Strategic issues to manage eGP Adoption

1. Strategic issues to manage eGP Adoption R S Ramanathan Hewlett-Packard 12 th March 2005

2. Reverse Auctions • Global supply chain • Collaborative Planning • ODM • Buy/Sell • Web enabled communication • Cash to Cash • Supplier self qualification • Asymptotic cost • Offshore sourcing • ERP • Contract Manufacturers • Vendor base Reduction • Vendor Managed Inventory • EDI • Regional Hubs • Value Analysis • Sourcing strategies • Vendor base reduction • MRP • Kanban • TQC • Tactical purchasing • Engineering driven decision • Incoming inspection, AQL 1970’s 1980’s 2000’s 1990’s Evolving Procurement Processes • Trading risk & flex as a commodity • Sales & procurement integration • Trade offset • Debt trading • E-Sourcing • Private Offers • Demand shaping • Business process Outsourcing • Uncertainty Management • Multi-criteria decision • Service rich content • Engineer evolving into business function Tomorrow Today …and beyond HP Confidential

3. Formal technical training • Advanced business qualifications • Supply chain as field of study • Broad recognition of functional importance • Migration to broader knowledge base • Informal technical training • Growing recognition of value of function • Tactical • Manual processes • No analytics • Act as directed 1970’s 1980’s Evolving Procurement Professionals • Global strategy & decision making • Broad recognition as key business driver • Advanced analytics to supporting decision making • Aligned with internal groups; R&D, Marketing • Advanced negotiation skills Today and Beyond 1990’s HP Confidential

4. eProcurement • eProcurement is the term to describe the use of electronic methods in every stage of the purchasing process from identification of requirement through to payment, and potentially to contract management. HP Confidential

5. eProcurement Covers…. • eSourcing • for contractual processes. Tools include eTendering, eRFQs (Request for Quotations/evaluations) and eAuctions. • eProcurement • for transactional processes. Tools include marketplaces using techniques such as eCatalogues. • ePayment • Tools include virtual or embedded GPC (Government Procurement Card), eInvoicing and self-billing. HP Confidential

6. Benefits of eGP • Modernization • Transparency • Efficiency improvements (the way people work) • Improved commercial relationships with suppliers • Reduce costs for suppliers dealing with government • Opens up the government marketplace • Provides critical mass for better negotiations • Improve departments’ ability to manage their procurement (works,goods & services ) more efficiently HP Confidential

7. Strategic issues in eGP adoption • Get the business model right ! • Implement Effective Change Management Methodologies • Define the overall technology architecture • Define the stakeholder acceptance parameters • Manage effective scale up – implement adaptive businesses HP Confidential

8. Loss Gain Operator bears loss if volume falls below the guaranteed level, but within X level for 2 successive periods only Govt and Operator split the revenue earned equally from extra transaction volume generated beyond the Y level Govt bears total loss if volume falls below X level, and ensures that Operator receives revenue as per guaranteed transaction volume Operator keeps all extra revenue if transaction volume rises above the guaranteed level, but within Y level Unit Transaction Volume X level (TBA) REVENUE REVENUE REVENUE REVENUE REVENUE Guaranteed Transaction Volume Y level (TBA) Govt bears all loss in revenue if transaction volume falls below guaranteed level beyond 2 successive periods Transaction Volume OPEX OPEX OPEX OPEX OPEX Operator Operator Operator Operator Operator eGP: Business Model (revenue share) Operator profit REVENUE Govt profit Year 3 Year 2 Year 5 Year 4 Year 6 Year 1 DESIGN & BUILD OPERATE 3 years 5 years Ongoing operations funded by transaction fees paid by users CAPEX CAPEX CAPEX Govt Govt Govt OPEX & CAPEX Govt. pays for Design + Build cost over 3 yrs HP Confidential

9. REVENUE REVENUE REVENUE REVENUE REVENUE OPEX OPEX OPEX OPEX OPEX Operator Operator Operator Operator Operator eGP Business Model (revenue share) Operator profit REVENUE Govt profit Year 3 Year 2 Year 5 Year 4 Year 6 Year 1 DESIGN & BUILD • CONS • Operating costs incurred fully by Operator • At a certain level, revenue must be shared with Govt • Open to competition • PROS • Operator does not invest in Design & Build • Security provided with guaranteed transaction volume – Govt will bear losses in certain circumstances OPERATE 3 years 5 years Ongoing operations funded by transaction fees paid by users CAPEX CAPEX CAPEX Govt Govt Govt OPEX & CAPEX Govt. pays for Design + Build cost over 3 yrs Roles & Responsibilities: HP Confidential

10. 1. Identify MOC risks & develop strategies/plans to mitigate risks 2 Organizational Alignment 2. Engage sponsors for their support 8 User Adoption Assessment 3 Stakeholder Analysis 3. Document expectations and issues 8. Assess if behavior has changed & how to adjust the plan 1 MOC Risk Assessment & Plan 7 Employee Commitment 4 Change Impact Assessment 4. Assess what’s changing & who is impacted? 7. Identify actions that motivate employees to change 6 User Training 5 Communication Plan 6. Develop/Deliver specific training for new process / tool 5. Communicate (what, to whom, when, how) Elements of Management of Change (MoC)

11. Activities of MoC

12. Architecture of a typical Government eProcurement Platform HP Confidential

13. eProcurement Platform HP Confidential

14. Define the stakeholder acceptance parameters • Detailed functionality testing • SLA’s for operation • Availability • Help desk response • Performance parameters • Free storage space • Process for scope change management • Definition of Program Governance Structure HP Confidential

15. Manage effective scale up • Ensure minimum performance parameters are met • Adopt 3 –tier J2EE architecture • Scale – out instead of scaling – in ! • De-link business logic from database HP Confidential

16. Overview of Electronic Tender & Examine System at Japan MIC 【 Supplier】 【Operation Center】 Operator eBid ＬＡＮ Internet eBid 【Tendering Room】 Administrative Contract Officer 【Administrative Contract Staff】 On Foot or By Mail HP Confidential

17. Overview of ETES – Business Function Business Function for Supplier Business Function for Government • - Registration of Bid Notification • Confirmation of Delegation • Confirmation of Bids • Confirmation of Qualification • Opening of Bids • Evaluation of Bids • Confirmation of System Operation • Confirmation of Network Connectivity - Application for Users - Delegation of Agent/Sub-Agent (Year, Onetime) - Confirmation of Bid Notification - Submit Bid Procedures - Confirmation of Contract Award - Confirmation of System Operation - Confirmation of Network Connectivity Business Function for Helpdesk Business Function for Operator • Operation Log • Maintenance of FAQ • Registration of Operation Schedules • Approval of Users • Confirmation of Bids • Search of Operation Log • Log Maintenance • Maintenance of Master DB HP Confidential

18. Main Features – Tender Methods HP Confidential

19. Future Planning for ETES - Promote Utilization of ETES ・For Suppliers ・For Government - Streamline Tender Process of Government Future ・Renovation of Back - Office Business ・Digitalizing Contract Procedures - Enhance System Function ・ Ministry of Internal Affairs and Communications (MIC) - Promote International Standardization ・UN/CEFACT (Centre for the Facilitation of Procedures and Practices in Administration, Commerce and Transport) HP Confidential

20. For eGP adoption departments must establish.. • Award criteria that are the subject of an eProcurement • The technology requirements for the eProcurement • Details of the process including length, extensions and bid decrements • Arrangements for training suppliers and users • Dates, timing and physical arrangements • Anything else that may affect the supplier’s ability to participate effectively HP Confidential

21. Strategic issues in eGP adoption • Get the business model right ! • Implement Effective Change Management Methodologies • Define the overall technology architecture • Define the stakeholder acceptance parameters • Manage effective scale up – implement adaptive businesses HP Confidential

22. HP Confidential

23. Main Features – Open Flow Open Tender Business Flow Business Process Procuring Entity Tenderers Pre-qualification Notice Examine & Register Issue Result Notice Procurement Strategy Invitation to Tender Detailed Information Verify Qualification *Register Quality Point (Overall Rating) *Register Paper Tender (If Exist) Register Planned Price Open & Examine Tenders Issue Result Notice Tender Result Publication Qualification Submit Certificates Submit Tender Public Invitation Tender / Opening Publication HP Confidential

24. Main Features – Selective Flow Selective Tender Business Flow Business Process Procuring Entity Tenderers (Same as Open Tender) Procurement Strategy Nominate Tenderers Issue Nominate Notice Detailed Information Verify Qualification *Register Quality Point (Overall Rating) *Register Paper Tender (If Exist) Register Planned Price Open & Examine Tenders Issue Result Notice Tender Result Publication Qualification Nomination Submit Tender Tender / Opening Publication HP Confidential

25. Main Features – Limited Flow Limited Tender Business Flow Business Process Procuring Entity Tenderers (Same as Open Tender) Procurement Strategy Nominate Contractors Request Quotation *Register Paper Tender (If Exist) Register Planned Price Open & Examine Tenders Issue Result Notice Tender Result Publication Qualification Nomination Submit Tender Tender / Opening Publication HP Confidential

26. Harmonize with International Rule ETES Complies with WTO Rule (GPA: Government Procurement Agreement) - Almost All Public Tender is Carried out by Open Tender ・ Open Tender makes up about 80% of bids - WTO Rule is a Basis for Standardization of Goods Tender by Public Entities Total Number of Bids: 15,739 HP Confidential