Supply Chain Management: Tackling corruption in business procurement

This article first appeared in Enterprise, The Edge Malaysia Weekly, on January 13, 2020 - January 19, 2020.
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The prevalence of bribery and corruption in business procurement is something no company is immune to. Unlike the public purchasing system, indiscretions in the private sector supply chain often go undetected as private procurement mainly focuses on generating revenue. This typically results in less sustainable methods of procurement.

But this does not have to be the case anymore, says Thinesh Kumar Asogan, founder and CEO of Tenderin Sdn Bhd, the parent company of business-to-business procurement marketplace Lapasar.com.

Thinesh points out that such practices have continued to thrive as accessibility to vendors are limited due to the fact that the tender process is still being done manually. And sometimes, it is just a case of convenience as both parties have already built up good rapport. “Different divisions within large organisations may be buying at different prices purely on the basis that the procurement departments have relationships with different vendors,” he points out.

Another problem is the act of buying in excess, over-ordering or buying things at bloated prices, says Thinesh. He started Lapasar to address this lack of accessibility, convenience and visibility in purchasing for business purposes. “When we started Lapasar, we were very clear from the get-go that the first thing we wanted to solve was access,” he says.

For instance, a small company should have proper avenues to supply to large companies such as Tenaga Nasional Bhd or Telekom Malaysia Bhd (TM) if it has the right products and services, he adds. “This can only happen through a merit-based procurement process.”

Thinesh acknowledges that wanting to make the purchasing process completely merit-based may be a little idealistic because there are other factors that affect buying, besides corruption. “Good relationships, for example, have nothing to do with any illegitimate activity. It may simply be that the present vendor is good and the company does not want to risk a change. These relationships are tough to break because the

vendor was engaged based on merit,” he says.

The idea of launching the platform, which has been in operation since 2017, was sparked by Thinesh’s own experience of running a company that dealt in medical devices in 2012, while he was still in college.

“I ran that company until 2017, when I sold it because we faced a lot of challenges trying to get a foot in the door. That experience taught me a lot, especially the fact that we needed connections to bring a trading company to the next level. A major part of the business ecosystem is still about who you know and what sort of connections you have with large companies, which were hospitals in our case,” he says.

That challenge prompted him to explore ways to democratise the ecosystem. “We looked at how platforms such as Lazada and Shopee, which are purely merit-based, do it. If you are looking for a mobile phone, you will buy what is best for you, whether in terms of price or quality. That was missing in corporate procurement,” says Thinesh.

He and his team got cracking and designed a platform to connect buyers and sellers, giving vendors instant access to corporations. The companies can make immediate decisions based on the products, vendors’ delivery capabilities and their after-sales service, among others.

As the marketplace’s interface was something most people would be familiar with, they felt that companies could easily acquaint themselves with a similar mechanism. Corporations that have started using the platform include TM, Tenaga, Malaysia Airports Holdings Bhd, PLUS Expressways Bhd and UEM Group Bhd.

“Not all companies have issues with corruption. PLUS uses us because it does not want to stock and distribute items throughout the country. It wants office supplies, pantry supplies, tools and safety equipment just in time so it can avoid warehousing,” says Thinesh.

“Gibraltar BSN Life Bhd uses us because we are a single point of contact to handle vendors. We handle its customer support, sourcing and negotiation, among others.”

While he does not have concrete evidence, he assumes that a large portion of the private sector supply chain is still based on non-transparent practices. This cannot be weeded out overnight as it needs to be handled in a sensitive manner, he says.

“We provide the reference and comparison features that are common to business-to-consumer (B2C) marketplaces. To a B2C user, it makes a lot of sense. The side-by-side comparison helps one make an informed decision,” says Thinesh.

“But when you include this feature in a corporate environment, when a certain user in the company is not making the best-informed decision based on the parameters provided such as the vendors’ ratings,

delivery capabilities and their prices, we will actually flag the purchase and tell the approving party that this was not the best choice. It is up to the party to decide whether to proceed with the transaction.

“We do not stop the purchase outright. We just point it out subtly. We cannot take extreme measures because we are a business too. If we take a hard line, companies will prevent the implementation of Lapasar.”

Since the flagging feature was introduced, there has been more than a 15% increase in decisions changed. “That is how we know it has helped — by encouraging people to be more mindful of their purchasing decisions,” he says.

 

Setting competitive prices

To compel vendors to set the right prices and stay competitive, Lapasar shows the cheapest prices first, followed by offers that include free delivery. “Say I have been selling to Company A for RM6, but without free delivery for 20 years because I do not have any competition. However, if I see my competition doing it, it will give me the push to be more competitive,” says Thinesh.

“The free delivery logo is on every product for which vendors offer that service. This is to encourage purchases with the best decisions. It makes the whole transaction legit because you are already getting the best value.”

However, apart from convenience and being anti-corruption, large companies have other buying dynamics. “We cannot have a platform that just allows them to ‘add to cart, check out and pay’. We need to think about factors such as back-end governance. We figured that there are certain levels of approvals required, limits to authority, analytics reporting, budget checks — which steer individuals or companies from buying more than they need and overstocking — and much more,” he says.

To make transactions simpler, on top of working with large corporations, Lapasar also onboards their existing vendors. “We do not bother their existing vendors. When we go in, we onboard them. That is the priority when we get the commitment of a very big company,” says Thinesh.

“That sorts of gets them involved in the digital experience. At the same time, they still have their existing vendors.”

The hardest thing was getting purchasers to consider alternative vendors. “We are very aware of that. We cannot overhaul processes and entirely digitalise everything overnight. The companies will lose all of their old relationships. In the beginning, they continued to go back to their existing vendors. But we have seen that after three to four months of implementing Lapasar, they are considering other vendors,” he says.

“One of the added value that we provide corporates is that we are a single point of contact for everything — be it customer support, delivery, returns or refunds, sourcing or negotiating, we do it all for them.

“Say that in a particular category of products, there is only one vendor, the order will still go to that vendor. What a marketplace does is encourage the vendor to provide better service because now there is open competition.”

One of the risks of having an open marketplace is that it also provides an avenue to the buyer and seller to take the transaction offline. “If we had started out by dealing with small and medium enterprises, it would have been a definite risk, which is the reason we did not start with that segment. We went to corporates whose purchasing process is part and parcel of their in-house policy,” says Thinesh.

“To implement Lapasar, it has become a policy for them to purchase items on the platform. So, there is no such thing as placing some orders online and others offline.”

Now that the company has managed to successfully implement Lapasar, Thinesh and his team plan to bring transparency to the tender process. For most big companies, 80% of their purchases are handled through a contracting process while 20% of the remaining expenditure are indirect or non-core expenses. This is an area that Lapasar is addressing.

“But 80% of contracted spending or tenders are where most of the hanky-panky takes place. As we are a relatively new company, we cannot walk up to these corporations and ask them to trust us with the 80%. So, we focus on the 20% of the remaining expenditure,” says Thinesh.

“For example, for a telecommunications company, its fibre optics cable is direct expenditure while everything that supports that operation, such as safety equipment, furniture and stationery, is indirect expenses. If we create enough value in the next 12 to 24 months in the area of non-core spending, our next target will be contracted spending. This is where the opportunity to create real transparency happens.”

Contracted spending is still very much done manually, where companies call for tenders and vendors physically submit documents by clipping them to a tender box. This can be transferred entirely online, he says.

“Right now, after vendors drop their papers in the box, the companies open it in front of a committee during the biding stage. Then, they make a decision. But there are so many better ways to do this and there is no reason to have closed tenders anymore.

“In my opinion, anything that needs to be tendered out can be done openly. Put it in an environment where people cannot make uninformed decisions. Then, they are encouraged to make the right decisions.”