Reducing Transaction Costs through e-Procurement

1. Joint Cooperative Committee Reducing Transaction Costs through e-Procurement Sept. 2011 Kyungsoon Chang PPS South Korea

2. Quantitative Research System Integration Legislative Support Conclusion Ⅰ Contents Ⅱ Ⅲ Ⅳ

3. Ⅰ. Quantitative Research(’09) 1. Background Contribution to Low Carbon & Green Growth Review the Effectiveness of e-Procurement Feedback as Reference to Promote e-Procurement • New horizon towards sustainable procurement • Future vision of Korean Government • Fully implemented KONEPS since 2000 • One of the best practices for developing countries • Features: Centralized System/Single Window/One Stop Service • Legislative support for more stable operation

4. Ⅰ. Quantitative Research(’09) 2. Methodology Outsourcing to Research Academics Factors for Analysis in Process As-Was vs As-Is Goods/Services/Constructions End user/PPS/Supplier Carbon issue… Visiting & Paper Reduction

5. Ⅰ. Quantitative Research(’09) 3. Analysis in Process As-Was vs As-Is End User & PPS (Public) Supplier (Private) Goods Goods Services/Constructions Services/Constructions Savings in 6 processes Savings in 5 processes Savings in 8 processes Ex) Tender inquiry, propose to bid, bidding Ex) Tender inquiry, document submission, bidding Ex) Selection of contract method, tender notice

6. Ⅰ. Quantitative Research(’09) 4.Cost Reduction Analysis on Shopping Mall Statistics from DB of 2008 KONEPS Provide Analysis in Terms of Public vs Private, Agencies, and Processes Provide Analysis in Terms of Goods and Services, and Construction Survey from Users Focusing on Each Specific Factor Effect by Exempting Stamp Duty

7. Ⅰ. Quantitative Research(’09) 4.Cost Reduction Due to - Sharp increase in the number of bidders (’05)16m -> (’08)20m - Significant increase in use of the Online Shopping Mall - Increase in number of procurement - Decrease in costs of visit and officer in charge Public vs Private ● Total amount of reduction is about $8bn $ 8bn & 52m $1bn&440m from Pubic Sector $6bn&611m from Private Sector

8. Ⅰ. Quantitative Research 4.Cost Reduction Due to - The number of biddings inc onstruction works/service is 156,651 which is one sixth of purchasing (897,240) - The number of bidders in construction or service is 22 mil which is 44 times greater than that of goods Goods vs Services and Constructions $ 8bn & 52m $1bn & 364m from Pubic Sector $6bn & 688m from Private Sector

9. Ⅰ. Quantitative Research 4.Cost Reduction Low Carbon Green Growth Annual volume of carbon reduction through KONEPS is approx. 615,000ton/yr ●Reduction from decreased visit : 592,000ton/yr ●Reduction from paper savings : 23,000ton/yr ●Economic effect is $26m/yr applying trading price for Certified Emission Reduction of EU 615,000 = 50,000,000 30-year old pines absorb annually 615,000 = Emitted when producing 1 million tons of gasoline = = 5 folds of LG Chemical Ulsan factory 5,000,000,000 pine trees aged 30

10. Ⅱ. System Integration 1. The Problems • Wasted Budget Due to Independent • e-Procurement Systems • Single systems’ maintenance cost is $6.3 mil • Initial investment is $31mil • Independent Systems Use Information from KONEPS • The volume of contents in an individual system is only 28% • comparing to KONEPS • KONEPS is Mandatory in Special Purchasing • Suppliers have difficulties in accessing individual procurement • system and using them

11. Ⅱ. System Integration 2. Centralizing Centralize to KONEPS Others • Identify system operators who support centralized system • Upgrade system that covers specific needs from different agencies • Provide contents to independent operators • - supplier information, fingerprint recognition, etc. Survey from system operators - Investigate characteristics of each systems KONEPS updates are centralized On-going research project to check the feasibility of centralized system

12. Ⅲ. Legislative Support 1. Necessity • National Contract Law and Local Contract Law Stipulate Use of KONEPS • e-Procurement is stipulated in PPS notifications (12 in total) • Need Verification of Safety, Fairness, and Reliability • Groundwork for stable operation of the representative system • - Annual contract volume is $76bn • More stable platform for expanding e-Procurement • Expansion to the Public • Not only public sector but also private sector • Initiate e-Procurement support center

13. Ⅲ. Legislative Support 2. Main Contents for Legislation Procedures and Methods Open to the Public Expansion towards Other Countries • Stipulate procedures and methods of e-Procurement by public • agencies • Specify time limit of e-Documents sending and receiving • - effectiveness of e-Documents • Allow administrator of PPS to establish and operation KONEPS, • and to request information from heads of related organizations • PPS can provide support for international cooperation of • e-Procurement and the system’s expansion • PPS can establish e-Procurement support center • Private users can use the system upon permission

14. Ⅳ. Conclusion Prerequisites New Horizon Legislative Support • Single Window • Integrity • One Stop Service • Expand the base of e-Procurement • - Clarify rights and obligations of parties • Verify Stable operation and constant improvement • - Ten years of experience with KONEPS • Expand verified confidence and know-how to private sector • Cost reduction and value-added creation

15. Thank You