in managing its operations and transactions. This has resulted in an increased scope of growth and profit margins.

Even though SMEs contribute substantially to the nation’s economy, they face numerous challenges like competitive pressure and likewise. In order to have sustainability and keep their position intact, SMEs need to have better customer access. This has been quite possible in the digital world and a lot many more breakthroughs are expected in the future.

E-procurement is growing at an accelerated pace. SMEs who are functioning offline must realise that technology and innovation is the need of the hour and not adopting it might increase the efforts to stay in the game. E-commerce is no longer a utopia but a business reality. It has been empirically recorded that in cases e-procurement is incorporated, positive outcomes arise from all the sectors. E-procurement is beneficial, low at risk, compatible and easy to use. 

(Sanjay Puri is the CEO at C1 India. Views expressed are the author’s own.)

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