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Electronic Procurement — What's Our Role Now?

Author(s):

Ernest G. Gabbard, J.D., C.P.M., CPCM
Ernest G. Gabbard, J.D., C.P.M., CPCM, Allegheny Technologies Incorporated, 412-394-2968

86th Annual International Conference Proceedings - 2001 

Does the new electronic B2B commerce environment change the method of conducting procurement/supply chain management (PSM)? ABSOLUTELY! Does it eliminate the need for procurement/supply chain professionals? Absolutely NOT! However, there can be little doubt that the role which we play in this environment is changing dramatically. Therefore, we must be prepared to adapt to these changes, or become obsolete.

This article will provide insight into the roles that the procurement/supply management (PSM) professionals will play in the "new economy". We will first discuss the elements of this electronic environment, define the various roles which we must be prepared to assume in that environment, and detail the skills needed to assume these divergent roles. Such roles will include contract negotiator and manager, process reengineer, commodity or service aggregator, etc. These roles will NOT include our traditional roles of order placement and expediting.

The new e-procurement tools are undeniably revolutionizing the transactional aspects of supply chain management, and allow corporations to optimize the strategic capabilities of our supply chain. However, it should be recognized that certain essential elements of traditional commerce will still be required to ensure the efficacy of these electronic transactions. For example, the need for purchase orders issued by a purchasing department may be unnecessary as we "empower" end-users to obtain needed supplies or services directly through electronic links with suppliers. However, there will be a need for someone (Procurement?) to establish the prices and terms under which the user will obtain these supplies/services. In this respect, our role will be to pre-establish contracts with selected suppliers to facilitate the electronic transactions which ultimately occur between the end-user and the supplier. A graphic depiction of this new transaction process is provided as Attachment I. This is similar to the process that was often utilized to accommodate the use of procurement cards. The substantive difference will be that contracts for these electronic transactions will require some detailed terms & conditions, including specific T & C to address the uniqueness of the electronic environment in which we will be operating. We will address this aspect in more detail later.

As another example, much of the attraction of e-commerce is relative to the opportunity for corporations to leverage their procurement volume with selected suppliers. For this to be accomplished, someone in the corporation must negotiate aggregated prices with preferred suppliers, and establish the electronic mechanisms (controls) with which the corporation can ensure the end-user orders from selected suppliers at the contracted prices. Is this not a role that the PSM professional is equipped and experienced to perform? It certainly should be!

In order to perform the aforementioned functions (roles), our profession will need to become more conversant and competent in establishing and managing comprehensive contracts with suppliers. These contracts will be much more complex than the relatively simple purchase orders (P.O.) or B.P.A., which have traditionally been utilized. Administration or management of these contracts will require more than the traditional "expediting" function, which has been performed in the past. The requisite contract negotiation, administration, and management skills are ones which we will have to obtain and refine, if we are to fill the void which will be created as our companies push to optimize the leverage available in this e-procurement (ePSM)environment.

Since the PSM professional will necessarily become a contract manager, he/she must establish or enhance certain skills. This contract management role will require the following specific skills. We will elaborate on this outline during our workshop.

  1. Contract drafting and negotiation — this is the step during which we must clearly establish the rights and obligations of the parties. It will necessarily include the following as a minimum:

    1. Understand the critical elements of a contract — these include the standard offer and acceptance elements, but will require many elements not heretofore significant to purchasers.

    2. Use of checklists to ensure all rights and obligations are addressed — the complexity of this environment necessitates that we ensure all essential elements are covered. This will require utilization of a comprehensive checklist, appropriate for such transactions.

    3. Delegation of administrative responsibility to end users — since the PSM professional will likely be removed from the traditional order placement role, authority and responsibility must be clearly established for other personnel in the procurement process.

    4. Fully document any contract changes/modifications with the same diligence as the original contract. Many contracts are carefully drafted, but become ineffective because the contract manager does not ensure continued integrity of the transaction(s) when circumstances or personnel change.

  2. Contract administration/management — the most well written contract is of limited value if it is not carefully administered. The following are what this author considers to be the most critical elements:

    1. Effective written communication between purchaser and suppliers is the KEY to effective contract management.

    2. Incorporation of detailed statement of work, specification(s), and milestone schedule in the contract.

    3. Early commencement of regularly scheduled Performance Reviews to ensure timely performance of all obligations, and/or to check progress against the milestone schedule.

    4. Timely identification of performance problems to avoid schedule delays which could ultimately impact your company's ability to meet their obligations.

    5. Immediate written response to any indications of performance/schedule problems.

    6. Senior management exposure to any significant supplier performance issues, to enable your company to escalate problems or develop alternate suppliers.

  3. Some unique issues arise when establishing and administering a contract in the electronic environment. This is because contract laws in many states do not yet recognize electronic media to satisfy the legal requirements for a "writing" or a "signature". While new laws are being implemented to correct this anomaly, they have not yet been uniformly adopted by the states. However, the following are contemporary initiatives which are addressing such issues:

    1. Uniform Electronic Transactions Act — The UETA has been recommended for adoption by state legislatures, and is expressly intended to facilitate e-commerce. This would assure that electronic records satisfy the requirements for a "writing" and that electronic authentication satisfies the requirement for a "signature". It is a procedural statute, and would therefore apply to sales of goods, as well as sales of services. It can be pre-empted by UCITA, summarized below.

    2. Uniform Computer Information Transactions Act (UCITA) — Sales/purchases of "computer information", such as software, are neither sales of goods nor sales of services. They are also not purely licenses of intellectual property; therefore, current commercial contract laws (such as UCC Article 2) do not adequately provide for such sales. Likewise, existing intellectual property laws are inadequate for issues raised in such "computer information" transactions. UCITA provides a "blend " of contract law, pursuant to the UCC, selective deference to intellectual property law, and "gap filler" default rules, which reflect current industry practices. This should ultimately provide for such modern concepts as "shrink wrap" and "click wrap" products, as well as "access contract" research tools. It also provides for electronic records to satisfy the requirements for a "writing" and/or a "signature".

    3. The Federal Government has also responded with the Electronic Signatures in Global and National Commerce Act ("E-SIGN"/PL 106-661), which applies to all forms of electronic "transactions". It is not applicable where a state has adopted UETA into their commercial code. Interestingly, while this is Federal legislation, the term "government transactions" is not included therein. Will it therefore apply to USG/FAR transactions? This aspect will be discussed in the workshop.

    4. FAR — irrespective of the applicability of PL 106-661, the Federal Government has already embraced the electronic environment in some respects. F.A.R. 2.101 provides for recognition of "electronic media" as satisfying the requirements for a "writing" and the exchange of electronic codes as satisfying the requirements for a "signature". Therefore, those working in this environment may be assured of the basic legal efficacy of their electronic transactions.

As may be concluded, the contracting process needed to support the e-procurement (ePSM) environment is an ACTIVE process, not a passive one.

What is our role in their environment? Let me propose that procurement / supply chain management professionals will need to be BOLD (entrepreneurial), and most importantly FLEXIBLE. This environment is so dynamic that our roles may change on a frequent basis. It will be up to us to change as rapidly as our environment.


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