DRAFT-----PROPOSAL FOR MSc PROCUREMENT AND SUPPLY CHAIN MANAGEMENT.

AN ASSESSMENT OF E-PROCUREMENT INTERNAL ADOPTION CHALLENGES FOR SMEs IN TANZANIA

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CHAPTER ONE BACKGROUND INFORMATION 1.0 Introduction Introduction

E-procurement E-procurement is and element of e-commerce which began around 1965 in America when consumers were able to withdraw money from Automatic Teller Machine (ATM) and make purc purchas hases es with with a cred credit it card card where where vende venderr elec electr troni onical cally ly veri verifi fied ed paym payment ent and big corporate managed procurement and controlled inventory (USCIB 1998) since 1995 the development has been overwhelming. It is estimated to be growing at a rate of 10% per month reaching 40 million people in 160 countries around the globe.

Infor Informa mati tion on techn technolo ology gy came came to Tanza Tanzania nia as early early as 1956 1956 wher wheree the publ public ic work workss departments under the British administration introduced the hand-punch input device for computer computer cards (Sawel 1999).It was used to capture capture data everywhere everywhere .In 1965, the country first full scale computer processing facility was installed at the ministry of Finance. In his study Rein et al (1993) revels that there is no ground and concrete measures of the adoption of e-commerce technology and there is little understanding among SMEs in developing countries like Tanzania. Although ICT came early in Tanzania but still ecommerce commerce took place later as it has been stated above by United State Information Bureau Bureau (USCIB)

The study study conducte conducted d by Fuller Fuller and Jenkins Jenkins (2000) (2000) in e-comm e-commerc ercee benefit benefitss in SMEs SMEs realized the six benefits: Time based competitive advantage, productivity improvement, busi busines nesss re-en re-engi ginee neeri ring, ng, and and empo empowe werm rment ent of indiv individ idual ual empl employe oyees es,, creat creating ing & maintaining business relationship, and reaching new market. E-procurement E-procurement is the technology-enabl technology-enabled ed acquisition of goods and services services required by an organization at the best value obtainable. The goal is the right product or service, at the















interact electronically rather than by physical exchange or physical contact ( Beda and Kajiba 2000 )

Supply chain management (SCM) has exploded as a management’s major concern over the last last year years, s, sinc sincee with with the the expl exploi oita tati tion on of new new Info Inform rmat atio ion n and and Comm Commun unic icat atio ion n Technologies (ICT) and in particular of Internet the potential to revolutionize, streamline and enhance supply chain operations has flourished (Patterson, Grimm and Corsi, 2003; Cagliano, Cagliano, Caniato Caniato and Spina, 2003). 2003). Specifically Specifically,, e-procurement e-procurement has been identified identified as an important element of e-business operational excellence for large firms (Barua, Konana, Whinston and Yin, 2001).

In Tanzania many ICT initiatives are simply not viable at present due to a number of factors: outdated institutional frameworks, poor infrastructures, inefective payment system, and technological skills. In Tanz Tanzani ania a priva private te insti institut tution ions, s, the the prac practic ticee of e-p e-pro rocu curem rement ent has has been been incorporated into the individual company policy for the past five years there have been arguments for effectiveness among those, which use e-procurement. In the year 2005, 46% of the private institutions that employed e-procurement managed to cut costs and the percentage increased up to 52% in the year 2007 (Daily News, 2009).

Then, by reviewing the literature on ICT adoption challenges as well as the few studies in e-commerce e-commerce and e-procureme e-procurement nt adoption adoption challenges, challenges, potential potential factors determining determining the adoption challenges of e-procurement in the SMEs adoption behavior from a buyer-seller relationship perspective were identified. The significance of these factors on the adoption challenges of e-procurement were tested by gathering data from SMEs in Dar es salaam Ilala Ilala municip municipali ality. ty. Data Data provide provide useful useful informa information tion about about the challen challenges ges affecti affecting ng e procurement adoption in SMEs challenges from a buyer-seller relationship perspective















devel developm opmen entt to cate catego gori rize ze ente enterp rpri rise sess .The .The comm commonl only y used used crit criter eria ia are are numbe numberr of empl employe oyees es,, total total inves investm tment ent and and sale saless turn turnove over.M r.Mini inins nstr try y of indus industr try y and trade trade ( MIT,2003 ) In Tanzania the vast majorities of businesses are Small and Medium Enterprises (SMEs) rather than large enterprises (LE’s) and account for major economic growth, jobs and assets. assets. In the past past decades decades the SMEs SMEs has witnes witnessed sed expone exponentia ntiall growth growth,, result resulting ing in increased competition on such global scale.It is estimated that they generated more than 50% of Gross Domestic Product (GDP) (Admassie and Matambalya ibid 2002) According to Lyatuu and Sawere ( 2007 ) it is revealed that SMEs play a pivot role in the national effort to eradicate poverty.

This study intends intends to identif identify y the interna internall challen challenges ges in organiz organizatio ational nal adopti adoption on of e procurement in SMEs in Tanzania, where Dar es salaam-Ilala municipality was chosen as a case study. This is because Dar es salaam is among the region in Tanzania where most users of information communication technology are found, since internet technology is more concentrated in Dar essalaam and Arusha compared to other region (Nelienger ibid 2003)

1.1 Context of the Study

Mlinga (2007) defines procurement as the activity of assessing, buying of works, goods and service. Procurement includes some activities that start with the identificatio identification n of need and ends with the delivery of the material, works or service required is public wherever this process is performed by any one public organization or wherever it is performed on their behalf or funded by public organization. As such, it is carried out in both public and private sectors. It is, according to Mlinga (2007), the acquisition of goods or service at the best possible total cost of ownership in the right quantity, at the right time, of the right quality, from the right source and to the right place.















over the years in different parts of Africa. In all parts where reforms have been undertaken, the central objectives of such have been to increase transparency and efficiency in the process of procurement. The reforms have also aimed at combating corruption in the public procurement procurement system as corroborated corroborated by Kenya, Uganda and Nigeria Nigeria where experience experience has shown that it is a major hindrance in the attainment of value for money in the use of public funds. From one press release “ I f there is a one-stop solution to eradicating corruption in Asia's public procurement systems, E-procurement is it”. That's what regulators from India, Indonesia and South Korea said in recent interviews with Supply Chain IQ.

Grow Growth th in busi busines nesss-to to-b -bus usine iness ss e-co e-comm mmer erce ce

rema remains ins stro strong ng as infor informa mati tion on and

communications communications technologies technologies (ICTs) (ICTs) continue to transform transform organizations’ organizations’ interactions interactions with their suppliers and customers .Supply-side activities such as electronic procurement (e procurement) have been identified as a key area where information systems (IS)-enabled innov innovat atio ions ns are are

likel likely y to yield yield sign signif ifica icant nt benef benefit itss for for orga organiz nizat ation ionss (Eur (Europe opean an

Commission 2005b 2006, Laub, 2001).

It’s a collaborative procurement of goods, works and services using electronic methods in every stage which will bring in efficiency and transparency by monitoring and control in procurement process, bring in economies of scale through aggregation of demand, reduce cost of doing business for both government and suppliers and establish level playing field and “fair” competitive platform for the suppliers, of which this can be achieved only through effectively use of e-procurement. Thus in this study the researcher was assessing the internal organization challenges for adoption of e-procurement.

1.2 Emerging Challenges

Sheya (1992),when referring to information technology evolution in Tanzania, cautions about ICT policy and strategies in the country. He mentioned that there was an imbalance















towards ICT are among the problems that affect effective use and application of ICT,e procurement being one of the element. ICT use and application in most government institutions in Tanzania in the 1980s and 1990s was generally low. Most of the computers were neither used effectively nor to full capacity. This condition has been attributed by factors such of lack of adequate skills, knowledge, experience, pace of technology change and resistance to change. To date, the situation is still the same in some institutions ( Ngomuo 1999) Moreover SMEs are often the main driver for a country’s economic growth. However, as the number of SMEs increases, competition increases, which then results in a decrease in prices prices,, custom customer er base, base, or both. both. This This in turn turn will will erode erode existi existing ng profit profits, s, creati creating ng less less incentive for people to start SMEs. This dynamic is captured by balancing feedback loops where the greater the number of SMEs, the greater the competition, resulting in a slower rate of growth for SME. ICT can thus play a very important role because it can help SMEs both create business opportunities and combat pressures from competition. Appropriate ICT can help SMEs cut costs costs by improv improving ing their their internal internal proces processes ses,, improv improving ing their their product product through through faster faster communication with their customers, and better promoting and distributing their products through online presence.

Given Given the benefits benefits that ICT can bring bring to SMEs, SMEs, SMEs in most most developi developing ng countri countries es including Tanzania still have been slow to adopt it.SMEs still use basic communication technology such as fixed phone line and fax, and only few use CRM softwa,meanwhile, their counterparts in developed countries are using advanced ITs.

One cause of limited adoption is the lack of dynamism between ICT firms and SMEs outside of the ICT sector. ICT firms have not provided goods and services tailored to SMEs in the past because demand from SMEs has been low. However, their demand is low in part

















1.3 Statement of the Research problems

SMEs have a critical role to play in national economy. Despite the advances in information and Communication Technology which lead to innovation of electronics commerce and acceptance by large organization of such technologies the same level of adoption is not evident among SMEs ( Bonde and Burn 2002 ). In keeping keeping abreast abreast with with the technol technologic ogical al develop development ment in the world, in general general,, and Tanzania, in particular, few, large enterprises (LEs) private organizations in Tanzania have introduced the use of e-procurement. The introduction of this procurement has lead to significant change in terms of efficiently and cost. Accordin According g to Loveloc Lovelock k (1996) (1996),, in today’s today’s increas increasingl ingly y compet competiti itive ve environm environment ent,, the quality and quantity (in terms of the length of time and the numbers of places) of service that an organization renders are critical to its success. Indeed, the procurement department and organization mission is to provide quality and competitive products that reflect the value for money. The mission of the procurements department,rol department,rolee of SMEs in national economy,importance economy,importance of implimenting implimenting e-procurement e-procurement in an organisation and all else which has been said above made the researcher develop some keen interest in this study in general, and Tanzania, in particular. This lack of abundant research and findings has resulted in the failure by people to properly understand, what are the internal organisation adoption challenges, how are the challenges affect the e procure procurement ment adopti adoptin n in an organiza organizatio tions ns especi especially ally SMEs SMEs which which contrib contribute utess much much to

















1.4.1. The Main Research Question

The main research research question is “What are the internal challenges challenges facing SMEs in adopting e-procurement in Tanzania?”

1.4.2. Specific Research Questions

i.

What What are are the the orga organi niza zati tion onal al int inter erna nall chal challe leng nges es of of e-pr e-proc ocur urem emen entt adop adopti tion on for for SMEs?

ii. ii.

What hat are are int interna ernall tech techno nollogic ogical al chal challlenge engess of e-pr e-proc ocur urem emeent adop adopti tion on for SMEs?

iii. iii.

What What are inter interna nall envi enviro ronm nmen enta tall chal challe leng nges es of e-pr e-proc ocur urem emen entt adop adopti tion on for SMEs?

1.5 Research objectives

The study is designed to achieve the following general and specific objectives.

1.5.1. The Main Research Objectives

The genera generall obje objecti ctive ve of the study study is to addre address ss the the

inte interna rnall chall challeng enges es faced faced by

organizations in implementing the e-Procurement .Secondly assess the internal challenge

















ii. To determine determine the the internal internal technological technological factors factors that that limit limit e-procureme e-procurement. nt. iii. To identify environment environmental al factors encountered encountered by organizations organizations related related to use of e procurement.

1.6. Significance of the Study

The researcher hope the study will be of benefit to the following: Business entities.

The findings from this study are expected to provide better understanding of the factors which hinders e-procurement adoptions in SMEs and other business entities. Academicians.

The findings of the study are also likely to help procurement academicians to discover issues which need research and actually carry out research on them. This will also add value to the body of knowledge in bridging the gap between theories and practices of the application of e-procurement in SMEs. Regulators and the government

The finding will provide useful understanding to SMEs and policy makers of the factors that are setback, supportive, influencing and accelerating the adoption of e-procuremnt Also they can be useful in developing countries context to increase conducive environment for adoption of e-procurement by SMEs The results of the study are likely to encourage the government and responsible authorities to take necessary action to address challenges facing the procurement practitioners so as to

















The research is a case study that will involve only few organizations which are based in Dar-es-Salaam Dar-es-Salaam.. And the topic of the study covers e-procure e-procurement ment and internal internal organization challenges for SMEs.

1.8 Limitations of the study

The limitations that hinder the researcher to conduct his study efficiently are:

(a)Time limit

The time provided for study is not enough to collect all the necessary information. The situation is worse because the researcher is a part time student who carries out his normal duties with his employer. In order to mitigate the effect of time constraint, the researcher has settled for a case study that will limit him to one organization within Dar-es-Salaam.

(b) Insufficient funds

The study will require a lot of money in order to obtain all the necessary data. Therefore, this financial constraint is likely to limit the amount of data and the area to be covered in the study. The choice of case study will also mitigate the effect that this constraint might have on the research.

















It is common for research assignment to come across potential respondent who are not willing to render cooperation to the researcher. Like in the case of confidentiality of information, the researcher will try hard to persuade the relevant unwilling respondents to cooperate.

1.8 Delimitations of the Study

The research is a case study that will involve only few organizations which are based in Dar-es-Salaam region Ilala District. Moreover the study was conducted at private business organizations and the topic of the study covers e-procurement. a branch of e-commerce and the study will focus only on internal organization challenges for adoption of e-procuremnt. Moreover the respondents or organizations involved were informed that the information would be used for only academic purpose and where necessary they will be provided with a copy of study findings. The researcher is also going to use different method of data collections to facilitate the exercise of data collection.



















2.0 Introduction Introduction

This chapter seeks to examine the existing literature about the challenges of e-procurement adoption for SMEs in Tanzania. The main focus of the study will be to analyze the challenges faced by organization as barrier to adopting the e-procurement.

2.1 Definitions of Terms Purchasing

Lyons and Gillignham Gillignham (203) define purchasing as” to obtain material material of right quality from the source delivery at the right time and at the right place. Mahan Mahanga ga (2001 (2001:9) :9) state stated d purc purchas hasing ing as the proce process ss of buying buying goods goods a proce process ss that that encompa encompasse ssess learning learning of or identif identifying ying the needs sourcing sourcing and selecting selecting a

suppli supplier er

negotiating price and other delivery terms and following up to ensure timely delivery. Dobber and Burt (1996:35) defined purchasing as all activities essentially associated with the acquisition of the service and equipment used in the operation of the organization.

















management and supply-chain management systems; and downward through the enterprise, for integration of new technologies with radically redesigned business processes

E-commerce

E-commerce covers outward-facing processes that touch customers, suppliers and external partners, including sales, marketing, order taking, delivery, customer service, purchasing of raw materials and supplies for production and procurement of indirect operating-expense items, such as office supplies. It involves new business models and the potential to gain new

revenue

or

lose

some

existing

revenue

to

new

competitors.

It's ambitious but relatively easy to implement because it involves only three types of integration: vertical integration of front-end Web site applications to existing transaction systems; cross-business integration of a company with Web sites of customers, suppliers or interme inte rmediar diaries ies suc such h as We Web-ba b-based sed mar market ketpla places; ces; and int integr egratio ation n of tec technol hnology ogy wit with h modestly redesigned processes for order handling, purchasing or customer service.

E-informing

















software, these orders ensure that materials will be available in time to begin production.

E-auction

An e-enabled opportunity to optimize the price you pay for the good or service being tendered. This is enabled in a real time open and transparent environment with clearly defined and

agreed start

and

finish times. It is is an an env environment wh where bot both th t he

buyer and seller have clear visibility of the bidding process but essentially it is an open environment where current or prospective sellers can bid for your business. The process is controlled by you and is subject to the rules of the game which are developed and agreed before the launch of the auction by all participating parties. The ultimate decision is also controlled by you, whether you accept the lowest bid or whether you take the final selection offline to satisfy yourself of supplier compatibility and fit with your business.

E-soucing

E-sourcing is the use of the Internet for the identification of new suppliers for a category of purchasing requirements. Otherwise known as reverse auctioning, e-sourcing is a method

















Lower administration costs, inventories and purchasing prices; shorter order-cycle time; enhanced cooperation with suppliers, suppliers, performance performance and multi-chain multi-chain operations (Croom, 2000; Sigala, 2003c). Goods

Section 3 of the PPA 2004 describes describes goods as raw materials, materials, product equipment and other physical objects of every kind and description whether in solid, liquid or gaseous form, electricity intangible assets and intellectual property, as well as services incidental to the supply supply of the goods, provided provided that the value of the service does not exceed the value of the themselves.

Works

PPA (2004) defined works as i.

all all works works asso associ ciat ated ed wit wit the cons constr truc ucti tion on,, recon reconst stru ruct ctio ion n demol demolit itio ion, n, repa repair irss or renovation of building structure, roads or air fields.

ii. ii.

any any other other civi civill work works, s, such such as sit sitee prepa prepara rati tion on , excav excavat atio ion, n, crea creati tion on,, build buildin ing g installation of equipment or material decoration and finishing

















Procuring entity: means a public body or any other body or unit established and mandated

by the government to carry out public functions. (PPA, 2004) Value in e-procurement.

Value Value of e-proc e-procure uremen mentt adoptio adoption n is defined defined in this study simply simply as benefit benefitss from from its implementation over costs. E-procurement adoption is justified only when the former are large enough to cover the latter.

Trust in e-procurement:

A great deal of activities in electronic commerce systems relies on trust. Relationship between buyer and supplier is a mix of mutual dependency and suspicion. 2.2 Analysis of Underlying Theories or models Globally Globally Challenges to adoption, adoption, as with any other new system fielding, push-back

from users, both internal users and even some vendors can create friction and resist the change change other other pote potenti ntial al barr barrie iers rs for for an effe effect ctive ive adop adopti tion on includ includes es risk risk,, uncertainty, uncertainty, inefficiencies inefficiencies from supplier supplier and catalogue-content catalogue-content readiness, cultural



















of e-procurement. This information is different from the results of studies done in United States of America (USA) public institutions which about 89% proved fruitful with regard to the use of e-procurement (Hughes, 2002, Paschal, 2007).This explain the value in e-procurement implementation in organization.

The study conducted on the challenge for ICT adoption includes high costs, technical literacy, poor software quality available in the market, lack of training and experience of ICT integration and inability of the organization to relate ICT investments to business value amongst other, thus needing immediate attention. From studies above the general

















knowledge of hospitality staff also positively affects ICT adoption and use (Sigala, 2003a), it is claim claimed ed that that e-pr e-proc ocur urem ement ent adop adopti tion on and and use by foods foodser ervic vicee firm firmss can can also also be influenced by staff’s knowledge on e-procurement. Innovation-related factors

Research Research on innovation revealed that the characteristi characteristics cs of innovation, innovation, as perceived perceived by the adopting firm, can crucially impact on its adoption (Rogers, 1983). Based on a meta analysis analysis of the technol technologi ogical cal innovat innovation ion literat literature ure concern concerning ing the characte characteris ristic ticss of innovations, Tornatzky & Klein (1982) identified relative advantage, compatibility, and complexity as innovation characteristics salient to the formation of the adoption attitude. Relative advantage is the degree to which an innovation is perceived as better and more

















can also be integrated with existing ICT, e.g. accounting, human resources, asset, cash, inventory management and production planning. • Exte Extern rnal al busi busine ness ss risk risks: s: e-pr e-proc ocur urem emen entt tool toolss need need to coop cooper erat atee with with exte extern rnal al constit constituenc uencies ies (custo (customer mers, s, suppli suppliers ers), ), who also also need need to develop develop internal internal system systemss for facilitating electronic communication. However, suppliers may be hesitant or even unable to meet such demands without guarantees of future revenue streams. Moreover, price reductions due to auctions and enhanced global online competition may force suppliers to reduce their quality and services.

• Technology risks: companies companies also fear the lack of a widely widely accepted standard and a clear

















Industry, market scope, competitive pressure and external IS support are considered to be factors that influence SMEs’ willingness to adopt e-procurent.

Definitions of SMEs differ across countries and industry sectors, and can be based on a variety of criteria, such as number of employees, invested capital and total value of sales. Howe However ver more more impo import rtant ant for for poli policy cy cons conside idera rati tions ons are are the chara characte cteri rist stic icss of these these businesses, which typically include ;( Small and medium enterprises Development policy 2002). SMEs all over in the world are known to play a major role in social economy development. Thi

is

ntl

the

of Ta

nia whe

SMEs SMEs

ibu

.Sig .Signif nifica icantl ntl

















Category

Employees

Micro Enterprises Small Enterprises

1-4 5-49

Medium Enterprises Large Enterprises

50-99 100+

Source: URT (Small and medium Enterprises Policy 2002)

Capital Investment(Tsh) Up to 5mil Above 5mil to 200mil Above 200mil to 800mil Above 800mil



















2.3 Analysis of empirical studies 2.3.1. From Abroad

















licencing licencing,and ,and market marketing ing agreem agreement ent,rae ,raesgha sghaping ping of busine business ss models models to strengt strength h the competitive performance of the industries. From the study conducted e-procurement adoption in Australia despite the great benefits of

















Within east African countries,Matambalya and Wolf (2003) in the survey conducted for SMEs in Kenya Uganda and Tanzania indicated a positive correlation between industry competitiveness and use of ICT.Regard less of the fact tha the focus of the study was on

















financial resource, improves availability quality reliability and cost public service and more importantly is an integral part of government process

















The conceptual framework explained above can be described in the model diagram.















































































































































































DRAFT-----PROPOSAL FOR MSc PROCUREMENT AND SUPPLY CHAIN MANAGEMENT.

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