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ABSTRACT

Electronic Procurement or known as e-Perolehan was started in Malaysia in 1999 as one of the projects underthe Electronic Government Flagship. There are six procurement modules being implemented since 1999. Theaim of the government is to make all the suppliers and federal government agencies become electronicprocurement enabled users by the year 2010. This paper looks at some of empirical findings from the surveyconducted regarding the government suppliers readiness in adopting and using the e-Perolehan system. Thegeneral findings show that the suppliers have positive perception about information technology (IT ) and theuse of Internet to do their business transactions, hence they are ready to use the e-Perolehan system. Eventhough there are some positive development of e-Perolehan in terms of the acceptance and usage, there arealso many problems and challenges faced by both the buyer community i.e. government, and seller communityi.e. suppliers. The paper provides some recommendations to improve the current practice to encourage moresuppliers to grab the opportunity and benefit fully from the e-Perolehan initiative in Malaysia.

Key words: e-Perolehan, Information Technology (IT ), Government, Suppliers

MANIAM KALIANNANmaniam@perdana.um.edu.my

HALIMAH AWANGhalima@um.edu.my

Faculty of Economics & AdministrationUniversity Malaya50603, Kuala Lumpur.Tel: 603-79673633Fax: 603-79567252

IMPLEMENTING ELECTRONIC PROCUREMENT IN GOVERNMENT:A CASE STUDY ON E-PEROLEHAN IN MALAYSIA

1. INTRODUCTION

Governments all over the world have demonstratedthe need to improve the service delivery and beingable to handle issues swiftly and satisfactorily. Theadvent of Internet Technology has made it possible forgovernments to transform themselves by offeringvarious traditional services online. The use ofInformation and Communications Technology (ICT) ingeneral, has also changed government service deliveryprocess, business models and people’s expectations ofthe quality and efficiency of information sharing andservice delivery [10, 11].

e-Government systems are not confined to automationof government service delivery systems targetedtowards citizens’ at large (G2C). e-government platformsalso include the use of ICT to streamline theprocurement processes within public sectors (G2G &

G2B). e-procurement refers to “the use of electronicmethods in every stage of the purchasing process fromidentification of requirements through payment, andpotentially to contract management” [2, 3, 5, 7, 12, 13, 19].

There are significant benefits in adopting e-Procurementtechnologies [14, 15, 16, 17, 20, 21, 22]. These benefits areexpected to accelerate the rate of adoption of thesetechnologies once the uncertainties that remain arereduced to levels that encourage significant resourcecommitments. Organisations that use e-Procurementtechnologies report savings of up to 42 percent inpurchasing transaction costs [3]. This cost reduction isassociated with less paperwork, which translates into fewermistakes and a more efficient purchasing process.

In this paper, we present our preliminary findings aboutthe e-Perolehan project in Malaysia. Implemented

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within the e-Government flagship application under Malaysia’s Multimedia Super Corridor (MSC) initiative, thisproject is envisioned to restructure the public sector‘s procurement and supply chain processes into a new dimension.Specifically we highlight the overall objectives of the project and also report the initial response from the suppliercommunity involved in this project. The paper proceeds as follows. Section two presents the conceptual backgroundthat guides our research methods. Section three provides an overview of the e-Government initiative in Malaysiaand its link to the e-Perolehan concept. This is followed by the findings from the survey and interviews conducted.The paper ends with a short discussion and our recommendation to the key stakeholders with the intention ofensuring the e-Perolehan project achieves its intended objectives.

2. CONCEPTUAL FRAMEWORK

Over the past four decades, while the private and public organisations have been utilising systems to streamline andautomate their purchasing and other processes, it is only for the past decade that e-Procurement systems have attractedattention [13, 17, 22]. This suggests that there was little history of extensive use of e-Procurement in the public sector andtherefore, the academic literature covering early public sector adoption of e-Procurement is limited. Therefore, most of the workin this area have used and quote the Information System (IS) and Information Technology (IT) adoption in the context of privatebusinesses or known as e-Commerce or e-Business in order to better understand especially the sub factors influencing theadoption of e-Government and e-Procurement in the public sector settings [13, 17, 22]. Some of the models available in thiscontext include:

Table 1: Models of Technology Acceptance

Model Main Constructs

Technology Acceptance Perceived usefulness (the extent to which a technological innovationModel (TAM), [4] is expected to improve the potential adopter’s performance) and

perceived ease of use (the degree to which the potential adopter expectsa technological innovation to be free of effort in use) as criticalantecedents to an individual’s technology adoption process.

Theory of Reasoned Attitude toward a behavior is determined by beliefs about theAction (TRA), [6] consequences of the behavior and the affective evaluation of those

consequences.

Theory of Planned Perceived behavioral control is determined by the availability of skills,Behavior ( TPB), [1] resources and opportunities as well as the perceived importance of

those skills, resources and opportunities to achieve outcomes.

Technology-Organisation Three aspects were identified as factors influencing the -adoptionEnvironment (TOE), [18] and implementation of technological innovations by organisations:

technological context, organisational context and environmental context.

3. E-PEROLEHAN INITIATIVE IN MALAYSIA

The electronic procurement system or known as e-Perolehan streamlines government procurement activities andimproves the quality of service it provides. It was officially launched in 1999 as one of the Electronic GovernmentFlagship projects. e-Perolehan converts traditional manual procurement processes in the government machinery toelectronic procurement on the Internet. The new procurement system allows the Government ministries to electronicallyselect items to be procured from the desktop, initiate an electronic approval process and also create, submit and receivepurchase orders, delivery orders and other related documents electronically.

e-Perolehan deals with the Government to Business (G2B) relationship. On the supplier’s side, e-Perolehan allows themto present their products on the World Wide Web (www), receive, manage and process purchase orders and receivepayments from government agencies via the Internet. The supplier’s product catalogue, can be viewed from any desktopwith a web browser. The supplier is able to submit quotations, obtain tender document and submit tender bid throughe-Perolehan. e-Perolehan allows suppliers to register or renew their registration with the Ministry of Finance(MOF) through the Internet. Suppliers are able to submit application, check application status and pay registration

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fees through e-Perolehan. By subscribing to thee-Perolehan system, suppliers will be able to participatein the procurement exercise by the government. Uponfinal implementation of the e-Perolehan system, fullservices wil l be available to al l four types ofprocurement namely:

Phase 1:a. Supplier Registrationb. Central Contract

Phase 2:a. Direct Purchaseb. Quotation and Tender

e-Perolehan will be the single point of registrationfor the suppliers. All approvals of the applicationfor registration remain with the Registration Departmentof MOF. Services available in the supplier registrationmodule include the following (www.commercedc.com.my):

a. Supplier registration can be done online viathe Internet using the e-Perolehan website

b. e-Perolehan routes all successful suppliers’applications for online approval by therelevant authority upon full submission ofcompleted documents.

c. e-Perolehan facilitates generation of certificatefor registered and successful supplier.

d. The supplier registration module supportsonline renewal of registration by the suppliers.

e. The supplier registration al lows onlineapplication for registration of additionalcategory or “bidang”.

f. e-Perolehan supports online suspension ortermination of the supplier registration.

3.1 e-Perolehan – Project UpdateThe scope of work and implementation schedule fore-Perolehan will be carried out in four phases [23, 24]:

Phase 1:The first phase of the e-Perolehan initiative startedin October 2000, with the intention of developing ane-Perolehan system for the purchase of goods involvingResponsibility Centres (Pusat Tanggungjawab / PTJ)within the government. The first phase of the projectinvolved four central agencies namely, theAdministration Department, MOF, the MalaysianAdministrative Modernisation and ManagementPlanning Unit (MAMPU), Head Office, NationalAccountant Department (JPN), and the Head Office,National Audit Department (JAN). The objective ofPhase 1 was to develop an online registrationsystem in order to register suppliers/companiesinvolved in supplying goods and services with theDepartment of Government Purchases, MOF.

Phase 2:The second phase of the project started in January2001. The objective of this phase was to expande-Perolehan system to one PTJ at the followingDepar tment and Ministr ies: Prime Minister ’sDepartment, Ministry of Defense, Ministry of HomeAffairs, Ministry of Education, Ministry of Health,Ministry of Works, Ministry of Agriculture, Ministryof International Trade and Industry, Ministry ofEnergy, Water and Telecommunications, and Ministryof Science, Technology and Innovations. UnderPhase 2, the idea was to develop e-Perolehan systemfor purchases through tender, quotation and directpurchase for all agencies involved.

Phase 3:Phase 3 of the e-Perolehan project started in January2002. The focus of this phase was to roll-out thesystems developed in Phase 1 and Phase 2. Stateddifferently, while the first and second phases were akinto strategic formulation of the e-Perolehan initiative, thegoal of Phase 3 was to get the various entities involvedin the initiative into an execution mode.

Phase 4:The final (on-going) phase of the project started inJanuary 2004, with the objective of improvinge-Perolehan system accordingly, based on feedbackreceived from all three parties involved in theprocurement process, i.e. the service provider, thebuyer community and the various PTJ’s within thegovernment sector.

3.2 Research FindingsA total of 3,000 questionnaires were sent in October2006 by mail to randomly selected suppliers. There were502 completed questionnaires received and thefindings reported here are based on the analysis ofthis data. As shown in Table 2, most of the firms areSdn. Bhd. (90 percent) and fall within the Small MediumIndustries (SMI) definitions. In terms of number ofemployees, most of the firms employed less than 20workers (75 percent). About 50 percent of the firms haveregistered to be e-Perolehan enabled after the year2004 compared to about 40 percent of them registeredbefore 2004. About 73 percent of the firms’ annual salesusing e-Perolehan system is within RM 1 million peryear, however, only about 25 percent have recordedannual sales in the range of RM 1 million to RM 5 millionper year. Eighty nine percent of the respondents dobusiness with both the government and the privatesector where only about 11 percent of them solelydepend on government business.

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Table 2: Organisation’s Profile

Type of Organisation

Type of Organisation Frequency Percent

Sendirian Berhad / Private Limited 452 90Berhad / Limited 9 1.8Sole Proprietor 41 8.2

TOTAL 502 100

Number of Employees

No. of Employees Frequency Percent

Less than 10 workers 259 51.611-20 workers 118 23.521 – 30 workers 40 8.031-40 workers 10 2.041-50 workers 23 4.6More than 50 workers 52 10.4

TOTAL 502 100

Year of e-Perolehan Registration

Year Frequency Percent

2000 49 9.82001-2003 151 31.12004-2006 296 58.92007 6 1.2

TOTAL 502 100

Annual Transaction using e-Perolehan

Sales RM 000’ Frequency Percent

Less than RM 250 162 32.3RM 250 – RM 500 93 18.5RM 500 – RM 750 62 12.4RM 750- RM 1 million 59 11.8RM 1 – RM 5 million 94 18.7More than RM 5 million 32 6.4

TOTAL 502 100

Market Focus

Market Focus Frequency Percent

Only Government 55 11.0Both Government & Private 447 89.0

TOTAL 502 100

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Table 3: e-Perolehan Users

Number of Users / Non-Users Frequency Percent

Yes 266 53.0No 236 47.0

TOTAL 502 100

A total of 266 suppliers (53 percent) out of 502 firms have used at least one of the e-Perolehan modules, that is,central contract, direct purchase, tender and quotation, whereas 236 suppliers have not used the e-Perolehansystem (Table 3). However, about 91 percent of this group has indicated that they will adopt e-Perolehan in thenear future.

3.3 General Perception on Information TechnologyIn this section, questions were asked to capture the general perceptions among the respondents in relation toInformation Technology (IT ). The basic or pre-requisite to be e-Perolehan enabled is to have PC and Internet accessbesides having positive perceptions and knowledge on how to use IT. Most studies on IT indicated that, positiveperceptions on IT will eventually lead to the adoption of IT as part of the business operations [4, 8, 9]

Table 4: General Perception about Information Technology

Attributes Strongly Disagree Neutral Agree Strongly TotalDisagree Agree

IT enhances business 6 4 59 258 175 502effectiveness (1.2 %) (0.8) (11.8) (51.4) (34.9) (100%)

IT enhances business 5 4 54 266 173 502efficiency (1.0) (0.8) (10.8) (53.0) (34.5) (100%)

IT gives organisation 5 11 130 260 96 502greater control (1.0) (2.2) (25.9) (51.8) (19.1) (100%)

Using computer as 6 46 90 218 142 502a prestige issue (1.2) (9.2) (17.9) (43.4) (28.3) (100%)

High profile if 11 56 119 232 84 502use computer (2.2) (11.2) (23.7) (46.2) (16.7) (100%)

Computer as a 20 77 122 191 92 502status symbol (4.0) (15.3) (24.3) (38.0) (18.3) (100%)

Organisation use IT 14 53 95 238 102 502due to competitive (2.8) (10.6) (18.9) (47.4) (20.3) (100%)pressure

Table 4 describes that majority of the firms that responded to the survey generally have positive perception aboutIT regardless of whether they are transacting using e-Perolehan mode or not. A high proportion of them haveselected either agree or strongly agree options in terms of using IT as a management tool in their day to dayoperations. This is supported by the literature [4] that two main elements deciding the adoption of IT will be theperceived usefulness and perceived ease of use. The respondents generally agreed that IT will enhance both theeffectiveness and efficiency of their business in terms of speed in service delivery, reduction in administrative taskand cost etc. Majority of the respondents also agreed that having latest IT infrastructure like PCs and Internetaccess is viewed as a status symbol. In other words, this will enhance their social standing in the industry as a firmgives importance to IT. Another important feature stated in Table 4 is regarding the usage of IT in an organisationdue to the competitive pressure. At least about 68 percent of the respondents agreed that to be competitive in theindustry, they need to equip themselves with the latest IT gadgets.

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4. DISCUSSION ANDRECOMMENDATIONS

The e-Perolehan initiative is expected to providesignificant benefits to both the buyer (government)and supplier communities. There are several benefitsof e-Perolehan for the government. The system firstly,offers more effective and efficient procurement processin l ine with the countr y ’s transformation to theknowledge based economy (K-Economy). e-Perolehanis a vehicle for the government to leapfrog into thenew economy and promote the widespread adoptionof e-Business in the country. The system also is statedto lower the operational cost for the government overtime. In addition, the government will be able to reduceadministration and operational costs through theusage of e-Perolehan as business processes are reducedand streamlined. From the government’s perspective,the e-Perolehan system provides latest product informationand pricing available online. e-Perolehan will always beup to date with the latest information that will help thebuyer to make a more accurate procurement decision.

However, it has been six years since the launch of Phase 1of the e-Perolehan initiative. Although there are about120,000 government linked suppliers (registered with MoF),only approximately 50,000 suppliers are e-Perolehanenabled and although these 50,000 suppliers have thecapability to participate in e-Perolehan, only 6,000 suppliersare active users of the system. The rest are classified asinactive or casual participants of the system. The followingpoints highlight the key issues inherent within Malaysia’se-Perolehan initiative that prevents the government andthe service provider from maximising the value potentialof the e-Perolehan system. These issues are based on surveyresults as well as the response from the interview thatwas conducted with the parties concerned.

4.1 CostThere are costs involved before a supplier becomese-Perolehan enabled. It is estimated that on average asupplier need to spend about RM 1,500 to RM 2,000 asthe initial start up payment to be e-Perolehan enabled.These costs include the registration fee, cost ofpurchasing e-Perolehan enable card, cost fore-Perolehan training, cost for uploading productcatalogue/ information in the e-Perolehan website etc.In addition, for every successful transaction throughe-Perolehan platform, a service fee of 0.8 percent (ormaximum of RM 9,600) from the value of purchase pricewill be imposed on the suppliers. These payments aredirected towards Commerce Dot Com Sdn. Bhd. Giventhat the majority of the suppliers within the traditionalcategory belong to the small-medium size operations

scale, it is only natural that they are not keen inbecoming players within e-Perolehan, given the costsinvolved, to become e-Perolehan enabled. Some of theresponses in l ight of the above are as fol lows,particularly from the smaller companies:

“There are benefits of the system. However, we hopethat the government can subsidise the enablementprocess which costs us money currently.”

“The system enablement process should be madecheaper for smaller companies, such as ours.”

“Timely reduction of the cost involved to become aplayer in the system, is needed to foster moresuppliers using the system.”

4.2 Infrastructure and SkillsAs mentioned the majority of the supplier communityfall within the small-medium size industry grouping.Traditionally, this sector has not been well versed withthat use of state of the art information systems. Issuessuch as lack of bandwidth support, poor computingand information systems architecture in general,prevents the majority of the suppliers from playing amore active part in e-Perolehan. An example of acommon response in light of the above is as follows:

“Low computer literacy rate among suppliers (theknow how issue), issues like we don’t have largecomputer systems, especially amongst the smallerpayers could be an obstacle in the e-Perolehanenablement process.”

4.3 Business Focus/Change ManagementMajority of the suppliers are not keen to do business withthe federal government, given the e-Perolehan requirement.Suppliers prefer to do business with local and stategovernment as they can use traditional methods for sellingtheir products. Furthermore e-Perolehan still has not goneinto tender and quotation compared to direct purchaseand central contract which is small in volume. This issue isalso in line with the need for better change managementto convert the mindset of traditional sellers to embracechange and use technology in the procurement process ingeneral. An example response from a supplier regardingthis issue is as follows:

“We are planning to use both tender and quotation via e-Perolehan system. We have tried twice this year but wereunsuccessful in securing the tender from the ministry. Also, weare in the midst of registering the other subsidiary companiesas to be e-Perolehan enabled. As mentioned earlier, if all partiesinvolved are committed, there are a lot of benefits andopportunities to be gained from the e-Perolehan systemcompared with the manual procurement”.

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4.4 System ConstraintsThe feedback we received from our interviews alsosuggests that the system in its current incarnation isnot robust on several aspects. For example, a supplierregistered with the system, can only upload productinformation for ten different product areas, for free.Additional charges will be incurred if more productlines are l isted within the system. In short, for acompany that has a wide product line, the additionalcost involved to market the product via the systemmight not be attractive. A supplier quoted that:

“ We think that the ser vice provider is moreconcerned about their profit rather than providingus with a quality service. For example, in our case, wesupply more than 25 items to the governmentdepartments, but can only upload up to 10 items free.For every additional item, we have to pay RM 50”.

4.5 Government PolicyAlthough the federal government of Malaysiaencourages suppliers to become e-Perolehan enabled,the government can decide if it is willing to transactwith a non e-Perolehan company, as long as thecompany is registered with MOF. Stated differently,although in theory the supplier community mustbecome part of the e-Perolehan system, in practice,this requirement has not been made mandatory asyet. An example response from a supplier regardingthis issue is as follows:

“The main problem or challenge that we are facingis with the PTJ (Pusat Tanggunjawab or ResponsibilityCenters) who suppose to be the buyer representingthe government and ministries. The officers aregenerally not equipped with IT knowledge or ITqualification. They are unable to solve many of ourproblems and queries especially pertaining to the ITaspects for how to operate the system. In ourcompany, we do not have IT manager or executiveand this makes more difficult for us. In manyoccasions, we get the answer either very late or weourselves will sort it out by the ‘trial and errormethod’. Another big problem is the communicationproblem between the PTJ and the supplier. Becauseeverything is done online except delivery of goods,we often have problems like validity of the quotationthat we mail to the government departments, wegive them 30 days from the date of the quotation asvalid but they presume 30 days upon accepting thequotation”.

Despite the lackluster response by the majority of theseller community, close to 6,000 suppliers, as mentioned,have fully embraced and are active participants of the

system. This situation is predominantly true for suppliersthat visualise e-Procurement as an opportunity and giventhe fact that the government could make it mandatoryfor large scale suppliers to use the system actively.

5. CONCLUSION

The findings suggest that the government should takea more proactive role in promoting e-Perolehan inMalaysia. This includes among others, making sure thatthe government’s policy on procurement avoids anycontradiction with the e-Perolehan implementationplan. In addition, issues such as regulating the cost fortraining and purchase of the relevant equipmentshould also be within the control of the governmentto ensure the small scale suppliers can be enticed tobecome active participants of the system. In terms ofthe sellers (suppliers) two kinds of e-Perolehan adopterscurrently exist. First is the aggressive adopters who areinvolved fully (6,000 suppliers). These suppliers seem tobenefiting from e-Perolehan and are trying to achievecompetitive advantage by using IT in their procurementprocess. Nevertheless, there are the conservative adopters(the laggards) – are taking ‘wait and see’ approach, beforethey are willing to actively become part of the system. Onbalance, the general consensus amongst both the buyerand seller communities is that e-Procurement will becomean important management tool to enhance theperformance of supply chain especially in the public sector.In this regard, we expect that between the next three tofive years, more suppliers will grab the opportunity andbenefit fully from the e-Perolehan initiative in Malaysia.

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MALAYSIAN GOVERNMENT OFFICIALSDOCUMENTS

a. Surat Pekeli l ing Perbendaharaan Bil . 5 (2000).Pelaksanaan ePerolehan di bawah Program KerajaanElektronik. Kementerian Kewangan Malaysia

b. Surat Pekeli l ing Perbendaharaan Bil . 7 (2000).Peraturan dan Tatacara Perolehan Kontrak PusatSecara Elektronik Melalui Sistem ePerolehan.Kementerian Kewangan Malaysia