Study of e-Procurement Implementation Impacts: A Case Study in PT.

PLN

Achmad Nizar Hidayanto, Yuanisa Ditari, Dina Chahyati

Faculty of Computer Science, Universitas Indonesia, Jakarta, Indonesia
([email protected], [email protected], [email protected])

Abstract - E-procurement gains its popularity dollars and perhaps even more for the financial state of
through people’s trends of using the internet. Indonesia (Indonesia Country Procurement Assessment
Transparancy factor of e-procurements is expected to Report - Reforming the Public Procurement System, Year
reduce corruption in government projects, as an effort 2001).
to achieve good corporate governance (GCG). The aim E-procurement is a form of e-commerce specifically
of this study was to analyze the impact of e- intended to assist the procurement process. De Boer,
procurement in PT. PLN (Persero). Impacts were Harink and Heijboer [5] stated that e-procurement aims to
assessed by conducting structured interview to the automate and simplify the procurement process in the
people who were involved in procurement process, organization and increase efficiency and transparency as
such as procurement committees, senior manager of e- to reduce operating costs. E-procurement can also change
procurement applications, business process owner, and improve areas such as internal and external
and developers at PT. PLN. This study focused on the communications, business transactions, as well as supply
gap analysis of conditions in PT. PLN before and after chain management and alliances [3]. These systems
the implementation of e-procurement. This study typically include a web catalog, ordering, payment and
concluded that the implementation of e-procurement order tracking subsystem [6].
in PT. PLN gave significant impacts on the total cost State-owned enterprise (SOE) is one of the actors in
of acquisitions, organizational characteristics, Indonesia’s economy based on economic democracy
governance structure, pre-sourcing business processes, stipulated in Law No. 19 of 2003. As part of state-owned
and procurement quotation. enterprise, PT. PLN, which supplies electricity to
Indonesia, has implemented e-procurement for 6 years.
Keywords - E-procurement, procurement, impact During the years of 2005-2008, e-procurement saved
analysis, PLN, cost of acquistion, organizational 4.56% of Self-Estimated Price, which was 249.4 billion
characteristic, governance structure, pre-sourcing, rupiah and saved up to 1.6 trillion rupiah of Budget Plan
procurement quotation Realization. Taking into account the impact of e-
procurement system in financial efficiency; this study
observed the effects of e-procurement system to the
I. INTRODUCTION organization.
According to Gebauer and Segev [1], direct
procurement is one of the most frequent business II. THEORETICAL FOUNDATIONS
activities performed. This activity covers the process of A. E-Procurement
manufacturing finished goods from raw materials,
components and spare parts. Most organizations spend E-procurement is defined in various ways. According
more than 30% of their income to purchase goods and to Tatsis, Mena, Wassenhove, and Whicker [7], e-
services. Nam [2] stated that approximately 20% of the procurement is the integration, management, automation
purchase of an organization constitutes 80% of the total and the empowerment of an organization's procurement
value of purchases [3]. In the government sector, process, using tools and electronic technology, and web-
procurement somehow tends to be a subject of corruption, based applications. Another opinion comes from Alaniz
scandals and misuse of public resources. In addition, lack and Roberts [8] who says that e-procurement refers to the
of personnel with good ability and transparency of the internet solutions that facilitate the purchase of the
procurement process can also be the source of problem company. Other researchers also give their definition of e-
[4]. procurement such as in [9].
Government procurement system is one of the main Procurement is usually classified in two types of
pillars of the government's efforts to improve its purchases, direct and indirect. The classification is based
administration. Poor procurement system resulted in high on the goals of the goods obtained [10]. The direct
costs for the government and society. In Indonesia, the procurement involves materials such as raw materials and
volume of procurement of goods, civil works and components of finished goods that will be sold to
consulting services from the development budget consumers [11], whereas the indirect procurement
amounted to approximately U.S. $ 10 billion per year. involves goods and services that are not part of the
Therefore, the modest improvement in the government finished products, but needed to support internal business
procurement system can help save hundreds of millions of

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activities, such as computers, office and operating analyze the impact of e-procurement implementation to
supplies, etc [11]. the organization.

B. Impacts of e-Procurement Implementation Proposed Impacts of e-

Procurement System Pre-implementation
By implementing e-procurement system, several 1. Changes in total cost of
benefit could be gained. Several studies have explored the acquisition
benefits of implementing e-procurement system, one of 2. Changes in organizational
them was by Gunasekaran, McGaughey, Ngai, and Rai characteristics
[12] which focused on the status of e-procurement in 3. Changes in governance Gap
Small and Medium Enterprises (SMEs) in the South Coast structure analysis
of Massachusetts. This research showed that e- 4. Pre-sourcing business process
procurement was poorly understood by SMEs and they 5. Procurement quotation
6. Negotiation
were not reaping the benefits of e-procurement.
7. Order placement
Panayiotou, Gayialis, and Tatsiopoulos [13] 8. Transaction
conducted a case study that focused on analyzing the Post-
9. Post delivery
Greek government procurement processes carried out by implementation
the General Secretariat of Commerce. This study Fig. 1. Research Framework
identified tangible (quantifiable) and intangible (difficult
to quantify) benefits. Tangible benefits included cost of TABLE I
supply reduction, tender costs reduction and lead time RESEARCH INSTRUMENTS
savings. Intangible benefits included process Area Goal #quest
improvement and organizational benefits.
Profile Knowing the general profile of the 3
Another study was conducted by Croom and organization
Brandon-Jones [9]. This study exploited issues related to Business Knowing the functions and business 8
implementation and impact of e-procurement in nine process processes in the organization
public sectors in the United Kingdom (UK). Five impacts e-Procurement Knowing the system specifications and 13
were identified in this study, namely: change in total cost implementation implementation management
of acquisitions, changes in organizational characteristics, Costs incurred Assessing cost changes that occur in 13
changes in governance structure, management system the presence of e-procurement system
specification and implementation. Organizational Assessing organizational 6
Yen and Ng [14] also conducted study on the impacts characteristics characteristics changes in the presence
e-procurement
of e-commerce in the procurement process on the supply
chain by analyzing the project of Hong Kong Textile Governance Assessing governance structure 4
structure changes
Apparel Industry Global Applications (HKTAIGA). They
Pre-sourcing Assessing pre-sourcing business 5
used SWOT analysis to describe impacts in each stage of business processes changes
procurement process. Strengths and weaknesses were process
used as internal performance measurement in the Procurement Assessing quotation procurement 4
procurement process, for example, efficiency, and quotation process changes
effectiveness. Opportunities and threats were identified as Negotiation Assessing changes in the negotiation 3
the electronic environment that support the procurement. process with suppliers
Order Assessing impacts to the activities that 4
III. METHODOLOGY placement occur on the order placement
Transaction Assessing impacts to the transactions 3
A. Research Instruments that occur on e-procurement system
Post delivery Assessing impacts that occurs in the 3
process of post delivery
Based on research conducted by Croom and Brandon-
Jones [9] and Yen and Ng [14], areas that might become
the impacts of the implementation of e-procurement in B. Respondents
PT. PLN were identified. Qualitative approach were used
in this study to get deep understanding of procurement in To analyze the benefits of e-procurement
PT. PLN and impacts of e-procurement in each area. implementation in PT. PLN, this study conducted
These impacts are grouped into nine areas as shown in documents observations and structured interviews to the
Fig. 1. parties related to the procurement process in PT. PLN,
These impacts were then operationalized into 69 namely:
structured question grouped in 12 areas as shown in Table • Procurement committees, which consists of a
I. The first three areas were devoted to analyze the chairman, secretary and members. The committees
organizational and e-procurement system profile. were grouped into two, the procurement committees
Meanwhile, the the next nine areas were devoted to before and after the existence of e-procurement

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system, as the source of the gap analysis. Both parties the impacts of implementation of e-procurement system in
were asked about the impact of e-procurement in the PT. PLN in the area of acquisition costs.
nine areas that have been identified.
• The development teams of e-procurement system, B. Organizational Characteristics
who were asked about the system specification,
system implementation project of e-procurement and Implementing new system takes efforts and time to
business process in e-procurement system. train, educate and support users to believe that the new
• Senior manager of e-procurement, who was asked system can resolve problems quickly if used in the correct
about the history of e-procurement system way. In this sense, it tends to change the characteristics of
implementation, goals and benefits perceived by the the organization. Characteristics changes of organizations
e-procurement system. when adopting e-procurement system can be seen in some
form of change, among others are the establishment of a
IV. RESULTS special training unit of e-procurement system, the impulse
to the user to obey the system, training for users,
The following section describes the identified impacts increasing access to information concerning procurement
derived from the interviews. .In each area, several impacts by the user, the establishment procurement assistance
identified by previous studies were also found in this centers, increasing the status and reputation of the
study. Those impacts were confirmed through gap organization's procurement function, and increasing the
analysis of the state before and after the implementation perception of the internal service. Table III summarizes
of e-procurement. Findings of each areas are shown in the impacts of e-procurement implementation of PT. PLN
Table II to Table X. in the area of organization characteristic. Indeed, among
other, these impacts occured the most in PT. PLN.
TABLE II
IMPACTS TO ACQUISITION COSTS TABLE III
IMPACTS TO ORGANIZATIONAL CHARACTERISTICS
Impact Findings Concl.
Impact Findings Concl.
Supplier No cost for procurement announcement ,, Yes
search costs because all procurements were announced Training unit PT. PLN has not established a special unit for No
through e-procurement site the training of e-procurement system
Access to • The number of goods/ services providers Yes Encouragement ƒ The use of e-procurement used as key Yes
supply market can be known exactly to comply with performance indicator of Directors
• Knowing the classification of goods/ procurement ƒ Sistemic procurement processes
services made it easy to get information procedures
about the goods/services providers Procurement ƒ Training of e-procurement system was only Yes
Consolidated Consolidation of procurement policy is not No training carried out at the beginning of
procurement an impact of e-procurement implementation, and was not routinely
requirements performed
Procurement ƒ The method offers new prices through e- Yes ƒ Inclusion of the use of e-procurement
price auction. system on traditional procurement training
syllabus
ƒ Self-estimated price was saved up to
4.5% per year. Accesssibility of e-Procurement is a web based application Yes
procurement that can be accessed anywhere and anytime
The cost of The procedure remains the same both No information to
requisition before and after the implementation of e- the users
orders procurement
Procurement There was a procurement assistance center Yes
Order costs The procedure remains the same both No assistance center located in the central office of PLN, that was
before and after the implementation of e- able to solve the system problems
procurement
Purchasing Positive perceptions about e-procurement Yes
function status system caused the raise of status and
reputation of the procurement division at the
A. Acquisition Costs center.
Perceptions of The importance of internal services for the Yes
Changes in the total cost of acquisition include the internal services user to solve problems related to e-
followings: supplier search costs, access to supply procurement system
markets, consolidated procurement requirements,
procurement price, cost of requisition orders, and order C. Governance Structure
costs. In the case of the PT. PLN, not all of those aspects
were considered as the impact of e-procurement. Some E-procurement system depends significantly on the
procurement processes were still processed manually, effectiveness of the procurement process that requires
such as order processing to the winning supplier, so the suppliers to have internet access and an appropriate
procedures remain the same both before and after the system to obtain data from the customer. E-procurement
implementation of e-procurement. Table II summarizes system of PT. PLN used various types of 'company hub'

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('buy-side') where the catalogs, suppliers, and ordering TABLE V

system were hosted by the buyer. The transactional IMPACTS TO PRE-SOURCING BUSINESS PROCESS
governance structure adopted may affect the buyer and
Impact Findings Concl.
supplier relationships. Impacts of transactional
governance structure may include increased Catalogue of There was a catalog of goods/services on Yes
goods/services the system, so that the committee simply
communication with suppliers, transparency of the choses only the goods/services that already
sourcing and supply processes, improved supplier exist in the system and facilitate the work
compliance, improved aggregation of demands, supply of the procurement committee
base reduction, and increased knowledge sharing with Misinterpretation ƒ Possible, but PT. PLN has set a pretty No
suppliers. However, in the case of PT. PLN not all of of goods/services harsh sanctions
those impacts of e-procurement were identified. For procurement ƒ There was a quality certification for the
example, communication with suppliers tends to be lesser procurement of materials
as many processes have been carried out in the e- ƒ Same policies before and after the
implementation of e-procurement system
procurement systems that reduced the needs to
Unification of Catalog on the system helped the Yes
communicate directly with suppliers. However, PT. PLN the e-catalog on procurement committee in procurement
felt that e-procurement has increased the transparency of the procurement initialization
procurement process. Table IV summarizes the impacts of process
e-procurement implementation of PT. PLN in the area of Price comparison PT. PLN always choose the provider of No
governance structure. between goods/services with the lowest bid price,
suppliers provided that they can meet the
TABLE IV requirements given
IMPACTS TO GOVERNANCE STRUCTURE

Impact Findings Concl. E. Procurement Quotation

Communication Frequency of meetings with suppliers was No
with suppliers becoming lesser Procurement quotation is carried out to ask price of
Transparency of The process of examining the procurement Yes requested items to the supplier. By using e-procurement
the procurement process became easier and faster system, there are advantages in the form of electronic
process procurement quotation and automated for rapid and
Compliance with Before and after implementation of e- No precise inquiry time [14]. In the case of PT. PLN, there
procurement procurement system, suppliers of
procedures by goods/services must comply with the
was no inquiry to get a quotation. Price was entered to the
the supplier procurement process, otherwise they will fail e-procurement system after procurement committee
meeting. This price was then verified to see whether they
Aggregation of There was no aggregation of demands due to t No
demands e-procurement system
match the price listed in the Letter of Price Offering, so
Supply base Large supply base was exactly known No
the procurement quotation process still required face to
face meeting. Table VI summarizes the impacts of e-
Sharing Low communication intensity with suppliers No procurement implementation of PT. PLN in the area of
knowledge with of goods/ services.
suppliers procurement quotation.
TABLE VI
IMPACTS TO PROCUREMENT QUOTATION
D. Pre-Sourcing Business Process
Impact Findings Concl.
Pre-sourcing is an activity undertaken prior to The process of ƒ There was no inquiry to get the price of No
sourcing. Sourcing activities is the search for information inquiry goods / services.
about goods/services through catalogs [14]. Catalogs are ƒ There was a procurement schedule that
needed in this activity. Cataloging of goods/ services at arranges when a process was done
PT. PLN was carried out in 2000 to 2003 in order to Human resources There was a requirement of human Yes
suppport the implementation of e-procurement system in resources who understand e-procurement
system to entry price on e-procurement
2005. Before e-procurement system was fully adopted, the
system
catalog was just presented as a list of paper. Among Communication Quotation process still requires face to face No
possible impacts, PT. PLN realized the benefits of with suppliers meeting with the suppliers of
cataloging goods/services in e-procurement system. Table goods/services
V summarizes the impacts of e-procurement Trust in the data Procurement committee does not supply No
implementation of PT. PLN in the area of pre-sourcing of suppliers of personnel data via the Internet to the
goods/services suppliers of goods/services
business process.

F. Negotiation

According to Yen and Ng [14], by using e-

procurement system negotiations can be done

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transparently, timely and directly to suppliers. In the case

TABLE VIII
of PT. PLN, the negotiation was carried out during the IMPACTS TO ORDER PLACEMENT
meeting with procurement committee. This meeting
explains the entire contents of the Work Plan and the Impact Findings Concl.
Terms. This meeting was made in order to comply with Invoice creation ƒ Invoices were physically required for No
procurement regulation in PT. PLN based on the schedule process payment
set up by the procurement committee at the beginning of Placement of ƒ Placement of orders was specified in the
the initialization of procurement process. This meeting orders paper-based contract manually
Recording of ƒ The entire procurement processes were
was also a time where both procurement committee and
procurement carried out in the system so they were
prospective suppliers can communicate directly with each easily checked and recorded.
other. Table VII summarizes the impacts of e- Mis- ƒ Possible, but PLN has set a pretty harsh No
procurement implementation of PT. PLN in the area of interpretation of sanctions
negotiation. the goods/ ƒ Therewas quality certification for the
services procurement of the material
TABLE VII ƒ Policies remain the same before and after
IMPACTS TO NEGOTIATION the implementation of e-procurement
system
Impact Findings Concl. Restriction area Any suppliers of goods/services could Yes
of the supplier follow the procurement, provided that they
The negotiation Negotiation process was transparent, met None could meet the requirements, not limited to
process the implementation schedule and plan. the region. However, the cost of shipping is
Human resources Negotiationwas conducted face to face, so None the responsibility of suppliers of
there was no need of human resources who goods/services
understand the e-procurement system The trust level There was no personal data of committee No
Communication Conducted face to face None to supplier held by suppliers of goods/services
with suppliers of
goods/services
The level of trust There was trust between both parties as the None TABLE IX
between both negotiations were conducted face to face. IMPACTS TO TRANSACTION
parties
Impact Findings Concl.
Method of Method of payment was still manual No
G. Order Placement payment (through a bank transfer)

Order placement is made to specify product

requirements, methods of payment and delivery details TABLE X
IMPACTS TO DELIVERY
[14]. Order placement in PT. PLN was carried out through
a contract. The contract was governed by Decree No. Impact Findings Concl.
305.K/DIR/2010 as written agreement between users of
Timeliness of The contract stated delivery time frame so No
goods/services and winning suppliers. According to Yen delivery therewas no uncertainty of delivery
and Ng [14], invoices are no longer prepared manually Limitation of the Providers of goods/services from anywhere Yes
after the implementation of e-procurement. But in PT. delivery of can follow the procurement, provided that
PLN, the payment was still done traditionally which goods / services can meet the requirements, not limited to the
needed paper-based invoice to be delivered to the finance region. However, the cost of shipping is the
division. In addition, Yen and Ng [14] also said that responsibility of providers of goods /
services
placement can be done electronically. However, in PT. Distrust to the Goods were shipped to the warehouse from No
PLN, placements were undertaken within the contract in supplier PT. PLN offices, so that the data was held in
the form of paper-based contract. Table VIII summarizes the form of data from warehouse
the impacts of e-procurement implementation of PT. PLN
in the area of order placement.
I. Delivery
H. Transaction
According to Yen and Ng [14], the delivery of e-
procurement system can be done immediately when the
According to Yen and Ng [14], electronic payment is
transaction is completed, thus saving time and reducing
considered as one of e-procurement benefits, in the sense
the uncertainty of delivery time. In the case of PT. PLN,
that physical payment form is no longer required.
delivery details and corresponding deadlines erre stated in
However, in the case of PT. PLN, the payment was still
the contract. If the suppliers deliver goods/services after
carried out manually. The suppliers of goods/services are
the deadline, they will get a sanction from PT. PLN. In
required to go to the financial division in order to get
this sense, the uncertainty of delivery time did not occur.
paid. Table IX summarizes the impacts of e-procurement
Table X summarizes the impacts of e-procurement
implementation of PT. PLN in the area of transaction.
implementation of PT. PLN in the area of delivery.

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[2] C. Nam, “Increase your profit margin through electronic

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