Yara pushing e-auction envelope

Q: How does this e-auction work and why should this country change to it ?

E-auctions forms only part of the procurement process.
This tool consolidates the whole process of negotiating with individual suppliers through a single on-line (Internet) event, and therefore provides a forum whereby suppliers are bidding in real time against each other as opposed to individual sequential negotiating sessions. This can generate significant savings and improve the efficiency of the procurement process.

Q: How did Yara come by the e-auction process as opposed to the traditional tendering ?
Yara (formerly Hydro Agri) was driven to become more competitive during its turnaround process prior to the year 2000 when the company was restructuring its operations and sought opportunities to become more efficient utilizing such tools in the procurement process to achieve savings.

Q: Is it used globally in other Yara’s operations?
Yes. In fact a central procurement group was set up to identify potentials using this tool at a local, regional and global level. Hence this tool has been utilised in Yara at several sites, including Trinidad, and at the same time, several sites have participated to achieve savings together in common categories of spend.

Q: What are the benefits so far for Yara?
Before the tool was actually applied, a process was undertaken to identify where money was spent, with which suppliers and on what categories of spend (eg chemicals, materials, services, etc). This process actually resulted in Yara identifying where the greatest savings potential existed.
Using the tool in areas that were identified as possibilities resulted in real market prices being obtained, yielded significant savings — to the tune of 10 to 25% — being typical a more professional approach to suppliers (eg contracts with awarded suppliers versus multiple quotation requests and purchase orders), and a more strategic approach to suppliers at the local, regional and global level.

Q: You talked about transparency. How does e-auction help reduce corruption?
Before an E-auction can be applied, a clear and proper specification must be done ideally through a cross functional team. A competitive market must also exist. Because this tool replaces individual negotiations which usually transpire over longer periods of time, by having all suppliers bid at the same time on the same specification that is clearly communicated prior to the E-auction, there is greater transparency. This process is managed by a service provider whereby all communication and bid data is logged and available for scrutiny as an audit trail. Hence the availability of this information could reduce corrupt activity. The reputation of the service provider is fatally jeopardised if there is any semblance of collusion between the supplier and the service provider

Q: What has been your experience with it ? How do you safeguard the information during auctions?
Our experience has been that more attention is spent on specifying exactly what is required and much less time on actual negotiations (the entire e-auction event can take place within one and a half hours versus several weeks or months of negotiating individually). There is defined information requirements for the supplier and the buyer, controlled through the service provider software tool.

Q: Do you think it could work here at our state enterprises given our penchant for cutting corners?
Yes, providing that procurement takes on a strategic view versus a transactional one. This means that the legal framework would have to provide for the application of such tools, a service provider would have to be selected, key persons trained, a process is undertaken to assess where spend is occurring and on what and with whom so that potential areas to apply this tool are identified. We would have to emphasise once again that more professional specifications would have to be developed for what is purchased.

Q: Has it saved Yara money ? Do you need more resources for this?
Yes, quite significantly, even by utilizing the tool repeatedly on the same category in the same markets. There is an effort in training personnel up front in the skills required to utilise the tool properly. If the tool is utilised in the correct way, the procurement resources can potentially operate more efficiently but there is a learning curve requirement involving better specs, etc. However future purchasing through e-auctions for such items becomes much easier once the specs have been generated.

Q: Is e-auction a new trend and do you see it replacing traditional tendering process?
The e-auction tool has been around for some years, with Yara International ASA (formerly Hydro Agri of Norsk Hydro ASA) utilising the tool since the year 2000. Many other companies in various fields have also utilised the tool. The tool can only replace the tendering process for items that can be specified and have a competitive market, and therefore cannot replace entirely the traditional tendering process.

Minister in the Ministry of Finance Christine Sahadeo seemed pretty receptive to it. Have other state companies taken notice ? WASA is due to begin a pilot e-auction event in May 2006. Other state companies such as NP have taken notice, but would probaly await guidelines from the Ministry of Finance.